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

the origins and development of the northeast asian political economy industrial sectors product cycles and political consequences theories of the product cycle hegemony and the world system are used to analyze the creation and development of the northeast asian political economy in this century japan south korea and taiwan have each developed in a particular relationship with the others the three taken together form a hierarchical constantly interacting political economic unit during the period of colonial rule japan was unique in building an imperial economic unit marked by a strong role for the state whether in tokyo or taipei by a tight integral unking of all three nations into a communications and transport network running toward the metropole and by a strategy of both using the colonies for agricultural surpluses and then locating industries there after 1945 a diffuse american hegemony replaced japan s unilateral system but elements of the prewar model have survived strong states direct economic development in south korea and taiwan here termed bureaucratic authoritarian industrializing regimes both countries are receptacles for japan s declining industries and both countries develop in tandem if in competition with each other the most recent export led competition has seen taiwan succeed where south korea has temporarily failed leaving seoul in an export led trap burdened with rapidly increasing external debt taiwan furthermore has industrialized relatively free of social disruption whereas korean society resisted its transformation at japanese hands and remains more rebellious today there can be one japan and one taiwan but not two or many of either in the world economy

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

nonpecuniary benefits to farming implications for supply response to decoupled payments we develop a household model wherein farmers allocate labor to maximize utility from leisure consumption and nonpecuniary benefits from farming the model shows that farmers with decreasing marginal utility of income respond to higher decoupled payments by decreasing off farm labor and increasing farm labor resulting in greater agricultural output we then estimate the difference between farm and off farm returns to labor using data from three nationally representative farm household surveys the finding of a large on farm off farm wage differential provides compelling evidence of substantial nonpecuniary benefits from farming

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

product market competition and managerial slack this article analyzes the effect of product market competition on managerial incentives in contrast to hart 1983a i show that competition may actually exacerbate the incentive problem the difference in results derives from our different assumptions about managerial preferences the importance of assumptions about preferences suggests that we do not yet understand the precise mechanism through which competition affects incentives

information competition and markets one of the dominant characteristics of modern capitalist economies is the important role played by competition not the peculiar static form of pure price competition embodied in the arrow debreu model but rather a dynamic competition more akin to the kind of competition represented by sports contests and other races including patent races in recent years there have been several attempts to explain why firms often base the pay of their workers and managers on relative performance see for example edward lazear and sherwin rosen 1981 such compensation schemes become desirable when three conditions are satisfied a the input effort of workers managers must not be directly observable at least without cost thus firms must either expend resources to monitor inputs or devise reward structures in which compensation is a function of variables such as output or profits which are themselves functions of inputs but are less costly to observe b the relationship between input and output must be stochastic so that by observing output one cannot perfectly infer what the input was c finally the stochastic disturbances which affect the relationship between input and output of different firms must be correlated by looking at the performance of one worker relative to that of others one can make better inferences about his effort than one can make without using this information not only can competition provide a basis of comparison which enables the design of reward structures that can simultaneously provide a high level of incentives with relatively low level risk but compensation schemes based on relative performance have the further advantage of automatically adjusting incentives to changes in the economic environment we refer to this as built in flexibility in a first best world with perfect information concerning the nature of the technology but where it is still costly to monitor individuals activities the compensation scheme would vary from time to time as the environment changed such changes in the compensation scheme are costly to implement and the information required to do so is seldom available when a task is easier the individual s rewards for performing the task should be reduced if pay is based on relative performance although all individuals perform better when they exert the same level of effort their compensation is automatically adjusted thus teachers frequently grade on the curve and a significant fraction of the pay of successful salesmen often consists of bonuses based on relative performance

the effect of off farm work on the intensity of agricultural production changes in agricultural production methods have been associated with environmental pressure and a loss of natural habitats this paper explores the extent to which farmer participation in off farm work an increasing phenomenon in most developed countries changes the intensity of agricultural input use focusing in particular on fertilizer and crop protection product use a sample selection model that accounts for both unobserved heterogeneity between farms and the potential simultaneity between farm operations and hours worked off farm is estimated for 2 419 farms in england and wales the econometric evidence indicates that the input intensity of products which have well established links to environmental damage can increase as well as decrease the results suggest that that fertilizer intensity may decline as off farm labor increases while the use of crop protection per hectare increases as off farm work increases

competition risk and managerial incentives this paper examines how the degree of competition among firms in an industry affects the optimal incentives that firms provide to their managers a central assumption is that there is free entry and exit in the industry which implies that changes in the nature of competition lead to changes in the equilibrium market structure the main result is that as the intensity of product market competition increases as a result of greater product substitutability or greater market size principals unambiguously provide stronger incentives to their agents to reduce costs at the same time more intense competition also leads to more volatile firm level profits consequently managers incentives are positively correlated with firm level risk consistent with empirical evidence a decrease in the cost of entering the market has the opposite effect on incentives but still induces a positive correlation between risk and incentives

off farm work decisions of farm couples estimating structural simultaneous equations with ordered categorical dependent variables we estimate a full system of structural farm and off farm labor supply equations of farm couples as a set of simultaneous equations with categorical dependent variables in a first step the reduced form is estimated by ordered probit with unknown thresholds then the identified structural coefficients are recovered from the reduced form coefficients through minimum distance estimation using census data from israel we find that for men a one hour increase in farm labor supply causes a one hour decrease in off farm labor supply but not for women this could not have been found without estimating structural coefficients

search costs and investment in quality in this paper we analyze how lower search costs aect rms incentives to invest in quality we identify two con icting eects on the one hand lower search costs increase incentives to invest in quality by eroding the market share of low quality rms and increasing the market share of high quality rms on the other hand by intensifying price competition lower search costs adversely aect high quality rms more than low quality rms the net eect of a change in the search cost on quality is shown to depend on the initial quality distribution there is a critical value such that if the average quality in the market is initially above this value lower search costs lead to lower quality whereas if the initial quality is below this value lower search cost leads to higher quality we show that our results are consistent with a superstar eect

product market competition and gender discrimination award winning work by the call for competition in the markets a partnership between the office for strategy and studies of the ministry of economy gee and the associacao mutualista montepio

the irony of state strength comparative responses to the oil shocks in the 1970s like two gigantic waves the oil shocks crested over the advanced industrial world during the 1970s the relatively stable postwar petroleum regime managed by the large oil firms and protected by american diplomatic and military strength collapsed in seven years crude oil prices adjusted for inflation increased more than 500 percent a multitude of national security economic and political challenges confronted the advanced industrial states but unlike war where the threat is observable and lines of conflict quickly become apparent the oil shocks cast up problems that were more insidious problems of energy security economic adjustment and industrial competitiveness these international dilemmas could be defined in various ways and a host of policy responses could be brought to bear upon them

estimating labor supply and production decisions of self employed farm producers abstract this paper proposes a model oriented towards integrating farm households production and consumption decisions into a unified theoretical and econometric framework it is argued that in contrast with other forms of economic organization farm households utility and profit maximization decisions are not likely to be independent econometric estimation of a farm household model using canadian data suggests that utility and profit maximizing decisions are not indeed independent and moreover that there are significant gains in explanatory power and efficiency by estimating the consumption and production equations jointly

how valuable is on farm work to farmers in this article we estimate a rural household model that allows specific tastes for working on farm and can fit the data as well as the general model of lopez we use two samples that are matched by individual characteristics and adopt the method for matched surveys proposed by arellano and meghir we replicate using french data the empirical finding of elhorst who reports evidence that implicit wages of on farm family labor are significantly below off farm wages we then provide estimates of the lower bounds for preferences for on farm work for males and females which are significant and positive

the effect of nonfarm income on investment in bulgarian family farming this article documents a relationship between nonfarm income primarily earnings and pensions and agricultural investment in bulgaria specifically expenditures on working capital variable inputs such as feed seed and herbicides and investment in livestock among those with positive spending on farm inputs the estimated elasticity of these expenditures with respect to nonfarm income is 0 14 nonfarm income also has an effect on the number of households that purchase farm animals with an estimated elasticity of 0 35 the use of nonfarm income for farm investment is consistent with the presence of credit constraints as is the fact that less than one percent of farmers report outstanding debts for agricultural purposes yet many farm households take out large unsecured loans for other purposes primarily to cover consumption expenditures implying that credit is available but that farmers prefer not to use borrowed funds to finance agricultural investment this would suggest that increases in the availability of agricultural credit may have little effect on farm outcomes whereas increases in nondebt financed sources of liquidity such as subsidies or transfers may better stimulate investment

female labour supply and on the job search an empirical model estimated using complementary data sets we develop an empirical model of labour supply that is consistent with on the job search and which is identified and estimated by combining two data sets the u k family expenditure survey which contains information on income and expenditure and the u k labour force survey which has data on hours and job search behaviour we provide statistical evidence on the compatibility of the two samples for the purposes of estimating our model we find that search has a direct negative effect on hours of work and we establish a strong positive effect of wages on hours

tax versus emissions trading scheme in the long run in this paper we compare the performance of emission taxes and tradable permits under free market entry when firms face idiosyncratic ex ante cost uncertainty we show that under auctioned permits insufficient entry occurs while under a linear emission tax scheme depending on parameters market entry can be either excessive or insufficient our long run analysis thus contrasts with spulber s 1985 equivalence result and also modifies weitzman s result in favor of an ets in that the superiority of a tax over an ets is not guaranteed even when the weitzman condition favors a tax we also show that an ets is superior to a tax scheme when the entry cost is low and the magnitude of uncertainty asymmetric information and the size of the output market are large

long run industry equilibrium with uncertainty abstract in this paper we consider the effects of uncertainty on industry equilibrium when firms must commit themselves to production before prices are revealed we show that a an increase in demand uncertainty will i not affect the equilibrium number and size of firms if they are risk neutral ii reduce the equilibrium number of firms if they are risk averse but will have an ambiguous effect on their size b in equilibrium firms operate at capacity if they are risk neutral but at excess capacity if they are risk averse

