the economic value of teeth abstract this paper examines the effect of oral health on labor market outcomes by exploiting variation in fluoridated water exposure during childhood the politics surrounding the adoption of water fluoridation by local governments suggests exposure to fluoride is exogenous to other factors affecting earnings exposure to fluoridated water increases women s earnings by approximately 4 percent but has no detectable effect for men furthermore the effect is largely concentrated amongst women from families of low socioeconomic status we find little evidence to support occupational sorting statistical discrimination and productivity as potential channels with some evidence supporting consumer and possibly employer discrimination

soft skills hard skills and the black white wage gap this study examines the relative importance of soft skills versus hard skills across occupations and its impact on the observed wage gap between blacks and whites in the united states it posits that the black white pay gap may vary across occupations that require the use of different types of skills we classify occupations into hard skill intensive versus soft skill intensive jobs using the skill content measures of different occupations from the occupational information network o net we then use data from the national longitudinal survey of youth nlsy and current population survey cps to investigate the impact of job skill type on the wage gap consistent with our theoretical predictions we show that this wage gap in white collar jobs is smaller for hard skills jobs than it is for soft skills jobs moreover we demonstrate that in response to variations in the wage gap across different occupations blacks are more likely to self select themselves into hard skills jobs ceteris paribus this shows not only that discrimination against blacks varies across occupations but also that such discrimination induces the self selection of blacks into certain occupations moreover this finding highlights the role played by co worker customer discrimination in explaining the racial wage gap in the u s labor market jel j15 j31

racial discrimination in the labor market theory and empirics we review theories of race discrimination in the labor market taste based models can generate wage and unemployment duration differentials when combined with either random or directed search even when strong prejudice is not widespread but no existing model explains the unemployment rate differential models of statistical discrimination based on differential observability of productivity across races can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment at their current state of development models of statistical discrimination based on rational stereotypes have little empirical content it is plausible that models combining elements of the search models with statistical discrimination could fit the data we suggest possible avenues to be pursued and comment briefly on the implication of existing theory for public policy jel j15 j31 j64 j71

racial disparities in job finding and offered wages abstractthe extent to which discrimination can explain racial wage gaps is one of the most divisive issues in the social sciences using a newly available data set this paper develops a simple empirical test that under plausible but not innocuous conditions provides a lower bound on the extent of discrimination in the labor market taken at face value our estimates imply that differential treatment accounts for at least one third of the black white wage gap we argue that the patterns in our data are most naturally rationalized through a search matching model in which employers statistically discriminate on the basis of race when hiring unemployed workers but learn about their marginal product over time

relational contracts limited liability and employment dynamics this paper studies a relational contracting model in which the agent is protected by a limited liability constraint the agent s effort is his private information and affects output stochastically we characterize the optimal relational contract and compare the dynamics of the relationship with that under the optimal long term contract under the optimal relational contract the relationship is less likely to survive and the surviving relationship is less efficient in addition relationships always converge to a steady state under the optimal long term contract but they can cycle among different phases under the optimal relational contract

discrimination in an equilibrium search model i construct an equilibrium search model where some employers have a distaste for hiring minority workers and show that this bias results in economic discrimination against minority workers although only unprejudiced firms hire minority workers minority workers receive lower wages than workers not facing discrimination whenever any employers in the market have a distaste for minority workers one implication of the model is that gender or racial wage differentials understate the utility loss from discrimination in addition the wages of minority workers increase when their proportion increases in the labor market

endogenous agency problems and the dynamics of rents agents choose to acquire skills corresponding to simple and transparent tasks or complex and opaque ones while potentially more productive the latter generate severe agency problems in our overlapping generations model agents compete with their predecessors with dynamic contracts long horizons help principals incentivize agents agents with short horizons are more diffi cult to incentivize than agents with long horizons hence old agents are imperfect substitutes for young ones this reduces competition between generations as a result young managers can opt for more opaque and complex technologies and therefore larger rents than their predecessors thus in equilibrium complexity and rents rise over time our theoretical results are in line with the increase in complexity and rents observed in the finance sector

