the determinants of dismissals quits and layoffs a multinomial logit approach in efficiency wage models workers productivity depends positively on the wage giving firms an incentive to pay wages above their market clearing level two models in this literature are the shirking model of shapiro and stiglitz 12 and bowles 1 and the turnover cost model of stiglitz 13 schlicht 11 and salop 10 in the shirking model a higher wage and a higher unemployment rate raise the cost of losing one s job thereby discouraging workers from shirking and increasing their effort in the turnover cost model a higher wage reduces quits and thus lowers the firm s cost of hiring and training new workers given the role of separations in efficiency wage models it is important to understand the determinants of separations this study uses data on individual workers to examine the determinants of dismissals quits and layoffs within the first six months of a hire paying particular attention to dismissals because of the prominence of the shirking model in the efficiency wage literature the purposes of this study are to test whether higher unemployment lowers dismissals as predicted by the shirking model and to examine the effect of firm variables related to the costs of monitoring and shirking on the probability of a dismissal in addition this study provides insight into the effects of firm characteristics and worker characteristics on dismissals quits and layoffs

on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

where do we stand on choosing exchange rate regimes in developing and emerging economies the question of what is the best exchange rate regime for a country to adopt has been an important part of the macroeconomic policy debate for as long as here has been a debate about macroeconomic policy it has indeed sometimes been the dominant issue an historical review could easily go back to the nineteenth century and the debate over the gold standard and the bimetallic standard or could go back to the interwar period and the debate over the return to gold and the abandonment of the gold standard in favour of exchange rate flexibility or it could focus on the exchange rate arrangements incorporated into the bretton woods system devised in 1944 and the final collapse of those arrangements in favour of generalised flexible exchange rates in 1973

union power cost of job loss and workers effort the authors hypothesize that the effectiveness of external threats in raising workers effort is mediated by among other labor market conditions the presence or absence of a powerful union in particular they argue that because powerful unions reduce the potency of the external threat of job loss by making it more difficult for employers to dismiss workers the pace of work is less responsive to such a threat in strongly unionized plants than in weakly unionized plants the results of an analysis of data from the 1990 workplace industrial relations survey in britain support this hypothesis the analysis also yields evidence that effort is increased where workers are rewarded individually according to results and where there are various communication channels between workers and management

optimal production management when demand depends on the business cycle we assume that the cumulative consumer demand for an item follows a brownian motion with both the drift and the variance parameters modulated by a continuous time markov chain that represents the regime of the economy the management of the company would like to maintain the inventory level as close as possible to a target inventory level and would also like to produce at a rate that is as close as possible to a target production rate the company is penalized for deviations from the target levels and the objective is to minimize the total discounted penalty costs we consider two models in the first model the management of the company knows the state of the economy whereas in the second model the management does not know it we solve both problems and obtain the optimal production policy and the minimal total expected discounted cost furthermore we compare the total expected discounted costs of the two models and determine the value of knowing the regime of the economy we also solve the above prob

the implicit costs of trade credit borrowing by large firms we examine a novel but economically important characterization of trade credit relationships in which large investment grade buyers borrow from their smaller suppliers using a matched sample of large retail buyers and their much smaller suppliers we find that slower payment terms by large retailers are associated with lower investment at the supplier level the effects are sharpest during periods of tight bank credit and for firms which we might otherwise characterize as financially constrained the opportunity cost of extending credit to large buyers appears to be positive and sharply increasing in the financial frictions facing a firm

the effect of payment schemes on inventory decisions the role of mental accounting does the payment scheme have an effect on inventory decisions in the newsvendor problem keeping the net profit structure constant we examine three payment schemes that can be interpreted as the newsvendor s order being financed by the newsvendor herself scheme o by the supplier through delayed order payment scheme s and by the customer through advanced revenue scheme c in a laboratory study we find that inventory quantities exhibit a consistent decreasing pattern in the order of schemes o s and c with the order quantities of scheme s being close to the expected profit maximizing solution these observations are inconsistent with the expected profit maximizing model contradict what a regular or hyperbolic time discounting model would predict and cannot be explained by the loss aversion model instead they are consistent with a model that underweights the order time payments which can be explained by the prospective accounting theory in the mental accounting literature a second study shows that the results hold even if all physical payments are conducted at the same time suggesting that the framing of the payment scheme is sufficient to induce the prospective accounting behavior we further validate the robustness of our model under different profit conditions our findings contribute to the understanding of the psychological processes involved in newsvendor decisions and have implications for supply chain financing and contract design this paper was accepted by christian terwiesch operations management

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

buyer intermediation in supplier finance small suppliers often face challenges to obtain financing for their operations especially in developing economies traditional financing methods can be very costly or unavailable to such suppliers to reduce channel costs large buyers have recently begun implementing their own financing methods that intermediate between suppliers and financing institutions in this paper we analyze the role and efficiency of buyer intermediation in supplier financing building a game theoretical model we show that buyer intermediated financing can significantly improve channel performance and can simultaneously benefit both supply chain participants using data from a large chinese online retailer and through structural regression estimation we demonstrate that buyer intermediation lowers interest rates and wholesale prices increases order fill rates and boosts supplier borrowing based on counterfactual analysis on the data we predict that the implementation of buyer intermediated financing will improve channel

the stationary distribution of a stochastic clearing process this research grew out of an investigation of utilization in capacity expansion the utilization at any time is the demand divided by the capacity when there is uncertainty about the evolution of demand it is appropriate to model the demand as a stochastic process and thus the utilization also becomes a stochastic process it was found that a utilization stochastic process associated with exponentially growing stochastic demand is closely related to the stochastic clearing processes introduced and investigated by stidham interest in the impact of uncertainty on utilization led to this study of the impact of uncertainty on the stationary distribution of a stochastic clearing process stidham showed for a large class of clearing processes that the stationary distribution is never the uniform distribution which is characteristic of deterministic models with continuous linear input here it is shown for a larger class of clearing processes that the stationary distribution is always stochastically less than or equal to the uniform distribution in the sense of second order stochastic dominance characterized by the expected value of all nondecreasing concave functions for various special cases stronger stochastic order relations are established for a related capacity expansion model it is shown that greater uncertainty lowers the expected utilization

structural estimation of the effect of out of stocks we develop a structural demand model that endogenously captures the effect of out of stocks on customer choice by simulating a time varying set of available alternatives our estimation method uses store level data on sales and partial information on product availability our model allows for flexible substitution patterns which are based on utility maximization principles and can accommodate categorical and continuous product characteristics the methodology can be applied to data from multiple markets and in categories with a relatively large number of alternatives slow moving products and frequent out of stocks unlike many existing approaches in addition we illustrate how the model can be used to assist the decisions of a store manager in two ways first we show how to quantify the lost sales induced by out of stock products second we provide insights on the financial consequences of out of stocks and suggest price promotion policies that can be used to help mitigate their negative economic impact which run counter to simple commonly used heuristics

exchange rate regimes in developing and emerging economies and the incidence of imf programs summary the global economic crisis will compel many countries to revise key economic policies including their exchange rate regime the international monetary fund will have significant influence on their choices and has exhibited a bias against intermediate regimes we examine the link between exchange rate regimes and imf program use and find no evidence that countries with intermediate exchange rate regimes require more frequent imf assistance rather they appear somewhat less dependent especially when compared to fixed exchange rates our results suggest that intermediate regimes should remain a viable and possibly desirable exchange rate choice for some countries

public sector deficits and macroeconomic performance in the 1980s chronic public sector deficits forced countries to undertake fiscal adjustment the need to face hard choices continues in the 1990s but the problem is not a simple and easily diagnosed one with an obvious solution rather public sector deficits have had widely differing consequences high inflation in some countries low inflation but also low investment and growth in others and in still others no evident short term macroeconomic spillovers this book presents the findings of a world bank research project designed to shed light on the complex dynamics of public sector deficits it includes an in depth examination of eight countries argentina chile colombia cote d ivoire ghana morocco pakistan and zimbabwe these cases are analyzed within a comprehensive theoretical framework elaborated for the study and in conjunction with cross country data from a larger set the book draws the following conclusions the ways chosen to finance deficits money creation debt or arrears go far to explain medium term financial and macroeconomic imbalances but in the short term these relations are blurred deficits tend to be bad for growth they increase financial and price instability and crowd out private investment public saving typically reduces private saving only slightly increasing public saving is a very effective policy instrument for raising national saving fiscal adjustment typically leads to a lower trade deficit and a moredepreciated real exchange rate finally the blame for large systemic public deficits must be placed not on bad luck but on unwise policy choices and conversely sound fiscal policies can set a country on a path leading to stability and growth

social polarization fiscal instability and growth abstract we present a dynamic model of fiscal policy in a simple growth framework where social polarization of preferences plays a central role in the evolution of fiscal instability and growth collapse in a highly polarized society a deficit occurs endogenously fiscal spending path becomes more volatile output collapses and economic growth rate is reduced along the transition path to a new lower level of output one novel feature is that the size of fiscal deficit the magnitude of fiscal volatility and the size of reduction in output and growth rate are explicitly shown to be increasing functions of the degree of social polarization this is because of the positive relationship between the polarization of preferences and the incentive for policymakers or socio economic groups to overexploit the government resources in a common pool setting polarization effect thereby we offer a fiscal instability channel that negatively links social polarization and growth which is an alternative yet distinct explanation for the empirical finding that social polarization is harmful to growth moreover we fully distinguish the incentive to engage in such short term policies under political uncertainty from that under polarization polarization and political uncertainty are shown to be distinct yet critical to the dynamic coordination failure in the common pool setting

new data base on state owned enterprises privatization of state owned assets was a central economic reform of the 1980s and 1990s lack of data has made it impossible to judge the extent to which privatization has diminished the importance of state ownership in the economy or changed the performance of state owned enterprises this article introduces a new data base on state owned enterprises the first since the mid 1980s which partly fills this information gap the bureaucrats in business data base provides time series data for up to eighty eight countries on the share of state enterprises in the overall economy investment employment and internal and external credit as well as their overall surplus or deficit and the size of transfers to and from national treasuries the article presents the rationale for the data base describes its seven measures of state enterprise size and performance and explores possible uses of the information

banks financial liberalisation and financial crises in emerging markets the east asian financial crisis has raised a series of important issues amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises how do weaknesses in the domestic banking sector when combined with both domestic and international financial liberalisation engender currency crises what is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed this paper seeks to provide just such a framework within it international financial liberalisation can be seen as fuelling a boom in domestic credit which leads to acute balance sheet problems for domestic banks and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows which banking weaknesses may itself trigger

why do more polarized countries run more procyclical fiscal policy abstract we study the cyclical behavior of fiscal policy to explain why some countries exhibit procyclical fiscal policy stances being expansionary in good times and contractionary in bad times we develop a model that links the polarization of preferences over fiscal spending to the procyclicality bias we then present evidence that social polarization as measured by income inequality and educational inequality is consistently and positively associated with fiscal procyclicality even after controlling for other determinants from existing theories we also find a strong negative impact of fiscal procyclicality on economic growth

supply chain contract design under financial constraints and bankruptcy costs we study contract design and coordination of a supply chain with one supplier and one retailer both of which are capital constrained and in need of short term financing for their operations competitively priced bank loans are available and the failure of loan repayment leads to bankruptcy where default costs may include variable proportional to the firm s sales and fixed costs without default costs it is known that simple contracts e g revenue sharing buyback and quantity discount can coordinate and allocate profits arbitrarily in the chain with only variable default costs buyback contracts remain coordinating and equivalent to revenue sharing contracts but are pareto dominated by revenue sharing contracts when fixed default costs are present thus for general bankruptcy costs contracts without buyback terms are of most interest quantity discount contracts fail to coordinate the supply chain since a necessary condition for coordination is to proportionally reallocate debt obligations w

the price of reverse factoring financing rates vs payment delays reverse factoring a financial arrangement where a corporation facilitates early payment of its trade credit obligations to suppliers is increasingly popular in industry many firms use the scheme to induce their suppliers to grant them more lenient payment terms by means of a periodic review base stock model that includes alternative sources of financing we explore the following question what extensions of payment terms allow the supplier to benefit from reverse factoring we obtain solutions by means of simulation optimisation we find that an extension of payment terms induces a non linear financing cost for the supplier beyond the opportunity cost of carrying additional receivables furthermore we find that the size of the payment term extension that a supplier can accommodate depends on demand uncertainty and the cost structure of the supplier overall our results show that the financial implications of an extension of payment terms need careful assessment in stochastic settings

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

regional heterogeneity in the relationship between fiscal imbalances and foreign exchange market pressure summary the relationship between fiscal imbalances and other macroeconomic variables is complex and multifaceted however it remains important to understand it not least in order to facilitate the design of appropriate policy one central issue is whether the relationship varies across countries or groups of countries if it does an implication is that policy will also have to be differentiated this paper empirically explores the relationship between fiscal imbalances and pressures in the foreign exchange fx market in latin america caribbean lac and east asia the pacific eap regions using panel data over 1970 2000 it finds that fiscal imbalances have a significant effect on fx pressures in lac but not in eap

the determinants of dismissals tests of the shirking model with individual data abstract this study tests the shirking model by estimating dismissal equations with data on individual workers fires were found to depend negatively on firm size and on the local and industry unemployment rates and to depend positively on the capital labor ratio

measuring imputed cost in the semiconductor equipment supply chain we consider the order fulfillment process of a supplier producing a customized capital good such as production equipment commercial aircraft medical devices or defense systems as is common in these industries prior to receiving a firm purchase order from the customer the supplier receives a series of shared forecasts which are called soft orders facing a stochastic internal manufacturing lead time the supplier must decide at what time to begin the fulfillment of the order this decision requires a trade off between starting too early leading to potential holding or cancellation costs and starting too late leading to potential delay costs we collect detailed data of shared forecasts actual purchase orders production lead times and delivery dates for a supplier buyer dyad in the semiconductor equipment supply chain under the assumption that the supplier acts rationally optimally balancing the cancellation holding and delay costs we are able to estimate the corresponding imputed cost parameters based on the observed data our estimation results reveal that the supplier perceives the cost of cancellation to be about two times higher and the holding costs to be about three times higher than the delay cost in other words the supplier is very conservative when commencing the order fulfillment which undermines the effectiveness of the overall forecast sharing mechanism

why are latin america s savings rates so low an international comparative analysis abstract this paper presents a theoretical and empirical assessment of the determinants of savings rates with special emphasis on latin american savings rates the study is based on international comparisons using data from 36 countries for 1970 1992 a distinction is made between private and public savings the later are endogenously determined by economic and political variables per capita income growth is the most important determinant of private and public savings public savings are lower in countries with higher political instability public savings crowd out private savings but less than proportionately low latin american savings are due to the magnitudes of their determinants rather than structural differences

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed