median voters or budget maximizers evidence from school expenditure referenda some readers may have found these results of greater interest were we able to confirm the directional hypotheses of the certainty setter model in addition to finding that spending is related to the reversion the much weaker prediction of the uncertainty model yet the failure of the certainty when base elections were optional their infrequent occurrence might be expected under either a median voter or a setter model for those districts that did hold base elections the observations appear consistent with a setter model but are either inexplicable by or inconsistent with a median voter model finally both a the relationship between the number of budget elections and the presence of base elections and b the outcome of mandatory base elections in 1978 provide a set of observations that are challenging to either model a similar challenge was posed by our investigation of budget elections when we called attention to the inadequacy of static full information models rather than resolving the question of the simple setter model against the simple median voter model our results indicate that both may be inappropriate and that endeavors dealing with complexities omitted here are warranted

inequality aversion and voting on redistribution some people have a concern for a fair distribution of incomes while others do not does such a concern matter for majority voting on redistribution fairness preferences are relevant for redistribution outcomes only if fair minded voters are pivotal pivotality in turn depends on the structure of income classes we experimentally study voting on redistribution between two income classes and show that the effect of inequality aversion is asymmetric inequality aversion is more likely to matter if the rich are in majority with a poor majority we find that redistribution outcomes look as if all voters were exclusively motivated by self interest

understanding the nature of cooperation variability abstract our paper investigates framing effects in a large scale public good experiment we measure indicators of explanations previously proposed in the literature which when combined with the large sample enable us to estimate a structural model of framing effects the model captures potential causal effects and the heterogeneity of cooperation behavior we find that framing only has a small effect on the average level of cooperation but a substantial effect on behavioral heterogeneity explained almost exclusively by a corresponding change in the heterogeneity of beliefs about other subjects behavior the impact of changes in preferences and game form misperception is on the other hand negligible

comparative statics analysis of a fully closed city abstract this paper extends the existing comparative statics analysis about open or semiclosed cities notably that of w wheaton j econom theor 9 2 223 237 1974 to a fully closed city where urban land rent is redistributed to the city population specifically we examine the effects on changes in exogenous variables such as population size agricultural rent and initial endowments on endogenous variables such as welfare level city size and rent schedule most but not all of the existing results are reestablished surprisingly it is shown that in contrast to the existing literature and perhaps to intuition the city area may shrink when the city population increases the paper also extends the existing literature by analyzing the effect of the exogenous variables on the endogenous income and the demand for transportation it is shown that under plausible assumptions the quantity of transportation demanded declines with its price

bureaucratic behavior in the local public sector a revealed preference approach public sector bureaucratic utility is typically assumed to be a function ofbudget size or government employment although intuitively appealing thereare no definitive direct tests of the assumption to fill this gap thispaper exploits data that isolate resource allocation decisions made by localpublic sector bureaucrats we use revealed preference theory to find thatthe bureaucracy behaves as if bureaucratic utility is an increasingfunction of employment across government functions and public spending providing direct evidence justifying the popular assumption in theoreticalmodels of government behavior

cash by any other name evidence on labelling from the uk winter fuel payment standard economic theory implies that the labelling of cash transfers or cash equivalents e g child benefits food stamps should have no effect on spending patterns the empirical literature to date does not contradict this proposition we study the uk winter fuel payment wfp a cash transfer to older households exploiting sharp eligibility criteria in a regression discontinuity design we find robust evidence of a behavioural effect of the labelling on average households spend 41 of the wfp on fuel if the payment was treated as cash we would expect households to spend approximately 3 of the payment on fuel

the exponential density function first principles comparative statics and empirical evidence abstract it is well known that the exponential density function can be derived using a compensated demand for bousing with a unitary price elasticity we investigate how such an elasticity can arise from first principles and are thus able to identify the determinants of the density gradient we then use these determinants together with existing comparative statics to examine unambiguously the relation between the density gradient and some exogenous variables we conclude that our results are closely supported by existing empirical evidence except for the effect of urban population size on the density gradient

endogenous federal grants and crowd out of state government spending theory and evidence from the federal highway aid program contrary to simple theoretical predictions existing evidence suggests that federal grants do not crowd out state government spending a legislative bargaining model with endogenous grants documents a positive correlation between grant receipts and preferences for public goods this correlation has likely biased existing work against measuring crowd out to correct for such endogeneity the model motivates instruments based on the political power of state congressional delegations exploiting this exogenous variation in grants the instrumental variables estimator reports crowd out that is statistically and economically significant this endogeneity may explain the flypaper effect a nonequivalence between grant receipts and private income jel d70 h40 h77

is there a trade off between supervision and wages an empirical test of efficiency wage theory abstract the logic of efficiency wage theory suggests a trade off between wages and supervision this paper reports evidence that high levels of supervision are indeed associated with lower wage levels the empirical investigation centers on the effect that safety supervision by host employers has on the wages of contract maintenance workers in the petrochemical industry this narrow focus is important special institutional features of the contract employment relationship in petrochemicals make it possible to ameliorate econometric problems that may have influenced earlier studies

the flypaper effect and the deadweight loss from taxation abstract the difference in the effects on public expenditure by local governments of consumer s incomes and intergovernmental grants is shown to be consistent with the maximization of a representative consumer s utility by a local government increasing marginal deadweight loss of taxation accounts for the result explanations of the flypaper effect do not therefore require models of strategic bureaucratic behavior or voter misperceptions

the fungibility of health aid reconsidered abstractthis article draws further attention to the importance of taking into account off budget aid when estimating the degree of foreign aid fungibility it does so by re evaluating the results of a recent influential paper which concluded that health aid is fully fungible in the long run allowing for the presence of off budget aid indicates that the degree of fungibility of health aid is much more uncertain than at first blush appears under plausible assumptions about the role of off budget aid the conclusion of full fungibility is overturned and at most only a limited degree of fungibility is found

unsticking the flypaper effect in an uncertain world abstract we provide a novel explanation for the flypaper effect based on insurance arguments in our model the flypaper effect arises due to the differential response of precautionary savings to private income or fiscal transfers shocks in an uncertain world with incomplete markets the model generates two testable implications i the flypaper effect is a decreasing function of the correlation between fiscal transfers and private income and ii such relationship is stronger the higher is the volatility of fiscal transfers and or private income an empirical analysis of argentinean provinces for the period 1963 2006 finds strong support for the model s implications

price and income distortions under separate spending and taxing decisions abstract this paper analyzes the extent to which intergovernmental grants create a discrepancy between the local voter s actual and perceived budget constraints the model is innovative in that it introduces grant illusion due to income misperceptions theoretically distinguishes illusion caused by income distortions from illusion caused by price distortions and separately tests for the magnitude of each empirical analysis identifies both price and income misperceptions as significant determinants of voter behavior these unbiased estimates reveal that previous research has misspecified the budget constraint resulting in overestimation of the stimulative effects of intergovernmental grants on local expenditure

the flypaper effect what happens to a state s spending when it receives an unconditional grant from the federal government the standard theoretical analysis predicts that the increase in spending will be the same as that generated by an equivalent increase in local incomes or roughly 5 10 percent for most states in contrast numerous empirical analyses have found that spending increases by much more with some estimates near 100 percent this result is known as the flypaper effect since the money appears to stick where it hits the authors review this evidence as well as other studies that find similar behavior in firms

a predictive index for the flypaper effect abstract it is well established that lump sum public grants boost local government spending more than an equivalent increase in private income the flypaper effect one shortcoming of the related literature is that it presumes all communities have an identical propensity to consume from an intergovernmental grant this paper is one attempt to allow for a heterogeneous response the working conjecture is that government expenditure on administrative overhead is a gauge of voter control over fiscal decisions high overhead spending implies a lower provision of public services and a stronger role for revenue maximizing forces in the budget setting process as such the flypaper effect should be more marked in high overhead communities an overhead index is applied to a sample of pennsylvania communities in the philadelphia metropolitan area it is difficult to understand these governments spending propensities from various windfall revenues without the help of the overhead index supportive evidence for this approach because overhead data is widely available the technique here can be used to address important policy questions such as predicting variations in state government responses to the recently created lump sum welfare grants

asymmetries in the flypaper effect empirical evidence for the flemish municipalities recent empirical work on us governments indicates an asymmetry in the flypaper effect the elasticity of public spending with respect to changes in grants differs significantly for positive and negative changes using a panel of data on flemish municipalities covering the period 1989 1996 we also find clear evidence of asymmetrical reactions more precisely the results suggest the presence of a fiscal replacement type of asymmetry when grants grow municipalities spend most of the additional revenue however when grants fall spending is unaffected and municipalities compensate the loss through additional taxation

