more on moral hazard in organizations reply the paper by thomas hammond and gary miller is an insightful comment on the relevance of budget breaking incentive schemes to real world organizations they have made a valuable contribution in considering this line of research within a broader context nonetheless they have not established the invalidity of my theoretical arguments therefore my basic point still holds that is theoretically it is possible to show that a bonus penalty incentive scheme of the sort proposed by holmstrom is feasible despite the principal s incentive to cheat regardless all of this debate may beg the question since compensation arrangements observed in the real world are rarely of the bonus penalty type linear incentives are far more common and many compensation schemes do not appear to incorporate optimal incentives at this point we need more empirical research on the determinants of incentives in organizations in order to make further advances in this area a better understanding of the incentive mechanisms actually used in organizations is required

estimating the financial crisis impact on potential output abstract i use a multivariate blanchard quah decomposition to investigate the financial crisis impact on potential output in the euro area the us japan and the uk i detect an impact for all countries which is especially severe for the uk

profitability and profit sharing claims that profit sharing is a purely distributive wealth confiscation scheme without incentive effects due to free rider problems are based on neglect of cooperation and interaction in the workforce when these activities are difficult to monitor directly group incentives such as profit sharing can increase efficiency and maintain a superior nashequilibrium with strictly individual optimization with simultaneous wls tobit estimates we find here strong effects of profit sharing and worker ownership shares on residual owners return on capital in medium sized metal working firms in west germany complementing earlier results on productivity

the entrepreneur s reward for self policing the collaboration among people is often subject to shirking the net gain from the collaboration depends on the contract governing it i argue that the entrepreneur assumes the role of the residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates by offering fixed pay contracts to others and himself becoming residual claimant the entrepreneur curtails his incentive to gain at the expense of his partners and the net gain from the collaboration is then maximized costly monitoring applies to both labor and capital and thus the entrepreneur may supply both labor services and capital the entrepreneur s capital serves to guarantee the pay of the other factors

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

forecasting efficiency concepts and applications this article introduces the concept of forecast efficiency in which the forecast contains all information available at the time of the forecast empirical tests investigate weak efficiency where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions tests of macroeconomic energy consumption and oil price forecasts find a significant autocorrelation of forecast revisions with fifty of fifty one tests showing positive correlation of forecast revisions as opposed to zero correlation consistent with forecast efficiency copyright 1987 by mit press

employee ownership and internal governance abstract this paper is designed to counter oliver williamson s hypothetical peer group model of organization with a discussion of three prosperous populations of employee owned firms worked owned scavenger companies taxi cooperatives and professional partnerships such as the large law firm it will be shown here that these firms are formed endure and prevail over their competition for reasons that williamson more than anyone else has taught us to appreciate in particular this paper will argue that the metering problems and human asset considerations that are so prominently featured in williamson s work are crucial for understanding the success of these firms

why capital suppliers usually hire workers what we know and what we need to know abstract a fundamental question for economics is why large firms in market economies usually assign control rights to capital suppliers rather than labor suppliers a diverse collection of answers can be found in the literature but unfortunately little theoretical consensus has emerged and few attempts have been made to resolve this issue through systematic empirical investigation this paper reviews a number of different hypotheses clustering around work incentives the financing of firms and collective choice we identify the strengths and weaknesses of each approach filling in theoretical gaps where necessary and conclude with some suggestions for empirical research

on the economic rationale for codetermination law abstract this paper develops a positive efficiency economic case for codetermination law resting on the correction of labor and capital market and organizational failures a legally mandated codetermination structure is shown to provide employee checks on several structural incentives for management opportunism codetermination is shown to offer advantages for technical efficiency skill development and knowledge generation through its protection of specific human capital investments financial markets cannot enforce codetermination due to a set of free rider problems

real time properties of the federal reserve s output gap abstract we consider the revision properties of federal reserve board staff estimates of the output gap after the mid 1990s and examine the usefulness of these estimates for inflation forecasting over this period we find that the federal reserve s output gap is more reliably estimated in real time than previous studies have documented for earlier periods and alternative estimation techniques in contrast to previous work we also find no deterioration in forecast performance when inflation projections are conditioned on real time rather than on final estimates of the output gap

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

hierarchy vs partnership abstract simple organizations composed of operatives and one manager may be organized as a hierarchy with the manager appropriating all profits or as a partnership with say equal shares of profits conditions on profitability and the optimal span of control are analyzed next partnerships are considered and alternative incentives and distributions are compared when partners are free to choose their time inputs then a sufficiently high preference for leisure as against income will make a partnership more attractive even though it is less profitable

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

real versus monetary business cycle theory and the statistical characteristics of output fluctuations abstract doubt has been cast on the ability of monetary models to explain output fluctuations adequately for conventional monetary models cannot account for non stationarity or the permanence of output innovations this note shows that purely monetary models can account for these characteristics once we allow technology to be endogenous so that recent statistical work does not constitute a refutation of monetary models of the business cycle

do large recessions reduce output permanently the slow recovery following the 2008 2009 recession has led to renewed interest in the question whether deep recessions lower real gdp permanently or whether we can expect a rebound to earlier trend levels using a recent quantile autoregression unit root test we check whether shocks to real gdp have permanent or temporary effects in contrast to earlier studies this approach takes into account that the transmission of a shock might depend on the sign and the size of the shock large recessionary shocks might have a different effect than smaller recessionary or expansionary shocks we do not only test the unit root hypothesis at the conditional mean of gdp but also in the tails of the distribution where the lower tail corresponds to large recessions the test has more power than conventional unit root tests we find that positive and negative shocks including large recessionary shocks have permanent effects on output therefore a rebound of gdp to its pre crisis trend level is unlikely current output gap estimates based on deterministic trends are likely to be too negative and inflation forecasts based on these are likely to be too low

a modified collective agriculture in rural growth with equity reconsidering the private unimodal solution abstract this paper identifies limitations of an agricultural structure of small private farms as a basis for rural growth with distributive equity and points out potential advantages of democratically managed collectives characterized by flexibility with respect to production scale group checks on inequality in land use and avoidance of the underemployment generating tendencies of large scale non collective agriculture after a critique of recent literature on scale economies and a discussion of stratification tendencies in private agriculture a model of democratic rural collectives incorporating features of chinese and tanzanian precedents is introduced and evaluated political feasibility is considered in a concluding discussion

growth expectations undue optimism and short run fluctuations this paper proposes a two step procedure in order to identify belief shocks shocks to expectations about the current state of the economy first we use the survey of professional forecasters to me

should we reject the natural rate hypothesis fifty years ago milton friedman articulated the natural rate hypothesis it was composed of two sub hypotheses first the natural rate of unemployment is independent of monetary policy second there is no long run trade off between the deviation of unemployment from the natural rate and inflation both propositions have been challenged the paper reviews the arguments and the macro and micro evidence against each it concludes that in each case the evidence is suggestive but not conclusive policymakers should keep the natural rate hypothesis as their null hypothesis but keep an open mind and put some weight on the alternatives

the financial cycle and macroeconomics what have we learnt abstract it is high time we rediscovered the role of the financial cycle in macroeconomics in the environment that has prevailed for at least three decades now it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle this calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies this essay highlights the stylised empirical features of the financial cycle conjectures as to what it may take to model it satisfactorily and considers its policy implications in the discussion of policy the essay pays special attention to the bust phase which is less well explored and raises much more controversial issues

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

the nature of the agricultural firm abstract models explaining the choice between rent wage and share contracts in agriculture abstract from the large variations within the classes of rent share and owner managed forms of organization regarding the extent to which a specific form accommodates specialization between labor and management as a result modern explanations of agricultural organizations are misleadingly dependent on risk aversion or the assumption that landowners have an absolute advantage in production decisions viewing the agricultural firm as a constitution instead of as a nexus of contracts facilitates an agency explanation of alternative organizational forms and their amenability to specialization

transaction costs and partnerships the case of rock bands abstract this paper applies transaction cost economics to rock bands it develops the importance of asset specificity a number of phenomena in the field are shown to be explicable in terms of transactions costs

some behavioral perspectives on the dominance of hierarchical over democratic forms of enterprise abstract this paper explores possible reasons why participatory modes of organization whole potentially viable and preferable to hierarchical modes for a large majority of workers may be dominated by the latter in capitalist market economies after exploring the developmental preconditions for the evolution of a mature participatory mode using a behavioral approach to organizations it is suggested that since the interest of those possessing scarce managerial skills may lie with hierarchical firms a participatory sector may be uncompetitive unless rights to enter labor contracts are redefined thus the analysis offers a partial explanation of the political nature of the demand for workplace democracy

labor force participation and monetary policy in the wake of the great recession in this paper we provide compelling evidence that cyclical factors account for the bulk of the post 2007 decline in the u s labor force participation rate we then proceed to formulate a stylized new keynesian model in which labor force participation is essentially acyclical during normal times that is in response to small or transitory shocks but drops markedly in the wake of a large and persistent aggregate demand shock finally we show that these considerations can have potentially crucial implications for the design of monetary policy especially under circumstances in which adjustments to the short term interest rate are constrained by the zero lower bound

is capitalism necessary a critique of the neoclassical economics of organization abstract in recent years neoclassical economists have offered a theory of the capitalist firm which implies that the corporation is uniquely adapted to the complexities of the modern industrial economy hence it is argued capitalism is necessary to efficiency this paper designs a non capitalist firm that satisfies all the criteria for efficiency unumerated by the neoclassical institutional economists the design suggests that by separating capitalism from the capital market advocates of non capitalist market systems need not discard the capital market as an instrument of economic control

on the incidence of profit and equity sharing theory and an application to the high tech sector abstract profit and equity sharing benefit some firms through improvements in innovation production quality retention of key employees and specific human capital formation the analysis predicts high share contract incidence in the high tech sector a hypothesis supported by survey data collected from small and large high tech firms however externalities associated with this sector s market entry mechanism imply that the optimal level of profit and equity sharing may not have been achieved

the ontology of economic power in capitalism mainstream economics and marx mainstream economics conceives power to be incompatible with perfect competition this conception i argue derives from its deductivist method and the empirical realist ontology that it presupposes following marx i show that capitalism constantly reproduces asymmetrical constraints on classes of individuals independent of the market form my ontological argument is rooted in the philosophy of critical realism my conclusion is that the dichotomy power competition is ontologically untenable if capitalist relations necessarily involve power it is not simply because neoclassical competition does not exist in reality as radical mainstream economists suggest but rather because capitalism altogether is a system of power

recovery from financial crises evidence from 100 episodes we examine the evolution of real per capita gdp around 100 systemic banking crises part of the costs of these crises owes to the protracted nature of recovery on average it takes about eight years to reach the pre crisis level of income the median is about 6 years five to six years after the onset of crisis only germany and the us out of 12 systemic cases have reached their 2007 2008 peak in real income forty three percent of the 100 episodes recorded double dips post war business cycles are not the relevant comparator for the recent crises in advanced economies

public health insurance labor supply and employment lock we study the effect of public health insurance on labor supply by exploiting a large public health insurance disenrollment in 2005 approximately 170 000 tennessee residents abruptly lost medicaid coverage using both across and within state variation in exposure to the disenrollment we estimate large increases in labor supply primarily along the extensive margin the increased employment is concentrated among individuals working at least 20 hours a week and receiving private employer provided health insurance we explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment our results are consistent with a significant degree of employment lock workers who are employed primarily to secure private health insurance coverage jel codes i1 j22 h75