migration age and earnings the special case of employee transfers the regional relocation of workers within firms is examined this aspect of migration has received little attention in spite of the routine occurance of employee transfers the existence of such transfers suggests that a portion of each worker s human capital is employer specific and readily transferrable across locations thus a different age profile for transfers than that for conventional migrants may be expected specially a model of employee relocation and the consequences of relocation on post transfer earnings is examined

training and employee mobility in the british private and public sectors the realization of the value of training for employees can take time as the training contributes dynamically to an extended development process this research examines the empirical returns to training in three post training situations when the employee remains in the same job and with the same employer when the employee transfers to a different job but remains with the same employer internal mobility and when the employee moves to a different employer external mobility panel data and fixed effects fe methodology are used to quantify the joint effects of in job training and mobility while minimizing the potentially biasing effect of unobserved ability in a period when public sector employment in britain was contracting sharply the short term returns to training are nonetheless greater in the public sector while the medium term returns for both public sector and private sector employees depend on remaining within sector the general specific training mix institutional influences adverse selection and the concept of transferable training all contribute to interpretation

overeducation regional labor markets and spatial flexibility for most workers access to suitable employment is severely restricted by the fact that they look for jobs in the regional labor market rather than the global one in this paper we analyze how macrolevel opportunities regional market characteristics and microlevel restrictions the extent to which job searchers are restricted to the regional market can help to explain the phenomenon of overeducation we use a two step procedure to control selective access to employment the results show that the size of the labor market is an important factor in avoiding overeducation

on the job specific training and efficient screening employment relationships are governed by short term incomplete contracts and typically involve on the job screening and firm specific training this article studies a dynamic employment relationship with these features and identifies a potential conflict between the employer s twin objectives to screen and train the worker when the training technology is quite productive the employer may have to sacrifice from worker performance during the screening process the article thus offers an explanation for why firms may invest suboptimally on training which complements the standard inappropriable rents explanation based on ex post mobility of young employees

a mismatch made in heaven a hedonic analysis of overeducation and undereducation in this paper a hedonic pairing process is modeled in which some workers may be overeducated or undereducated as an equilibrium outcome of a dynamic labor market undereducated workers are those whose abilities and training permit them to move into a job with higher qualifications whereas overeducated workers are highly qualified workers who select into lower skill entry level jobs that provide the training or signal necessary for promotion the empirical model shows that these pairing types cannot be directly identified in a cross section since all workers are exactly educated during a portion of their career however pairing types may be imputed by comparing predicted and observed qualifications of the worker and predicted and observed requirements of the firm using a rich cross section and a panel of british working age males to identify the pairing types we confirm the predicted career development patterns with regard to on the job training promotion and wages

sectoral transformation and labour market flows in this chapter we examine the dynamics of adjustment in the labour market and in particular the movement of workers between industries it is often assumed that the speed with which the labour market must adjust has increased due to globalisation and or technological change if this is the case then these forces may be responsible for greater instability in the workplace the displacement of growing numbers of especially unskilled workers from declining sectors longer periods of unemployment and wage losses

the effect of worker mobility on compensating wages for earnings risk the effects of worker mobility on the payment of compensating wage differentials for earnings risk are examined previous research consistently finds compensating wages are paid to workers facing earnings uncertainty however job shopping models suggest that if workers have sufficient mobility they may prefer uncertain situations here simultaneous equations are estimated where both wages and worker mobility are endogenous to examine whether workers with greater uncertainty have greater mobility and whether workers with greater mobility receive lower compensating wage differentials results indicate that workers facing more uncertainty have a greater degree of mobility also workers with greater mobility receive lower compensation for income uncertainty although on average this compensation is positive these results are consistent with the traditional model predictions and supportive of job shopping models

educational mismatch and promotions to managerial positions a test of the career mobility theory abstractcareer mobility theory suggests that given a certain occupation schooling improves upward mobility in terms of promotion and wage growth we are the first to test the implications of this theory for over and undereducation by means of direct information about promotions to managerial positions using german administrative data entailing an employer reported and hence objective measure of educational requirements we show that overeducated workers are indeed more likely to be promoted and that this career mobility advantage is more pronounced in the early stages of their working lives by contrast undereducated workers are less likely to be promoted to managerial positions moreover in terms of wage growth while overeducated workers benefit more undereducated workers benefit less from promotions than their well matched educational peers altogether these findings strongly support the career mobility theory furthermore by differentiating between internal and external promotions we prov

