a quantitative evaluation of payroll tax subsidies for low wage workers an equilibrium search approach abstract phelps phelps e 1994 low wage employment subsidies versus the welfare state american economic review 84 54 58 presented the case for a low wage subsidy policy since the mid 1990s france has experimented with this strategy this paper evaluates the effect of this policy on employment and also on output and welfare we construct an equilibrium search model incorporating wage posting and specific human capital investment where unemployment and the distribution of both wages and productivity are endogenous we estimate this model using french data numerical simulations show that the prevailing minimum wage allows a high production level to be reached by increasing training investment even though the optimal minimum wage is lower we show that payroll tax subsidies enhance welfare more than a reduction in the minimum wage when they are spread over a large range of wages in order to avoid specialization in low productivity jobs

uncertainty in the theory of renewable resource markets the natural growth rate of most renewable resource stocks is in part stochastic this paper examines the implications of such ecological uncertainty for competitive equilibrium in a market with property rights we show that stochastic fluctuations add a risk premium to the rate of return required to keep a unit of stock in situ and we examine the effects of fluctuations on resource rent examples are used to show that extraction can increase decrease or be left unchanged as the variance of the fluctuations increases depending on the extent of market self correction regulatory implications are also discussed renewable resource economics has traditionally been concerned with the study of dynamically optimal harvesting policies given a deterministic function for the natural growth of the resource stock issues have included the existence and characteristics of steady state equilibria for the optimally managed resource the need for and design of regulatory policies to prevent over exploitation and conditions under which as a social optimum or otherwise the resource will be exploited to extinction 1 much of this work has been based on the assumption of a fixed and exogenous price for the harvested resource typically resulting in bang bang solutions for the harvesting policy however some recent papers make price endogenous and thereby describe how the extraction rate and the rate of return and asset value of the resource behave in a competitive market with property rights 2

two sector perspectives on the effects of payroll tax cuts and their financing abstract this paper analyzes the consequences of lifting from labor some of the burden of taxation in a life cycle two sector setup where a consumption good is produced alongside a capital good the analysis focuses on the implications of alternative ways of financing payroll tax cuts in closed and small open neoclassical economies in our models payroll tax cuts do not necessarily stimulate hours worked in the stationary state we show for example that in the closed economy paradoxically long run aggregate labor hours and the capital stock will be reduced if labor tax proceeds are replaced by capital taxation if instead government purchases of the capital good or government labor services are decreased manhours are left unchanged in the long run while capital formation is spurred in the small open economy it is only if the offsets are a fall in entitlement spending or a rise in the wealth tax that aggregate manhours are increased otherwise steady state hours worked are invariant

a note on the extinction of renewable resources abstract this paper presents two sets of conditions under which a sole owner of a renewable resource stock who maximizes a nonlinear benefit function would find it more profitable to harvest the stock to extinction than follow a continuous harvesting strategy when the minimum viable resource stock is positive extinction is optimal as long as the initial resource stock is sufficiently small regardless of the discount rate when the minimum viable resource stock is zero and the discount rate exceeds the growth potential of the species extinction is optimal for sufficiently small initial stocks

self selection and the efficiency of tournaments when exogenously imposed rank order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance bull schotter and weigelt 1987 however since the efficiency of performance related pay is attributable both to its incentive effect and to its selection effect among employees lazear 2000 it is important to investigate the ex ante sorting effect of tournaments this paper reports results from an experiment analyzing whether allowing subjects to self select into different payment schemes helps in reducing the variability of performance in tournaments we show that when the subjects choose to enter a tournament the average effort is higher and the between subject variance is substantially lower than when the same payment scheme is imposed sorting is efficiency enhancing since it increases the homogeneity of the contestants we suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay

an experimental study of incentive contracts for short and long term employees abstract motivated by real world observations of different contract offers we conduct a lab experiment to examine a principal s contract choice and agent effort in both long and short term employment relationships implemented as one shot and repeated games we find that a piece rate contract has the strongest incentive effect on short term agents effort and is the principals dominant choice nevertheless the bonus contract works almost as well as the piece rate contract for long term relationships but not so well for short term relationships in addition the bonus contract s effect on effort is mainly driven by the bonus component suggesting that a fixed wage alone is not an effective mechanism to improve workers performance

a qualitative dynamical modelling approach to capital accumulation in unregulated fisheries capital accumulation has been a major issue in fisheries economics over the last two decades whereby the interaction of the fish and capital stocks were of particular interest because bio economic systems are intrinsically complex previous efforts in this field have relied on a variety of simplifying assumptions the model presented here relaxes some of these simplifications problems of tractability are surmounted by using the methodology of qualitative differential equations qde the theory of qdes takes into account that scientific knowledge about particular fisheries is usually limited and facilitates an analysis of the global dynamics of systems with more than two ordinary differential equations the model is able to trace the evolution of capital and fish stock in good agreement with observed patterns and shows that over capitalization is unavoidable in unregulated fisheries r 2005 elsevier b v all rights reserved