optimal contracts with shirking i explicitly derive the optimal dynamic incentive contract in a standard continuoustime agency setting where the agent has a shirking action my solution generates two dynamic contracts new to the literature both contracts include phases when the agent frequently shirks in one contract the shirking phases are relaxation periods rewarding the agent for good performance in the other the shirking phases are suspension type arrangements punishing the agent for poor performance in addition i also explore the relationships between optimal contracting and taxes bargaining and renegotiation

optimal contract to induce continued effort we consider a basic model of a risk neutral principal incentivizing a risk neutral agent to exert effort to raise the arrival rate of a poisson process the effort is costly to the agent is unobservable to the principal and affects the instantaneous arrival rate each arrival yields a constant revenue to the principal the principal therefore devises a mechanism involving payments and a potential stopping time to motivate the agent to always exert effort we formulate this problem as a stochastic optimal control model with an incentive constraint in continuous time over an infinite horizon although we allow payments to take general forms contingent on past arrival times the optimal contract has a simple and intuitive structure which depends on whether the agent is as patient as or less patient than the principal toward future income this paper was accepted by manel baucells decision analysis

discrimination and the effects of drug testing on black employment abstract a common assumption is that the rise of drug testing among u s employers must have had negative consequences for black employment i use variation in the timing and nature of drug testing regulation to identify the impacts of testing on black hiring i find that adoption of protesting legislation increases black employment in the testing sector by 7 to 30 and relative wages by 1 4 to 13 0 with the largest shifts among low skilled black men the results are consistent with ex ante discrimination and suggest that drug testing may benefit african americans by enabling nonusing blacks to prove their status to employers

competition and gender prejudice are discriminatory employers doomed to fail according to becker s famous theory on discrimination gary becker 1957 the economics of discrimination university of chicago press entrepreneurs with a strong prejudice against female workers forgo profits by submitting to their tastes in a competitive market their firms lack efficiency and are therefore forced to leave we present new empirical evidence for this prediction by studying the survival of start up firms in longitudinal matched employer employee data we find that firms with strong preferences for discrimination approximated by a low share of female employees relative to the industry average have significantly shorter survival rates this is especially relevant for firms starting out with female shares in the lower tail of the distribution competition at the industry level additionally reduces firm survival and accelerates the rate at which prejudiced firms are weeded out we also find evidence for employer learning as highly discriminatory start up firms that manage to survive submit to market powers and increase their female workforce over time

negotiations and exclusivity contracts for advertising exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products however for such arrangements to exist media must benefit as well we examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets referred to as stations by illustrating that exclusive equilibria arise in a theoretical model of the media advertisers and consumers who participate in both the product and media markets in the model stations sell advertising space to advertisers and broadcast advertising messages to consumers conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition as a result media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market stations mitigate this effect by offering advertisers exclusive advertising contracts with such contracts consumers are less informed about competing products yielding higher producer surplus it is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products

moral hazard in high office and the dynamics of aristocracy both aristocratic privileges and constitutional constraints in traditional monarchies can be derived from a ruler s incentive to minimize expected costs of moral hazard rents for high officials we consider a dynamic moral hazard model of governors serving a sovereign prince who must deter them from rebellion and hidden corruption which could cause costly crises to minimize costs a governor s rewards for good performance should be deferred up to the maximal credit that the prince can be trusted to pay in the long run we find that high officials can become an entrenched aristocracy with low turnover and large claims on the ruler dismissals for bad performance should be randomized to avoid inciting rebellions but the prince can profit from reselling vacant offices and so his decisions to dismiss high officials require institutionalized monitoring a soft budget constraint that forgives losses for low credit governors can become efficient when costs of corruption are low