taxing and regulating vices we study the optimal taxation and regulation of sin goods goods that are enjoyable to consume but also create future negative health consequences within a setting in which individuals are time inconsistent and thus consume too much regulation makes the consumption of sin goods less pleasurable and taxation involves administrative and compliance costs in contrast to previous literature we find that regulation can be beneficial even when corrective taxes are available and individuals are homogeneous moreover despite the inefficiencies associated with the use of both instruments the consumption of the sin good might fall short of the first best the results are robust to consumers heterogeneity

the link between ability and specialization an explanation for observed correlations between wages and mobility rates wage levels and turnover rates are negatively correlated across types of employment and this fact is often interpreted as evidence that high wage jobs are rationed a simple training model illustrates however that this correlation may arise because able workers have an incentive to choose highly specialized jobs in any job the most able workers possess the most valuable stocks of specific skills and therefore face the highest mobility costs thus able workers may have a comparative advantage in specialized employments data from the national longitudinal survey of youth provide an opportunity to evaluate the merits of the training model developed here data on worker training and mobility provide support for several implications of the model the model also provides new ways to interpret existing results in the literature on interindustry wage differentials

corrective taxation versus liability as a solution to the problem of harmful externalities abstractalthough the corrective tax has long been viewed by economists as a desirable remedy for the problem of harmful externalities its actual use has been limited mainly to the domain of pollution liability in contrast has great importance in controlling harmful externalities i compare the tax and liability in theory and suggest that the conclusions help explain the observed predominance of liability over taxation except in the area of pollution the following factors are emphasized inefficiency of incentives under taxes when the state cannot practically take into account all variables that significantly affect expected harm efficiency of incentives under strict liability which requires only that actual harms be measured efficiency of incentives under the negligence rule administrative cost advantages of liability deriving from its being applied only when harm occurs and dilution of incentives under liability when suit is unlikely or injurers cannot pay fully for harm

mismatch in the spanish labor market overeducation the objective of this article is to explain the job match which is assessed by comparing attained education and job required education as reported by workers we frame our empirical work according to the occupational mobility theory using a cross section of workers from a representative survey of the spanish labor force we consider overeducated workers to be those who report that the level of education their jobs require is below the level of education they have attained our results indicate that overeducated workers have less experience decreased on thejob training and higher turnover than other comparable workers we also observe an improvement in the job match over age and mobility

promotion turnover and discretionary human capital acquisition this article explores human capital acquisition decisions when job placement helps determine competition for a worker with asymmetric information workers may invest in firm specific capital without long term contracts specific investment increases promotion chances and hence wage competition shifting competition back to a time when firms are symmetrically uninformed if general human capital is the efficient output maximizing investment then an equivalent firm specific investment maximizes expected career wages this is a general result for sellers in second price auctions sellers of labor invest to maximize the expected second highest bidder valuation wage not the winner s expected valuation

employer learning statistical discrimination and occupational attainment statistical discrimination plays a prominent role in theoretical discussions of the return to education as well as race and gender differences building on some earlier work by henry farber and robert gibbons 1996 hereafter fg and others on employer learning in the labor market altonji and pierret 2001 hereafter ap provide a test for statistical discrimination in an environment in which firms are learning about characteristics of workers over time however that model assumes that the rate at which employers learn about a given worker is independent of the type of job that he or she is in consequently the ap framework cannot readily be used to study statistical discrimination in hiring or how statistical discrimination and employer learning influence the skill level of the initial occupation and progression over a career in this paper i extend the ap analysis in three key respects first as in robert gibbons et al 2004 the sensitivity of output to worker skill is assumed to depend on the skill level of the job second the rate at which employers learn about the worker s skill is assumed to depend on the skill level of the job finally the probability of being hired into a given job depends on expected productivity relative to the wage i show that statistical discrimination influences initial employment rates wage levels and job type and that employers initial estimate of productivity influences wage growth even in an environment in which access to training is not an issue the implication is that the market may be slow to learn that a worker is highly skilled if the worker s best early job opportunity given the information available to employers is a low skill level job that reveals little about the worker s talent i close with a brief discussion of directions for empirical work suggested by the analysis