unemployment long term employment relations and productivity growth using an effort regulation type of efficiency wage model it is demonstrated that a firm may respond to slackening labor markets by acting to increase the intensity with which workers work the magnitude of this work intensity effect depends on the structure of employment relations where long term employment relations are prevalent the effect of labor market slack on work intensity may be diminished these propositions are tested empirically by estimating the effects unemployment and long term employment have on productivity growth in two digit manufacturing industries copyright 1987 by mit press

equilibrium unemployment as a discipline device when finding employment is costly in this paper we study a model that incorporates costly job search into an efficiency wage model we show that the relationship between wages and detection rates is ambiguous in this framework the model can generate a positive relationship consistent with empirically reasonable values for unemployment rates job finding rates and employment duration dans ce memoire on etudie un modele qui incorpore une recherche d emploi couteuse dans un modele de salaire d efficience on montre que la relation entre salaires et taux de detection est ambigue le modele peut generer une relation positive consistante avec des valeurs empiriquement raisonnables pour les taux de chomage les taux de detection d emplois et les durees d emplois

learning while voting determinants of collective experimentation this paper combines dynamic social choice and strategic experimentation to study the following question how does a society a committee or more generally a group of individuals with potentially heterogeneous preferences experiment with new opportunities each voter recognizes that during experimentation other voters also learn about their preferences as a result pivotal voters today are biased against experimentation because it reduces their likelihood of remaining pivotal this phenomenon reduces equilibrium experimentation below the socially efficient level and may even result in a negative option value of experimentation however one can restore efficiency by designing a voting rule that depends deterministically on time another main result is that even when payoffs of a reform are independently distributed across the population good news about any individual s payoff increases other individuals incentives to experiment with that reform due to a positive voting externality

using a discontinuous grant rule to identify the effect of grants on local taxes and spending when investigating the effects of federal grants on the behavior of lower level governments it is hard to defend the handling of grants as an exogenous factor federal governments often set grants based on characteristics and performance of decentralized governments in this paper we make use of a discontinuity in the swedish grant system in order to estimate the causal effects of general intergovernmental grants on local spending and local tax rates the formula for the distribution of funds is used as an exclusion restriction in an iv estimation we find evidence of crowding in where federal grants are shifted to more local spending but not to reduced local tax rates

economic incentives and political institutions spending and voting in school budget referenda abstract allocation of resources in the local public sector involves economic and political forces in many u s states the bulk of spending on public education is subject to referendum we link spending proposals to referendum outcomes our model makes use of voting data to shed light on the extent to which referenda constrain spending we use data from school budget referenda in 544 new york school districts for the 1975 1976 school year our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the state grants in aid structure as well as to the referendum requirement in addition large school districts appear to behave more like budget maximizers than do small districts where proposals appear more in line with median voter demands

spatially variable property tax and optimal tax composition in congested monocentric cities george pigou ramsey and strotz unified abstract we explore the optimal spatial structure of the property tax in a monocentric city with transportation congestion to show how the availablity of revenue instruments impacts the properties of the optimal property tax we discuss three regimes with different combinations of a head tax congestion tolls and property tax in each regime the tax composition is optimally determined to finance a predetermined expenditure under the first regime with all the three taxes available the first best allocation is achievable only when the property tax is unused under the second regime where only head and property taxes are available a spatially variable property tax substitutes for the unavailable congestion tolls the head tax or subsidy fills the gap between the property tax revenue and the predetermined expenditure moreover property tax is negative positive close to the city center boundary under the third regime where only property tax is available the role of the property tax is twofold to substitute for the unavailable congestion tolls and to finance the predetermined expenditure in general for both roles the optimal tax rates are spatially variable furthermore if its role as a substitute for congestion tolls dominates its other role the property tax may be negative close to the boundary

a little fairness may induce a lot of redistribution in democracy we use a model of self centered inequality aversion suggested by fehr and schmidt 1999 to study voting on redistribution we theoretically identify two classes of conditions when an empirically plausible amount of fairness preferences induces redistribution through referenda we test the predictions of the adapted inequality aversion model in a simple redistribution experiment and flnd that it predicts voting outcomes far better than the standard model of voting assuming rationality and strict self interest

special interest groups and the allocation of public funds i propose a fully rational model of government contracting that explains differences in local government spending from grants and other income in this model violations of fungibility arise from dynamic interactions between politicians and interest groups with the ability to raise funds for the local government the predictions of the model are tested by exploiting unique features of windfalls received by states under a settlement with the tobacco industry although windfalls are legally unrestricted the median state increased spending on tobacco control programs from zero to 2 30 per capita upon receipt of funds the marginal propensity to spend on such programs is 0 20 from settlement revenue and zero from overall income states which were not involved in the settlement lawsuits spend less these results cannot be explained by existing models in the literature