prejudice and wages an empirical assessment of becker s the economics of discrimination we test the predictions from becker s 1957 seminal work on employer prejudice and find that relative black wages a vary negatively with the prejudice of the marginal white in a state b vary negatively with the prejudice in the lower tail of the prejudice distribution but are unaffected by the prejudice of the most prejudiced persons in a state and c vary negatively with the fraction of a state that is black our estimates suggest that one quarter of the racial wage gap is due to prejudice with nontrivial consequences for black lifetime earnings

does racial prejudice affect black entrepreneurship evidence exploiting spatial differences in prejudicial attitudes abstractthis article explores the relationship between racial prejudice towards blacks and the black white self employment rate gap and provides the first direct empirical evidence that racial prejudice negatively impacts black self employment particularly in high start up cost industries to perform this analysis i construct a measure of prejudicial attitudes using responses from the general social survey and estimate the relationship between self employment and this index using the american community survey i find that an amount of prejudice equal to the difference in least and most prejudiced census divisions increases the black white self employment rate gap in high start up cost industries by 10 4 16 8 depending upon whether parental self employment is controlled for and represents the entire impact of racial prejudice on the black white self employment rate gap additionally racial prejudice widens the black white self employment income gap by between 6 4 and 8 2 in my full specification d

dynamic security design convergence to continuous time and asset pricing implications an entrepreneur with limited liability needs to finance an infinite horizon investment project an agency problem arises because she can divert operating cash flows before reporting them to the financiers we first study the optimal contract in discrete time this contract can be implemented by cash reserves debt and equity the latter is split between the financiers and the entrepreneur and pays dividends when retained earnings reach a threshold to provide appropriate incentives to the entrepreneur the firm is downsized when it runs short of cash we then study the continuous time limit of the model we prove the convergence of the discrete time value functions and optimal contracts our analysis yields rich implications for the dynamics of security prices stock prices follow a diusion reflected at the dividend barrier and absorbed at zero their volatility as well as the leverage ratio of the firm increase after bad performance stock prices and book tomarket ratios are in a non monotonic relationship a more severe agency problem entails lower price earning ratios and firm liquidity and higher default risk

are emily and greg more employable than lakisha and jamal a field experiment on labor market discrimination we study race in the labor market by sending fictitious resumes to help wanted ads in boston and chicago newspapers to manipulate perceived race resumes are randomly assigned african american or white sounding names white names receive 50 percent more callbacks for interviews callbacks are also more responsive to resume quality for white names than for african american ones the racial gap is uniform across occupation industry and employer size we also find little evidence that employers are inferring social class from the names differential treatment by race still appears to still be prominent in the u s labor market jel j71 j64

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

optimal security design and dynamic capital structure in a continuous time agency model we derive the optimal dynamic contract in a continuous time principal agent setting and implement it with a capital structure credit line long term debt and equity over which the agent controls the payout policy while the project s volatility and liquidation cost have little impact on the firm s total debt capacity they increase the use of credit versus debt leverage is nonstationary and declines with past profitability the firm may hold a compensating cash balance while borrowing at a higher rate through the credit line surprisingly the usual conflicts between debt and equity asset substitution strategic default need not arise in this paper we consider a dynamic contracting environment in which a riskneutral agent or entrepreneur with limited resources manages an investment activity while the investment is profitable it is also risky and in the short run it can generate arbitrarily large operating losses the agent will need outside financial support to cover such losses and continue the project the difficulty is that while the probability distribution of the cash flows is publicly known the agent may distort these cash flows by taking a hidden action that leads to a private benefit specifically the agent may i conceal and divert cash flows for his own consumption and or ii stop providing costly effort which would reduce the mean of the cash flows therefore from the perspective of the principal or investors that fund the project there is the concern that a low cash flow realization may be a result of the agent s actions rather than the project s fundamentals to provide the agent with appropriate incentives investors control the agent s wage and may also withdraw their financial support for the project and force its early termination we seek to characterize an optimal contract in this framework and relate it to the firm s choice of capital structure we develop a method to solve for the optimal contract given the incentive constraints in a continuous time setting and study the properties of the credit line debt and equity that implement the contract as in the discrete time model of demarzo and fishman 2003 the continuous time setting offers several peter m demarzo is from stanford university and yuliy sannikov is from u c berkeley we