overeducation undereducation and the theory of career mobility the theory of career mobility sicherman and galor journal of political economy 98 1 169 92 1990 claims that wage penalties for overeducated workers are compensated by better promotion prospects sicherman journal of labour economics 9 2 101 22 1991 was able to confirm this theory in an empirical study using panel data however the only retest using panel data so far robst eastern economic journal 21 539 50 1995 produced rather ambiguous results in the present paper random effects models to analyse relative wage growth are estimated using data from the german socio economic panel it is found that overeducated workers in germany have markedly lower relative wage growth rates than adequately educated workers the results cast serious doubt on whether the career mobility model is able to explain overeducation in germany the plausibility of the results is supported by the finding that overeducated workers have less access to formal and informal on the job training which is usually foun

up or out rules in the market for lawyers we examine how up or out rules operate as a screening device in the market for lawyers using data on large new york law firms we show that firm growth is a slow and uncertain process because performance as an associate is not an especially informative signal about whether a lawyer will make a good partner and because the costs of mistaken promotion are relatively high a newly hired associate is unlikely to be a suitable partner and the screening process is relatively imprecise firm growth therefore contributes between 5 7 of the present value of profits of a law firm

overeducation job mobility and earnings mobility among holders of first degrees abstractovereducation has been researched extensively for nearly three decades but some major issues in regard to it are still topics of ongoing debate by using a panel data that combines a survey of two cohorts of israeli first degree holders and data from administrative sources on jobs and wages we examine the contribution of job turnover cognitive abilities and continuing graduate studies to the likelihood of overeducation and wage dynamics the study produces four main findings first rapid job switching makes a negative contribution to the increase in employee s wage and there is a negative correlation between two variables an employee s tenure and the number of past employers in the years after the completion of degree studies and the probability of being overeducated second the contribution of the individual s cognitive abilities and quantitative reasoning skills to the likelihood of becoming overeducated is negative third the wages of overeducated employees are some 11 lower and ris

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here

an analysis of occupational upgrading differentials between black and white males the racial occupational mobility gap is examined by applying a decomposition methodology to logistic functions results indicate that approximately one third of the mobility gap between black and white male workers is due to differences in average characteristics the endowment effect the residual difference accounts for the remaining two thirds formal education is found to be a major component of both the endowment effect and the resdiual difference the returns to tenure with a firm overall labour market experience and marriage reduce the mobility gap in favour of black workers

a theory of career mobility this paper analyzes theoretically and empirically the role and significance of occupational mobility in the labor market focusing on individuals careers it provides additional dimensions to the analysis of investment in human capital wage differences across individuals and the relationships among promotions quits and interfirm occupational mobility it is shown that part of the returns to education is in the form of higher probabilities of occupational upgrading within or across firms given an origin occupation schooling increases the likelihood of occupational upgrading furthermore workers who are not promoted despite a high probability of promotion are more likely to quit

learning your comparative advantages we introduce an equilibrium labor market model where workers gradually learn about their unobserved production abilities while engaged in a productive activity occupation workers observe their output and extract information that allows them to make inferences about their unobserved aptitudes because workers are learning about themselves their output informs them not only about their productivity in their current occupation but about their likely productivity in other occupations as well as workers acquire more information they self select into the occupations in which they expect to perform best and their wages increase returns to experience here capture improved job selection by workers as they sort through occupations and learn

occupational mobility in england this paper examines evidence on occupational movement in england using data from the new earnings panel dataset although most occupations are characterized by a high degree of immobility there is some evidence of an increase in occupational mobility between 1990 and 1994 using a compound poisson modelling approach for count data combined with a gravity model the paper investigates the incentives and constraints upon aggregate movement between occupations over two time periods 1985 90 and 1990 94 results suggest that the responsiveness of movement into a wide range of occupations as a result of a rise in wages is relatively elastic for males and relatively inelastic for females the paper also demonstrates that significant barriers to movement exist which either prevent a response to market signals or inhibit the extent of that response

interpreting panel data on job tenure tenure responses in the panel study of income dynamics psid and the national longitudinal surveys are often inconsistent with calendar time these inconsistencies pose special problems in the psid because job changes cannot be identified directly so researchers must infer them from error ridden tenure data we use alternative rules for partitioning psid data into jobs and then estimate several wage and mobility models to assess the sensitivity of parameter estimates to the partitioning method we also assess the importance of replacing raw tenure data with imputed measures that are internally consistent