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

government decision making and the incidence of federal mandates abstract this paper analyzes the effects of federally mandated program changes on state spending and revenues incorporating and evaluating the predictive value of several common theories of the state decision making process using several sources of exogenous increases in public medical spending i estimate that the entire state portion of the burden of mandated spending is borne by decreases in other public welfare spending while federal mandates may influence the composition of benefits at the state level it is much more difficult for them to change the total level of state transfers comparison of state reactions to different shocks suggests that these reductions are due in part to the substitutability of programs in the voter utility function but also in part to the stickiness of spending within budget categories states with greater racial differences between recipients and voters and states with less generous neighbors reduce other public welfare spending by even more alleviating the burden the medical expansions imposed on their taxpayers mandates may thus serve only to increase inequality across states

estimating a public school expenditure model under binding spending limitations abstract a model explaining desired expenditure on education is estimated for a sample of new jersey school districts because the limit on annual increases in school spending is binding for a subsample of jurisdictions the tobit estimation procedure is used we test for equality of the pre and postlimitation structures and find substantial similarity the cap on expenditure increases was part of a court ordered reform of new jersey school finance law the results can be used to explain the failure of the existing school finance laws in lessening expenditure disparities at the lower end of the distribution

screening competition and job design economic origins of good jobs in recent decades many firms offered more discretion to their employees often increasing the productivity of effort but also leaving more opportunities for shirking these high performance work systems are difficult to understand in terms of standard moral hazard models we show experimentally that complementarities between high effort discretion rent sharing screening opportunities and competition are important driving forces behind these new forms of work organization we document in particular the endogenous emergence of two fundamentally distinct types of employment strategies employers either implement a control strategy which consists of low effort discretion and little or no rent sharing or they implement a trust strategy which stipulates high effort discretion and substantial rent sharing if employers cannot screen employees the control strategy prevails while the possibility of screening renders the trust strategy profitable the introduction of competition substantially fosters the trust strategy reduces market segmentation and leads to large welfare gains for both employers and employees

fiscal illusion budget maximizers and dynamic equilibrium this paper extends previous work in grant induced fiscal illusion in two ways while previous models have focused on the existence of rational comparative static equilibria in the presence of illusion this work focuses on the dynamic process by which steady state equilibria can be achieved furthermore endogeneity in grants is incorporated which necessitates the use of a budget maximizing hypothesis however it is shown that a broader interpretation of the budget maximizing assumption is necessary in order for this characterization to make sense in a grantor recipient framework

income distribution and the residential density gradient abstract w c wheaton journal of economic theory 9 223 237 1974 asserted that an increase in incomes lowers central densities raising suburban densities in closed monocentric cities with identical resident incomes and tastes we show that with identical cobb douglas tastes and identical incomes a sufficient condition for densities to fall everywhere when incomes rise is that the land rent bill of the innermost resident be larger than the commuting bill of the outermost resident estimating this model using data in e s mills studies in the structure of the urban economy johns hopkins press baltimore london 1972 we show that densities are predicted to fall everywhere in baltimore denver milwaukee philadelphia rochester and toledo when income is increased by 10 circa 1960 but when we disaggregate the model using the 1960 census income distribution keeping tastes identical a 10 increase in incomes rotates densities around distances which vary from 3 3 miles in toledo to 9 8 miles in philadelphia in addition to empirically vindicating wheaton s assertion the disaggregated model gives approximately negative exponential densities consistent with spatial equilibrium and without resorting to r f muth s cities and housing university of chicago press 1969 assumption of a unitary compensated price elasticity of demand

the flypaper effect and competition in the local market for public goods in this paper we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods specifically we examine intergovernmental aid as a resource bureaucrats seek to control intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo classical economic theory in this research the flypaper effect is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences we empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods competition does not consistently limit the flypaper effect the implications of this finding for theories of competition in the local market for public goods are then discussed

an empirical study of matching grants the cap on cap abstract funding mechanisms for social expenditures are currently being reformed in many countries while the theoretical implications of these changes are often easily identified their empirical magnitude is not always as clear for example in federal systems social expenditure is often funded by matching grants and estimates of the effect of varying matching rates on expenditures by sub national governments vary widely the ambiguity is due in part to inherent difficulties identifying price and income effects of federal grants given the structure of the funding mechanisms in most countries in this paper we examine a recent reform in canada in which federal grants for welfare expenditures were capped converted from an open ended to a closed ended matching grant importantly the cap applied to only three of 10 provincial governments our empirical strategy exploits the time series cross section variation in the funding mechanism provided by the differential application of the reform this approach potentially surmounts some of the difficulties which have beset earlier studies we find that the affected provinces did respond to the reform by reducing the growth rate of expenditures it was 8 to 9 percentage points lower than predicted in the absence of the cap over the medium term

general revenue sharing and public sector unions abstract in this paper i find that in the context of a large intergovernmental general revenue sharing program implemented from 1972 to 1986 cities increased expenditures one for one with federal grants which is suggestive of a large flypaper effect furthermore i find that cities in states with pro union collective bargaining laws spent more than half of the transfers on increased wages while cities in states without such laws spent a greater fraction on increased government services these latter findings suggest that public sector unions play an important role in determining the usage and impact of intergovernmental grants

mental accounting of public funds the flypaper effect in the lab abstract we report evidence from a series of laboratory experiments that focus on mental accounting of public funds groups of three players decide upon how much to redistribute within the group we measure the preference to redistribute when transfers are made either out of individual accounts the players own money or out of a common account the group s money since the common account is dissolved after each round and paid out to individuals its size should not affect the decision to redistribute the experiment is designed to control for anchoring as a potential confounding effect we find that the size of the common account significantly affects redistribution behavior specifically the transfer increases in the size of the common account this effect is significantly more pronounced when the transfer is paid out of the common account instead of the individual account we interpret these findings as evidence for a flypaper effect due to mental accounting

carrots and sticks pay supervision and turnover the efficiency wage model ewm has been advanced as an explanation for large and persistent wage differentials the shirking version of the ewm assumes a trade off between self supervision and external supervision the turnover version assumes turnover is costly to the firm variation across firms in the cost of monitoring shirking or turnover then is hypothesized to account for wage variations across firms for homogeneous workers using a new sample of firm data this paper presents empirical evidence of the trade off of wage premiums for supervisory intensity and turnover little evidence is found to support either version of the ewm

uncertainty task environment and organization design an empirical investigation the paper addresses two broad research questions 1 how do internal uncertainty associated with the task environment and external uncertainty arising from market volatility impact organization design 2 what are the relationships among various elements of organization design delegation of decision making incentives monitoring and internal labor market practices promotion training employment security we expand on prendergast 2002a who challenged the conventional view of a tradeoff between risk and incentives and build a single unified framework for answering our two research questions using a uniquely rich dataset that contains detailed information about the task environment of core employees and organization design at the individual group and firms levels in 530 minnesota firms in the mid 1990s we first find support for prendergast s key argument that internal uncertainty over which employees have control affects directly the allocation of decision making and only indirectly incentives via allocation of decision making this confirms similar findings by foss and laursen 2005 devaro and kurtulus 2010 and shi 2011 we also find that internal uncertainty has much impact on organization design through the choice of delegation of decision making at the employee level less so at the group level and very little at the firm level whereas external market uncertainty has little effect on organization design especially at the individual and group level decision making monitoring various internal labor market practices and incentives are strongly related to each other through substitution and complementarity

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

labor supervision and institutional conditions evidence from bicol rice farms this article analyzes labor supervision activities reported in a survey of rice farmers in the bicol region of the philippines we present a theoretical model that relates supervision intensity to institutional conditions we estimate a supervision intensity equation and control for the decision to hire labor the decision to supervise hired labor and the type of the labor contract the empirical estimates use different village level spatial and demographic indicators as proxies for institutional conditions the results are consistent with the prediction of the theoretical model that supervision increases with weaker institutional conditions

asymmetric information and agenda control the bases of monopoly power in public spending abstract a pervasive empirical finding widely known as the flypaper effect is that lump sum intergovernmental grants generate considerably greater public spending by the recipient jurisdiction than would be predicted by equivalent shifts in personal income in that jurisdiction moreover such observations are inconsistent with standard median voter models of the political process we posit a model in which it is in the interest of suppliers of a collectively provided good not to generate full information to voters about outside aid the empirical results are consistent with flypaper and suggest that voters are very poorly informed about outside grants

