a comment on neudeck and podczeck s adverse selection and regulation in health insurance markets abstract using the grossman equilibrium concept neudeck and podczeck journal of health economics 15 1996 387 show that imposing a minimum standard on a perfectly competitive insurance market can result in anti competitive effects decreased welfare with some insurers earning positive profits however the grossman concept precludes an insurer from offering two separating cross subsidizing health plans when an insurer can offer multiple plans as under both the nash and miyazaki wilson equilibrium concepts i show that minimum standards result in a doubleton equilibrium never allow positive total profits and increase welfare this is of interest since in 1997 more than half of establishments in the us offering choice of multiple plans did so through a single insurer

bonus culture competitive pay screening and multitasking to analyze the impact of labor market competition on the structure of compensation we embed multitasking and screening within a hotelling framework competition for talent leads to an escalation of performance pay shifting effort away from long term investments risk management and cooperation efficiency losses can exceed those from a single principal who dulls incentives to extract rents as competition intensifies monopsonistic underincentivization of low skill agents first decreases and then gives way to growing overincentivization of high skill ones aggregate welfare is thus hill shaped while inequality tends to rise monotonically bonus caps can help restore balance in incentives but may generate other distortions

some reflections on insurance pricing we analyse three aspects of the recent evolution of french automobile insurance by use of three simple theoretical models the fantastic development of professional mutuals the growing complexity of tariffs the increasing recourse to product differentiation each of these aspects can be interpreted as a step further in the direction of increasing premiums personalization the question we examine is how far should we go

optimal income taxation with adverse selection in the labour market this article studies optimal linear and non linear redistributive income taxation when there is adverse selection in the labour market unlike in standard taxation models firms do not know workers abilities and competitively screen them through non linear compensation contracts unobservable to the government in a miyazaki wilson spence equilibrium adverse selection leads to different optimal tax formulas than in the standard mirrlees 1971 model because of the use of work hours as a screening tool by firms which for higher talent workers results in a rat race and for lower talent workers in informational rents and cross subsidies the most surprising result is that if the government has sufficiently strong redistributive goals welfare is higher when there is adverse selection than when there is not policies that endogenously affect adverse selection are discussed the model has practical implications for the interpretation estimation and use of taxable income elasticities which are central to optimal tax design

competition among differentiated health plans under adverse selection market power and adverse selection are prevalent features of the market for pre paid health plans however most of the literature on adverse selection considers extreme cases either perfect competition or monopoly if instead health plans are horizontally differentiated then i profits derived from each low risk are higher than from each high risk and ii when the profits derived from each high risk are negative cross subsidization a health authority as informed as the health plans can implement a pareto improvement both local and global deviations from cross subsidization are addressed within a nash equilibrium framework

the deadweight gain of insurance taxation when risky activities are optional abstract some risky activities are optional for example motoring participation in them is most attractive for good risks creating a tendency for advantageous selection in the associated insurance market taxing insurance consequently yields deadweight gains when type is hidden results are strengthened if optimism is present finally endogenising participation implies that the standard positive correlation test for the presence of policy relevant asymmetric information may fail

overconfidence and asymmetric information the case of insurance this paper contributes to the recent behavioral economics literature by showing that whether or not overconfidence changes qualitative predictions in asymmetric information markets may depend on the market structure itself we first show that overconfidence may overturn fundamental relations between observable variables in perfect competition asymmetric information insurance markets in monopolistic insurance markets in constrast we find that overconfidence may be observationally equivalent to variations in the risk composition of the economy our analysis provides a number of novel testable implications on i price heterogeneity within and across risk classes ii the relationship between ex post risk and insurance coverage iii the fact that a significant fraction of agents chooses to be uninsured and iv the relationship between underinsurance and age

a brain gain with a brain drain abstract we study human capital depletion and formation in an economy open to out migration as opposed to an economy which is closed under the assumption of asymmetric information the enlarged opportunities and the associated different structure of incentives can give rise to a brain gain in conjunction with a brain drain migration by high skill members of its workforce notwithstanding the home country can end up with a higher average level of human capital per worker