optimal wage taxation when human capital and employment are endogenous this paper studies how optimal wage tax conclusions from the classic two period life cycle model of human capital accumulation are affected by endogenizing the number of taxpaying workers in the absence of a corrective policy young individuals underinvest in human capital from a social perspective because tax premiums for transfers to nonworkers are not actuarially adjusted downward for human capital attainment a combination of wage taxes and wage subsidies can restore proper price signals numerical simulations suggest that even modest employment elasticities can be sufficient to substantially impact the magnitudes and even the signs of optimal wage tax rates jel h21 h3 j24

estimating the effects of a time limited earnings subsidy for welfare leavers in the self sufficiency project ssp welfare demonstration members of a randomly assigned treatment group could receive a subsidy for full time work the subsidy was available for 3 years but only to people who began working full time within 12 months of random assignment a simple optimizing model suggests that the eligibility rules created an establishment incentive to find a job and leave welfare within a year of random assignment and an entitlement incentive to choose work over welfare once eligibility was established building on this insight we develop an econometric model of welfare participation that allows us to separate the two effects and estimate the impact of the earnings subsidy on welfare entry and exit rates among those who achieved eligibility the combination of the two incentives explains the time profile of the experimental impacts which peaked 15 months after random assignment and faded relatively quickly our findings suggest that about half of the peak impact of ssp was attributable to the establishment incentive despite the extra work effort generated by ssp the program had no lasting impact on wages and little or no long run effect on welfare participation

can a carbon permit system reduce spanish unemployment this paper analyses the impact of carbon policy on unemployment in spain and whether recycling the public revenues earned from permit auctions can alleviate this problem while spain s deviation from the european union s intermediate emission goals is more serious than most other member countries unemployment in spain is also well above average for the european union we use a computable general equilibrium model that includes unemployment in the markets for unskilled and skilled labour we find that introducing carbon permits does not aggravate spanish unemployment in fact if supplied with revenue recycling schemes unemployment rates may actually fall contrary to other european studies we find that the best option is to reduce payroll taxes on relatively skilled types of labour this reform is successful in both increasing labour demand and dampening the supply response to rising wages however while all of the recycling schemes generate dividends in terms of aggregate welfare none entirely offsets the abatement costs

growth and employment the scope of a european initiative this paper is an abridged version of a policy initiative paper prepared with a dozen colleagues in louvain la neuve and paris we propose a set of policies to cope with europe s persistent unemployment including two medium term programs a drastic reduction of the indirect cost of unskilled labour and an ambitious stimulation of targeted investments the bottom line is that policies addressing meaninfully europe s unemployment problem must be pursued on a bolder scale than currently contemplated

the rationality of a safe minimum standard the safe minimum standard sms is a policy shift to safety defaults to forestall irreversible outcomes critics charge an inconsistency what justifies business as usual cannot also justify switching to the sms currently the sms is only a procedural shift where economic optimality procedures are buttressed by extra special focus on uncertainty yet social welfare function may not be complete enough warranting a more fundamental sms shift numerous moral positions support this sms approach this sms also operationalizes the intolerable cost as a trigger point noting societies with lower tolerance for sacrifice must trigger the sms earlier

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

environmental taxation and unemployment some evidence on the double dividend hypothesis in europe abstract the employment double dividend hypothesis suggests that an appropriately designed fiscal reform in which emission charges are used to subsidize employers social security contributions may realize at least two relevant policy goals a better quality of the environment and at the same time an increase in employment levels this paper uses a newly developed econometric general equilibrium model for the european union as well as for each member country and presents simulation results up to the year 2010 of the effects of a european carbon tax the revenues from which are recycled to reduce employers social security contributions the results show that recycling carbon tax revenues may provide an employment double dividend only in the short run

increasing public investment in europe some practical considerations abstract the study emphasises the joint importance of investment and efficiency of investment indicated by its rate of return for economic growth in particular the role of public investment is analysed it is shown that the differing quality of investment has played a significant role in the different economic growth experiences of the eu japan and the us it is argued that to increase growth in the eu it may not be necessary to increase the investment rate long term growth could also be restored by a sufficiently strong increase of the efficiency of investment

household energy use applying behavioural economics to understand consumer decision making and behaviour household energy conservation has emerged as a major challenge and opportunity for researchers practitioners and policymakers consumers also seem to be gaining greater awareness of the value and need for sustainable energy practices particularly amid growing public concerns over greenhouse gas emissions and climate change yet even with adequate knowledge of how to save energy and a professed desire to do so many consumers still fail to take noticeable steps towards energy efficiency and conservation there is often a sizeable discrepancy between peoples self reported knowledge values attitudes and intentions and their observable behaviour examples include the well known knowledge action gap and value action gap but neither is household energy consumption driven primarily by financial incentives and the rational pursuit of material interests in fact people sometimes respond in unexpected and undesirable ways to rewards and sanctions intended to shift consumers cost benefit calculus in favour of sustainable behaviours why is this so why is household energy consumption and conservation difficult to predict from either core values or material interests by drawing on critical insights from behavioural economics and psychology we illuminate the key cognitive biases and motivational factors that may explain why energy related behaviour so often fails to align with either the personal values or material interests of consumers understanding these psychological phenomena can make household and community responses to public policy interventions less surprising and in parallel can help us design more cost effective and mass scalable behavioural solutions to encourage renewable and sustainable energy use among consumers

