sheepskin effects in the returns to education some previous discussions have dismissed screening theories of education partly on the ground that diploma years of education do not confer especially large earnings gains similarly most empirical research on earnings functions has assumed an absence of sheepskin effects we report evidence however of substantial and statistically significant sheepskin effects although this suggests that the previous dismissals of the screening hypothesis were premature our evidence of sheepskin effects is amenable to nonscreening interpretations also according to screening theories of education individuals with more schooling tend to earn more not because or at least not solely because schooling makes them more productive but rather because it credentiates them as more productive a frequently cited article by layard and psacharopoulos 1974 however dismissed the importance of the screening hypothesis on the grounds that several of its refutable predictions were not supported by available evidence one of these was the sheepskin prediction that wages will rise faster with extra years of education when the extra year also conveys a certificate after surveying a number of studies layard and psacharopoulous henceforth lp concluded that rates of return to dropouts are as high as to those who complete a course which refutes the sheepskin version of the screening hypothesis since publication of the lp paper an undergraduate labor economics textbook has cited lp s analysis of sheepskin effects as telling criticism of the screening hypothesis a prominent proponent of the screening hypothesis riley 1979 has accepted lp s summary of the empirical evidence but responded that some versions of the screening hypothesis do not imply sheepskin effects in the meantime the ongoing flood of empirical research on earnings functions typically has continued to treat the natural logarithm of the wage rate as a linear or occasionally quadratic function of years of education with no allowance for discontinuities in diploma years 2 the estimated rates of return used by lp were based on data that did not disaggregate dropouts earnings by how many years of school they had completed lp acknowledged we would have preferred to show the earnings gain associated with each year of the course including the year when it was successfully completed this note presents a reanalysis of sheepskin effects based on the type of data lp wished they had the results contain very strong evidence of sheepskin effects after all the next section describes our analysis and the following section summarizes and discusses our

insecure alliances risk inequality and support for the welfare state popular support for the welfare state varies greatly across nations and policy domains we argue that these variations vital to understanding the politics of the welfare state reflect in part the degree to which economic disadvantage low income and economic insecurity high risk are correlated when the disadvantaged and insecure are mostly one and the same the base of popular support for the welfare state is narrow when the disadvantaged and insecure represent two distinct groups popular support is broader and opinion less polarized we test these predictions both across nations within a single policy area unemployment insurance and across policy domains within a single polity the united states using a new survey results are consistent with our predictions and are robust to myriad controls and specifications when disadvantage and insecurity are more correlated the welfare state is more contested hy do citizens support the welfare state the answer remains as elusive as the question is fundamental we know that patterns of public support vary greatly across nations and domains of social policy we also know that these differences are associated with variations in levels of spending and program generosity brooks and manza 2006a 2006b 2007 kang and powell 2010 svallfors 1997 2004 yet there has only been limited effort to explain why patternsofpublicsupportvary thatis whyaggregatepublic support polarization of opinion and the breadth of opposition to the welfare state differ across societies and social policy areas in this article we develop such a proposition distinguish it from other leading claims and show that it finds strong confirmation not only in cross national analysis but also when examining popular support for different social policies within the united states the proposition is that the structure of support for the welfare state varies with the joint distribution of economic disadvantage low income and economic in

career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

is the efficiency wage efficient the social norm and organizational corruption the effectiveness of efficiency wage incentives is often jeopardized by perverse organizational corruption we model organizational corruption as a phenomenon of social interaction and relate the substantial psychological role characterizing the social norm to the corruption problem we find that if the status quo bribery rate within the firm is high social norms can no longer serve as a sufficient sanction against a corrupt supervisor pandemic organizational corruption tends to generate a critical mass effect the snowball effect which intensifies the corruption effect this intensified effect due to the snowballing character of social norms may more than offset the usual incentive effect of wages resulting in more widespread shirking in the firm jel classification d82 j41

blame game politics in a coalition government abstract delays in the adoption of reforms is an important question in political economics this paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision making process nor politicians preferences for a reform we show that a coalition member who favors a reform may nonetheless choose to veto its adoption thus delaying it until after the next election and let his coalition partners share the blame for the non adoption we refer to this strategy as blame game politics we then identify three reasons for a politician to play the blame game one is to make an issue salient in the next election a second reason is to avoid a split in his electorate which is accomplished by hiding his stance on an issue a third reason is to enhance bargaining power during the formation of the next government

self selection and the efficiency of tournaments when exogenously imposed rank order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance bull schotter and weigelt 1987 however since the efficiency of performance related pay is attributable both to its incentive effect and to its selection effect among employees lazear 2000 it is important to investigate the ex ante sorting effect of tournaments this paper reports results from an experiment analyzing whether allowing subjects to self select into different payment schemes helps in reducing the variability of performance in tournaments we show that when the subjects choose to enter a tournament the average effort is higher and the between subject variance is substantially lower than when the same payment scheme is imposed sorting is efficiency enhancing since it increases the homogeneity of the contestants we suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay

the efficiency of equity in organizational decision processes it is now widely accepted that rent seeking anne krueger 1974 or directly unproductive profit seeking jagdish bhagwati 1982 may cause inefficiencies in the context of public sector decisions the possibility that government decisions for example about taxes quotas franchises or standards may create or redistribute rents induces private parties to spend valuable resources to influence that distribution even when such expenditures carry no social benefit moreover the social cost of rent seeking can exceed the value of the resources spent trying to gain and protect rents for example because the fear of losing wealth through redistribution reduces the incentives for wealth creation treating rent seeking activities as characteristic of public sector decision processes ignores the fact that similar phenomena are to be found in firms unions and other private sector organizations our recent work milgrom 1988 our 1988 1990 papers attempts to identify the advantages of decision processes private or public that permit rent seeking and to incorporate these into a cost benefit analysis of optimal decision processes our work begins with an analysis of why rents and quasi rents arise in organizations and of the forms that the rent seeking they engender may take some measures to insulate the decision process from rent seeking such as limits on the provision of information by interested parties or restrictions on the range of options considered may degrade the quality of decisions especially by blocking the flow of valuable information optimal decision processes balance the costs of rent seeking against the value of information obtained several aspects of the rules affect the opportunities that members have to spend resources trying to alter the distribution of rents to ascertain the possibilities for rent seeking the analyst must ask questions like can the parties propose new initiatives at any time can they give volumes of testimony in a form of their own choosing can they appeal adverse decisions are decision makers obliged to respond to the parties initiatives is the range of actions that they can take in response relatively broad rather than being tightly constrained by property rights or other formal rules more affirmative answers to these questions lead to more opportunities or greater incentives for costly rent seeking as a kind of shorthand we call decision processes that have more of these elements more open processes the very elements that make a process open to rent seeking may also add flexibility and responsiveness helping to ensure that important ideas and proposals are fully considered from this perspective the benefits of openness can in principle be measured by a value of information calculation in the usual manner of statistical decision theory weighing the costs and benefits it follows that a more open process is more desirable when the rents available for redistribution are low and the value of the information that might be acquired is high conversely when the potential for redistribution is high and the value of information is low the optimal decision process is less open this kind of reasoning helps to illuminate the variations in the decision processes that are found in many organizations we have discussed a number of examples in our earlier work including the characteristics of personnel departments the contrasting patterns of decision making employment and compensation in u s and japanese firms professor of economics stanford university and jonathan b lovelace professor of economics graduate school of business stanford university stanford ca 94305 respectively this work was supported by the national science foundation

