involuntary unemployment and implicit contracts this paper provides an explanation of involuntary umemployment arising as a consequence of asymmetric information between firms and workers involuntary unemployment is defined as a situation where ex post gains to trade exist a model of labor contracts is developed where the allocations are not ex post optimal it is shown that inferiority of leisure is a necessary and sufficient condition for the existence of involuntary unemployment

has the internet increased trade developed and developing country evidence developing countries export more to developed but not other developing countries when internet penetration is higher although this could be because internet penetration stimulates exports it could also be because trade openness encourages internet use to test the direction of causation we allow internet use to be determined endogenously using countries regulation of data services as an instrument the results suggest that access to the internet does improve export performance in developing countries although not in developed countries in other words improving internet access in a developing country will stimulate exports from that country to rich countries jel f15

collective bargaining in the public sector the effect of legal structure on dispute costs and wages this paper examines the impact of collective bargaining legislation on dispute costs and wages using a panel of canadian public sector contracts the authors results suggest that policymakers designing collective bargaining legislation face a trade off between reducing dispute costs and increasing wages dispute costs are lower under compulsory arbitration than under the right to strike or when no collective bargaining legislation exists hence a switch to compulsory arbitration could potentially make both the union and the employer better off by reducing dispute costs however the authors find that wages are higher under compulsory arbitration than under other legal structures copyright 1991 by american economic association

wage employment contracts this paper studies the efficient agreements about the dependence of workers earnings on employment when the employment level is controlled by firms the firms superior information about profitability conditions is responsible for this form of contract governance under plausible assumptions such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk it is shown that if leisure is a normal good and firms are risk neutral employment is always above the efficient level such a one period implicit contracting model cannot therefore be used to explain unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information

unions and strikes with asymmetric information strikes seem to be a pareto inefficient outcome of bargaining between a union and a firm however this paper shows that strikes can be the outcome of rational behavior by both agents if the firm has more information than the union concerning the state of nature the union can use strikes as a way of gaining information the paper uses an asymmetric information model where the firm has information about the state i e profitability that the union does not know the schedule of wage offers by the union then depends on the probability that a given state will occur

ex ante consumer welfare evaluation in cost benefit analysis abstract public projects and policies are normally evaluated ex ante i e while consumers may still be uncertain about future prices income levels interest rates and preferences this paper extends the theory of ex ante consumer welfare evaluation by developing a 2 period model with multiple sources of uncertainty it provides insights into the influence of temporal uncertainty on the empirical measurement of ex ante willingness to pay

ex ante and ex post welfare optimality under uncertainty it is widely believed by economic theorists that if there were no transactions costs and if all information about the economy were perfectly shared by all then arrow debreu contingent commodity markets should bring about an ideal allocation the basis for this belief seems clear we have the two efficiency theorems of welfare economics which assure us that in the absence of external effects any competitive allocation is pareto efficient and that any pareto efficient allocation is competitive provided that appropriate lump sum transfers are made of course there are some reservations that need to be made local satiation and non convexities are well known to cause problems but these are not the problems i wish to discuss here to return to the usual argument the next step involves noticing how with contingent commodity markets the efficiency theorems of welfare economics carry over to an economy with uncertainty as explained for instance in chapter 7 of debreu s theorpj of value the fundamental value judgment that gives these efficiency theorems their normative interest is what may be called consumer sovereignty it is an assumption that the social welfare ordering should respect the preferences that govern consumers market behaviour it is a serious value judgment more serious than most economists have been prepared to concede but its seriousness increases when there is uncertainty we know full well that individuals misperceive the probabilities of certain events assuming that they even perceive any probabilities at all see for example kahneman and tversky 1979 nor are we always willing to accept as appropriate the attitudes to risk of individuals who seem either extremely reckless or extremely cautious societies are often willing to make some gestures towards property owners who have not insured themselves adequately against damage from fire flood or tempest and not just because of imperfect insurance markets or even misperceptions of probabilities in addition the inequalities of income that arise when some individuals take more risks than others are not necessarily seen to be desirable particularly if an individual has undertaken a useful but risky activity and has a very low income as a result of failure such gestures are examples of contingent lump sum transfers it seems clear that if such transfers occur to a sufficient extent they could supplant completely the securities markets which are usually sufficient to bring about pareto efficiency they may even be able to go further and correct the imperfections of an arrow debreu market allocation when individuals do misperceive probabilities or else have wrong attitudes to risk this is the main question i wish to consider here the idea that consumer sovereignty should not always extend to economies with uncertainty is not new it can be found in work by diamond 1967 dr6ze

a two methodology comparison study of a spatial gravity model in the context of interregional trade flows this article argues that the introduction of spatial interactions to model the determinants of origin destination od flows can potentially result in excessive contiguity to explain flows between od regions it is not only what happens in the origin and destination that is relevant but also what happens in their neighbouring regions however what happens if there is a high degree of overlap between origin neighbouring areas and destination neighbouring areas the article presents an empirical illustration to re examine the evidence presented in previous research alama sabater et al 2013 and more closely analyses the territorial level focusing on the case of interregional trade of goods at the nuts3 level spanish provinces we then use two different methodologies within the framework of a spatial gravity equation for interregional trade modelling the findings confirm the importance of spatial dependence on trade flows and in particular that logistics decisions within a province affect shipments

producer surplus and risk this paper examines the welfare economics of producer behavior under risk aversion hicksian marshallian and money equivalent measures are explored it is found that under decreasing absolute risk aversion compensating variation is less than the ordinary marshallian surplus which is less than the money equivalent measure under constant absolute risk aversion all measures coincide finally bounds on compensating and equivalent variations using ordinary producer surplus in a manner analogous to willige approach in consumer theory under certainty are studied similar results hold mutatis mutandis for input demands

thick and thin borders in the european union how deep internal integration is within countries and how shallow between them the existence of large border effects is one of the main puzzles of international macroeconomics the seminal paper by mccallum found that trade between any two canadian provinces was on average 22 times greater than trade between any canadian province and any united state us although various authors have estimated internal and external border effects for the whole european union and some specific european countries none has done so in the manner that mccallum s seminal paper stymied by lack of data on region to region international trade flows this study uses a novel data set that captures intra and international truck shipments between spanish regions and regions in seven european countries during the period 2004 11 it computes internal and external border effects offering novel results for aggregate flows and the importing countries and estimates several specifications of the gravity equation so as to tackle such issues as the multilateral resistance term heteroskedasticity and zero flows and non linear relation between trade and distance the paper also adds a detailed analysis on the external border effect for each spanish exporting region and each of the seven european countries considered by means of this analysis we shed new light on the relative integration between regions of these seven countries and spanish exporting regions finally we conduct an extrapolation exercise computing the trade potentials that would be expected in a fully integrated europe and estimating how long full integration would take to achieve between each spanish exporting region and each european importing country to this regard two alternative scenarios are considered one using the growth rates of the spanish exports before the crisis 2001 08 and other considering the postcrisis growth rates 2011 13

export performance and trade facilitation reform hard and soft infrastructure summary we estimate the impact of aggregate indicators of soft and hard infrastructure on the export performance of developing countries we derive four new indicators for more than 100 countries over the period 2004 07 estimates show that trade facilitation reforms do improve the export performance of developing countries this is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment the findings provide evidence that the marginal effect of the transport efficiency and business environment improvement on exports appears to be decreasing in per capita income in contrast the impact of physical infrastructure and information and communications technology on exports appears increasingly important the richer a country becomes we also find statistical evidence on the complementarity between hard infrastructure and soft infrastructure as captured by our indicators finally drawing on estimates we compute illustrative ad valorem equivalents of improving each indicator halfway to the level of the top performer in the region

controlling for endogeneity of strike variables in the estimation of wage settlement equations this article analyzes wage changes with an unbalanced panel from the spanish collective bargaining in large firms survey central to the analysis are the joint determination of strike and wage outcomes and in particular the estimation of the slope of the wage concession curve i control for the possible endogeneity of strike variables in the wage equation and suggest two sets of instruments lagged strike outcomes or reduced form predictions of the strike variables when controlling for endogeneity a negative relationship between strike duration and the size of the wage change arises however short strikes still produce higher wage changes

welfare effects of changes in environmental quality under individual uncertainty about use we adapt the theoretical state preference model to value nonmarket public goods under individual uncertainty about use illustrating with an assessment of willingness to pay to prevent acid rain lake damage in the northeast united states individual usage uncertainty is modelled via probabilities of participation in trout fishing changes in environmental quality are valued using a random utility model to explain yes no responses to a contingent valuation question we produce quantitative welfare measures individual fitted and simulated passiveand active use values individual expected consumer surplus option price option value and complete individual willingness topay loci

ex post efficiency and ex post welfare some fundamental considerations ross starr 1973 demonstrates that a competitive equilibrium while ex ante pareto efficient may not be ex post efficient the authors contend that an implicit second best issue requires that this assertion be substantively qualified specifically the ex ante efficiency concept is second best while its ex post counterpart is first best they est ablish the equivalency of first best ex post and ex ante concepts whe never the second best ex ante efficiency conditions hold the second best elements derive from the timing of information flows starr s theorem is shown to concern the social gains from improved information additional results deal with varying concepts of ex post welfare copyright 1988 by the london school of economics and political science

valuing amenity resources under uncertainty does the existence of fair contingent claims markets matter abstract alternative welfare measures are evaluated as measures of the value of change in access conditions for environmental resources and it is shown that traditional hicksian surplus estimates systematically underestimate benefits it is further argued that the existence of fair contingent claims markets is a peripheral consideration in benefit estimation that state dependent payments present no significant collection obstacles not already encountered in state independent payment schemes and that risk neutral social decision making requires state dependent benefit measures for situations involving individual risk these findings imply that future research should focus on developing theoretical bounds between the expected value of state dependent benefit measures and conventional measures and that contingent valuations techniques need to be extended to measure contingent payment possibilities for changes in uncertain access conditions to environmental resources

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

the effect of settlement stage on negotiated wage settlements in canada this paper analyzes the effect of the particular stage of wage settlement on the negotiated wage increase using micro data on canadian labor contracts between 1966 and 1975 the sample data base was divided into direct first stage bargaining mediation conciliation and work stoppage arbitration and structural wage equations were estimated for each set of data the results indicate that as negotiations move from direct bargaining to work stoppage labor market conditions measured by a vacancy rate become less important as an explanatory variable and price catch up becomes more important

compensating variation consumer s surplus and welfare the compensating variation was defined by j r hicks 1942 as the amount one would have to deduct from a person s income to make him just as well off after a change in prices and income as he had been in the initial situation if the compensating variation is positive the individual is better off under the new situation since the compensating variation furnishes a uniquely defined numerical cardinal indicator of welfare improvement it provides an implicit ranking of alternative prospective situations not only relative to the initial situation but also relative to each other in practice this appears to be how this and other tools of cost benefit analysis are actually used one is interested in knowing not only whether a particular bridge or a particular excise tax will lead to an improvement in welfare but which out of a set of alternative bridges or alternative tax systems will improve welfare the most 1 in this paper we analyze conditions under which the compensating variation can be validly used in this generalized sense these turn out to be precisely the same as conditions previously derived see our 1976 paper for the valid use of consumer s surplus as a welfare measure in our final section we analyze the problem of deriving the generalized equivalent and compensating variations either exactly or approximately from observable demand functions by means of generalizations of or alternatives to consumer s surplus

union wage differentials in the public and private sectors a simultaneous equations specification the paper attempts to integrate new approaches to estimating union wage effects with the analysis of public private sector wage differentials estimates of the union differential in both public and private sectors allowing for the endogeneity of union status are presented the hypothesis that the recently measured rents to public sector employment primarily reflect the recent increase in unionization in that sector is examined and receives considerable empirical support there was evidence of positive selection into the union sector especially for private sector workers union status appears to be strongly influenced by the expected wage gain from joining the union sector

estimating the effects of unions on wage inequality in a panel data model with comparative advantage and nonrandom selection this article considers the estimation of the structure of wages in union and nonunion sectors it proposes an estimator that extends standard panel data techniques to the case in which the return to the permanent component of the error term is differently rewarded in the two sectors the econometric model is used to estimate the effect of unions on both the level and the variance of wages in canada the findings indicate that unions increase the average wage of workers and compress the returns to observable measures of skill and to a time invariant unobservable measure of skill

interpreting the wage gap estimate from selectivity correction techniques using micro data abstract the selectivity correction techniques lead to two conceptually different wage gap estimates including the selectivity correction factors in the computation of the wage gap leads to a conditional estimate whereas excluding them leads to a potential estimate

the effect of information and communication technologies on urban structure this paper examines the effects of information and communication technologies ict on urban structure improvements in ict may lead to changes in urban structure for example because they reduce the costs of communicating ideas from a distance hence they may weaken local agglomeration forces and thus provide incentives for economic activity to relocate to smaller urban centres we use international data on city size distributions in different countries and on country level characteristics to test the effect of ict we find robust evidence that increases in the number of telephone lines per capita encourage the spatial dispersion of population in that they lead to a more concentrated distribution of city sizes so far the evidence on internet usage is more speculative although it goes in the same direction we argue that the internet is likely to have similar or even larger effects on urban structures once its use has spread more thoroughly through different economies

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

canadian union nonunion wage differentials using extensive canadian longitudinal data from the years 1969 71 the authors estimate union nonunion wage differentials of 12 14 percent for 1969 and 13 16 percent for 1970 these estimates are not adjusted for selectivity because three different tests to identify selectivity yield no evidence of selectivity bias the authors argue that although testing for selectivity is often essential selectivity adjustments have resulted in greatly inflated estimates of union nonunion wage differentials in some studies and should therefore be used with caution

the role of ex ante and ex post decisions in the valuation of life abstract this paper examines the use of ex ante and ex post criteria in the evaluation of projects involving the risk of death one issue concerns the appropriate welfare function and it is argued that this should reflect both ex post and ex ante considerations but not in the form of restrictions on the welfare function the second issue concerns the form of compensation the argument in favour of ex post compensation as a means of reducing the cost of risk bearing needs to be modified when risks involve more than a single dimension as they do in projects involving the risk of death

on the choice of incentives in firms abstract simple models of individual and group incentives under uncertainty are compared and comparative performance is shown to depend upon various exogenous parameters the incentive effects of profit sharing will thus vary with organizational and other characteristics that may be difficult to observe and attempts to quantify productivity effects that neglect selection bias are likely to be misspecified significant selection effects are found in previously used firm level data and productivity effects of existing profit sharing are found to be much larger than potential effects in firms without sharing arrangements this throws doubt on policies to encourage sharing in isolation

the effect of broadband on european union trade a regional spatial approach the positive effect of information and communication technologies ict on trade between countries has been widely studied in the literature but how ict impacts regional trade is limited due to the lack of regional trade data in this paper we test whether broadband as a proxy for ict increases bilateral trade at the regional level in europe we use a novel regional trade database of european union regions and estimate an origin destination flow gravity model for 2007 and 2010 accounting for spatial dependence among trade flows our results indicate that broadband is positive and significant in explaining trade patterns between european regions during both time periods

trade and transport connectivity a spatial approach this article aims to analyse whether transport connectivity affects trade flows using a spatial approach we consider first order contiguity and incorporate logistics network structure dependence in a spatial autoregressive model the results provide evidence regarding the role of the location of logistics platforms for satisfying existing demand for transport structure in spain

the internet and international trade in services the scope for growth of trade in services is vast although services currently make up over 60 percent of world production they account for only about 20 percent of world trade a primary reason why international trade in services has been limited is that the performance of many services necessitates physical contact between producers and consumers a condition that renders service provision to distant locations infeasible new technology in particular the internet provides a medium of exchange that overcomes such historical trading hurdles for many services effectively reducing transport costs from infinity to virtually nothing there is ample anecdotal evidence that the internet is having just this sort of an effect on services trade the accounting firm netlink maintains the books for 6 000 employees in reyanosa mexico from their offices in manhattan infosys of india provides softwareconsulting services to international clients including apple computers lucent technologies and microsoft a medical transcription company in south africa its receives digital recordings from abroad electronically and returns a transcribed text file the next day still the question remains as to whether electronic sharing of information is an important enough development to alter significantly the geography of service provision indeed many services need to be tailored to the consumer s needs and monitored for quality and these are likely to be more effective if the provider is close by and speaks the same language in addition in the event of a dispute resolution will be less complicated if both parties are subject to the same legal system finally there may be security concerns with allowing foreign access to some documents or systems thus for some services especially those where familiarity communication and non standardization contribute to quality the internet would not be expected to have a large impact on international trade to determine whether the internet has significantly affected international service provision in practice we estimate a general model of services trade across countries and examine whether the inclusion of data on internet penetration as measured by the number of internet hosts in a country is statistically significant overall our results offer evidence that the internet is related to growth in services trade after controlling for gdp and exchange rate movements we find that a 10 percent increase in internet penetration in a foreign country is associated with about a 1 7 percentage point increase in export growth and a 1 1 percentagepoint increase in import growth the results are robust to a number of alternative specifications

requiem for option value as freeman 1984 accurately notes a lot of ink has been spilled over the concept of option value during the last two decades graham in his seminal 1981 article outlined the specific conditions under which option price is and more significantly is not an appropriate and relevant measure of value under demand uncertainty while graham s article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty both the tone and contents of recent articles on the

broadband in the labor market the impact of residential high speed internet on married women s labor force participation the author investigates how high speed home internet use has affected labor supply using an instrumental variables strategy that exploits cross state variation in supply side constraints to reside

on welfare analysis under temporal uncertainty the implications of uncertainty for costbenefit analysis remain controversial one issue raised in the evaluation of welfare compensation tests has been the appropriate use of observable economic behavior in the measurement of agents willingnessto pay or willingness to receive in the context of surplus measure this question has received considerable attention in the analysis of the welfare impact of price changes under certainty e g willig 1976 chipman and moore 1980 hausman 1981 mckenzie and pearce 1982 moreover the introduction of uncertainty has raised a number of questions about the appropriateness of alternative welfare measures e g schmalensee 1972 1975 graham 1981 for example graham 1981 has argued that there is little basis to recommend either option price or expected surplus for a role of prominence in welfare analysis the issue rather is whether or not there exists a distribution of individual payments or receipts that maximizes aggregate willingness to pay and passes the pareto improvement test i e that leaves no individual worse off and makes at least one individual better off graham 1981 but in the implementation of the pareto improvement test how is the aggregate willingness topay supposed to be measured empirically more specifically what is the influence of uncertainty and its temporal resolution on the validity of agent surplus the welfare triangle given by the area between a compensated choice function and its corresponding price as a welfare measure some progress has been made in this direction by chavas bishop and segerson 1986 in the context of option price however as shown by graham 1981 while option price is the appropriate measure of benefits in situations involving similar individuals and collective risk it may not be the appropriate welfare measure in more general situations therefore there is a need to refine our understanding of how agent surplus can be used as a welfare measure in the general context of a potential pareto improvement test under temporal uncertainty the objective of this paper is to investigate how temporal uncertainty can affect the measurement of willingness to pay in general welfare compensation tests temporal uncertainty corresponds to the situation where new information becomes available over time which resolves at least part of current uncertainty facing economic agents this new information can influence future individual decisions as well as individual willingness to pay particular attention will be given here to the case where income compensation is conditional on the new information that will become available in the future and results in a more efficient allocation of risk among individuals this paper focuses on competitive agents e g households or firms for which welfare changes can be expressed in terms of price changes this includes the analysis of the welfare effects of various government pricing policies this also includes the evaluation of public projects based on the travel cost method which under a weak complementarity condition consists in using price changes of related private goods as an indirect means of measuring the value of a public project maler 1974 the analysis is presented in the context of a general two period model where the agents are uncertain about the state of the world as suggested by graham 1981 it is shown that the option price provides a lower bound on

the timing of arbitration and sequential bargaining this paper links two literatures the paper adds to results on disagreement in per fect information bargaining games it is found that under certain conditions the possibility of third party intervention induces delay the paper is also the first attempt to model the arbitration process in a sequential bargaining framework it therefore adds to the theoretical arm of the industrial relations literature by permitting an explicit temporal setting for the chilling effect and alternative mechanisms for the timing of arbitration