product market competition and the cost of bank loans evidence from state antitakeover laws abstract the extant literature documents a positive relationship between a firm s takeover vulnerability and its agency cost of debt using state antitakeover laws as an exogenous measure of variation in takeover vulnerability i investigate whether product market competition has a disciplinary effect that can lower a firm s cost of bank loans after taking into account the industry composition of borrowers i find that banks charge higher spreads to borrowers that are vulnerable to takeovers but only in concentrated industries in the absence of disciplinary competitive pressure the effect of takeover vulnerability on the cost of bank loans is mitigated for larger firms firms followed by analysts firms with existing credit ratings non family firms and for borrowers with shorter maturity loans or loans with covenants and collateral in place taken together the results suggest that the effect of governance on the cost of financing is not homogenous across all industries and that concentrated industry firms may need to use supplementary governance mechanisms to mitigate debt holder agency problems

endogenous firm efficiency in a cournot principal agent model abstract in a market of cournot firms managed by agents the degree of firm efficiency is inversely related o the number of firms in the market journal of economic literature classification numbers l22 d23 d43

an experiment on spatial competition with endogenous pricing hotelling s 1929 principle of minimum differentiation and the alternative prediction that firms will maximally differentiate from their rivals in order to relax price competition have not been explicitly tested so far we report results from experimental spatial duopolies designed to address this issue the levels of product differentiation observed are systematically lower than predicted in equilibrium under risk neutrality and compatible with risk aversion the observed prices are consistent with collusion attempts our main findings are robust to variations in three experimental conditions automated vs human market sharing rule for ties individual vs collective decision making and even vs odd number of locations

industry equilibrium uncertainty and futures markets abstract this paper studies competitive long run industry equilibrium with uncertainty and futures trading we also provide a long run analysis of futures trading instead of the conventional short run analysis it is shown without using a general equilibrium model that given uncertain demand and risk aversion a bias backwardation or contango arises in long run industry equilibrium given risk neutrality such a bias however disappears we find that the occurrence of the bias depends not only on the existence of a risk premium but also on the length of the period considered each risk averse firm operates at a less efficient scale and moreover an expected spot price never accords with marginal cost when the expected spot price is less than marginal cost the risk averse firm can secure profit by selling futures contracts more than the amount of its output in the presence of production supply uncertainty a risk neutral firm operates with excess capacity under additive risk while the firm operates with proper capacity under multiplicative risk the key lies in whether its average cost curve is shifted by production risk

strategic incentives for innovations and market competition abstract we consider a principal agent model to provide a general analysis of how risk affects incentives of firms who invest in cost reducing r d and compete in the product market we specify the conditions under which higher risk reduces incentives of all firms we also examine the conditions under which an increase in risk may trigger opposite responses of rivals in the same industry some firms will strengthen while other firms will weaken the incentives provided to their agents this result holds regardless of the mode of competition in the product market cournot or bertrand as long as the rivals r d decisions are strategic substitutes it can generate new empirical implications and can provide an explanation for the lack of strong empirical support in the literature for a negative relationship between risk and incentives we also discuss policy implications regarding the effect of risk on the incentives to innovate and welfare

on the nature and magnitude of cost economies in hog production in this article we assess the impact of farm size on production cost and evaluate the marginal costs and margins by considering that input prices may change with the scale of production by using french hog farm data we estimate a system of equations including a feed price function input demand functions and an output supply function based on a technology approximated by a combined generalized leontief quadratic form our results suggest that the marginal costs are over estimated when the adjustment of the feed unit prices to a change in farm size is not controlled for more specifically the cost economies for large farms enjoying the highest profits arise primarily from lower feed prices with technological scale economies having little impact in contrast farms with no hired labor exhibit technological scale economies and reach higher price cost margins compared to larger farms

the differential impact of uncertainty on investment in small and large businesses we study the impact of profit uncertainty on investment and whether or not this response is different in industries that are dominated by small firms versus those that are dominated by relatively larger firms our key findings are that the sign of the investment uncertainty relationship is negative and that the quantitative negative impact is substantially greater in industries dominated by small firms these results are robust to accounting for potential endogeneity of the uncertainty measure alternate procedures for measuring uncertainty and alternate ways of segmenting industries into small and large firm groups

asymmetnc taxation and the theory of the competitive firm under uncertainty this paper examines the implications of the asymmetries in the tax treatment of corporate profits and losses for the theory of the competitive firm under uncertainty it is shown that the tax asymmetry introduces a curvature into the firm s target function which affects its behaviour in the short run in long run industry equilibrium however most of the effects disappear at the firm level but still remain at the industry level

do farm workers earn less an analysis of the farm labor problem during the four decades extending from 1950 to 1960 the ratio of the farm to nonfarm wage fluctuated between 0 45 and 0 55 we employ the oaxaca technique and the public use microdata sample of the 1990 census to decompose the farm nonfarm wage differential we also use the american chamber of commerce research association accra cost of living data to measure the impact of the farm nonfarm cost of living index on the wage gap first we find that the observed wage gap is reduced by half when nominal wages are deflated by the accra cost of living index second by applying the oaxaca method separately to a subsample of young employees and a subsample of old employees we find that while for the subsample of employees younger than thirty five years the real wage gap practically vanishes the gap for the subsample of employees who are thirty five years of age and over is higher than that of the total sample this finding lends strong support to the hypothesis that between 1950 and 1970 the process of farm out migration was positively selective

noise a firm made trade barrier abstract a dominant domestic firm confronted by a fringe of risk averse importers achieves higher profits by adopting a volatile price policy than by setting quantity according to the standard marginal condition the fluctuating domestic price is equivalent to a tariff on imports for all intents and purposes the local firm raises its rivals costs

competitive production and increases in risk the theory of the firm is a monumental achievement of neoclassical economics without this engine of analysis it would be difficult if not impossible to comprehend the pricing output and input decisions of firms as they respond to routine events like the imposition of a tax the opening of a new market a technical innovation and a sudden shortage of a key factor of production it is remarkable that this theory has been successful in explaining behavior that to a large extent is motivated by both profit and risk when the theory itself has only explicitly considered the profit motive this is not the place to dwell on the evolution of economic theory it suffices to note that there are many important economic phenomena that the purely deterministic theory does not explain the purpose of this note is to elucidate the way in which risk influences the output decisions of riskaverse entrepreneurs and the number of riskneutral firms in a competitive industry in both cases the predicted behavior differs from that of the deterministic theory in our study we shall restrict attention to the behavior of firms in a single period 2 setting the firm has no control over price and because storage makes no sense simply sells all of its output at the going price the source of uncertainty is the requirement that the firm produce before price is known where the price is a random variable with a known probability distribution the firm chooses output to maximize its expected utility it is well known that in the presence of uncertainty the optimal output of the risk averse firm is less than that of the riskneutral firm moreover increases in risk aversion in the sense of arrow and john pratt lead to further diminutions in output on the other hand for a fixed degree of risk aversion the change in output induced by a mean preserving increase in risk depends on the shape of the cost curve as well as the sign of the third derivative of the utility function u and the sign of the second derivative of qu q next competitive industry behavior under uncertainty is analyzed in order to isolate the effect of uncertainty firms are assumed to be risk neutral we show that both the optimal number of firms in the industry and excess capacity increase as industry output becomes riskier results like this are important for probabilistic economics for it would be unfortunate if the vitality of the stochastic theory of the firm relied solely on the controversial assumption of risk aversion 3

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

the comparative statics of a competitive industry facing demand uncertainty abstract the comparative statics of a competitive industry under uncertainty with free entry is clarified and extended using the general structure of random demand due to leland 1972 while strong results are obtained for the industry few unambiguous results can be derived for the firm

revenue neutral tax policies under price uncertainty reply in their comment on my 1990 article yeh suwanakul and mai extend my analysis which focused attention exclusively on firm output to allow for simultaneous endogeneity of price aggregate output and numbers of firms they show that with downward sloping demand industry output adjusts positively to revenue neutral changes in the marginal rate of taxation this result is significant for two reasons first we are more often interested in predictions about aggregate phenomena than we are in predictions about individual firms indeed firm level predictions are frequently irrefutable since firm data are often unavailable second the authors derive their result under a set of conditions that appear to be more general than those invoked in my 1990 article in particular they circumvent the need to invoke specific assumptions about the nature of firms aversions toward risk i consider this a useful extension and i appreciate the careful scrutiny of my paper

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

farm income variability and the supply of off farm labor if farmers are risk averse greater farm income variability should increase off farm labor supply this effect is confirmed for a sample of kansas farmers off farm employment of farmers and their spouses is also found to be significantly influenced by farm experience off farm work experience farm size leverage efficiency and farm specific education in addition farm operators and spouses who receive significant income support through government farm programs are less likely to work off the farm this may suggest that policy changes reducing farm income support payments may increase off farm employment of farmers and their spouses

competitive industry equilibrium under uncertainty and free entry this paper investigates the properties of industry equilibrium under price uncertainty given free entry and exit for any form of risk averse behavior it is shown that an increase in demand uncertainty as measured by a mean preserving spread increases mean output price and reduces output of firms in long run equilibrium

the aggregate effects of risk in the agricultural sector the theory of the firm facing a random output price is extended to include industry equilibrium conditions in a way particularly important for agriculture land prices adjust to maintain industry equilibrium the comparative statics and the effects of policy for the firm are significantly altered the main finding is that risk and other parameter changes are capitalized into the price of land and yield wealth or income effects rather than substitution effects this often simplifies the analysis

the state and capitalist transformation in sub saharan africa a development model declining performance of the postcolonial african states suggest the inefficiency of centralization and or socialist strategy that currently dominates the region the solution however is not a return to the largely unrestrained liberal economic models of the 1960s such as import substitution industrialization or commodity export specialization whether from the left or right the inability of all three models to define precise development roles for africa state elites suggest their insensitivity to and inadequacy for the needs of these politically dynamic young states of africa an alternative model presented in this article would involve state elites in grass roots capitalist development the model fosters decentralization and economic development without sacrificing rule legitimization and national integration as equal objectives in many respects the model is an attempt to adapt to african realities the norms of embedded liberalism that properly describe current western liberalism

the impact of competition on management quality evidence from public hospitals in this paper we examine the causal impact of competition on management quality we analyze the hospital sector where geographic proximity is a key determinant of competition and english public hospitals where political competition can be used to construct instrumental variables for market structure since almost all major english hospitals are government run closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment we find that management quality measured using a new survey tool is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions ami more importantly we find that higher competition as indicated by a greater number of neighboring hospitals is positively correlated with increased management quality and this relationship strengthens when we instrument the number of local hospitals with local political competition adding another rival hospital increases the index of management quality by one third of a standard deviation and leads to a 10 7 reduction in heart attack mortality rates

risk aversion and technology mix in an electricity market this article analyzes the eff ect of risk and risk aversion on the long term equilibrium technology mix in an electricity market it develops a model where fi rms can invest in baseload plants with a fi xed variable cost and peak plants with a random variable cost and demand for electricity varies over time but is perfectly predictable at equilibrium the electricity price is partly determined by the random variable cost and the returns from the two kinds of plants are negatively correlated when the variable cost of the peak technology is high the return of peak plants is low but the return to baseload plants is high risk averse fi rms reduce the capacity of the riskiest technology and develop the capacity of the other compared to risk neutral fi rms in the particular case where a risk neutral fi rm invests heavily in baseload technology and only sparely in peak capacity a risk averse fi rm would invest less in baseload increase peak capacity and increase total installed capacity

the effect of competition on executive compensation and incentives evidence from a quasi natural experiment the research was partially funded by fundacao para a ciencia e a tecnologia through the applied microeconomics research unit nima award no pest oe ege ui3181 2014

production uncertainty and the market equilibrium of the competitive firm abstract assumptions outputs are planned ex ante by risk neutral firms actual outputs are stochastic with variance function of planned output production costs are function of planned outputs while the market linear demand function is stable if individual outputs as positively correlated expected profit is decreased by the negative covariance between output and price the firms and market equilibria are analyzed in the short run and the long run with varying number of firms they are compared with oi s and tisdell s uncertain demand models

household composition labor markets and labor demand testing for separation in agricultural household models this paper tests the separation of farm labor supply and labor demand decisions using the observation that household composition is an important determinant of farm labor use with nonseparation after assessing the conditions under which the test has power against several alternatives an empirical model is developed to test the proposition that farm employment is independent of family composition the model is estimated on a data set from rural java the null hypothesis that farm labor allocation decisions are independent of household structure is not rejected the results are robust to different specifications of the labor demand function copyright 1992 by the econometric society

managerial incentives and product market competition are imperfectly competitive leibenstein 1966 claims that there may be a substantial amount of x inefficiency where x inefficiency measures the degree to which actual profits depart from the maximum of profits that could be obtained if all operations in the firm were carried out at minimal costs he offers empirical evidence from case studies showing that the welfare loss due to organizational slack is of an order of magnitude bigger than the welfare loss due to monopolistic price distortions on imperfectly competitive markets these results support the common presumption that increasing competition reduces organizational and in particular managerial slack however this early literature does not offer a theoretical explanation for the link between competition and managerial incentives in particular it ignores the fact that managerial incentives can be affected by the design of an incentive scheme in this paper i derive the optimal incentive scheme for a manager as a function of the competitiveness of the environment in which his firm operates the basic impact of increased competition is that it reduces the profits of a firm this has two effects in the model first if a firm has high costs then the reduction of profits may be sufficient to render the firm unprofitable so the probability that it has to be liquidated goes up this unambiguously induces the manager of the firm to work harder for a cost reduction in order to avoid liquidation and to keep his job second the reduction in profits may affect

a note on free entry under uncertainty the role of asymmetric information in a model of competing managerial firms i show that the equilibrium number of firms decreases with uncertainty if entry is relatively more costly than monitoring the result adds to the earlier contributions and is consistent with the available evidence

local economic conditions and wage labor decisions of farm and rural nonfarm couples effects of geographical differences in local economic conditions on wage labor demand and wage labor participation decisions of rural couples are examined for current population survey households 1978 82 wage premiums are shown to exist for localities anticipating labor demand growth higher unemployment rates larger share of employment in services and higher costs of living these effects are stronger for males than females effects of local economic conditions on the probability of wage work are consistent with expected market wage and reservation wage effects and for farm households the probability of wage work increases when expected farm output prices decline or the wage increases