the u shapes of occupational mobility using administrative panel data on the entire danish population we document a new set of facts characterizing occupational mobility for most occupations mobility is u shaped and directional not only low but also high wage earners within an occupation have a particularly large probability of leaving their occupation and the low high earners tend to switch to new occupations with lower higher average wages exceptions to this pattern of two sided selection are occupations with steeply rising declining productivity where mainly the lower higher paid workers within this occupation tend to leave the facts conflict with several existing theories that are used to account for endogeneity in occupational choice but it is shown analytically that the patterns are explained consistently within a theory of vertical sorting under absolute advantage that includes learning about workers abilities

optimal mismatch and promotions i introduction a substantial proportion of workers are employed in jobs for which they appear to be either overqualified or underqualified for instance using data from the panel study of income dynamics sicherman 1991 finds that 40 percent of his sample are overeducated and another 16 percent are undereducated rumberger 1987 reports similar values using data from the quality of employment surveys other studies which find substantial education mismatch include duncan and hoffman 1981 verdugo and verdugo 1989 and hersch 1991 and evidence that a single firm hires both under and overqualified workers is presented here this paper provides an explanation for why firms hire both overqualified and underqualified workers firms hire overqualified workers because these workers require less training for their initial positions such workers also form a pool from which promotions are made which lowers hiring costs for higher level positions within the firm workers accept positions for which they are overqualified to enhance their probability of promotion and because of search and mobility costs but if they fail to be promoted to a position that better matches their qualifications they are more likely to quit firms hire underqualified workers despite their longer training requirement since such workers are less likely to quit and provide continuity of the labor force over time thus contrary to job matching arguments that would explain these hires as a result of imperfect information hiring of seemingly mismatched workers is optimal and these matches are made with perfect information the model developed in this paper yields three testable hypotheses 1 training time for entry level jobs is inversely related to overqualification at the time of hire 2 workers who are overqualified on their current job are those who have failed to be promoted to a job which better matches their qualifications and such workers are more likely to quit and 3 workers overqualified at time of hire are more likely to be promoted to test these hypotheses i use new data collected for this purpose previous empirical research such as that cited above was restricted by data availability to examining only the match between education and the worker s current job thus the quality of the match with the worker s initial job and the match between worker qualifications other than education has gone unexplored however various worker characteristics in addition to education are often substituted for each other in determining a worker s qualification for a job thus i examine additional qualifications including the match between the worker s experience level of previous job and use of skills information on the match between the worker s qualifications and those required for the initial job with the employer is particularly important since entry level qualifications determine training time for the initial job as well as the likelihood of promotion further individual specific training time for the initial job is necessary but typically not available since data sets providing information on training such as the panel study of income dynamics and quality of employment surveys request information on training time for the average worker and not for the individual worker the data set reveals several interesting statistics qualification mismatch at hire is fairly common for this firm 29 percent of the sample report themselves overqualified for their first job with the firm while 13 percent report themselves as underqualified lateral intra firm mobility is common and occurs far more frequently than promotions workers in the sample average 1 3 promotions but four different jobs with the employer this suggests that the job matching process occurs not only by turnover but through intrafirm mobility consistent with the assumptions and implications of the model the empirical results indicate that workers who are overqualified at hire receive less training and more promotions and that workers overqualified for their current job are more likely to quit

job mismatches and career mobility does over education assist or hinder occupational advancement career mobility theory hypothesizes that over education leads to a higher level of occupational advancement and wage growth over time

overqualification permanent or transitory this article analyses job mismatches in switzerland based on a subjective measure of overqualification according to job search and job matching theories overqualification is a transitory problem other theories show that overqualification can also be of a permanent nature we test the perpetuity of overeducation using panel data from the first eight waves of the swiss household panel shp covering the period 1999 to 2006 our empirical analysis reveals little evidence for lasting rigidities that would cause permanent job mismatches rather spells of overqualification are relatively short about half of all individuals who were overqualified in a given year had an adequate job match 1 year later while a short duration of overqualification would be consistent with job search and job matching theories our observation that the probability of a job mismatch does not significantly decrease with experience is at odds with these theories our article provides an alternative explanation for this phenomenon