do potential migrants internalize migrant rights in oecd host societies this paper analyzes how countries provision of migrant rights affects potential migrants destination choice combining data on bilateral migration desires from over 140 origin countries and data on migrant rights in 38 mainly oecd destination countries over the period 2007 2014 we find that potential migrants tend to favour destinations that are more open to the inclusion of immigrants into their society in particular better access to and conditions on the labour market as well as access to nationality and to permanent residency significantly increase the perceived attractiveness of a destination country these results are robust across different specifications and hold for subsamples of origin countries as well as of destinations moreover some results vary across types of respondents educational opportunities for migrants for instance affect the migration desires of individuals aged 15 to 24 years but less so of individuals in other age groups

effects of insurance incentives on road safety evidence from a natural experiment in china we investigate the incentive effects of insurance experience rating on road safety by evaluating the claim frequency following a regulatory reform introduced in a pilot city of china our contribution to the growing literature on moral hazard is to offer a neat identification of a causal effect of experience rating on road safety by employing the differences in differences methodology in the framework of a natural experiment the pre treatment placebo test corroborates the assumption that the pilot city and the control city share the same pre reform time trends in claims we find that basing insurance pricing on traffic violations reduces claim frequency significantly these results are robust to the inclusion of vehicle controls alternative definitions of claim frequency two placebo experiment tests and several robustness checks the effects of basing pricing on past claims are not significant

taxation insurance and precautionary labor we examine optimal taxation and social insurance with adverse selection in competitive insurance markets in a previous literature it has been shown that with perfect insurance markets social insurance improves welfare since it is able to redistribute without creating distortions this result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance we show however that adverse selection can weaken the case for social insurance compared to a situation with perfect markets whenever social insurance mitigates private underinsurance it also causes welfare reducing effects by decreasing precautionary labor supply and hence tax revenue in addition adverse selection may reduce the redistributive potential of social insurance we illustrate our general results using different equilibrium concepts for the insurance market notably we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives

a simple tax structure for competitive equilibrium and redistribution in insurance markets with asymmetric information in their influential paper rothschild and stiglitz 6 demonstrated that the existence of nash equilibrium is not a general property of insurance markets when buyers have private information about their riskiness and firms face free entry and exit conditions this paper presents a simple and implementable system of taxes and subsidies applied to firms which permits a nash equilibrium always to exist we also show that more than one nash equilibrium is open to the regulator in particular government can effect risk discriminating redistribution without a priori knowledge of any individual buyer s riskiness hence it is not the case that the inability to distinguish between types of buyers rules out compensation risk discriminating transfers even in principle as claimed by schmalensee 7 442 finally we show that even when a nash equilibrium exists without government intervention there are always alternative and under some circumstances pareto superior equilibria open to the regulator since these alternative equilibria entail cross subsidization from low risk to high risk buyers our results suggest that the well known cross subsidization enforced through current regulatory practices is consistent with economic efficiency we conclude that the informational asymmetry assumed by rothschild and stiglitz poses distinct efficiency and distribution problems as do more conventional non informational situations of market failure and that regulators can influence the allocation of insurance through conventional instruments of intervention without assuming dictatorial control of the market

the efficiency of competitive equilibria in insurance markets with asymmetric information abstract this paper addresses the relationship between competitive equilibria and efficient allocations in an insurance market with asymmetric information using the definition of second best efficiency proposed by harris and townsend 1981 for environments characterized by informational assmmetry the efficiency properties of several proposed market equilibria are examined we find an analogue to the first optimality theorem a miyazaki wilson equilibrium always results in a second best allocation

cooperation productivity and profit sharing firm specific assets generate an ex post bargaining problem over surplus division and rational workers may collude to obtain a surplus share in nonpecuniary form through restriction of effort conversely profit sharing should motivate cooperation to increase productivity when work organization facilitates interaction and horizontal monitoring since productive effort yields positive externalities to workers under contractual surplus sharing in simultaneous tobit estimates we find a strong influence of profit sharing on factor productivity in a sample of medium sized metalworking capitalist firms in west germany proxies for human capital and organizational factors were included

a global assessment of human capital mobility the role of non oecd destinations discussions of high skilled mobility typically evoke migration patterns from poorer to wealthier countries which ignore movements to and between developing countries this paper presents for the first time a global overview of human capital mobility through bilateral migration stocks by gender and education in 1990 and 2000 and calculation of nuanced brain drain indicators building on newly collated data the paper uses a novel estimation procedure based on a pseudo gravity model then identifies key determinants of international migration and subsequently uses estimated parameters to impute missing data non oecd destinations account for one third of skilled migration while oecd destinations are declining in relative importance