cheating in contests i introduction competition to win the rewards attendant to ranking first in a contest motivates effort or performance by agents in all manner of tasks of course competition is also often valued for its own sake as well as for eliciting output from the contestants as evidenced by the popularity of activities as diverse as sports poker tournaments singing contests and the plethora of reality television programs featuring a contest to be the last contestant standing at the end of the season virtually every contest is characterized by rules sometimes implicit regarding acceptable and unacceptable behavior executives within a firm compete for promotion based on their performance but accounting fraud violation of government regulations or simply unprofessional or unethical business conduct unacceptable to the firm may disqualify an individual athletes may cheat by using performance enhancing drugs or banned equipment e g a corked baseball bat firms in a rent seeking contest may go beyond legal forms of buying political influence lobbying to unacceptable bribery wherever competition motivates a desirable activity or productive effort it may also motivate undesirable and therefore prohibited behavior that is cheating that the organizer of the contest must attempt to police if enforcement is sufficiently costly and imperfect cheating will play a role in this article we model cheating behavior in a symmetric rank order tournament contest we ask how the degree of cheating responds to the parameters of the tournament e g the payoff spread the distribution of the random component of output the probability of being caught cheating and the number of contestants and we identify how particular aspects of the design of contests affect cheating since the pioneering work of lazear and rosen 1981 nalebuff and stiglitz 1983 o keeffe viscusi and zeckhauser 1984 and others a large body of literature has modeled the incentives of agents in contests or rank order tournaments the distinguishing features of these models are that contestants are compensated based on the rank of their output compared with others rather than the level of output compensation levels or prizes are set in advance and output or rank is determined by a combination of costly effort and random noise the somewhat distinct literature on all pay auctions differs in that no random component contributes to the outcome and therefore equilibrium behavior may be characterized by mixed strategies see e g baye kovenock and de vries 1996 baye and hoppe 2003 discuss the strategic equivalence of rent seeking innovation and patent race games which are all essentially contests in which each player expends resources in an attempt to win a prize however to our knowledge there have been only limited efforts discussed below to model contestants incentives to cheat in models of contests in our model cheating is deterred through a random audit or inspection process cheating increases a contestant s output but the more a contestant cheats the more likely his cheating will be detected in the event an audit occurs many of the results of our model are quite intuitive the extent of cheating decreases as the probability of detection grows the degree of the randomness increases or the penalty if caught cheating increases however several results are surprising we find that although increasing monitoring intensity drives down the level of cheating it may decrease productive effort in the contest this occurs because effort falls if it becomes more likely that the effort will not determine the outcome and when monitoring is increased from a low level this increases the probability that the outcome of the contest is determined by disqualification we find that the level of cheating is reduced when a contestant can win by default that is if the discovery of cheating on the part of the contestant who finished first results in the next highest ranking contestant winning by default the incentive to cheat is weaker than if no prize is awarded when the top ranked contestant is found to have cheated

one sided elasticities and technical efficiency in multi output production a theoretical framework one of the concepts that have sparked considerable interest in the theory of production and efficiency is that of returns to scale rts economics researchers typically define rts using the notion of elasticity considerable research activity on rts has also been observed by management science researchers who utilize the methodology of data envelopment analysis dea to gain insights on rts in this paper we present a theoretical framework that integrates existing economics and management science literature on rts and provides a solid foundation for research work in this area our framework defines discusses and proposes an approach to measure input and output oriented elasticities and one sided rts we demonstrate how the work done in dea is a special case of our framework and discuss the conditions under which the resulting two left hand and the two right hand elasticities can be equal future research directions are also discussed

promotions and incentives in partnerships evidence from major u s law firms this paper develops a model of promotions in partnerships and estimates the model using cross sectional data on major u s law firms promotions to partner screen associates for firm specific skills and they generate tournament incentives among associates competing for promotions the key parameters of the model are estimated by imposing the equilibrium restriction that firms offer equal utility to incoming associates the incentive component of compensation is found to be statistically significant and a nested model without promotion

strike coordination and dismissal in uniform wage settings abstract we study a gift exchange game with 12 employees and one employer when the employer can offer individually differentiated wages in a setting without collective action we observe high levels of wages effort choices and total earnings when the employer is restricted to offering a uniform wage trust and reciprocity drop dramatically due to widespread shirking the stepwise introduction of two collective action mechanisms strike and coordination increases the employees share of the total earnings but does not mitigate the free riding problem adding employment risk to the collective action setup drives up wages reduces free riding and leads to higher total earnings however this increase in productivity is not sufficient to achieve the high levels of wages efforts and earnings that we observe with individually differentiated wages

the dispersion of employees wage increases and firm performance previous studies examining intra firm wage dispersion and firm performance have focused on wage levels the authors of this study argue that for purposes of comparing wage dispersion s positive inc

wages profits and capital intensity evidence from matched worker firm data swedish data on workers matched with firms balance sheet reports are used to examine the relation between wages and firms ability to pay results indicate that experienced and highly educated workers are sorted into profitable firms wages are positively correlated with profits and the capital labor ratio after controlling for worker quality degree of effort supervision job characteristics local unemployment firms employment history and employer size lester s range of pay due to rent sharing is around 12 24 of the mean wage in sweden which is close to the estimates for the united states and united kingdom

rewards to academia the remuneration of vice chancellors and principals this paper models the financial remuneration to vice chancellors and principals at uk higher education institutions after describing the alternative theoretical underpinnings for the determination of pay an earnings function is estimated utilizing institutional and personal characteristics the model suggests only a partial linkage of managerial and performance related indicators to remuneration levels this suggests substantial scope for reorientation of rewards towards such indicators rather than relying on an efficiency wage this would appear particularly appropriate given the present and continued disclosure of this information together with the increased focus on performance indicators relating to teaching and research within the uk higher education sector

are workers paid their marginal products status is like coase s social costs a reciprocal phenomenon given that one person s gain in status can occur only at the expense of a loss in status for others and that workers are free to choose their coworkers it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products the purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm s internal wage structure the paper is organized as follows section i briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers section ii then confronts the predictions of section i by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed section ii also examines the relationship between wages and productivity for a sample of university professors an occupation in which individual productivity differences are for a variety of obvious reasons relatively more difficult to measure all of the evidence examined is consistent with the hypothesis that within firms wage rates vary substantially less than do individual productivity values section iii discusses additional observations and evidence that bear on this same hypothesis it suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform section iv concludes by considering the claim that egalitarian internal wage structures arise because of equity considerations it argues that the concept of equity appears very closely linked to the concept of status and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions

tournaments as a worker discipline device c c yang i introduction in the absence of unemployment a worker caught shirking and subsequently fired could obtain a new job at the market wage without difficulty as a result of this and the imperfect monitoring of workers on the job effort shapiro and stiglitz 1984 argued that there must be involuntary unemployment in equilibrium to serve as a worker discipline device making job loss costly so as to discourage shirking 1 in response to shapiro and stiglitz s argument carmichael 1985 suggested that workers could pay employment fees to purchase their jobs and that the competition among workers for jobs would raise such fees until all involuntary unemployment disappeared alternatively there is the so called bonding scheme bonds are posted by workers when initially hired and forfeited if the workers are caught shirking the fear of losing the bonds then substitutes for the threat of becoming unemployed in creating work incentives the competition among workers for jobs would allow firms to charge an amount for bonds until there were no difference between employment and unemployment and so again there would be no involuntary unemployment in a nutshell the introduction of an employment fee or a bonding scheme can eliminate involuntary unemployment making obsolete unemployment as a worker discipline device in the real world however rarely are employment fees or bonding observed why do employment fees bonding or the like not then emerge to arbitrage the difference between employment and unemployment so as to eliminate involuntary unemployment this is a puzzle for shirking models romer 1996 461 2 it has been claimed that contracts with upward sloping age earning profiles the so called implicit bonding can act as perfect substitutes for contracts with explicit employment fees or bonds akerlof and katz 1989 negate this claim and show that the implicit bonding in general does not eliminate the need for involuntary unemployment as a worker discipline device to resolve the bonding issue katz 1986 suggests that future theoretical work is required to analyze the problem in an explicitly contractual setting this article offers an attempt in this direction we study a type of contract which is prevalent in the real world and most importantly can act as a perfect substitute for the employment fee or bonding scheme as far as the elimination of involuntary unemployment is concerned the contract in question is the so called tournament 3 a tournament contract compensates workers on the basis of their relative performance prizes arising from tournaments are fixed in advance and a worker receives the winner s prize not by being good in the absolute sense but by being better than the other workers contracts with the characteristics of tournaments are prevalent in labor markets the salesman who sells the most is given a large bonus the best worker gets promoted to become the company manager etc the incentive effects of tournaments have been analyzed in detail by lazear and rosen 1981 green and stokey 1983 nalebuff and stiglitz 1983 malcomson 1984 and others 4 in contrast to the extensive analysis of the microeconomic incentives of tournaments this article focuses on the macroeconomic implications of tournaments in the vein of shirking models it is shown that all involuntary unemployment will disappear if it is feasible for firms to exploit tournaments to full flexibility this finding pinpoints the power of tournament contracts in resolving involuntary unemployment as a consequence of this result the generation of equilibrium unemployment will require that there be certain impediments to the full exploitation of tournaments we suggest institutional constraints legal rules or social norms as possible candidates for the impediments the rest of this article is organized as follows

wage dispersion and productive efficiency evidence for sweden the swedish record of enormous compression of relative wages under centralized solidarity bargaining followed by substantial decompression of wages after central bargaining broke down supplies observations well suited to empirical evaluation of arguments about the response of productive efficiency to shifts in wage distribution we obtain no results supporting fairness morale and cohesiveness theories implying that wage leveling within workplaces and industries may enhance productivity reduction of interindustry wage differentials evidently did however contribute positively to aggregate output and productivity growth most likely for the structural reasons first emphasized by swedish trade union economists almost a half century ago

the self reinforcing dynamics of economic insecurity and obesity this article models the dynamic effects of economic insecurity on body weight using australian panel data we infer an individual s level of economic insecurity as a function of exposure to various financial risks and employ regression equations to explore its effect upon current period body mass index bmi scores estimates reveal that a sustained standard deviation increase in economic insecurity raises an individual s bmi at a rate of approximately 0 35 units per year quantile regressions are then used to estimate the sensitivity of body weight to insecurity at different percentiles of the distribution and we find that persons who are overweight and obese are much more seriously affected this implies that shocks that make individuals more financially vulnerable can generate harmful self sustaining cycles of risk and weight gain we also model the dynamics of insecurity and show that it is a persistent phenomenon for persons with high levels of exposure and lower incomes this finding indicates that persons of lower socio economic status are more likely to encounter vicious cycles of increasing insecurity and obesity which partially explains why weight related health problems are unusually highly concentrated amongst these individuals

marginal values and returns to scale for nonparametric production frontiers we present a unifying linear programming approach to the calculation of various directional derivatives for a very large class of production frontiers of data envelopment analysis dea special cases of this include different marginal rates the scale elasticity and a spectrum of partial and mixed elasticity measures our development applies to any polyhedral production technology including to name a few the conventional variable and constant returns to scale dea technologies their extensions with weight restrictions technologies with weakly disposable undesirable outputs and network dea models furthermore our development provides a general method for characterization of returns to scale rts in any polyhedral technology the new approach effectively removes the need to develop bespoke models for the rts characterization and calculation of marginal rates and elasticity measures for each particular technology

incentives for helping on the job theory and evidence recent advances in incentive theory stress the multidimensional nature of agent effort and specifically cases where workers affect one anothers performance through helping efforts this article models helping efforts as determined by the compensation package and task allocation the model is tested with australian evidence on reported helping efforts within work groups the evidence consistently supports the hypothesis that helping efforts are reduced while individual efforts are increased when promotion incentives are strong piece rates and profit sharing appear to have little effect on helping efforts while task variety and helping efforts are positively correlated