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

tipping and the dynamics of segregation schelling dynamic models of segregation journal of mathematical sociology 1 1971 143 186 showed that extreme segregation can arise from social interactions in white preferences once the minority share in a neighborhood exceeds a tipping point all the whites leave we use regression discontinuity methods and census tract data from 1970 through 2000 to test for discontinuities in the dynamics of neighborhood racial composition we find strong evidence that white population flows exhibit tipping like behavior in most cities with a distribution of tipping points ranging from 5 to 20 minority share tipping is prevalent both in the suburbs and near existing minority enclaves in contrast to white population flows there is little evidence of nonlinearities in rents or housing prices around the tipping point tipping points are higher in cities where whites have more tolerant racial attitudes

race and employment outcomes evidence from nba coaches we study the impact of management diversity on employment outcomes using data on nba head coaches that includes information on the race of each coach and his supervisor we find that a supervisor is more likely to hire a coach of his own race we also find that black coaches are less likely to be rehired to a second job within three years than their white counterparts and that a head coach s race affects the quality of the opportunities he is offered these findings are stronger for first time coaches than experienced coaches suggesting that observable information on performance mitigates bias jel j0 j4 j7

dynamic resource allocation with hidden volatility abstract we study a firm s internal resource allocation using a dynamic principal agent model with endogenous cash flow volatility the principal supplies the agent with resources for productive use but the agent has private control over both project volatility and resource intensity and may misallocate resources to obtain private benefits the optimal contract can yield either overly risky or overly prudent project selection it can be implemented with a constant pricing schedule i e a static decentralized linear mechanism giving the agent control over the resource quantities project risk and agent s equity share the implementation rationalizes the use of hurdle rates above a firm s cost of capital and transfer prices above marginal cost while showing that hurdle rates or transfer prices may not vary with the agent s risk choice

racial discrimination in labor markets with posted wage offers we analyze race discrimination in labor markets in which wage offers are posted if employers with job vacancies receive multiple applicants they choose the most qualified but may choose arbitrarily among equally qualified applicants in the model firms post wages workers choose where to apply and firms decide which workers to hire labor market frictions greatly amplify racial disparities so mild discriminatory tastes or small productivity differences can produce large wage differentials between the races compared with the nondiscriminatory equilibrium the discriminatory equilibrium features lower net output lower wages for both white and black workers and greater profits for firms this abstract was borrowed from another version of this item

the gatekeeper s optimal fee structure when sellers can price discriminate abstract this article investigates a monopoly gatekeeper s optimal fee structure under the premise that sellers can charge two prices one price is for subscribers and the other is for non subscribers the gatekeeper s optimal fee structure attains the social optimal allocation

large risks limited liability and dynamic moral hazard we study a continuous time principal agent model in which a risk neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses firm size can be decreased at no cost or increased subject to adjustment costs in the optimal contract investment takes place only if a long enough period of time elapses with no losses occurring then if good performance continues the agent is paid as soon as a loss occurs payments to the agent are suspended and so is investment if further losses occur accumulated bad performance leads to downsizing we derive explicit formulae for the dynamics of firm size and its asymptotic growth rate and we provide conditions under which firm size eventually goes to zero or grows without bounds

optimal executive compensation when firm size follows geometric brownian motion this paper studies a continuous time agency model in which the agent controls the drift of the geometric brownian motion firm size the changing firm size generates partial incentives analogous to awarding the agent equity shares according to her continuation payoff when the agent is as patient as investors performance based stock grants implement the optimal contract our model generates a leverage effect on the equity returns and implies that the agency problem is more severe for smaller firms that the empirical evidence shows that grants compensation are largely based on the ceo s historical performance rather than current performance lends support to our model

dynamic moral hazard and risk shifting incentives in a leveraged firm i develop an analytically tractable model that integrates the risk shifting problem between bondholders and shareholders with the moral hazard problem between shareholders and the manager an optimal contract binds shareholders and the manager and this contract s flexibility allows shareholders to relax the manager s incentive constraint following a good profitability shock thus the optimal contract amplifies the upside and thereby increases shareholder appetite for risk shifting whereas some empirical studies find a positive relation between risk shifting and leverage others find a negative relation this model predicts a non monotonic relation between risk shifting and leverage and can reconcile these contradictory empirical findings

discrimination nepotism and long run wage differentials the wage discrimination model developed by becker has been criticized for predicting that competitive forces will lead to the disappearance of racial discrimination in the long run we have reformulated the model in terms of nepotism toward white workers rather than discrimination against black workers in this new framework both nepotistic and taste neutral firms are expected to survive the competitive struggle in the long run therefore the new framework is consistent with long run as well as short run racial wage differentials

the causes and consequences of distinctively black names in the 1960s blacks and whites chose relatively similar first names for their children over a short period of time in the early 1970s that pattern changed dramatically with most blacks particularly those living in racially isolated neighborhoods adopting increasingly distinctive names but a subset of blacks actually moving toward more assimilating names the patterns in the data appear most consistent with a model in which the rise of the black power movement influenced how blacks perceived their identities among blacks born in the last two decades names provide a strong signal of socioeconomic status which was not previously the case we find however no negative relationship between having a distinctively black name and later life outcomes after controlling for a child s circumstances at birth

does school quality matter returns to education and the characteristics of public schools in the united states this paper estimates the effects of school quality measured by the pupil teacher ratio average term length and relative teacher pay on the rate of return to education for men born between 1920 and 1949 using earnings data from the 1980 census we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling rates of return are also higher for individuals from states with better educated teachers and with a higher fraction of female teachers holding constant school quality measures however we find no evidence that parental income or education affects average state level rates of return

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

separate and unequal in the labor market human capital and the jim crow wage gap competing explanations for the long standing gap between black and white earnings attribute different weight to wage discrimination and human capital differences using new data on local school quality we find that human capital played a predominant role in determining 1940 wage and occupational status gaps in the south despite entrenched racial discrimination in civic life and the lack of federal employment protections the resulting wage gap coincides with the higher end of the range of estimates from the post civil rights era we estimate that truly separate but equal schools would have reduced wage inequality by 29 48

do employer preferences contribute to sticky floors the authors investigate the importance of employer preferences in explaining sticky floors the pattern in which women are less likely as compared to men to start to climb the job ladder the authors perform a randomized field experiment in the belgian labor market and test whether hiring discrimination based on gender is heterogeneous by whether jobs imply a promotion compared to the applicants current position the findings show that women receive 33 fewer interview invitations when they apply for jobs that imply a first promotion at the functional level by contrast the results show that their hiring chances are not significantly affected by the authority level of the job

a simple model of advertising and subscription fees abstract traditional and modern mass media such as television newspapers magazines and internet sites typically derive the bulk of their revenues from advertisements rather than subscriptions we present a simple model that explains this phenomenon

wages employment and statistical discrimination evidence from the laboratory i introduction while taste based discrimination becker 1957 is driven by prejudice research on statistical discrimination attempts to explain differential treatment of individuals unrelated to prejudice in essence statistical discrimination results when the actual or assumed statistical properties of a group are applied to anyone belonging to that group differential treatment based on lower average outcomes of one s group e g minorities females was considered a starting point for modeling of statistical discrimination see phelps 1972 however labor market researchers then considered that statistical discrimination could result from measures other than the average outcomes of one s group see aigner and cain 1977 lundberg and startz 1983 theoretical models have explored various reasons why statistical discrimination might arise in varied contexts most notable are the models based on differential screening or communication costs cornell and welch 1996 lang 1986 noisier productivity signals see discussion in aigner and cain 1977 or incomplete information lundberg and startz 1983 1 field studies some of which involve experimental manipulations have uncovered evidence of statistical discrimination in mortgage lending ladd 1998 auto sales ayers and siegelman 1995 goldberg 1996 harless and hoffer 2002 sports card price negotiations list 2004 law enforcement decisions applebaum 1996 exam grading hanna and linden 2012 taxi fare negotiations castillo et al 2013 and vehicle repair estimates gneezy and list 2006 in labor markets some discrimination may be due to factors other than productivity characteristics neumark 1999 but the evidence for statistical discrimination based on race has been elusive see altonji and pierret 2001 identifying statistical discrimination from field data is complicated by the fact that it may arise as first moment or second moment statistical discrimination and they are difficult to disentangle empirically more controlled laboratory studies have also examined statistical discrimination anderson and haupert 1999 castillo and petrie 2010 davis 1987 dickinson and oaxaca 2009 fershtman and gneezy 2001 masclet peterle and larribeau 2012 2 findings from these laboratory studies indicate that statistical discrimination may result from aversion to risk mistaken stereotypes biased probability assessments or incomplete information the benefit of the laboratory approach is our ability to control and cleanly identify the source of the discrimination if it exists whether taste based or statistical discrimination is most always measured along a single dimension such as vehicle pricing labor market wages group choice or job assignments 3 however in many instances multiple avenues for discrimination exist simultaneously and to focus on only one may produce a systematically biased view of the prevalence of statistically based discrimination 4 in this paper we examine statistical discrimination in a controlled experimental environment statistical discrimination in our study can only be based on productivity distribution risk attached to worker groups we not only cleanly separate taste based from statistical discrimination but we also cleanly isolate second moment statistical discrimination in a way not possible from field data building on dickinson and oaxaca 2009 our key contribution is to examine an environment in which discrimination may be exercised simultaneously along the dimensions of both wages and employment rates this more closely approximates the field environments we hope to study where discrimination may exist in terms of labor market wages and or hiring practices auto sales prices and or sales rates mortgage rates and or home sales as in dickinson and oaxaca 2009 subjects negotiate in a simulated labor market where worker subjects are given an induced common knowledge productivity distribution

optimal long term financial contracting we develop an agency model of financial contracting we derive long term debt a line of credit and equity as optimal securities capturing the debt coupon and maturity the interest rate and limits on the credit line inside versus outside equity dividend policy and capital structure dynamics the optimal debt equity ratio is history dependent but debt and credit line terms are independent of the amount financed and in some cases the severity of the agency problem in our model the agent can divert cash flows we also consider settings in which the agent undertakes hidden effort or can control cash flow risk

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

a continuous time version of the principal agent problem this paper describes a new continuous time principal agent model in which the output is a diffusion process with drift determined by the agent s unobserved effort the risk averse agent receives consumption continuously the optimal contract based on the agent s continuation value as a state variable is computed by a new method using a differential equation during employment the output path stochastically drives the agent s continuation value until it reaches a point that triggers retirement quitting replacement or promotion the paper explores how the dynamics of the agent s wages and effort as well as the optimal mix of short term and long term incentives depend on the contractual environment the understanding of dynamic incentives is central in economics how do companies motivate their workers through piece rates bonuses and promotions how is income inequality connected with productivity investment and economic growth how do financial contracts and capital structure give incentives to the managers of a corporation the methods and results of this paper provide important insights to many such questions this paper introduces a continuous time principal agent model that focuses on the dynamic properties of optimal incentive provision we identify factors that make the agent s wages increase or decrease over time we examine the degree to which current and future outcomes motivate the agent we provide conditions under which the agent eventually reaches retirement in the optimal contract we also investigate how the costs of creating incentives and the dynamic properties of the optimal contract depend on the contractual environment the agent s outside options the difficulty of replacing the agent and the opportunities for promotion our new dynamic insights are possible due to the technical advantages of continuous time methods over the traditional discrete time ones continuous time leads to a much simpler computational procedure to find the optimal contract by solving an ordinary differential equation this equation highlights the factors that determine optimal consumption and effort the dynamics of the agent s career path are naturally described by the drift and volatility of the agent s pay offs the geometry of solutions to the differential equation allows for easy comparisons to see how the agent s wages effort and incentives depend on the contractual environment finally continuous time highlights many essential features of the optimal contract including the agent s eventual retirement in our benchmark model a risk averse agent is tied to a risk neutral principal forever after employment starts the agent influences output by his continuous unobservable effort input the principal sees only the output a brownian motion with a drift that depends on the agent s effort the agent dislikes effort and enjoys consumption we assume that the agent s utility function has the income effect that is as the agent s income increases it becomes costlier to compensate him for the effort also we assume that the agent s utility of consumption is bounded from below

the role of human capital in earnings differences between black and white men d uring the past 50 years the earnings of black men have increased substantially both in absolute terms and relative to those of white men as shown in figure 1 in 1940 the black white weekly earnings ratio among men ages 25 34 was 49 percent by 1980 it had increased to 79 percent during the 1980s however the overall black white earnings gap did not narrow and at younger ages the gap actually widened although the 1980s is not the first decade since 1940 in which black men made little or no gains in relative earnings the 1950s was another the lack of progress in the 1980s is nevertheless puzzling and a source of concern this article examines the factors underlying the differential in earnings between black men and white men with a focus on the role of human capital since 1940 successive generations of black men entering the labor force have been increasingly more educated relative to white men both in terms of years of school completed and in the quality of schooling obtained as the education and income levels of black parents increased racial differences in the transmission of human capital in the home were also likely to have narrowed this convergence in educational differences combined with the migration of blacks out of the south contributed to the narrowing in the racial gap in earnings over the 1940 80 period particularly in the first half of the period but human capital factors education and migration were not the only source of convergence in black white differences in earnings the patterns of change in the earnings gap support the contention that declining labor market discrimination against blacks has also contributed to the rise in the black white earnings ratio moreover the acquisition of human capital itself has been strongly affected by societal and governmental discrimination since blacks were long provided with greatly inferior schooling resources

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

bargaining sorting and the gender wage gap quantifying the impact of firms on the relative pay of women there is growing evidence that rm specic pay premiums are an important source of wage inequality these premiums will contribute to the gender wage gap if women are less likely to work at high paying rms or if women negotiate worse wage bargains with their employers than men using longitudinal data on the hourly wages of portuguese workers matched with balance sheet information for rms we show that the wages of both men and women contain rm specic premiums that are strongly correlated with employer productivity we then show how the impact of these rm specic pay dierentials on the gender wage gap can be decomposed into a combination of bargaining and sorting eects consistent with the bargaining literature we nd that women receive only 90 of the rm specic pay premiums earned by men notably we obtain very similar estimates of the relative bargaining power ratio from our analysis of between rm wage premiums and from analyzing changes in

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

gender bias and credit access we extract an exogenous measure of gender bias from survey responses by descendants of u s immigrants on questions about the role of women in society we then use data on around 6 000 small business firms from 17 countries and find that in high gender bias countries female entrepreneurs are more likely to opt out of the loan application process and to resort to informal finance even though banks do not appear to actively discriminate against them these results are not driven by credit risk differences between female and male owned firms or by any idiosyncrasies in the set of countries in our sample

is tolerance good or bad for growth we investigate how tolerance as measured by attitudes toward different types of neighbors affects economic growth in a sample of 54 countries unlike previous studies by richard florida and others we find that tolerance toward homosexuals is negatively related to growth for tolerance toward people of a different race we do not find robust results but the sign of the estimated coefficients is positive suggesting that inclusion of people irrespective of race makes good use of productive capacity we propose mechanisms to explain these divergent findings which clarify why different kinds of tolerance may be of different economic importance