incentives in organizations n 1975 steven kerr published on the folly of rewarding a while hoping for b the argument was simple you get what you pay for kerr distilled this unifying theme from a disparate set of examples involving politicians soldiers doctors orphanage directors professors and students as well as manufacturing and clerical employees and even human resource managers from these examples kerr pp 77980 concluded that two main causes of distorted incentives are fascination with an objective criterion where individuals seek to establish simple quantifiable standards against which to measure and reward performance and overemphasis on highly visible behaviors when some parts of the task are highly visible while others are not it took agency theory 15 years to express kerr s title not to mention to evaluate or extend his conclusions during this period agency theory was obsessed with the tradeoff between incentives and insurance even though clear eyed observations like kerr s about the design and performance of real incentive contracts suggested that several other issues are at least as important fortunately recent work has brought agency theory not only to kerr s position but beyond in this paper i summarize four new strands in agency theory that help me think about incentives in real organizations as a point of departure i begin with a quick sketch of the classic agency model i then discuss static models of objective performance measurement that sharpen kerr s argument repeated game models of subjective performance assessments incentives for skill development rather than simply for effort and incentive contracts between versus within organizations i con

understanding household energy use decision making and behaviour in guinea conakry by applying behavioural economics abstract for decades generalized frauds have left the electrical sector of guinea with an entirely defective financial scheme as a developing nation guinea s electricity consumption has been relatively low for a long time although it has been increasing recently due to increasing power generation the growth in power capacity is due to the construction of two new dams kaleta dam 240 mw which is already operational and souapiti dam 550 mw which is still under construction taking into account that the country has so far been without electricity there is a need to assess and predict consumer behaviour before the full completion of these projects the aim of this study is to make the household and community reactions to public policy interventions less surprising however even sufficient knowledge of how to conserve energy and a stated desire to do so many consumers still fail to take perceptible measures to increase energy efficiency and conservation why is this so by focusing on crucial insights from behavioural economics and psychology we highlight the incentive factors the basic cognitive biases and the psychological phenomena that cause this disconnect understanding these factors can help us to design sustainable energy use among consumers in guinea conakry

you get what you pay for incentives and selection in the education system we analyse worker self selection with a special focus on teachers to explore whether worker composition is generally endogenous we analyse laboratory experimental data to provide causal evidence on particular sorting patterns our field data analysis focuses specifically on selection patterns of teachers we find that teachers are more risk averse than employees in other professions indicating that relatively risk averse individuals sort into teaching occupations under the current system using survey measures on trust and reciprocity we find that teachers trust more and are less negatively reciprocal than other employees and establish differences in personality based on the big five concept

social norms and pro environmental behavior a review of the evidence in light of the growing attention that social norm interventions have garnered as policy tools we review the current body of evidence on their effectiveness with respect to pro environmental behaviors we identify the various conceptualizations of social norms currently in use and inventory the experimental economics and social psychology literature that has examined the impacts of social norm interventions on pro environmental behavior for each study included in this inventory we note several contextual features the data collection and analytical methods used and any significant main effects attributed to the social norm intervention we also review several theoretical models of behavior that incorporate social norms based on this empirical and theoretical review we draw a number of policy implications and identify avenues for future research on the role of social norms with respect to pro environmental behavior

does environmental concern change the tragedy of the commons factors affecting energy saving behaviors and electricity usage electricity consumption produces private goods such as heat for homes but fossil fuel consumption impacts the public goods of clean air and water while self interests can increase usage social interests such as global climate change can impact an individual s attitude toward energy consumption this paper examines the tragedy of the commons using household data and compares the impact of self and social interests in predicting electricity consumption using both stated and observed behavioral data the results show that self interests have a greater impact on energy saving behaviors and electricity use we extend the analysis to control for an individual s environmental concern and perceived behavioral impact finding similar results and supporting the notion that the tragedy of the commons occurs regardless of a person s perception or environmental concern these findings may explain why pro environmental attitudes do not necessarily lead to pro environmental behaviors and it contributes to our understanding of the motivating factors for energy savings and electricity use by examining both stated and observed behaviors policies aimed at electricity reduction may have a greater impact if they focus on private interests such as pricing rebates subsidies and taxes rather than social interests alone

labour tax reform the good jobs and the bad jobs we analyse recent proposals to shift the tax burden away from low paid labour assuming a dual labour market where the good high paying jobs are rationed a shift in the tax burden from low paid to high paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is further distorted even if the tax reform raises total employment economic efficiency may be reduced because labour is reallocated from high productive to low productive jobs we also find that opportunities for on the job search have important implications for the policy effects

the employment effects of low wage subsidies abstract low wage subsidies are often proposed as a solution to the unemployment problem among the low skilled but the empirical evidence on their effects is still scarce this paper examines the employment effects of a finnish payroll tax subsidy scheme which is targeted at the employers of older full time low wage workers the system s clear eligibility criteria open up an opportunity for a reliable estimation of the causal impacts of the subsidy scheme our results indicate that the subsidy system had no effect on the employment rate or wages of the eligible groups but it increased slightly working hours among those already at work

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

an interview with edmond malinvaud this article contains an interview with edmond malinvaud professor malinvaud describes the origins of his interest in economics teachers who had a major influence on his development as an economist his visit to the cowles commission in 1950 the substance of his research and the contributions he made as a policy maker among the interesting tidbits in the interview is that professor malinvaud s popular textbooks in microeconomic theory macroeconomics and econometrics were a direct outgrowth of courses he taught at insee i am not good at speaking he said when not constrained by a written text

the power of incentives variable pay is usually defined as pay that is tied to some measure of worker output the most typical form of variable pay historically was the piece rate which was more prevalent during the early part of the 20th century than it is at the beginning of the 21st there is a resurgence in variable pay particularly as it relates to executives whose pay is tied to output through some mechanism like stock options or bonuses that depend on individual or firm performance why use variable pay the typical reaction is that variable pay provides incentives to put forth effort although true discrete pay schemes also generate incentives much of the confusion in the literature results from the use of the terms high powered and low powered incentives which connote difference in ability to elicit worker effort it is more informative to make distinctions between discrete and continuous pay and between inputbased and output based pay 2 pay structures can be summarized by the following equation

recycling energy taxes impacts on a disaggregated labour market abstract this paper analyses the impacts of energy taxes whose revenue is recycled to reduce gross wages and increase employment the main novel feature of this paper is the attempt to assess the effectiveness of this fiscal reform by using a labour market model in which both skilled and unskilled workers are used in the production process this segmentation enables us to compare a policy which aims at reducing unskilled workers wages as in the original delors white book with a policy in which the environmental fiscal revenue is used to reduce the gross wage of all workers moreover two policy scenarios will be considered a non co operative one in which each country determines the optimal domestic energy tax to achieve a given employment target and a co operative one in which the energy taxes are harmonised to equalise marginal abatement costs in the eu and in which the employment target is set for the eu our results show that i an employment double dividend can be achieved in the short run only even if a trade off between environment and employment always exists ii the effect on employment is larger when the fiscal revenue is recycled into all workers gross wages rather than into unskilled workers only iii a co operative policy leads to even larger benefits in terms of employment provided that an adequate redistribution of fiscal revenues is adopted by eu countries

job additionality and deadweight spending in perfectly competitive industries the case for optimal employment subsidies abstract this paper links the old literature on employment subsidies with the current theories of contract and regulation one important source of inefficiency of employment subsidies is non additional employment and deadweight spending which occur when private firms receive a subsidy for jobs that would have been created without the subsidy we identify the asymmetry of information between the government and the private firm as the source of these problems when the government proposes optimal incentive contracts to promote employment we show that all employment creations are additional and that the deadweight spending is equal to the information rent which may be null when firms types are discrete

gender earnings differentials in total pay base pay and contingent pay copyright by cornell university this is the publisher s version and is also electronically available from http ilr sagepub com content 47 4 634 abstract

the uncertain foundations of the welfare state abstract the welfare state is often portrayed as provider of insurance against uncertainties in knight s 1921 sense of the term which would be refused or underinsured on private markets this image conflicts with the standard economic model of risk exchange founded on the subjective interpretation of probability which predicts that all individual uncertainties will be insured by private markets our aim in this paper is to explain why this prediction fails and building on contributions to decision theory that take seriously the idea of knightian uncertainty to show why social insurance may be justified

capital subsidies versus labor subsidies a trade off between capital and employment this paper investigates regime switching in the response of u s output to a monetary policy action we find substantial statistically significant time variation in this response that corresponds to high response and low response regimes we then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables we find strong evidence that policy actions taken during recessions have larger effects than those taken during expansions we find less evidence of asymmetry related to the direction or size of the policy action

can fiscal redistribution undo skill biased technical change evidence from the french experience the inequality of labor earnings among working age individuals has gone up in all western countries during the past 25years either through rising wage inequality us uk or through rising unemployment continental europe policy regimes did matter a great deal however as far as the inequality of disposable income is concerned in a country like france transfers to the unemployed were sufficiently massive to prevent income inequality from rising this paper argues that the way fiscal redistribution has managed to counteract skill biased technical change in countries like france is somewhat paradoxical the same distributive stability could have been obtained at a lower cost by following a job subsidies strategy rather than an income maintenance strategy simply because it is always less costly to have people at work producing something we explore several potential explanations for this paradox 1999 published by elsevier science

high powered contracts self selection and welfare in settings with externalities we extend the experimental analysis of sorting and effort effects of high powered contracts on welfare to situations with negative externalities participants solve brainteasers from raven s matrices the difference between right and wrong answers represents our measure of welfare per capita we compare two contract schemes fixed wage and bonus contracts that reward subjects for the number of correct answers regardless of the number of wrong answers with fixed wages selfish individuals have no effort incentive with bonuses they have incentives to answer as many questions as possible the two contract schemes are further separated depending on whether participants self select or are randomly assigned to a contract the self selection treatments correspond to cases where countries do not regulate contracts the random assignment treatments mimic situations where countries either offer only bonuses or ban them we find that bonuses generate lower welfare per capita than fixed wages as the higher effort incentives are outweighed by the detrimental effect of answering too many questions however due to productivity sorting a general ban on bonuses does not increase welfare per capita compared to offering both contract schemes

marginal valuation of charismatic species implications for conservation most contingent valuation studies focus on total willingness to pay wtp as a measure of welfare change for policy involving species preservation however it is important to distinguish between the benefits of preventing a species from going extinct and the benefits of preserving numbers above the minimum viable population mvp level once mvp is exceeded marginal wtp becomes relevant these propositions are illustrated for the case of one charismatic species whose management is much debated minke whales in the northeast atlantic ocean it is shown that for a given estimate of total preservation value strict conservation and extinction can both be optimal this finding highlights the importance of collecting marginal values in contingent valuation surveys

the other side of the trade off the impact of risk on executive compensation the principal agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance yet the exiting empirical evidence supporting it is quite wea

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

fisheries management with stock growth uncertainty and costly capital adjustment we develop a dynamic model of a fishery which simultaneously incorporates random stock growth and costly capital adjustment numerical techniques are used to solve for the resource rent maximizing harvest and capital investment policies capital rigidities bring diminishing marginal returns to the current period harvest and introduce an incentive to smooth the catch over time with density dependent stock growth however catch smoothing increases stock variability resulting in reduced average yields the optimal management policy balances the catch smoothing benefits against yield loss we calibrate the model to the alaskan pacific halibut fishery to demonstrate the main insights

the sales agent problem effort leisure allocation under performance pay as behavior towards risk the choice between safe and risky assets represents behavior towards risk more risk averse investors buy more safe assets we develop and test a general model that applies this intuition to the time allocation between risky effort and risk free leisure under linear incentives when risk increases with effort risk averse agents choose less effort but when risk is independent of effort effort choice is unaffected by risk preferences in many incentive contracts income risk is multiplicative with rather than additive to effort sales commissions being one example in such cases lower effort by the risk averse is a hitherto undocumented behavior towards risk jel c91 m52 j33

when does money make money more important survey and experimental evidence the authors investigate how the amount and source of income affects the importance placed on money using a longitudinal analysis of the british household panel survey and evidence from two laboratory experiments they found that larger amounts of money received for labor were associated with individuals placing greater importance on money but this effect did not hold for money not related to work the longitudinal survey analysis demonstrated these differential effects of the source of income on money s importance while holding constant stable individual differences the experiments provide causal evidence that the source of income has an effect on the importance of money as well as on the effort expended to earn more money the authors results suggest that even as individual differences in the importance placed on money may affect peoples income depending on its source income can also affect the importance people place on money

trade policy and ecology trade sanctions on product exports are often used as measures for conservation of stocks of living resources two opposing approaches are investigated the harvest approach argues that sanctions reduce the harvest and thus protects the stock it is shown that this does not consider the long run effects nor the effects of sanctions on the management system the investment approach argues that increased price protects the stock making the species a profitable investment it is shown that this approach does not consider the asset effects of price changes and that the sanctions usually increase the stock in an one species analysis if the wildlife competes for land the conclusions may be different but still sanctions usually works if the manager has a joint management of several species the stock effects of sanctions are ambiguous depending on both the species interaction and the profitability of the harvesting from each of them in this case it is not possible to use intuitive reasoning sanctions give distortions to all stocks simultaneously the threat of extinction depends crucially on the unit cost in harvesting of depleted stocks the paper concludes that trade policy is a too general measure for the management of living resources and may implicate important economic distortions to the ecological system

residential electricity consumption behavior influencing factors related theories and intervention strategies abstract the proportion of residential electricity consumption in the total energy consumption has increased rapidly in the past decades all over the world it is becoming increasingly important to promote household energy conservation for the sustainable development of a country in the case of resource constraints this paper reviews and evaluates the existing research works which are related to the residential electricity consumption behavior particular attention is given to the following aspects 1 factors influencing residential electricity consumption in social psychology 2 theories of social psychology in understanding residential electricity consumption behavior 3 different interventions aiming at encouraging households to reduce electricity consumption finally we discuss the challenges and opportunities of research on residential electricity consumption behavior in the big data era

green fiscal reform and employment a survey in the european debate an increase in employment is generally regarded as an important extra dividend in addition to improved environmental quality from environmental taxes the scope of this paper is to evaluate going through the existing empirical literature if and to what degree this result could be achieved through a green fiscal reform a further goal of this paper is to assess which taxes are more efficient in terms of employment creation when they are utilized for recycling back to the economy the revenue flowing from environmental taxes this kind of exercise is largely different from the theoretical analysis of the double dividend issue a large quantity of literature has grown during the recent years according to this approach but this version of the double dividend theory will be disregarded in this paper

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

reconsidering pay dispersion s effect on the performance of interdependent work reconciling sorting and pay inequality pay dispersion in interdependent work settings is virtually universally argued to be detrimental to performance we contend however that these arguments often confound inequality with inequity t

how performance incentives shape individual exploration and exploitation evidence from microdata the existing literature has highlighted the role of individuals in exploration and exploitation yet our understanding of what shapes those activities at the individual level remains limited we integrate the literatures on exploration exploitation and incentives to examine how incentives impact individual behavior to explore new ideas or exploit existing ideas using novel microdata on the commercial projects of sales employees at a south korean e commerce firm we find that individuals engage in relatively more exploration when performance based incentives are weakened yet interestingly this increase in exploration is driven mainly by high performing individuals in our setting weakening performance based incentives also lead to higher exploration performance via experiential learning especially for individuals who work in complex task environments overall this study contributes to the literature on exploration exploitation by examining how individual exploration and exploitation behavior and performance is shaped by incentives we also contribute to the incentives literature by investigating the implications of incentives in an important domain namely that of knowledge exploration behavior this study also provides insights into important individual level microfoundations of firm capabilities and performance by highlighting the important role of individuals in exploration exploitation activities and how this role is contextualized by the incentives a firm deploys

are employee selection and incentive contracts complements or substitutes there is a debate in the literature as to whether employee selection is a substitute or complement to incentive contracting we argue that incentive contracts and selection can be both complements and substitutes conditional on the contracting difficulty faced by the firm we examine these control choices in a setting where contracting difficulties arise due to the firm s choice of strategy and from the volatility created by the firm s external environment we select a firm s commitment to organizational learning ol as our strategic choice variable as this provides a useful proxy for identifying settings where explicit incentive contracting is difficult the results show that as firms become increasingly committed to ol incentive contracts and employee selection operate as complements however with a high commitment to ol and an increasing level of external volatility contracting on performance measures will become less effective in this context our results indicate that there is a substitution effect toward employee selection

long term trends in the world economy the gender dimension abstract this paper considers the implications of long term trends in the international economy for the relative employment and income of men and women in developed and developing countries we find that given a persistent gender division of labor mass unemployment in the north is due to different forces operating on men and women the rate of growth of men s jobs has fallen because of deindustrialization but men have not withdrawn from the labor force at a comparable rate women have been entering the labor force in feminized jobs at a faster rate than they have been created in the south women have largely taken traditionally feminized jobs in the labor intensive export oriented growing manufacturing sectors in latin america entry has been largely in the service sector men have been losing jobs in agriculture and domestic manufacturing the paper proposes that the optimal solution to the mass unemployment problem in the north as well as in the south and the apparent competition for jobs between the north and the south and between men and women lies in achieving a trend increase in the growth rate of oecd and world aggregate demand and output but such a trend rise in the long term rate of growth of demand would only be possible if there were new cooperative institutional arrangements within and between countries in such arrangements women need to have an important independent role

low wage employment subsidies versus the welfare state this paper is a brief for the introduction of a subsidy to any qualified firm for its use of low wage employees as a means to reduce the unemployment and raise the pay of disadvantaged workers there would be a case for such a wage subsidy in all the advanced market economies and certainly the american one regardless of recent trends the case has grown stronger however with the worsening of the relative wages and especially the unemployment rates of low age workers the globalization of investment and the bias of technical progress are the causes most often suggested i would add the growth of the welfare system the public entitlements to hospitalization to retirement and disability insurance and to the benefits labeled welfare in the narrow sense since this factor tends to be overlooked i devote section i to it section ii proceeds to the case for a low wage employment subsidy it will be clear that the beneficial effects of the subsidy on disadvantaged workers are the mirror opposite of the harmful side effects of the welfare system side effects that the subsidy would counteract i side effects of the welfare system

harvesting in a fishery with stochastic growth and a mean reverting price we analyze a continuous nonlinear bioeconomic model to demonstrate how stochasticity in the growth of fish stocks affects the optimal exploitation policy when prices are stochastic mean reverting and possibly harvest dependent optimal exploitation has nonlinear responses to the price signal and should be conservative at low levels of biological stochasticity and aggressive at high levels price stochasticity induces conservative exploitation with little or no biological uncertainty but has no strong effect when the biological uncertainty is larger we further observe that resource exploitation should be conservative when the price reverts slowly to the mean simulations show that in the long run both the stock level and the exploitation rate are lower than in the deterministic solution with a harvest dependent price the long run price is higher in the stochastic system the price mean reversion rate has no influence on the long run solutions

endogenous incentive contracts and efficient coordination we examine the effects of endogenous assignment to incentive contracts on worker productivity assignment to high performance pay via a market mechanism is roughly twice as effective as imposing the same contract exogenously this positive effect is largely offset by a negative effect for workers that endogenously choose low performance pay we decompose the positive effect of endogenous assignment to high performance pay into effects due to selection and strategic anticipation and find that selection has a greater effect than strategic anticipation we use a reverse sort treatment to show that the effect of selection is sufficiently strong to overcome the direct effect of lower performance pay yielding coordination at high effort levels in spite of low incentives

optimal capital accumulation in a fishery a nonlinear irreversible investment model abstract a nonlinear two state variable two control variable model of a fishery with irreversible investment and harvest capacity constraints is examined the model relaxes assumptions of linearity in investment costs and variable harvest profits in an earlier model by c w clark f h clarke and g r munro econometrica 47 25 47 1979 in both the linear and nonlinear models the optimal capital accumulation paths in new fisheries is characterized by a period in which the physical capital stock level exceeds its long run sustainable equilibrium however unlike the linear model periods of positive net but declining gross investment are optimal in the nonlinear model this accords with observed capital accumulation paths from a number of fisheries the paper also finds different effects in optimal harvest policy depending upon whether the linearity appears in the variable profits function or the investment cost function

is the welfare state necessarily an obstacle to economic growth abstract the welfare state is widely held to be one of the elements responsible for slower economic growth in europe this paper seeks to clarify the nature of this indictment and to suggest that there is a plausible case for defence of the welfare state

a nonparametric analysis of insufficient wage incentives in the chinese health industry abstractthis study provides empirical results on the insufficient wage incentives in the chinese health industry which may result in the poor productivity of high ability medical personnel we fir

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

harvesting and conserving a species when numbers are low population viability and gambler s ruin in bioeconomic models abstract in bioeconomic models of renewable resources population viability is either ignored entirely or the minimum viable population mvp is considered a crisp threshold below which a species is driven to extinction neither is consistent with ecological science the purpose in this paper is firstly to enhance ecological realism in economic models by incorporating insights regarding population viability from conservation biology we consider the effects of chance on optimal management and briefly discuss key results regarding population viability as derived by biologists second as a means to balance interests and morality we suggest a fuzzy compromise between the economist s and the biologist s preferred stock sizes

employment hours of work and the optimal taxation of low income families the optimal design of low income support is examined using a structural labour supply model the approach incorporates unobserved heterogeneity fixed costs of work childcare costs and the detailed non convexities of the tax and transfer system the analysis considers purely pareto improving reforms and also optimal design under social welfare functions with different degrees of inequality aversion we explore the gains from tagging and also examine the case for the use of hours contingent payments using the tax schedule for lone parents in the uk as our policy environment the results point to a reformed non linear tax schedule with tax credits only optimal for low earners the results also suggest a welfare improving role for tagging according to child age and for hours contingent payments although the case for the latter is mitigated when hours cannot be monitored or recorded accurately by the tax authorities acknowledgements this study is part of the research program of the esrc centre for the microeconomic analysis of public policy at the ifs we thank stuart adam mike brewer roger gordon guy laroque ian preston emmanuel saez florian scheuer seminar participants at harvard mit jerusalem niesr sole and participants in the mirrlees review the editor and the referees for helpful comments we are alone responsible for all errors and interpretations

efficiency wage models of unemployment keynesian economists hold it to be self evident that business cycles are characterized by involuntary unemployment but construction of a model of the cycle with involuntary unemployment faces the obvious difficulty of explaining why the labor market does not clear involuntarily unemployed people by definition want to work at less than the going wage rate why don t firms cut wages thereby increasing profits

preference reversals the impact of truth revealing monetary incentives researchers vigorously debate the impact of incentives in preference reversal experiments do incentives alter behavior and generate economically consistent choices lichtenstein and slovic 1971 document inconsistencies reversals in revealed preference in gamble pairs across paired choice and individual pricing tasks the observed pattern is inconsistent with stable underlying preferences expressed with simple errors lichtenstein and slovic 1973 and grether and plott 1979 introduce incentives but aggregate reversal rates change little these results fostered numerous replications and assertions that models of non stable preferences are required to explain reversals contrary to this research we find that incentives can generate more economically consistent behavior our reevaluation of existing experimental data shows that incentives have a clear impact by better aligning aggregate choices and prices the effect is sufficiently large that with truth revealing incentives a stable preferences with error model not only explains behavior but fits the data as well as any model possibly could

public praise vs private pay effects of rewards on energy conservation in the workplace any solution to rising levels of co2 depends on human behavior one common approach to changing human behavior is rewarding desired behavior because financial incentives often have side effects that diminish efficacy we predict that social rewards are more effective because they invoke adherence to descriptive and injunctive social norms we investigated this by measuring electricity use for 13 weeks at a dutch firm each week employees were rewarded for conserving energy they either received monetary rewards 0 5 or social rewards grade points with a descriptive comment rewards were either private or public in both the short and long term public rewards outperformed private rewards and social rewards outperformed monetary rewards this suggests that private monetary rewards although popular may be ineffective instead public social rewards may be a more promising approach to stimulating energy conservation we argue that this approach should be considered more frequently by policy makers