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

the flypaper effect identifying areas for further research the flypaper effect literature dates back three decades it is overwhelmingly neo classical in approach attempting to improve the median voter demand model and or temper it with public choice supply side perspectives whilst this approach provided valuable early substantial analytical insights more recent papers seem to have contributed only marginally to an understanding of the flypaper effect if indeed it exists at all hence as well as providing a long overdue comprehensive review of the literature on the flypaper effect this paper identifies more productive avenues for further research

mental accounting in portfolio choice evidence from a flypaper effect this paper documents a lack of coordination between the asset allocations of different financial accounts in a household portfolio our findings are predicted by the theory of mental accounting richard h thaler 1985 1990 1999 agents sometimes make decisions about individual accounts in their portfolio without considering their other accounts the setting for our analysis is a large u s firm when an employee at this firm makes a 401 k contribution the company makes a matching contribution proportional to the employee s contribution up to a match threshold in march 2003 the firm changed its 401 k matching rules creating a natural experiment both before and after the rule change the initial allocation of participants own contribution flows was determined by the participants 1 the change in march 2003 was to the policy determining the initial asset allocation of the employer match contributions in the first regime before march 2003 the firm directed matching contribution flows entirely into employer stock this was not a binding restriction as participants could freely reallocate their match balances after matching contributions were made although in practice participants rarely did so in march 2003 the company changed its match policy requiring new enrollees to actively choose the asset allocation for both their own and match contribution flows the change between these regimes was economically neutral any allocation of balances in one regime could be replicated in the other nevertheless allocations to employer stock differed vastly across the two regimes employees who enrolled in february 2003 just before the regime change allocated 23 of their own contribution flows to employer stock since all of their match contributions were directed into employer stock this resulted in a 56 total 401 k allocation to employer stock combining the own contribution and match contribution accounts few of these february enrollees made subsequent trades to reduce their employer stock balances in either account employees who enrolled in march 2003 right after the change allocated 23 of their total own plus match contribution flows to employer stock notice that own contribution allocations to employer stock in the first regime precisely match the combined allocation of own and match contributions in the second regime 23 in both cases even though combined allocations differ greatly across the regimes these results imply that each dollar of employer stock contributed to enrollees through the match in the first regime increased the employees total holdings of employer stock by a full dollar rather than being offset by reduced employer stock holdings elsewhere or being sold off directly in other words money sticks where it hits a phrase attributed to arthur okun generating an asset allocation flypaper effect that is akin to the flypaper effects of public finance corporate finance and intra household consumption 2 after considering several explanations for the asset allocation flypaper effect we conclude that it is due in part to mental accounting our results can be explained by the following simple model in the first regime new enrollees actively allocated only their own contribution flows effectively ignoring the fact that their matching contributions were entirely directed into employer stock in the second regime the match allocation became salient because new enrollees were required to choose both their match and own contribution allocations during the enrollment process this caused enrollees to consider their entire 401 k portfolio instead of just their own contribution accounts as a result the fraction of total contributions allocated to employer stock under the second regime equaled the fraction of own contribution flows allocated to employer stock under the first regime the average participant allocated roughly one quarter of assets to employer stock in whatever accounts were salient whether the set of salient accounts was narrow regime one or broad regime two the dependence of portfolio outcomes on account salience is inconsistent with investors having a clear target asset allocation for their entire portfolio which they efficiently implement through their investment choices in accordance with much prior research we also find that investors are quite passive rarely reallocating their portfolios 3 however our central finding concerns asset allocation decisions made at enrollment a point when people have overcome their passivity and are taking action investor passivity thus cannot account for the unresponsiveness of own contribution allocations to the match allocation at enrollment under the first regime although passivity helps explain why these initial decisions are rarely reversed subsequently

the flypaper effect and other anomalies abstract i develop a model in which income both in its own right and as a proxy for other socioeconomic characteristics is an input in the production function for local public services the most obvious example is education though there are other applications as well the comparative statics results from this model yield the following results 1 the observed flypaper effect the tendency for local government to spend a higher fraction of unrestricted grants than income of residents may be due at least in part to the fact that own income but not grants is a substitute for purchased inputs in the technology hence the propensity to spend on purchased inputs out of own income is lower than out of grants 2 the income elasticity of demand for public sector output may be higher than the observed income elasticity of demand for purchased inputs 3 equalization of educational opportunity via wealth neutrality as suggested by feldstein requires major changes in education finance once we recognice the distinction between purchased inputs and output