competition between and within teams abstract we consider the effect of team size the observability of effort and the competitiveness of the team s environment in determining team members allocations of effort between team oriented and selfish efforts

identity and the economics of organizations on plebes first day at west point called r day they strip down to their underwear their hair is cut off they are put in uniform they then must address an older cadet with the proper salute and with the statement sir new cadet doe reports to the cadet in the red sash for the first time as ordered plebes must stand and salute and repeat and stand and salute and repeat until they get it exactly right all the while being reprimanded for every tiny mistake in the summary of david lipsky 2003 pp 145 154 who spent four years tracking a company of cadets at west point on r day you surrender your old self in stages but r day is just the beginning of the training and personal re engineering that is to come so that west point graduates emerge four years later as loyal officers in the u s army lipsky shows that despite some failure this tough program is remarkably successful in creating officers with the will to lead in battle economists current picture of organizations and work incentives has no place for the west point program and the motivations it seeks to inculcate in recruits in a standard economic model an individual s preferences are fixed and utility depends only on pecuniary variables the army s aim at west point is to change cadets preferences they wish to inculcate non economic motives in the cadets so that they have the same goals as the u s army alternatively stated the goal of west point is to change the identity of the cadets so they will think of themselves above all else as officers in the u s army they will feel bad about themselves they will lose utility if they fall short of the ideals of such an officer this change in identity

incentives and wage rigidity with the growth of the literature on incentive compensation has come the belief by some that incentive pay may be less rigid than pay that is not designed to effect incentives some have gone so far as to argue that this may explain differences in unemployment rates across countries it is shown that there is no direct link between incentives and wage rigidity many compensation schemes that provide incentives have the reverse effect that is they tend to make wages more rigid than would be the case were incentives not an issue atall this paper explores the relationship between wage rigidity and the provision of incentives in a variety of circumstances this abstract was borrowed from another version of this item

wage dispersion and team performance a theoretical model and evidence from baseball we develop a general theoretical model of the effect of wage dispersion on team performance which nests two possibilities wage inequality may have either negative or positive effects on team performance a parameter which captures the marginal cost of effort which we estimate using game level data from major league baseball determines whether wage dispersion and team performance are negatively or positively related we find low marginal cost of effort consequently wage disparity is negatively related to team performance game and season level regressions also indicate a negative relationship between inequality and performance we discuss a variety of interpretations of our results

the incentive effects of tournaments revisited evidence from the european pga tour this analysis of data from the 1987 european men s professional golf association pga tour strongly supports the hypothesis that the level and structure of prizes in pga tournaments influence players performance specifically players performance appears to vary positively with both the total money prizes awarded in a tournament and the marginal return to effort in the final round of play a value that varies among players largely depending on how the prize money is allocated among finishers of different ranks the authors suggest that these results together with the similar results of their earlier study of the 1984 u s men s pga tour may have implications for the design of compensation systems for certain groups of workers such as corporate executives college professors and salespeople

pay inequality and firm performance evidence from matched employer employee data a large matched employer employee data set for sweden is used to test several predictions from tournament theory for white collar workers a positive and significant effect of intra firm wage dispersion on profits and average pay is found using various measures of wage dispersion this result is robust for controlling for firm differences in human capital and firm fixed effects as well as for instrumenting the wage dispersion variable to take into account endogeneity of wage dispersion using data on around 10 000 managers a positive and significant association between pay dispersion and profits is also found for executives further results include a positive relationship between market demand volatility and wage dispersion measured as coefficient of variation in managerial pay and a negative effect of the number of managers contestants on managerial pay spread the first two results are in accordance with predictions from tournament theory while the last one is not

tournaments without prizes evidence from personnel records we use a quasi experimental research design to study the effect of giving workers feedback on their relative performance the setting is a firm in which workers are paid piece rates and where for exogenous reasons management begins to reveal to workers their relative position in the distribution of pay and productivity we find that merely providing this information leads to a large and long lasting increase in productivity that is costless to the firm our findings are consistent with the interpretation that workers incipient concerns about their relative standing are activated by information about how they are performing relative to others this paper was accepted by olav sorenson organizations

how many winners are good to have on tournaments with sabotage abstract from an employer s perspective a tournament should induce agents to exert productive activities but refrain from destructive ones we experimentally test the predictive power of a tournament model which suggests that within a reasonable framework productive and destructive activities are influenced neither by the number of agents taking part in the tournament nor by the fraction of the winner prizes our results clearly confirm that sabotage in tournaments indeed occurs while tournament size has virtually no effect on behavior a balanced fraction of winner and loser prizes appears to enhance productive activities

the first deal the division of founder equity in new ventures we examine the trade off between efficiency and equality within the context of entrepreneurial founding teams using a formal theory where founders may have preferences over relative outcomes we derive predictions about the antecedents and consequences of dividing equity equally amongst all founders using proprietary survey data we empirically test the predictions our central finding is that teams that split equity equally are less likely to raise funds from outside investors the relationship appears not to be causal but instead driven by selection effects across heterogeneous teams with varying degrees of inequality aversion

is there a prison size dilemma an empirical analysis of output specific economies of scale abstract we advocate a nonparametric multi output framework to estimate output specific economies of scale and we apply this model to male prisons in england and wales over the sample period 2009 2012 to estimate output specific returns to scale in prisons we consider not only the cost per place but also qualitative outputs such as purposeful out of cell activity and successful reintegration furthermore we introduce environmental heterogeneity using the characteristics of the prison ers england and wales offers a unique example to study economies of scale in prisons as the uk has started to build new super size prisons in order to replace the most outdated prisons