revenue neutral tax policies under price uncertainty comment in an interesting paper in this journal holloway investigated the firm s response to revenue neutral taxation under price uncertainty in his analysis revenue neutral policies adjust simultaneously the marginal tax rate and the level of exemptions while keeping expected tax receipts constant using an assumption of nonincreasing absolute risk aversion he concluded that a reduction in the marginal rate would cause the firm to contract output holloway used the 1986 tax reform act as an example of a revenue neutral policy as a matter of fact the act was intended to be revenue neutral while low

broken symmetry symmetry and price uncertainty or short and long run comparative statics of the competitive firm abstract the notion of broken or hidden symmetry is applied to a long run characterization of a competitive firm operating under price uncertainty the main result of the paper is the restoration of a slutsky type symmetry of the input demand functions within an expected utility framework which does not involve any assumption about risk aversion a second conclusion is that economic relations expressed in terms of relative quantities are essential in the long run comparative statics under price uncertainty

industry equilibrium with uncertainty and labor managed firms abstract this paper characterizes long run industry equilibrium composed of labor managed firms under demand uncertainty moreover it is demonstrated how the number and size of firms in the industry respond to a change in uncertainty

social capital and the cost of equity abstract we find that a firm s cost of equity is inversely related to the level of social capital in the state where the firm is headquartered further the cost of equity declines when firms move their headquarters from a low social capital state to a state with higher social capital the negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product market competition and is not significant for firms with good firm specific reputations we interpret these findings as indicating that social capital serves as a societal monitoring mechanism and can be value enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring

paying for observable luck this article examines why ceos are rewarded for luck namely for observable shocks beyond their control i propose a simple hidden action model where the agent has implicit incentives to avoid bankruptcy after signing the contract but before acting the agent observes a signal on future luck implicit incentives are weaker after good news and call for higher pay for performance sensitivity in good times as a result managerial pay is tied to luck the model is also consistent with recent evidence of asymmetric pay for luck that is a larger exposure of managerial pay to good luck than to bad

imperfect competition and reputational commitment abstract competition can both aid and hinder reputational commitments for quality these are self sustaining depending on future profits after maintaining or deviating from the commitment and on current costs of sustaining it competition can affect these three elements at different rates

the simultaneous determination of spot and futures prices in a simple model with production risk this paper deals with properties of a rational expectations equilibrium when there is futures trading a simple two good model is analyzed where one of the goods is produced subject to production risk although the futures market provides insurance against price risk to producers it is income risk that concerns them whether they hedge in equilibrium is shown to depend on the price and income elasticity of demand for their output as well as on the degree to which consumers the other party in the futures transaction are risk averse

an examination on the cost efficiency of the banking industry under multiple output prices uncertainty this article formulates a behavioural model of profit maximization which explicitly incorporates both multiple output prices risk and safety first practice this theoretical model is specifically suitable for investigating financial institutions whose output prices frequently encounter a variety of risks such as loan defaults arrears the sample banks are empirically found to be highly risk averse furthermore risk preferences exert little effect on the technical efficiency estimates whereas the same estimates obtained by the standard fixed effect model under certainty tend to be overestimated evidence is found that a specialized bank offering a single product with a larger scale of production will be preferable in an uncertain atmosphere

product market reforms labour market institutions and unemployment we analyze the impact of product market competition on unemployment and wages and how this depends on labour market institutions we use differential changes in regulations across oecd countries over the 1980s and 1990s to identify the effects of competition we find that increased product market competition reduces unemployment and that it does so more in countries with labour market institutions that increase worker bargaining power the theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market we also find that the effect of increased competition on real wages is beneficial to workers but less so when they have high bargaining power intuitively real wages increase through a drop in the general price level but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured

the migration of young adults from non metropolitan counties this article examines young adult migration from non metropolitan counties to either different non metropolitan counties or to metropolitan areas the results show that expected gains in initial earnings provide young entrants to the labor force with a marked incentive to migrate from their non metropolitan counties of origin initial earnings gains stem in part from higher returns to schooling in both metropolitan areas and other non metropolitan counties the propensity to migrate is also sensitive to the costs of migration which in turn are correlated with paternal education and the local presence of extended family copyright 2001 oxford university press

supply response under proportional profits taxation a striking result in the theory of the competitive firm under certainty is the proposition that a proportional profits tax with full offsets for losses will have no impact on optimal output this result does not apply under uncertainty it is shown that under constant or increasing returns to scale a proportional profits tax will yield an unambiguous expansion in output the same result is shown to hold for the more general rank dependent expected utility rdeu model

on output price uncertainty and the comparative statics of industry equilibrium the analysis of firm response to output price variability has until recently been incomplete due to a failure to consider explicitly the effect of firm response on the attainment of competitive equilibrium at the industry level a recent paper by appelbaum and katz 1 has addressed the issue of industry equilibrium under output price uncertainty they show how the optimal number of firms might change through the process of exit and entry and they characterize the collective influence of firms decisions on expected market price however their analysis focuses on firms with a single stage production process which allows no production flexibility in the form of adjustment of output levels after output price is revealed an earlier paper by hartman 3 has shown that at the firm level the optimal response to output price uncertainty will depend on whether production flexibility exists specifically if firms employ a two stage production process which is characterized by the presence of a quasi fixed factor then firm level output may increase or decrease in response to changes in output price variability even if firms are risk neutral the assumption that production flexibility exists changes those results initially developed by sandmo 7 and applied more recently by appelbaum and katz 1 which are based on a single stage production process this paper provides an extension of the appelbaum and katz analysis to admit production flexibility equivalently it extends the analysis of hartman to consider explicitly the effect of firm response on the attainment of competitive equilibrium at the industry level appelbaum and katz show that for an industry of identical risk averse firms with a singlestage production technology the effect of a mean preserving increase in price uncertainty is to decrease industry output and to raise market price a more recent comment by ishii 5 shows that output per firm will also fall yet none of these authors shows unambiguously whether the number of firms increases or decreases although not explicitly stated the analysis in appelbaum and katz suggests there would be no firm or industry response to a mean preserving change in price spread if firms were risk neutral expected profit maximizers the model employed in this paper is analogous to that of appelbaum and katz with two principal exceptions i here an industry is composed of firms all of which are either risk neutral

state governance and technological innovation in emerging economies state owned enterprise restructuration and institutional logic dissonance in china s high speed train sector can state governance spur firm innovation in an emerging economy and transform state owned enterprises soes from dying dinosaurs to dynamic dynamos we seek an answer to this question by investigating the innovative performance of restructured soes in china s high speed train sector we expect that soe restructuration will improve firm innovation but that the degree of improvement will depend on how the state conducts firm governance building on institutional theory we distinguish state governance via equity ownership and administrative affiliation in an emerging economy with market hierarchy institutional conflicts under such conflicts restructured soes experience institutional logic dissonance which hinders organizational change for technological innovation we hypothesize that state ownership exacerbates institutional logic dissonance at a restructured soe thus limiting innovation improvement from restructuration in contrast state affiliation mitigates firm dissonance and hence augments such improvement we find empirical evidence for these hypotheses in a comprehensive panel of high speed train manufacturers in china between 1989 and 2015 this study contributes to the institution based theory of technological innovation in emerging economies on the practical front our findings suggest that emerging states may adopt arms length governance to spur soe innovation and unleash these dynamic dynamos to fuel sustainable economic growth

product market competition and upstream innovation evidence from the u s electricity market deregulation this paper studies the innovation response of upstream technology suppliers when their downstream buyers transition from regulation to competition by modeling the impact of the 1990s u s electricity deregulation on patenting we find that after deregulation the net competition effect comprising the pure competition and the escape competition effect decreased innovation by 18 3 and the appropriation effect increased innovation by 19 6 other deregulation factors have led to a 20 6 decline in aggregate after deregulation innovation by the upstream technology suppliers has declined by 19 3 and upstream innovation quality and generality have declined as well

price uncertainty and the price discriminating firm in international trade the firm operating in an uncertain environment was initially analyzed in detail by sandmo 1971 and by leland 1972 since these early papers many extensions to the analysis have been explored by such writers as batra and ullah 1974 mayer 1975 hartman 1976 holthausen 1976 stewart 1978 paroush and kahana 1979 anid katz and paroush 1979 this paper investigates the optimal policy of a pr ice discriminating firm which operates under pr ice uncertainty in one of two markets the main motivation for the analysis comes from the problems of a firm which sells its output both domestically and abroad such a firm often has nearly full information about the domestic market b ut faces uncertainty in foreign markets in particular the firm which has its utility defined over profits denominated in terms of domestic currency will regard the profits on its foreign sales as uncertain given excha nge rate variability even if it has full information about all other conditions in the foreign market hence the paper may be regarded both as an extension to the above mentioned analyses of the firm under uncertainty and as an attempt to throw light on the activities of firms involved in international trade the treatment being essentially of a mricroeconomic nature is clearly different from that of such writers as batra 1 975 and helpman and razin 1979 which are essentially macroeconomic treatments

competition and risk taking in banking the charter value hypothesis revisited abstract conventional wisdom suggests that greater competition in banking by eroding bank charter values exacerbates banks incentives to take excessive risks this paper presents a model in which contrary to this view competition can cause banks to act more prudently as competition intensifies and profit margins decline banks face more binding threats of failure to which they may respond by taking lower risks nonetheless competition is unambiguously destabilizing in this model the direct effect of lower margins on bank failure rates always outweighs the prudence effect a key implication is that the effects of competition on bank risk taking and on failure risk can move in opposite directions

the impact of market competition on ceo salary in the us energy sector1 abstract in this work we examine the impact of market competition on ceos salaries by analyzing a sample of alls p american firms in the energy sector in the 1992 2015 time span and measuring market competition by means of the so called herfindhal hirschman index we divide industries into three sub groups based on small medium and high market concentration and try to expand our research by exploring the impact of the recent financial crisis the paper investigates how ceos salaries are affected by firm level determinants e g firm size returns on assets returns on equity capital expenditure market concentration tobin s q etc as well as by the individual characteristics of each ceo e g ceos age gender based on our findings the market concentration index in the us energy sector has a negative and statistically significant impact on ceo salary for all firms that operate in either a highly monopolistic or a purely competitive environment the results of this empirical work are robust after examining for different alternative high order fixed effects specifications

shadow wages and peasant family labour supply an econometric application to the peruvian sierra a striking feature of developing economies is the large proportion of the work force that is self employed lack of widespread labor market participation in the agricultural sector can pose a major obstacle to the empirical implementation of economic models of the peasant household whether because wage data are simply not available or because the assumptions required to make use of wage data stretch the bounds of credulity this paper develops a methodology for estimating a structural labor supply model for primarily self employed peasant households which holds under a general agricultural technology and set of labor market conditions the unique feature of the approach is that the opportunity cost of time or shadow wage of household workers is explicitly estimated from an agricultural production function and is subsequently used to identify a set of structural labor supply parameters recent household survey data from rural peru is employed to estimate and perform various diagnostic tests on the model the empirical findings lend support to the hypothesis that peasant households allocate their members time as if to maximize a family utility function and moreover demonstrate the tractability of the shadow wage methodology and its usefulness in estimating more elaborate time allocation models

the off farm labor supply of farmers theoretical and empirical models are developed to examine the off farm wages labor force participation and hours of work of farmers econometric estimates use data from a 1971 survey of illinois farmers the off farm wage depends on farmer human capital and the local labor market the major result confirms the sensitivity of off farm work to economic incentives a 10 increase in the off farm wage entails an 11 increase in hours of off farm work holding farm characteristics constant results also indicate effects of seasonality risk and life cycle factors on off farm work

the treadmill effect in a fixed budget system abstract we examine the interaction in the market for physician services when the total budget for reimbursement is fixed physicians obtain points for the services they render at the end of the period the budget is divided by the sum of all points submitted which determines the price per point we show that this retrospective payment system involves compared to a fee for service remuneration system a severe coordination problem which potentially leads to the treadmill effect we argue that when market entry is possible a budget can be efficiency enhancing if in addition a price floor is used

optimal hedging in the futures market under price uncertainty abstract we show that there exists a simple optimal hedging rule in the futures markets for all risk averse decision makers given that a futures price today is an unbiased predictor of the futures price next period b basis is independent of the spot price

individual preferences organization and competition in a model of r d incentive provision abstract understanding the organization of rd 2 knowledge is not perfectly appropriable 3 scientists are responsive to both monetary and non monetary incentives and 4 firms compete on the product market we show that both knowledge spillovers and market competition affect the incentives given to scientists and these effects interact first high knowledge spillovers lead firms to soften incentives when product market competition is high and to strengthen incentives when competition is low second the relationship between the intensity of competition and the power of incentives is u shaped with the exact shape depending on the degree of knowledge spillovers we also show that the performance contingent pay for both applied and basic research increases with the non pecuniary benefits that scientists obtain from research while the fixed component decreases we relate our findings to the existing empirical evidence and also discuss their implications for management and public policy

incentives choice and accountability in the provision of public services this paper discusses a theoretical framework to study the issues of competition and incentives without relying on the standard profitoriented market model in the context of the debates about public service reform in the u k it uses the idea that the production of public services coheres around a mission and discusses how decentralized service provision can raise productivity by matching motivated workers to their preferred missions our focus on competition and incentives cuts across traditional debates about public versus private ownership and allows for the possibility of involving private non profits we also address concerns about the consequences of allowing more flexibility in mission design and competition on inequality

the effects of competition on executive behavior economists presume that competition spurs a firm to be more efficient by forcing it to reduce its agency problems this article investigates this presumption it finds that the effects of competition on executive behavior can be decomposed into four effects each of which is of potentially ambiguous sign theory thus offers no definitive defense of this presumption this article also derives sets of conditions under which increased competition has the presumed effect of reducing agency problems in some sets important conditions are that increased competition reduce the executive s expected income and that agency goods e g shirking be normal goods for the executive the article shows that an increase in the shareholder bargaining strength can both reduce the agency problem and make it more sensitive to competition

debt and seniority an analysis of the role of hard claims in constraining management we argue that long term debt has a role in controlling management s ability to finance future investments a company with high widely held debt will find it hard to raise capital since new security holders will have low priority relative to existing creditors conversely for a company with low debt we show there is an optimal debt equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments we derive conditions under which equity and a single class of senior long term debt work as well as more complex contracts for controlling investment behavior

collusion under risk aversion and fixed costs we analyze collusion under demand uncertainty by risk averse cartels that care about the utility derived from profits with sufficient risk aversion and non trivial fixed operating costs it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highly valued and when demand is high and potential defection profits are high output relative to monopoly levels becomes a u shaped function of demand greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions but easier to support in booms