where to go workers reasons to quit and intra vs interindustry job mobility we show that workers reasons for quitting their job affect their decision to stay in or leave their industry using survey data among public sector employees in the netherlands workers quitting for e g pay work pressure or job duties move relatively often to another industry in contrast to workers quitting for commuting time or the atmosphere at work this suggests that workers use their experience in the initial job to update their expectations on other jobs in the industry as the first set of job aspects is more likely to be related among jobs within an industry than the latter furthermore it is shown that workers reasons to quit fully explain the differences in wage growth between intra and interindustry job movers lastly we find that workers who quit for pay or management often leave the public sector altogether the data used in this article are proprietary

determinants of management compensation with risk averse agents and dispersed ownership of the firm abstract the salaries of top managers consist of two parts one part depending on profits the other being constant in a model of management compensation schemes with risk averse agents holmstrom and milgrom 1987 predict that an increasing variance in profits should reduce the profit relatedness of salaries using data from germany we show that indeed a larger variance of profits reduces the pay performance sensitivity moreover we analyze the relative influence of profits as compared to firm size on managerial compensation in general as well as the relationship between pay performance sensitivity and ownership structure

do federal grants boost school spending evidence from title i abstract one of the federal government s main elementary and secondary education programs is title i which allocates money for compensatory education to school districts based on child poverty i use sharp changes in per pupil grant amounts surrounding the release of decennial census data to identify effects of title i on state and local education revenue and how much the program ultimately increases spending by recipient school districts i find that state and local revenue efforts initially are unaffected by title i changes but that local governments substantially and significantly crowd out changes in title i within in a 3 year period

is there an intrahousehold flypaper effect evidence from a school feeding programme are public transfers targeted toward children neutralised by the household as the theory of altruism implies or is there an intrahousehold flypaper effect whereby such transfers stick to the child this paper studies the impact of a school feeding programme on child caloric intake in the philippines using a quasi experimental methodology the empirical results confirm an intrahousehold flypaper effect indeed they indicate virtually no intrahousehold reallocation of calories in response to the feeding programme in poorer households however children s gains from the programme appear to be taxed more heavily

efficiency wages deferred payments and direct incentives in agriculture empirical evidence from agricultural labor markets is consistent with efficiency wage theory and inconsistent with several alternative explanations according to this theory the higher wage or deferred payment benefits that direct hire growers pay relative to that of farm labor contractors is an efficiency wage growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers copyright 2002 oxford university press

legal constraints and the choice of educational grant structures recent empirical work suggests that legalconstraints are significant in choosingstate educational grant structures unfortunately the literature has not takensuch constraints into account thus callinginto question particular grant structurerecommendations this paper studies theconditions under which a legislature underorder to reform its educational grantstructure prefers foundation grants overdistrict power equalization grants atheoretical model is presented in which thechoice is shown to depend on the legalbasis of the court s decision and theempirical validity of this conclusion isdemonstrated using connecticut data and aseparate model of school districtexpenditure choice

narrow bracketing and dominated choices an experiment by tversky and kahneman 1981 illustrates that people s tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first order stochastically dominated by other available combinations we investigate the generality of this effect both theoretically and experimentally we show that for any decisionmaker who does not have constant absolute risk averse preferences and who evaluates her decisions one by one there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices we also characterize as a function of a person s preferences the amount of money that she can lose due to a single mistake of this kind the theory is accompanied by both a real stakes laboratory experiment and a large sample survey from the general u s population replicating tversky and kahneman s original experiment where decisionmakers with prototypical prospect theory preferences will choose a dominated combination we find that 28 of the participants do so in the survey we ask the respondents about several hypothetical large stakes choices and find higher proportions of dominated choice combinations a statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect theory value functions and that about 83 of people bracket narrowly none of these results varies strongly with the personal characteristics of participants we also demonstrate directly that dominated choices are driven by narrow bracketing when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey

should workers care about firm size the authors analyze how firms of different sizes reward measured skills and unmeasured ability the empirical methodology based on nonlinear instrumental variable estimation permits direct estimation of the returns to unmeasured ability by firm size an analysis of panel data from the canadian survey of labour and income dynamics for two periods 1993 1998 and 1996 2001 reveals statistically significant differences between firms of different sizes in particular returns to unmeasured ability are higher in medium sized firms than in either small firms or large firms the authors find that the firm size wage gap and the differential in returns to unmeasured ability between small and medium sized firms is mainly explained by ability sorting the fact that larger firms reward ability less than medium sized firms is consistent with an explanation based on monitoring costs when firms become too large monitoring costs may prevent them from rewarding ability directly through wages

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

the trade off between supervision and wages evidence of efficiency wages from the nlsy standard efficiency wage models suggest that workers employed in places with lower probabilities of identifying shirking will earn more as will workers who have better alternative opportunities this paper provides new empirical evidence in support of efficiency wage theory using the national longitudinal surveys of youth data the empirical results support the prediction of the model that workers employed in larger work groups are paid more a finding consistent with a supervision wage trade off additional evidence supports the prediction that workers with better alternative opportunities earn more the classical competitive theories of wage determination predict that workers will be paid the value of their marginal product these theories suggest that after accounting for differences in working conditions there should be no variation in wages among homogeneous workers recent findings that industry affiliation and firm size affect wages suggest that part of the explanation of wage structure is missing these results call into question the view that industry wage differentials can plausibly be rationalized with textbook competitive models krueger and summers 1988 p 280 this paper follows the efficiency wage literature by assuming that one important determinant of wage differences is variation in employers ability to monitor workers efforts 2 this paper provides new empirical evidence in support of efficiency wage theory using data from the national longitudinal surveys of youth nlsy a data set that is noticeably absent from the efficiency wage literature efficiency wage models attempt to complete the explanation of wage structure by focusing

a model of local demand for education abstract a careful modeling of the spending behavior of local school districts in new jersey is presented the theoretical model relies on the common hypothesis of political competition leading to a median outcome as well as the assumption that school superintendents act as budget maximizers the model is estimated for a sample of 177 school districts under three different aid formulas pooling of the cross sections suggests that the response of school expenditures to changes in variables other than those associated with school aid parameters has remained constant over time the results are discussed in the context of recent theories regarding the effect of intergovernmental aid on the level of public expenditure

when labour market rigidities are useful for innovation evidence from german iab firm level data abstract supply side economists made numerous pleas for removing labour market rigidities through structural reforms from a schumpeterian viewpoint however one can argue that labour market rigidities create useful incentives for innovation our estimates on german panel data 2007 2015 support the schumpeterian view using the taxonomy of industries by peneder 2010 we find that evidence of the schumpeterian view is particularly strong in r d intensive manufacturing industries as well as in service industries with high degrees of cumulativeness of knowledge evidence of the schumpeterian view is weaker in low technology industries and in start ups when firms rely more on generally available knowledge rather than on firm specific and tacit knowledge accumulated in the past

do intergovernmental grants create ratchets in state and local taxes a large literature on the flypaper effect examines how federal grants to states at time period t affect state spending or taxes at time period t we explore the fundamentally different question of how federal grants at time period t affect state tax policy in the future federal grants often result in states creating new programs and hiring new employees and when the federal funding is discontinued these new state programs must either be discontinued or financed through increases in state own source taxes government programs tend to be difficult to cut as goes milton friedman s famous quote about nothing being as permanent as a temporary government program suggesting that it is likely that temporary federal grants create permanent future ratchets in state taxes far from being purely an academic question this argument is why south carolina s governor mark sanford attempted to turn down federal stimulus monies for his state we examine both the impact of federal grants on future state budgets and how federal and state grants affect future local government budgets our findings confirm that grants indeed result in future state and local tax increases of roughly 40 cents for every dollar in grant money received in prior years

all school finance equalizations are not created equal school finance equalization has probably affected american schools more than any other reform of the last 30 years understanding it is a prerequisite for making optimal social investments in human capital yet it is poorly understood in this paper i explain why it differs from conventional redistribution because it is based on property values which are endogenous to schools productivity taste for education and the school finance system itself i characterize equalization schemes and show why some level down and others level up schemes that strongly level down have unintended consequences even poor districts can end up worse off i also show how school finance equalization affects property prices private school attendance and student achievement

the panexponential monocentric model abstract we derive declining exponential rent and density functions for a monocentric city from a new set of assumptions which place restrictions on commuting costs rather than on the demand for land the utility function is cobb douglas with unrestricted income expenditure shares for land and for the numeraire good the marginal commuting cost is assumed to be proportional to income earning potential and exponentially declining in distance from the center at a particular constant rate these assumptions capture realistic properties of congested cities under these assumptions equilibrium land rent residential density and numeraire consumption all decline exponentially with distance although at different rates if it is also assumed that traffic speed at the edge of a city is equal to free flow speed then the rates of decline in rent residential density and numeraire consumption all increase with the city s physical size we also suggest a new statistical procedure for estimating negative exponential density functions from a cross section of cities of various sizes