screening with convex menus and optimal flow taxation abstract this paper considers a family of screening problems in which the principal is constrained to offer only convex menus applications include i optimal flow taxation when individuals can substitute consumption and leisure inter temporally ii optimal product design for a linear pricing monopolist iii non exclusive cum linearly priced annuity markets a modified version of a myerson 1979 mirrlees 1971 direct mechanism in which standard incentive compatibility constraints are replaced by no convexification constraints can be used to compute optimal allocations in this family of problems in the flow taxation application the optimal tax schedule necessarily features progressive marginal tax rates typically features distortions at the top and can be analyzed by adapting standard ironing techniques

harmful competition in insurance markets there is a general presumption that competition is a good thing in this paper we show that competition in the insurance markets can be bad and that adverse selection is in general worse under competition than under monopoly the reason is that monopoly can exploit its market power to relax incentive constraints by cross subsidization between different risk types cream skimming behavior on the contrary prevents competitive firms from using implicit transfers in effect monopoly is shown to provide better coverage to those buying insurance but at the cost of limiting participation to insurance performing simulation for different distributions of risk we find that monopoly in general performs much better than competition in terms of the realization of the gains from trade across all traders in equilibrium

brain drain and human capital formation in developing countries winners and losers using new data on emigration rates by education level we examine the impact of brain drain migration on human capital formation in developing countries we find evidence of a positive effect of skilled migration prospects on gross human capital formation in a cross section of 127 countries for each country of the sample we then estimate the net effect of the brain drain using counterfactual simulations countries combining relatively low levels of human capital and low emigration rates are shown to experience a beneficial brain drain and conversely there are more losers than winners and the former tend to lose relatively more than what the latter gain

buffer stocks and labor demand further evidence this paper presents estimates of a multivariate flexible accelerator model of labor demand hours and the number of production workers which shows that stocks of finished goods unfilled orders and materials inventories have significant impacts upon labor demand univariate time series models are used to capture expectations of the determinants of desired stocks new orders real wages and real raw materials prices and these magnitudes are found to follow a random walk without drift expected new orders and errors in forecasting new orders are found to have an important impact upon labor inputs real wage forecasting errors are found to be important for hours demand

multilateral resistance to migration the rate of migration observed between two countries does not depend solely on their relative attractiveness but also on the one of alternative destinations following the trade literature we term the influence exerted by other destinations on bilateral flows as multilateral resistance to migration and we show how it can be accounted for when estimating the determinants of migration rates in the context of a general individual random utility maximization model we propose the use of the common correlated effects estimator pesaran 2006 and apply it to high frequency data on the spanish immigration boom between 1997 and 2009 compared to more restrictive estimation strategies developed in the literature the bias goes in the expected direction we find a smaller effect of gdp per capita and a larger effect of migration policies on bilateral rates

imperfect information and the equitability of competitive prices in many markets sellers have imperfect information about the costs of sales to different buyers and the pattern of competitive pricing depends on the information available in order to analyze the equity implications of public policies requiring information suppression non utilitarian measures of the horizontal and vertical dimensions of pricing inequity caused by cross subsidization are proposed and examined better information generally reduces vertical inequity but if information about buyers is initially poor additional imperfect information may increase horizontal inequity if information is initially good more information generally lowers both dimensions of inequity

adverse selection and regulation in health insurance markets abstract in this paper we look at various ways to regulate the health insurance market and ask whether they provide an answer to the problem of adverse selection to avoid inefficiency government policy must either effectuate some cross subsidization of insurance policies within the state sector or grant private insurance firms an exclusive right to serve certain groups of the population recent reforms in the netherlands and germany and president clinton s proposals for the us could be adapted to fulfil these requirements efficiency cannot be achieved on the other hand if the regulator tries to prescribe cross subsidization within the private sector

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

the effect of immigration on productivity evidence from us states abstract in this paper we analyze the long run impact of immigration on employment productivity and its skill bias we use the existence of immigrant communities across u s states before 1960 and the distance from the mexican border as instruments for immigration flows we find no evidence that immigrants crowded out employment at the same time we find that immigration had a strong positive association with total factor productivity and a negative association with the high skill bias of production technologies the results are consistent with the idea that immigrants promoted efficient task specialization thus increasing tfp and also promoted the adoption of unskilled efficient technologies

optimal risk sharing under adverse selection and imperfect risk perception the present paper thoroughly explores second best efficient allocations in an insurance economy with adverse selection we start with a natural extension of the classical model assuming less than perfect risk perception we characterize the con straints on efficient redistribution and we summarize the incidence of incentives on the economy with the notions of weak and strong adverse selection finally we show in what sense improving risk perception enhances welfare a typical situation where the risk perception of the insurer and that of policy holders differ is one in which each party knows something that the other does not the insurer may correctly assess the impact on risk of an individual s character istics without observing them all whereas policyholders may know all their characteristics without relating them correctly to their risks these simple obser vations call for a modelling of imperfect risk perception and adverse selection

premium subsidies for health insurance excessive coverage vs adverse selection the tax subsidy for employment related health insurance can lead to excessive coverage and excessive spending on medical care yet the potential also exists for adverse selection to result in the opposite problem insufficient coverage and underconsumption of medical care this paper uses the model of rothschild and stiglitz r s to show that a simple linear premium subsidy can correct market failure due to adverse selection the optimal linear subsidy balances welfare losses from excessive coverage against welfare gains from reduced adverse selection indeed a capped premium subsidy may mitigate adverse selection without creating incentives for excessive coverage

the effects of redistributive taxation in credit markets with adverse selection abstract this paper studies the effects of redistributive taxation in credit markets with adverse selection and shows that there exists a range of taxes that creates pareto improvements relative to the zero tax market allocation by increasing aggregate investment for sufficiently high taxes an increase in the safe interest rate can be accompanied by an increase in investment

testing the brain gain hypothesis micro evidence from cape verde abstract does emigration really drain human capital accumulation in origin countries this paper explores a unique household survey designed and conducted to answer this research question we analyze the case of cape verde a country with allegedly the highest brain drain in africa despite a marked record of income and human capital growth in recent decades we propose the first explicit test of brain drain arguments according to which the prospects of own future migration can positively impact educational attainment our most conservative estimates using individual specific variation in economic conditions at the destination indicate that a 10 pp increase in the probability of own future migration improves the probability of completing intermediate secondary schooling by nearly 4 pp for individuals who do not migrate before age 16 these findings are robust to the choice of instruments and econometric specification counterfactual simulations point to significant human capital gains from lowering migration barriers

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

crossing the border self selection earnings and individual migration decisions many empirical studies on the determinants of international migration flows rely exclusively on macro data and do not account for migrants self selection we analyze a very interesting episode in international migration for which we are able to gather individual level data covering all relevant countries namely the exodus of ecuadorians to spain and the us in the aftermath of the economic collapse of 1999 specifically we produce selection corrected predictions of counterfactual individual earnings and use them to estimate a discrete choice migration equation that allows for correlated errors across destinations and a rich structure of migration costs we find that earnings significantly shape individual migration decisions even in an episode in which ecuadorians mostly chose spain where earnings were lower than in the us and they contribute to explaining the observed composition of migration flows moreover our estimates show that changes in earnings at a particular destination have a larger effect on destination choice conditional on migration than on the scale of migration

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

global competition for attracting talents and the world economy this paper studies the effect of liberalizing the international mobility of college educated workers on the world economy first we combine data on effective and desired migration to identify the net pool of foreign talents npft of selected high income countries so far the eu15 has poorly benefited from its npft while the us has mobilized a large portion of it second we use a micro founded model to simulate the effects of skill selective liberalization shocks in our benchmark model a worldwide liberalization induces larger long run income gains for the eu15 8 8 percent than for the us 5 9 percent however less attractive eu countries such as austria belgium germany greece luxembourg and the netherlands benefit less than the us in addition liberalizing high skilled migration decreases income per worker by 2 5 percent in developing countries overall it increases efficiency 6 2 percent in the worldwide average level of income per capita and inequality 1 2 percentage points in the theil inequality index much greater effects can be obtained if total factor productivity varies with human capital

advantageous effects of regulatory adverse selection in the life insurance market we analyse the effects of regulations prohibiting the use of information to risk rate premiums in a life insurance market new information derived from genetic tests is likely to become increasingly relevant in the future many governments prohibit the use of this information thereby generatingregulatory adverse selection in our model individuals early in their lives know neither their desired level of life insurance later in life nor their mortality risk but learn both over time we obtain both positive and normative results that differ qualitatively from those in standard static models legislation prohibiting the use of genetic tests for ratemaking may increase welfare the effort to sequence the human genome completely is now effectively com pleted although a comprehensive understanding of the effects of most genes on health and mortality risks will still take substantial further effort it is likely that in the medium term future more and more information relevant to ratemaking in the life health and long term care insurance markets will become available in particular we will learn the effects of many genes on the likelihood of various illnesses and consequently individualslife expectancy 1 moreover new genetic tests for these genes will likely become much cheaper 2 allowing this information to be used by insurers raises the prospect of substantial changes in future pricing

globalization brain drain and development this paper reviews four decades of economics research on the brain drain with a focus on recent contributions and on development issues we first assess the magnitude intensity and determinants of the brain drain showing that brain drain or high skill migration is becoming a dominant pattern of international migration and a major aspect of globalization we then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels the recent empirical literature shows that high skill emigration need not deplete a country s human capital stock and can generate positive network externalities three case studies are also considered the african medical brain drain the exodus of european scientists to the united states and the role of the indian diaspora in the development of india s information technology sector we conclude with a discussion of the implications of the analysis for education immigration and international taxation policies in a global context

incentive efficient price systems in large insurance economies with adverse selection we decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms that is for menus of contracts facing a budget constraint informed individuals purchase lottery tickets to enter mechanisms whereas firms sell tickets and supply slots at mechanisms at given prices beyond optimization market clearing and rational expectations an equilibrium requires that firms cannot favorably change or cut prices an equilibrium exists and is incentive efficient an equilibrium can be computed as the solution to a programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set for two types economies this is the only equilibrium outcome

excess labor and the business cycle this paper compares the medoff fay estimates of labor hoarding during troughs which are based on data from manufacturing plants with aggregate estimates of excess labor on hand the two sets of estimates seem consistent which provides a strong argument in favor of the excess labor hypothesis this is one of the few examples in macroeconomics where a hypothesis has been so strongly confirmed using detailed micro data this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abs this abstract was borrowed from another version of this item

costly risk verification without commitment in competitive insurance markets abstract this paper analyzes the equilibrium of an insurance market where applicants for insurance have a duty of good faith when they reveal private information about their risk type insurers can at some cost verify the type of insureds who file a claim and they are allowed to retroactively void the insurance contract if it is established that the policyholder has misrepresented his risk when the contract was taken out however insurers cannot precommit to their risk verification strategy the paper analyzes the relationship between second best pareto optimality and the insurance market equilibrium in a game theoretic framework it characterizes the contracts offered at equilibrium the individuals contract choice as well as the conditions under which an equilibrium exists

income maximization and the selection and sorting of international migrants abstract two prominent features of international labor movements are that the more educated are more likely to emigrate positive selection and more educated migrants are more likely to settle in destination countries with high rewards to skill positive sorting using data on emigrant stocks by schooling level and source country in oecd destinations we find that a simple model of income maximization can account for both phenomena results on selection show that migrants for a source destination pair are more educated relative to non migrants the larger is the absolute skill related difference in earnings between the destination country and the source results on sorting indicate that the relative stock of more educated migrants in a destination is increasing in the absolute earnings difference between high and low skilled workers we use our framework to compare alternative specifications of international migration estimate the magnitude of migration costs by source destination pair and assess the contribution of wage differences to how migrants sort themselves across destination countries

endogenous adverse selection and unemployment insurance in this paper we consider how the presence of private information may explain the failure of the private sector to provide unemployment insurance in particular we show how the interaction of private information regarding employees preferences for work with the unobservable level of effort exerted on the job may explain the absence of private unemployment insurance we also reflect on the implications of our findings for the role of the public sector in providing unemployment insurance

efficiency gains from liberalizing labor mobility in this paper we quantify the effect of a complete liberalization of cross border migration on the world gdp and its distribution across regions we build a general equilibrium model endogenizing bilateral migration and income disparities between and within countries our calibration strategy uses data on effective and potential migration to identify total migration costs and visa costs by education level data on potential migration reveal that the number of people in the world who have a desire to migrate is around 400 million this number is much smaller than that predicted in previous studies and reflects the existence of high incompressible migration costs in our benchmark framework liberalizing migration increases the world gdp by 11 5 12 5 percent in the medium term our robustness analysis reveals that the gains are always limited in the range of 7 0 percent with schooling externalities to 17 9 percent if network effects are accounted for

an examination of the differential patterns in the cyclical behaviour of the employment hours and wages of labour of different skills british mechanical engineering 1963 1978 this paper compares the cyclical behaviour of the employment hours and wage rates of skilled semi skilled and unskilled labour in british mechanical engineering from 1963 to 1978 figure 1 shows the variation of the employment share of skilled and non manual male labour in relation to the cyclical fluctuations during the same period where the cycle measure employed is the percentage deviation of output from its trend value a casual inspection reveals that the percentage of skilled labour in manual employment reaches peaks in the 1967 1972 and 1977 recessions while falling to lows in the 1966 1969 1970 and 1974 booms in similar fashion the percentage of non manual labour in total employment attains a peak in 1972 and 1977 and falls to a low in 1974 1975 these observations indicate that there is a differential cyclical response of the employment of different types of labour and suggest that skilled and non manual employment fluctuate relatively less the fixity and heterogeneity of labour was first highlighted by oi 1962 and becker 1962 the introduction of hiring firing and training costs which vary among different groups of workers implies that the employment behaviour of these groups will differ markedly over the course of the business cycle i e the stock of some groups of labour is relatively fixed in the short run we will be referring to this as the fixed labour hypothesis it applies especially to skilled workers because they usually embody more specific on the job training than lower skill groups during short run cyclical fluctuations we expect that the adjustment in the employment of skilled workers will be slower than that of lower skill groups and if one identifies non manual labour with relatively higher skill than manual labour the same employment behaviour will be expected for non manual labour the examination of the relative employment variation of skilled labour is useful in the discussion of the aggregate employment function for which research has led to the empirical finding of short run increasing returns to labour the explanation usually given to this is that there are short run adjustment costs which prevent the firm from adjusting the employment of skilled and non manual labour instantaneously with respect to cyclical demand shifts however excluding the work of rosen 1968 there has not been any direct empirical testing of such a hypothesis another implication of the fixed labour hypothesis concerns the short run behaviour of the hours of work of skilled labour as the most substantial

perfect competition in markets with adverse selection this paper proposes a perfectly competitive model of a market with adverse selection prices are determined by zero profit conditions and the set of traded contracts is determined by free entry crucially for applications contract characteristics are endogenously determined consumers may have multiple dimensions of private information and an equilibrium always exists equilibrium corresponds to the limit of a differentiated products bertrand game we apply the model to establish theoretical results on the equilibrium effects of mandates mandates can increase efficiency but have unintended consequences with adverse selection an insurance mandate reduces the price of low coverage policies which necessarily has indirect effects such as increasing adverse selection on the intensive margin and causing some consumers to purchase less coverage

the efficiency effects of categorical discrimination in the insurance industry recent public policy debate has focused concern on the equity dimensions of categorical discrimination based on sex age or race in insurance and similar markets we consider the efficiency effects of such discrimination and establish that costless imperfect categorization always enhances efficiency when categorization entails a nonnegligible resource cost however no unambiguous efficiency ranking of informational regimes is possible when categorization is costless we demonstrate that government having no better information than market participants can effect redistribution without assuming dictatorial control of the market implying that a market equilibrium with costless categorization is potentially pareto superior to one without it when categorization is costly however the market may categorize when pareto improvements are not possible

the social value of hidden information in adverse selection economies abstract when agents possess imperfect hidden knowledge at the time contracts are negotiated the social value of agents having access to additional hidden knowledge before contracts are implemented is positive to the extent that incentive constrained agents are sorted more finely but is negative to the extent that incentive constraining agents impose more stringent signalling requirements on others hence the intuition developed by hirshleifer 1971 marshall 1974 and milgrom and stokey 1982 that privately acquired information has neither positive nor negative social value when agents possess no prior hidden knowledge does not apply when agents possess imperfect hidden knowledge during contractual negotiations

price regulation in insurance markets with asymmetric information abstract the paper presents and discusses a regulatory policy in insurance markets it is based upon a two sided rule each company must propose at least one contract with full coverage and a ceiling is imposed on the level of premiums

inventories layoffs and the short run demand for labor this paper presents a theoretical and empirical analysis of the short run employment layoff and inventory strategies of firms on average more than two thirds of all layoffs in american manufacturing end in a rehire by the employer of origin martin feldstein 1975 david lilien 1980 these temporary layoffs have recently accounted for about half of all ongoing employer initiated spells of unemployment in that sector see table 1 and have led to a revised interpretation both of the involuntary nature of these separations costas azariadis 1975 feldstein 1976 martin baily 1977 and of the durability of employment relationships evidently a significant proportion of unemployed workers know that the conditions that generated their separations are temporary and so they expect to be recalled within some reasonable time the point of departure for this paper is in interpreting these findings as evidence of a privately and socially efficient stock of excess capacity held against contingent future demands that is as an inventory of a productive input this view leads to empirically refutable hypotheses regarding both the role of temporary layoffs and the circumstances under which they will be important in particular both excess capacity idle resources and inventories are devices by which firms may economize on the costs of rapid adjustments when faced with unstable market conditions george stigler 1939 in such an environment the demands for layoffs and for other buffer stocks are jointly determined elements of long run technology the choice among alternative stocks will depend on relative profitabilities and firms may choose to hold stocks of inputs as a substitute for inventory accumulation especially if the costs of varying capacity or of storage are important this reasoning implies that i the structure of short run employment and layoff decisions will vary across firms and industries and ii differences in these structures will be systematically related to the role of inventories in firms dynamic strategies some perspective is warranted at least since charles holt et al 1960 economists have recognized the production smoothing role of inventories and the necessity of predicting future demand in making current decisions david belsley 1969 gerald childs 1967 michael ward 1978 similarly one of the contributions of recent work on implicit labor contracts is in viewing the exchange of labor services as a bilateral and durable commitment both these lines of analysis are concerned with the methods firms use to respond to fluctuating demand yet the underlying interrelated nature of employment and inventory decisions has rarely been recognized roger miller 1968 m ishaq nadiri and sherwin rosen 1973 r g crawford 1979 robert hall 1972 this paper aims to provide a framework for evaluating these decisions and in so doing to explain some interesting features of observed labor markets the notion of substitution between inventories of human and physical capital suggests a more disaggregated look at the data table 2 shows the importance of temporary layoffs in the distribution of unemployment among manufacturing industries it reports layoff and total unemployment rates for twelve representative industries over the period 197376 and average layoff rates and recall frequencies for 1958 76 among all 21 twodigit manufacturing industries the correlation between layoff and rehire rates is 6 and the table illustrates this evidently industries with larger than normal layoff rates also tend to have larger rehire frequencies from firm initiated spells of unemployment this university of chicago i am indebted to gary becker robert cotterman sherwin rosen jose scheinkman michael ward finis welch the managing editor and an anonymous referee for discussions and comments at various stages the usual disclaimer applies

constrained efficient equilibria in selection markets with continuous types abstract we prove the existence of the constrained efficient miyazaki 1977 wilson 1977 spence 1978 equilibrium in competitive markets with adverse selection when the distribution of unobservable types is continuous our existence proof applies under extremely general assumptions about individual preferences when we restrict preferences to have the widely used in the selection markets literature quasilinear form we characterize the properties of this equilibrium by developing a simple and computationally efficient numerical method for constructing it applying this method we show in a natural setting how one would compute the equilibrium allocation potentially facilitating empirical work using the mws equilibrium we illustrate this empirical application in the context of policy interventions and show that the welfare implications of a coverage mandate critically hinge on whether the market implements a constrained efficient allocation like the mws equilibrium or a constrained inefficient allocation like in azevedo and gottlieb 2017

a game theoretic foundation of competitive equilibria with adverse selection we construct an extensive form game that captures competitive markets with adverse selection it allows firms to offer any finite set of contracts so that cross subsidization is not ruled out moreover firms can withdraw from the market after initial contract offers have been observed we show that a subgame perfect equilibrium always exists in fact when withdrawal is costless the set of equilibrium outcomes may correspond to the entire set of feasible contracts we then focus on robust equilibria that continue to exist for small withdrawal costs we show that the miyazaki wilson contracts are the unique robust equilibrium outcome

is migration a good substitute for education subsidies assuming a given educational policy the recent brain drain literature reveals that skilled migration can boost the average level of schooling in developing countries this paper introduces educational subsidies determined by governments concerned by the number of skilled workers remaining in the country the theoretical analysis shows that developing countries can benefit from skilled emigration when educational subsidies entail high fiscal distortions however when taxes are not too distortionary it is desirable to impede emigration and subsidize education the authors investigate the empirical relationship between educational subsidies and migration prospects obtaining a negative relationship for 105 countries based on this result the analysis revisits the country specific effects of skilled migration upon human capital the findings show that the endogeneity of public subsidies reduces the number of winners and increases the magnitude of the losses