cheating and enforcement in asymmetric rank order tournaments author affiliation c jill stowe department of agricultural economics and department of economics university of kentucky 307 c e barnhart building lexington ky 40506 0276 usa jill stowe uky edu corresponding author scott m gilpatric department of economics university of tennessee 520 stokely management center knoxville tn 37996 usa sgilpatr utk edu acknowledgment the authors would like to thank participants at the tournaments contests and relative performance evaluation march 2008 meetings the fuqua summer brown bag series leslie marx luca rigotti and anonymous referees for helpful comments all remaining errors of course are our own gilpatric received support from the u s environmental protection agency epa which provided funding for this research under star grant r832847 the research has not been subjected to epa review and therefore does not necessarily reflect the views of the agency and no official endorsement should be inferred 1 introductionamong the many issues surrounding incentives to cheat in rank order tournaments and contestants behavior when cheating is possible one of the most important is the effect of asymmetry in the position of the contestants if two contestants are competing for a prize but one has an advantage over the other such as greater ability or talent or simply being ahead because of the history of play up to that point in the contest will the trailing player necessarily be more likely to cheat because he needs to close the gap and has less to lose from possible disqualification might there be circumstances under which the leader cheats to maintain her advantage because if she does not the trailing player can close the gap by cheating this article presents a model to provide insights into how positional concerns influence cheating in rank order tournaments 1rank order tournaments present an environment in which the incentive to cheat may be particularly strong for a few reasons 2 first tournaments are generally used in environments in which actions are difficult to monitor second a small increase in a contestant s output can dramatically change his payoff if it increases his rank cheating in various forms has been observed in important competitive settings such as corporate promotion tournaments and sports competitions which can be broadly characterized as taking place in contests and can be modeled as rank order tournaments of the sort first introduced by lazear and rosen 1981 in this article we consider a game in which two heterogenous players simply choose whether or not to cheat this can be thought of as the final stage of a tournament in which players have previously chosen effort and now find themselves having an opportunity to cheat while knowing their current position relative to each other or it can be considered as the final round of a multistage tournament in which one player is ahead of the other entering the last phase of competition our focus is on how equilibrium cheating behavior is affected by varying the intensity of enforcement represented by the probability that contestants are audited to detect cheating and on the conditions required to achieve complete deterrence of cheating and thus a clean contest consistent with intuition we find that the trailing player has a strong incentive to cheat but in some circumstances it is the leading player who is more likely to cheat in addition we explore how differences in the auditing regime affect cheating behavior we find that employing correlated audits both contestants are audited simultaneously with some probability and otherwise neither is yields less frequent cheating in the mixed strategy equilibrium of the game than if the two contestants are audited with an equal probability but as a result of independent random draws using a correlated audit regime achieves more effective deterrence of cheating than independent audits for any given expenditure of resources when resources are not sufficient to achieve full deterrence

competition within the firm theory plus some evidence from medical group practice recent work on the economics of the firm and other organizations has emphasized the importance of internal organization and incentives the issue of competition within the firm has not arisen however in this article i construct a model of nonprice competition among members of a professional partnership and test the model with data on medical group practice the empirical results are consistent with the hypothesis of nonprice competition among members of the firm

lying to level the playing field why people may dishonestly help or hurt others to create equity unethical and dishonest behavior has increasingly attracted the attention of scholars from various disciplines recent work has begun to focus on a previous overlooked factor predicting dishonest behavior the beneficiary or victim of dishonest acts in two laboratory experiments we manipulate the level of resources allocated to our participants their wealth and investigate whether perceived inequity from wealth that is randomly or subjectively assigned leads individuals to cross ethical boundaries through helping or hurting others the results show that dishonest behavior is influenced by positive and negative inequity that motivates helping and hurting acts furthermore a third experiment shows that people tend to discount the wrongness of crossing ethical boundaries to hurt or help others when the action restores equity

microdata evidence on rent sharing we examine the effect of firm profits on wages for individual workers while focusing on the empirical complications associated with estimating the extent of rent sharing controlling for worker and firm fixed effects and using several instruments to deal with the endogeneity of profits we report results indicating that ordinary least square ols estimates strongly underestimate the effects of profits on wages moreover the effect of profits on wages are estimated separately for firms with increasing and decreasing profits within a given time period we find a positive and stable effect only in firms with increasing profits this is in line with the idea that falling profits do not lead to wage cuts while increasing profits imply higher wages

returns to scale in different dea models abstract this paper discusses returns to scale rts in data envelopment analysis dea for each of the presently available types of models the bcc and ccr models are treated in input oriented forms while the multiplicative model is treated in output oriented form this distinction is not pertinent for the additive model which simultaneously maximizes outputs and minimizes inputs in the sense of a vector optimization quantitative estimates in the form of scale elasticities are treated in the context of multiplicative models but the bulk of the discussion is confined to qualitative characterizations such as whether rts is identified as increasing decreasing or constant this is discussed for each type of model and relations between the results for the different models are established the opening section describes and delimits approaches to be examined the concluding section outlines further opportunities for research

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

classic promotion tournaments versus market based tournaments as initially formulated in the seminal analysis of lazear and rosen 1981 an important perspective for understanding the role of promotions in firms is the tournament perspective that is a promotion and in particular the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital in this paper i consider whether the best way to model promotion tournaments is by having firms commit to prizes ex ante as in lazear and rosen s initial formulation or whether promotion prizes should be modeled as arising from the signaling role of promotions and the competition between firms for promoted workers

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

the future of personnel economics personnel economics is defined as the application of microeconomic principles to human resources issues that are of concern to most businesses the field now about 20 years old arose for three reasons first those of us who were teaching standard labour economics to business students encountered a disinterested audience business students believe that labour supply and demand unemployment investment in education and other topics which are of primary concern to labour economists are almost irrelevant to their future business careers their boredom with what we had to sell signalled that a change in the product might be warranted second the issues studied by human resources specialists were of interest to economists but the approach taken by the non economist was unsatisfying it was loose unfocused and ad hoc and lacked the general rigorous framework to which economists have grown accustomed the economist s reaction was to enter an industry where it was believed rents existed third the technology of economics changed as a result of some breakthroughs particularly those dealing with agency and contract theory economists were better equipped to tackle problems that had evaded them in the past

measuring economic insecurity we provide a systematic treatment of the notion of economic insecurity assuming that an individual s sentiment of insecurity depends on the current wealth level and its variations experienced in the past we think of wealth as a comprehensive variable encompassing anything that may help in coping with adverse occurrences the current wealth level could also be interpreted as incorporating the individual s evaluation of future prospects variations in wealth experienced in the recent past are given higher weight than experiences that occurred in the more distant past two classes of measures are characterized with sets of plausible and intuitive axioms

managerial objectives capital structure and the provision of worker incentives worker incentive schemes are invariably assumed to be administered by an owner entrepreneur who has an incentive to understate worker performance after the event while tournaments can overcome this problem they discourage cooperation between workers we show that a professional manager concerned with equality between workers and with avoiding bankruptcy rather than maximizing shareholder wealth will conduct a tournament that preserves individual effort incentives while promoting cooperation between workers the theory predicts lower debt levels and more compressed pay scales as cooperation becomes more important in the limit this becomes a group bonus scheme supported by blue chip debt

an opposing responses test of classic versus market based promotion tournaments we use a systems based econometric method to show that classic and market based tournament models are empirically distinguishable since the role of risk differs across these models implementing the method using a large finnish worker firm matched panel we find support for classic tournaments given that promotions depend on relative performance the firm s wage structure is convex promotion probabilities are decreasing in the number of competitors performance is increasing in the wage spread and workers and firms adjust their choice variables in opposite directions when the variance of the stochastic component of worker performance changes