public finance solutions to the european unemployment problem public finance solutions a tax shift away from low paid labour may fight unemployment unemployment in europe is heavily concentrated among low skilled workers it has therefore been suggested that structural unemployment could be reduced by shifting the tax burden away from low skilled labour and away from the production of consumer services which are intensive in the use of such labour this paper finds that a tax shift away from low paid labour may raise aggregate employment and welfare but only if wage formation is sufficiently responsive to changing tax incentives the analysis also suggests that non negligible employment and welfare gains could be reaped by offering tax concessions or subsidies to those parts of the consumer service sector which compete most directly with low productivity home production and with underground economic activity peter birch sorensen

the cost of business cycles and the stabilization value of unemployment insurance this paper o ers a new perspective on why labor market policies aimed at reducing the cost of business cycles may be warranted and how such policies can be designed in order to improve welfare to this end we develop a quantitative dynamic equilibrium model to illustrate how the contractual structure of the labor market may hide signi cant undiversi ed wage risk induced by aggregate uctuations the environment analyzed is such that the only imperfectly diversi ed risk workers bear is the risk of losing their job when the market for new contracts is depressed when we t the model to replicate the amount of wage variation estimated from micro data we obtain estimates of the potential value of stabilization policies that are substantially larger than those found in the literature we use this framework to examine several policy issues and in particular to show why state contingent unemployment insurance may dominate non contingent unemployment insurance schemes 2001 elsevier science b v all rights reserved jel classixcation e32 j41

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

the optimal control of emissions and renewable resource harvesting under uncertainty a model of a renewable resource is developed where the growth and quality of the resource are reduced by pollution ambient pollution concentrations and the renewable resource stock are modeled as stochastic processes conditions for the optimal harvest plan and the optimal emissions rate are derived the effect of stochastic variations on the optimal management of the resource is analyzed the steady state joint probability distribution of the resource and pollution stocks is shown to exist under certain conditions

team incentives and performance evidence from a retail chain in a field experiment with a retail chain 1 300 employees 193 shops randomly selected sales teams received a bonus the bonus increases both sales and number of customers dealt with by 3 percent each dollar spent on the bonus generates 3 80 in sales and 2 10 in profit wages increase by 2 2 percent while inequality rises only moderately the analysis suggests effort complementarities to be important and the effectiveness of peer pressure in overcoming free riding to be limited after rolling out the bonus treatment and control shops performance converge suggesting long term stability of the treatment effect

sorting and incentive effects of pay for performance an experimental investigation agency theory highlights losses in productivity that may occur when the interests of owners and employees are imperfectly aligned pay for performance has been proposed as a solution to this proble

self selection and the power of incentive schemes an experimental study we examine how self selection of workers depends on the power of incentive schemes and how it affects team performance if the power of the incentive schemes is increased in a laboratory experiment we let subjects choose between low powered team incentives and high powered individual incentives we observe that subjects exhibiting high trust or reciprocity in the trust game are more likely to choose team incentives when exposed to individual incentives subjects who chose team incentives perform worse if both the unobservable interdependency between their efforts and their incentive to cooperate under team incentives are high

the impacts of energy efficiency policies meta analysis abstract this paper attempts to quantitatively summarize the existing empirical evidence on the effects of energy efficiency policies on energy demand and on the price of associated durable goods as well as to identify the main factors that systematically affect the estimated impacts to this end a meta regression analysis of the effects of energy efficiency policies is carried out on the basis of an extensive review of the existing literature selecting those studies that analyze the impact of energy efficiency policies with respect to a business as usual setting taking into account the econometric problems associated with this type of analysis intra class correlation cross sectional dependence publication bias in pursuit of robust outcomes the results show that the studies analyzing the effects of energy efficiency policies estimate a significant impact of these policies on energy demand 10 5 8 8 and the price of related durable goods 7 9 6 the main factors that influence results are the policy instrument the targeted sector the type of country the analyzed period the consideration of free riders and the type of analysis data and publication energy demand and the sector and analyzed period price of durables

differential effects of incentive motivators on work performance in this field experiment we first compared the performance effects of money systematically administered through the organizational behavior modification o b mod model and routine pay for perfo

preference uncertainty in non market valuation a fuzzy approach in this article we consider uncertain preferences for non market goods but we move away from a probabilistic representation of uncertainty and propose the use of fuzzy contingent valuation we assume that a decision maker never fully knows her own utility function and we treat utility as a fuzzy number the methodology is illustrated using data on forest valuation in sweden fuzzy contingent valuation provides estimates of resource value in the form of a fuzzy number and includes estimates obtained using a standard probabilistic approach