overeducation undereducation and asymmetric information in occupational mobility due to short term asymmetric information overeducated and undereducated workers are shown to have different optimal strategies in seeking upward occupational mobility into their next positions undereducated workers typically have other human capital strengths but these strengths are not marketable to outsiders overeducated workers typically have other human capital weaknesses that are not apparent to outsiders while their excess schooling is marketable in labour markets with dynamic asymmetric information this article presents empirical evidence showing that job tenure increases the probability of upward occupational mobility more if individuals are undereducated moreover the probability of finding upward occupational mobility is increased by overeducated workers engaging in firm switching this article also validates prior empirical studies finding overeducated workers more likely to self report engaging in firm switching activities and more likely to experience upward occupational mobility than o

promotion turnover and compensation in the executive labor market this paper develops a generalized roy model with human capital accumulation moral hazard and career concerns we identify and estimate the model with a large panel that matches data on publicly listed firms to information on their executives the structural estimates obtained are used to decompose the firm size pay gap we find that although total compensation and incentive pay increase with firm size certainty equivalent pay decreases with firm size in larger firms and for more highly ranked executives weaker signal quality about effort results in higher risk premiums this risk premium accounts for roughly 80 percent of the firm size gap in total compensation larger firms are also willing to pay more than smaller ones to attract executives finally the estimated coefficients on human capital accumulation from formal education and experience gained from different firms are individually significant but their collective effect on firm size pay differentials nets out

skill gaps skill shortages and skill mismatches evidence and arguments for the united states concerns over the supply of skills in the u s labor force especially education related skills have exploded in recent years with a series of reports not only from employer associated organizatio

the cost of corruption in the italian solid waste industry the article investigates the link between corruption and efficiency using a rich micro level data set on solid waste collection activities in 529 italian municipalities observed over the years 2004 2006 to test the impact of corruption on cost efficiency we estimate a latent class stochastic frontier model accounting for technological heterogeneity across units the results of our estimates show that corruption significantly increases inefficiency a finding that is robust to the inclusion of alternative local corruption indicators and other control variables such as geographical demographic and political factors finally we find that the impact of corruption tends to be greater in the southern regions of the country and in those municipalities that are less involved in recycling activities

overeducation in the labor market this article examines the reasons for the observed discrepancy between workers actual and required levels of schooling and the resulting differences in returns to schooling overeducated workers are found to be younger and to have lower amounts of on the job training than workers with the required level of schooling they also have higher rates of firm and occupational mobility characterized by movement of higher level occupations the findings suggest that overeducation can be explained by the trade off between schooling and other components of human capital and by the mobility patterns of overeducated workers

foreign capital and gender differences in promotions evidence from large brazilian manufacturing firms proquest denotes formulae omitted widespread consensus asserts that occupational segmentation is the chief determinant for gender differences in wages in the brazilian labor market see for example oliveira 2001 although women represent 39 percent of the formal workforce in brazil they amount to only 23 percent of the employees in the sectors that pay relatively higher wages in 2004 as well the predominance of segmentation increases if one restricts attention to managerial positions of which women hold only 14 percent this suggests that limited promotion prospects for women in the brazilian job market may present barriers to their promotion to the upper rungs of the corporate ladder this paper contributes to the literature by examining data from the larg est firms of the brazilian manufacturing industry in particular our goal is to determine whether obstacles to women s ascension exist by tracking the amount of time it takes for a woman to get a promotion to a managerial posi tion the aim is to complement the literature on gender differences in promo tions whose papers mainly focus on computing the promotion rates time to promotion offers a different angle in that samples with a large time span could well present similar likelihoods of promotion for both genders even if the promotion durations are different we construct the duration variable by following from january 1996 to december 2005 every individual who enters the annual report of social information rais database between january 1991 and december 1995 we denote as nonpromoted the individuals who do not obtain a promotion to a managerial position within the sample that is the right censored observations whereas we assign duration zero to the workers who already are in managerial positions in january 1996 accordingly we label as promoted the individuals within our sample who rise to a managerial position that is those with uncensored positive durations investigating dif ferences in promotions is particularly difficult because observationally simi lar male and female workers may display equal promotion rates and durations even in the presence of gender differences for example promotions may differ in quality as far as we know this is the first study to examine gender differences in promotions using microdata from a developing country apart from the obvious interest in finding whether the main stylized facts hold in a latin american country we were also motivated by the quality and availability of the brazilian data in contrast to the many studies that employ data from individual firms see for example cabral ferber and green 1981 gerhart and milkovich 1989 baker gibbs and holmstrom 1994 our study relies on a homogeneous sample of recently hired workers from the brazilian manufac turing industry in the period from 1996 to 2005 our data set is particularly convenient first the data include a wide array of controls for worker and firm characteristics second unlike blau and devaro 2007 we observe multiple workers per establishment at different occupations and hierarchical levels as well as their career paths in terms of occupation and wage a potential limi tation is that our data set does not include any direct measure of on the job productivity and hence we must come up with indirect controls interestingly we find that there are significantly fewer gender differences in the time to promotion within foreign owned firms than within domestic firms in the brazilian manufacturing industry our findings complement to some extent the literature on the differences between multinationals and domestic firms doms and jensen 2006 greene and others 2009 as well as the evidence that gender differences may depend on the nature of the firm 1 we argue that such gender differences are consistent with statistical discrimi nation and self selection we reason as follows suppose there are relatively more women than men who prefer to dedicate more time to their family than to their careers

overeducation undereducation and the british labour market this paper addresses the issue of overeducation and undereducation using for the first time a british dataset which contains explicit information on the level of required education to enter a job across the generality of occupations three key issues within the overeducation literature are addressed first what determines the existence of over and undereducation and to what extent are over and undereducation substitutes for experience tenure and training second to what extent are over and undereducation temporary or permanent phenomena third what are the returns to over and undereducation and do certain stylized facts discovered for the us and a number of european countries hold for britain

empirical analysis of occupational hierarchies using data on u s engineers and the position of engineering jobs within firms this paper estimates a model of hierarchies within firms the model extends rosen s 1982 model of recursive production to two skills and multiple hierarchy levels the model generates an empirical model that is nested within a general roy 1951 model of self selection maximum likelihood estimates of the parameters of the production technology and the skill experience profiles are estimated the results suggest that approximately two thirds of changes in employment shares across hierarchy levels across time are explained by demographic shifts in the stock of engineering skills most of the returns to experience and to assignment to higher hierarchy levels within firms are caused by skill accumulation and self selection rather than technological dierences across hierarchy levels

career paths and quit decisions evidence from teaching conventional models predict that workers consider employment opportunities and monetary rewards expected over their lifetimes when making current period decisions such as whether to quit a job this article tests the hypothesis that later career opportunities affect quit decisions by examining the relationship between teaching and school administration evidence on the extent to which administrative positions are available to teachers and the salary premia associated with them is presented discrete time logit hazard models of teacher quits estimated using data from new york state provide some support for the hypothesis though the magnitudes of the estimated effects are small

corrective taxation versus liability have been emphasized as a means of control of activities that generate harm especially in the domain of pollution yet their use is in fact lim ited robert n stavins 2003 in contrast liabil ity has great importance in reducing harm much of the vast terrain of accidents from oil spills to crane mishaps to car collisions is subject to liability but not to taxation i here compare cor rective taxation to liability in two versions of a model with a view toward shedding light on the difference in their application 1 in the first version the danger from an injurer s activity depends on factors that vary among injurers for example the probabil ity and seriousness of an oil spill due to an oil tanker accident will depend on the strength of the tanker s hull and the vulnerability of fishing activity and tourism to a spill and the expected harm from a crane accident will depend on char acteristics of the crane and the exposure to risk of nearby buildings and passersby i assume that it is impractical for the tax to be based on many such variables and for simplicity that the tax is a function only of an injurer s level of activity amount of oil transported number of uses of a crane hence the tax will not induce injurers to choose their levels of activity optimally under liability an injurer who is sued is pre sumed to pay for the harm that occurs 2 thus if suit for harm were always brought an injurer s expected liability would equal expected harm so that injurers would choose optimal levels of activity further this would occur without the state s needing information about the danger of activities to impose liability requires only that the state determine the harm that eventuates the state need not gauge the risk of an oil spill it need only measure the harm from a spill that occurs however it is assumed that suit is not always brought for harm may be hard to trace to its author and it may be too low to make suit worthwhile consequently expected liability will be less than expected harm3 and levels of activity will be excessive it follows that an assessment of the tax versus liability depends on a comparison of the ineffi ciency of the tax caused by variation in the dan ger of activities with the inefficiency of liability caused by escape from suit joint use of taxation and liability is also considered it is shown that liability should be imposed to the complete extent injurers who are sued should pay for the entire harm but under a general condition the tax should be less than expected harm in essence liability should be employed fully because it creates a more effi cient incentive than taxation the tax should be