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

institutions and performance in european labour markets taking a fresh look at evidence this paper presents a selective survey of the recent literature on labour market institutions and offers new empirical eu based evidence on the impact of labour market reforms on employment and labour market adjustment although the literature traditionally treats labour market institutions as exogenous attention shifted recently towards understanding the underlying causes of specific institutional arrangements as a consequence the literature highlights the great importance of an efficient policy design exploiting these interactions wisely and identifies general principles for achieving an efficient policy design at both macro and micro levels although empirical evidence does not show a major change in terms of intensity of labour market reform after the setting of the economic and monetary union and the creation of the euro the reforms aiming at strengthening the labour market attachment of vulnerable groups tend to have been successful both in raising their employment and increasing labour market adjustment

the effect of production technology on trust and reciprocity in principal agent relationships with team production we introduce differently sized teams rather than a single worker and three production technologies to an otherwise standard gift exchange environment to study experimentally whether and to what extent trust and reciprocity is affected moving to a team of workers introduces new motivations such as free riding and coordination burden that are likely to intensify with team size and the technology used by the firm we find that the positive relationship between wages and effort although affected still holds workers reduce their efforts when coordination for efficiency is more difficult using a particular production technology results also suggest that for any given technology firms react to their relevant outcome profitability and not just to workers efforts

is it vulnerability or economic insecurity that matters for health this paper contrasts the mental and physical health impacts of vulnerability and economic insecurity an individual is vulnerable if they are at risk of future absolute material deprivation while they are insecure if they are threatened by losses in relative status using data from the first eleven waves of the australian hilda panel we generate four alternative measures of real or perceived downside economic risk and employ panel data models to estimate their impacts on sf 36 mental and physical health indices we test our hypotheses using a series of polynomial interactions which allow the effect sizes to vary non linearly with income baseline estimates show that economic risks have consistently negative consequences for both mental and physical health with the former effect being around three times the size of the latter however our main finding is that increasing incomes do little to mitigate the sensitivity of health to these risks this suggests it is mostly the prospect of loss rather than deprivation that impacts upon wellbeing the finding is important as it helps distinguish between competing models i e beveridge vs bismarck for social insurance

technology choice relative performance pay and worker heterogeneity abstract we identify a new problem that may arise when heterogeneous workers are motivated by relative performance pay if workers abilities and the production technology are complements the firm may prefer not to adopt a more advanced technology even though this technology would costlessly increase each worker s productivity due to the complementarity between ability and technology under technology adoption the productivity of a more able worker increases more strongly than the productivity of a less able colleague as a consequence both workers motivation to exert effort is reduced we show that this adverse incentive effect is dominant and consequently keeps the firm from introducing a better production technology if talent uncertainty is sufficiently high and or monitoring of workers is sufficiently precise

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

the impact of income shocks on health evidence from cohort data we study the eect of permanent income innovations on health for a prime aged population using information on more than half a million individuals sampled over a twenty five year period in three dierent cross sectional surveys we aggregate data by date of birth cohort to construct a synthetic cohort dataset with details of income expenditure socio demographic factors health outcomes and selected risk factors we then exploit structural and arguably exogenous changes in cohort incomes over the eighties and nineties to uncover causal eects of permanent income shocks on health we find that such income innovations have little eects on health but do aect health behaviour and mortality

reconsidering pay dispersion s effect on the performance of interdependent work reconciling sorting and pay inequality pay dispersion in interdependent work settings is virtually universally argued to be detrimental to performance we contend however that these arguments often confound inequality with inequity t

a theory of grand innovation prizes abstract the past decade has witnessed a resurgence in innovation awards in particular of grand innovation prizes gips which are rewards to innovators developing technologies reaching performance goals and requiring breakthrough solutions gips typically do not preclude the winner also obtaining patent rights this is in stark contrast with mainstream economics of innovation theories where prizes and patents are substitute ways to generate revenue and encourage innovation building on the management of innovation literature which stresses the difficulty to specify ex ante all the technical features of the winning technologies we develop a model in which innovative effort is multi dimensional and only a subset of innovation tasks can be measured and contracted upon we show that in this environment patent rights and cash rewards are complements and that gips are often preferable to patent races or prizes requiring technologies to be placed in the public domain moreover our model uncovers a tendency for patent races to encourage speed of discovery over quality of innovation which can be corrected by gips we explore robustness to endogenous entry costly public funds and incomplete information by gip organizers on the surplus created by the technology

a game level analysis of salary dispersion and team performance in the national basketball association using game level panel data on the national basketball association nba we examine the causal effect of within team salary dispersion on team performance we exploit three measures of salary dispersion and examine the effect at three levels whether the outcome of the game is influenced by salary dispersion among 1 players participating in the current game active players 2 players who played more than half of their team s games in a season regular and occasional players and 3 the entire player population regardless of the measures used we find that salary dispersion does not influence team performance

incentives for dishonesty an experimental study with internal auditors we conduct an experiment with professional internal auditors and evaluate their performance and objectivity measured as the extent to which they truthfully report the performance of other participants in a real effort task in line with our hypotheses we find that incentive based compensation increases dishonest behavior competitive incentives lead to under reporting of other participants performance while collective incentives lead to over reporting of performance we replicate these results with a student sample in addition we find that moving from an environment with objective performance evaluation toward a peer evaluation scheme reduces performance among internal auditors but not among students jel c93 m42 m52

rigging elections with violence in most developing countries even today political parties spend a substantial fraction of their resources in attracting voters through ideological exhortation as well as force in this paper we present a model of political contest between two parties that compete in two distinct arenas though the goal of the contest in both arenas is the same to garner more political support in the first which we call ideological the contest involves no use of force in the second which we call conflictual party activists use violence either to force ideological supporters of the competing party to vote in their favor or restrain them from voting we show that a party with lower initial political support will resort to more political violence ceteris paribus and as the fraction of undecided voters goes up elections will tend to be less conflictual we also show that if there is an incumbency advantage then the resources devoted to creating political unrest increase in equilibrium and political competition is more violent we also provide some historic and journalistic evidence that supports our results

economic growth inequality democratization and the environment we augment the stokey 1998 model by allowing agents to differ with respect to environ mental quality and income in order to analyze the impact of income and environmental inequality and of democratization on aggregate pollution we find that the impact of a more equal income distribution depends on the degree of democracy in a complete democracy a more equal income distribution generates ceteris paribus less pollution which is consistent with indirect empirical evidence whereas the opposite is the case if democratic rights are highly restricted furthermore a democratization is argued to typically lower both the income and the environmental quality of the median voter in this case if in utility terms the fall in environmental quality is worse than the fall in consumption the median voter decides to tighten environmental legislation so that aggregate pollution decreases

executive compensation and tournament theory empirical tests on danish data this article adds to the empirical literature on tournament theory as a theory of executive compensation i test several propositions of tournament models on a rich data set containing information about 2 600 executives in 210 danish firms during a 4 year period i ask are pay differentials between job levels consistent with relative compensation is pay dispersion between levels higher in noisy environments is the dispersion affected by the number of tournament participants is average pay lower in firms with more compressed pay structures does wider pay dispersion enhance firm performance most of the predictions gain support in the data

returns to scale and most productive scale size in dea with negative data abstract non parametric evaluation of returns to scale of production units in standard dea models becomes problematic when their underlying technologies involve negative data the methodology recently offered by allahyar and rostamy malkhalifeh 2015 hence after called arm model is of some help to deal with this issue however there are two shortcomings underlying the arm model first it may not be capable of locating all the production units exhibiting constant returns to scale and second it is also not able to determine most productive scale size in order to deal with these two shortcomings the current paper contributes to the dea literature in two ways first it makes a unifying attempt to propose a general non radial dea model to determine both the most productive scale size and the returns to scale characterizations of production units in the presence of negative data second the proposed model can be adapted in a dynamic dea technology setting to determine growth efficiency and returns to growth behavior of production units facing hyper competition in a new economy

returns to scale in convex production technologies the notion of returns to scale rts is well established in data envelopment analysis dea in the variable returns to scale production technology the rts characterization is closely related to other scale characteristics such as the scale elasticity most productive scale size mpss and global rts types indicative of the direction to mpss in recent years a number of alternative production technologies have been developed in the dea literature most of these technologies are polyhedral and hence are closed and convex sets examples include technologies with weakly disposable undesirable outputs models with weight restrictions and production trade offs technologies that include several component production processes and network dea models for most of these technologies the relationship between rts and other scale characteristics has remained unexplored the theoretical results obtained in this paper establish such relationships for a very large class of closed convex technologies of which polyhedral technologies are an important example

intertemporal incentives under loss aversion this paper studies the intertemporal allocation of incentives in a repeated moral hazard model with reference dependent preferences as in k oszegi and rabin 2009 besides consumption utility the agent experiences utility from the change in his beliefs about present and future eort and income when eort plans are rational the prospect of being disappointed by the outcome realization equals that of being pleasantly surprised and hence the loss averse agent is on net hurt by news in contrast to the prediction with classical preferences but consistent with real world contracts if consumption utility is not too concave and news about present income carries suciently larger weight in utility than news about future income a contract setting a current

union relative wage effects a survey of macro estimates this paper surveys union wage effect estimates drawn from empirical cross section wage equations fitted to macro aggregated data in 34 post 1963 studies containing such equations each estimate is the partial derivative of the dependent wage variable in logarithmic units with respect to the extent of unionism fraction unionized variable in the equation this paper shows that these estimates contain a mixture in uncertain ratio of the union nonunion wage differential or wage gap on the one hand and an extent of unionism effect on the other therefore the macro estimates should not be interpreted as wage gap estimates

equality under threat by the talented evidence from worker managed firms does workplace democracy engender greater pay equality are high ability individuals more likely to quit egalitarian organisational regimes the article revisits this long standing issue by analysing the interplay between compensation structure and quit behaviour in the distinct yet underexplored institutional setting of worker managed firms the analysis is based on novel administrative data sources which allow constructing a simple ordinal measure of the workers ability type the article s key findings are that worker managed firms have a more compressed compensation structure than conventional firms and high ability members are more likely than other members to exit

is there really a foreign ownership wage premium evidence from matched employer employee data numerous studies on firm level data have reported higher average wages in foreign owned firms than in domestically owned firms this however does not necessarily imply that the individual worker s wage increase with foreign ownership using detailed matched employer employee data on the entire swedish private sector we examine the effect of foreign ownership on individual wages controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions we distinguish between foreign greenfields and takeovers and compare foreign owned firms with both domestic multinationals and local firms our results show a considerably smaller wage premium in foreign owned firms than what has been found in studies conducted at a more aggregate level moreover foreign takeovers of swedish firms tend to have no or even a negative effect on wages

sabotage in tournaments evidence from a laboratory experiment although relative performance schemes are pervasive in organizations reliable empirical data on induced sabotage behavior are almost nonexistent we study sabotage in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads additionally we find that also in the presence of tournament incentives agents react reciprocally to higher wages by exerting higher effort destructive activities are reduced by explicitly calling them by their name sabotage communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output if sabotage is not possible the principals choose tournament incentives more often this paper was accepted by peter wakker decision analysis

mixed partial elasticities in constant returns to scale production technologies abstract recently podinovski and forsund 2010 developed a linear programming approach to the analysis and calculation of a class of mixed partial elasticity measures in variable returns to scale vrs production technologies in the current paper we extend their approach to the constant returns to scale crs technologies and formulate linear programs required for the computation of elasticity measures among other results obtained in this paper we prove a new result valid in both vrs and crs technologies that allows us to identify the reason why the corresponding elasticity measure is undefined at the unit this removes the need for a preliminary sorting of the units into those units where the elasticity measure applies and those where it does not

cohesiveness productivity and wage dispersion abstract when work groups support the goals of the firm firms will want to increase group cohesiveness if narrowing wage dispersion increases cohesiveness then companies will pay an efficiency wage to the low end of the wage distribution this variant of efficiency wages predicts firm wage effects and predicts that unemployment will be concentrated among low wage workers furthermore workers at cohesive firms will have higher marginal products than will similar workers at other firms thus policies to encourage the growth of cohesive firms will increase national output

incentives the effect of profit sharing plans offered by previous employers on current wages using national longitudinal survey of youth nlsy data i investigate the relationship between wages and the use of profit sharing plans by current and past employers i find a significant wage effect of profit sharing plans in previous jobs also controlling for past plans eliminates the wage effect of current plans

the effect of wage dispersion on team outcome and the way team outcome is produced the impact of intra team pay dispersion on team productivity is a highly discussed issue on the one hand wage differentials provide incentives for higher employee effort on the other hand pay inequality may reduce team cohesiveness and increase feelings of relative deprivation leading to lower performance analysing nonlinear effects of wage dispersion in professional soccer we find empirical evidence that team performance is strongest when there is either very high or very low wage inequality medium levels produce the weakest team performance in addition we show that the pay structure affects the team s playing style even after controlling for team and coach heterogeneity we discuss the theoretical and managerial implications as well as the limits of generalization

a simple derivation of scale elasticity in data envelopment analysis in this paper we suggest a simple derivation of the formulae for the scale elasticity in the variable returns to scale technology as used in data envelopment analysis our development is consistent with the existing literature but the proof is much shorter and applies to the general case without any simplifying conditions

the agent agents problem payment by relative output this paper begins an investigation into the incentive problems at a firm when the effort of the employer and the employees combines to determine final output the major conclusion is that optimal reward functions in this circumstance will in general value the performance of a worker relative to that of his peers the paper thus joins a growing literature associated with the work of lazear and rosen on rank order tournaments

why unions reduce wage inequality a theory of domino effects numerous empirical studies show that unions reduce wage differences i demonstrate that their motive might be a mix of fairness and strategy maximizing the use of union bargaining power in the presence of efficiency wages unions can push primarily for raising the lowest wages and still not sacrifice higher wages much if the employers themselves increase higher wages to protect efficiency enhancing wage differences if these domino effects are strong enough then an egalitarian wage policy might even increase the median wage

cleaning house the impact of information technology monitoring on employee theft and productivity this paper examines how firm investments in technology based employee monitoring impact both misconduct and productivity we use unique and detailed theft and sales data from 392 restaurant locations from five firms that adopt a theft monitoring information technology it product we use difference in differences models with staggered adoption dates to estimate the treatment effect of it monitoring on theft and productivity we find significant treatment effects in reduced theft and improved productivity that appear to be primarily driven by changed worker behavior rather than worker turnover we examine four mechanisms that may drive this productivity result economic and cognitive multitasking fairness based motivation and perceived increases of general oversight the observed productivity results represent substantial financial benefits to both firms and the legitimate tip based earnings of workers our results suggest that employee misconduct is not solely a function of individual differences in ethics or morality but can also be influenced by managerial policies that can benefit both firms and employees this paper was accepted by serguei netessine operations management

the shattered iron rice bowl intergenerational effects of chinese state owned enterprise reform reform of the chinese state owned enterprise soe sector in the late 1990s triggered massive layoffs 34 million employees and marked the end of the iron rice bowl guarantee of employment security for the remaining 67 million workers an expanding international literature has documented the adverse health impacts of economic insecurity on adults but has typically neglected children this paper uses the natural experiment of soe reform to explore the causal relationship between increased parental economic insecurity and children s bmi z score using province year level layoff rates and income loss from the layoffs we estimate a generalised difference in differences model with child fixed effects and year fixed effects for a medium build 10 year old boy a median treatment effect implies a gain of 1 8 kg and a 2 2 percentage point increase in the overweight rate due to the reform anxiety about potential losses causes weight gain for boys whose soe parents kept their jobs unconditional quantile regressions suggest that boys who are heavier are more likely to gain weight girls are not significantly affected intergenerational effects therefore increase the estimated public health costs of greater economic insecurity

designing optimal sales contests a theoretical perspective sales contests are commonly used by firms as a short term motivational device to increase salespeople s efforts conceptually sales contests and piece rate schemes such as salary commission or quotas differ in that in sales contests payment to salespeople is based on relative rather than absolute sales levels using the agency theoretic framework where the firm is risk neutral and the salespeople are risk averse we examine how a firm should design an optimal contest to maximize its profit through stimulating salespeople s efforts specifically we investigate how many salespeople should be given awards and how the reward should be allocated between the winners three commonly used sales contest formats are studied in the first format termed as rank order tournament there are many winners and the amount of reward is based on relative rank achieved with larger amounts awarded to higher ranks we also examine two special cases of rank ordered tournament a multiple winners format where the reward is shared equally and a winner take all format where a single winner gets the entire reward we model salespeople s behavior by considering utility of the reward from achieving one of the winning ranks in the contest and assessing incremental chances of winning by exerting more effort the analysis was done for two situations based on whether the total reward is large enough for salespeople to participate in the effort maximizing sales contest or not the analysis shows that factors impacting contest design include the salespeople s degree of risk aversion number of salespeople competing in the contest and degree of sales uncertainty which reflects strength of the sales effort relationship the results show that salespeople exert lower effort when there are larger numbers of participants or when sales uncertainty is high we find that the rank order tournament is superior to the multiple winners contest format in a multiple winners format the salesperson whose performance is just sufficient to win is better off than any of the other winners as he exerts the least effort to win but obtains as high a reward as any other winners specific recommendations on contest designs are obtained assuming that sales follow either a logistic or uniform distribution assuming that sales outcome is logistically distributed and the contest budget is high enough to ensure participation our analysis shows that the total number of winners in a sales contest should not exceed half the number of the contestants this result is due to the symmetric nature of the logistic distribution our analysis also indicates that the total number of winners should be increased and the spread decreased when salespeople are more risk averse when salespeople are more risk averse their marginal values for higher rewards become smaller the spread should increase with ranks when rate of risk tolerance is high and decrease with ranks when the rate of risk tolerance is lower in the extreme case of risk neutral salespeople the optimal design is a winner take all format we also conclude that since the probability of winning the contest decreases with number of contestants the optimal number of winners should increase and interrank spread decrease when there are a larger number of participants if the firm does not allocate a large enough budget for salespeople to participate in the effort maximizing sales contest then the firm may increase the number of winners to more than half the sales force increasing the number of winners and decreasing the spread are required to encourage the salespeople to participate particularly when there are many participants who are risk averse a counterintuitive result is that the number of winners should be reduced and the spread increased when sales uncertainty is high increasing sales uncertainty leads to lower equilibrium effort levels while keeping the expected utility of the contest rewards the same therefore increased uncertainty results in higher participation incentive the firm should thus relatively reduce the number of winners in high uncertainty situations under the assumption of uniformly distributed sales the recommendation is that a winner take all contest induces maximum efforts regardless of the level of risk aversion number of players or the degree of uncertainty when the winner take all format does not meet the participation constraint our analysis recommends offering a big reward to the top salesperson and a small reward to many other sales people the small reward should be just sufficient to ensure that all salespeople participate consistent with logistic distribution the spread should decrease when salespeople are more risk averse or there are more players but should increase when sales uncertainty is larger these results highlight that some of the conclusions drawn may be sensitive to distributional assumptions

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives