tripartite income employment contracts and coalition incentive compatibility tripartite contracts between workers a firm and an insurance broker pareto dominate the usual bilateral arrangements if coalitions are not feasible they do this by allowing the broker to run surpluses over a reservation expected utility in some states and deficits in others we show that these contracts are manipulable by coalitions this motivates our main contribution the definition and characterization of coalition incentive compatible tripartite contracts we then ask whether broker intermediation can still be useful the answer is that not every coalition incentive compatibility requirement annuls the critical budget breaking property specifically if firm broker coalitions are feasible there is no three party contract that is coalition incentive compatible and pareto superior to bilateral firm worker contracts except in the extreme case where the workers demand for leisure is income inelastic but if only a firm worker coalition can form the addition of a broker to a bilateral arrangement does reduce the welfare losses caused by the existence of asymmetric information

the optimal indexation of asymmetric information contracts the indexation of labour contracts is examined in a setting from which the hedging motive for partial indexation has been excluded since firms have better information than workers contracts must satisfy an incentive compatibility constraint the optimal degree of indexation depends on the incentives generated by the best fully indexed contract if firms would understate overstate the productivity of labour under this contract the optimal contract is partially more than fully indexed l indexation optimale des contrats quand l information est asymetrique l auteur examine l indexation de contrats de travail dans un monde dont on a elimine l indexation partielle dans le simple but de se couvrir comme les firmes ont une meilleure information que les travailleurs les contrats doivent satisfaire une contrainte de compatibilite le degre optimal d indexation depend des incitations engendrees par le meilleur contrat pleinement indexe si les firmes sous evaluent sur evaluent la productivte des travailleurs dans le contrat le contrat optimal est partiellement plus que pleinement indexe

optimal unemployment insurance and experience rating in the presence of asymmetric information adding a public unemployment insurance ul to labor contracts is potentially pareto improving unfortunately most successful mechanisms are manipulable by coalitions this leads us to design coalition incentive compatible ui systems their welfare effect depends on which coalitions are feasible whenever firm ui coalitions may form one ends up with an impossibility result as contracts are made coalition proof they no longer pareto dominate firm worker contracts however if only firm worker coalitions are feasible the public ui is strictly pareto improving even though it cannot implement the welfare levels that would be reached if no coalition were feasible at all

information revelation and principal agent contracts in an environment in which effort is private information to the worker agreements between a risk neutral principal and a risk averse agent are likely to be risk sharing and information revealing mechanisms it is shown that principal agent contracts have significant implications for both compensation and employment rules in a simple work sharing model in general such contracts involve incomplete income insurance and involuntary or excessive underemployment this supports the view that models of worker specific information particularly with moral hazard provide a natural explanation of underemployment

optimal labour contracts when workers have a variety of privately observed reservation wages if a firm does not know the individual ex post outside opportunities of its contracted workforce then it can use hours wages and redundancy payments to screen them will a second best contract have underemployment inefficiency or overemployment and with a stochastic contract are those workers randomly selected for layoff worse off than their retained colleagues involuntary layoff or vice versa involuntary retention the answers depend on the nature of the workers preferences two polar cases are looked at corresponding to permanent and temporary layoff the former is characterized by overemployment and involuntary retention the latter by underemployment and involuntary layoff also examined are simple contracts where all retained workers are paid a common wage and all laid off workers receive a common redundancy payment handling asymmetric information in stochastic contracts has led to two technical innovations first a number of results are proved even though all the truth telling constraints are explicitly included second a new regularity condition is found under which the local constraints are sufficient to ensure global incentive compatibility at an optimum

implicit contracts moral hazard and unemployment this paper considers a firm whose marginal revenue product of labor is a random variable we derive the form of an optimal long term contract between workers and the firm under the assumption that labor s marginal product is observed by the firm but not by the workers we show that the existence of asymmetric information causes unemployment to be greater than in a situation where information about labor s marginal product is public or where employment is determined in spot markets in particular unemployment can occur when the marginal product of labor exceeds the reservation wage

asymmetric information multiperiod labor contracts and inefficient job separations economists have for some time been telling the world and each other that in a dynamic economy some labor turnover is to be expected and is in fact efficient however there is a pervasive feeling that not all of the observed turnover is efficient the dilemma of course is to provide satisfactory reasons why inefficient turnover should occur with optimizing rational economic agents in light of this problem recent developments in implicit contract theory 1 4 5 have begun to focus on the idea that in a world of uncertainty asymmetric information and moral hazard problems may prevent efficient fully enforceable contingent claims contracts from developing in particular the asymmetric information i e firms privately observe their profits and workers privately observe their alternatives and moral hazard problems make efficient turnover unlikely because parties making separation decisions have neither all available relevant information nor have an incentive to use this information to make an efficient decision while this investigation into the ramifications of asymmetric information has yielded new insights analysis in previous studies has been limited to models in which separations occur only in the final period of the model in this paper a simple multiperiod model is developed in which separations may occur in each of several successive periods the multiperiod specification enables us to distinguish between temporary and permanent separations and to focus attention on the potential for inefficient separations induced by asymmetric information problems in an intertemporal setting in an intertemporal model in which separations may occur in any one of several successive periods intertemporal allocation problems arise because compensation in a given period plays an allocative role not only in that particular period but also in all periods prior to that period that the terms of compensation may play a multiple intertemporal role in allocating labor has been recognized previously in other contexts for instance this argument has been used to explain the observed occurrence of rising wage profiles with tenure in the presence of such factors as worker shirking or firm specific skill acquisition 2 9 in this asymmetric information setting intertemporal allocation problems

real business cycles and labor markets with imperfectly flexible wages abstract one of the principal criticisms of real business cycle models is that the assumptions made about labor markets do not accord with the actual structure of these markets this paper replaces the standard spot labor market with a market characterized by imperfectly flexible wages which corresponds to impressions of contractual labor relations it is found that the behavior of the model in terms of the predicted variances and correlations is similar to that of the standard real business cycle model but that the variability of hours worked and the correlation of hours worked with wages will depend on the structure of the labor market

hospital systems and bargaining power evidence from out of market acquisitions competition analyses generally restrict their attention to how mergers alter concentration in the relevant consumer market studying hospital competition by focusing on the local patient market may be misleading however as multi market hospital systems often play an important role in the price negotiations of their members with managed care organizations we focus on out of market hospital mergers to investigate the cross market effects of system membership on member hospital reimbursement rates based on acquisitions occurring across the united states during 2000 2008 we find that hospitals exhibit significant increases of around 14 in their net reimbursement rates after becoming affiliated with an out of market system compared to independent stand alone hospitals we find no evidence that the price effect results from changes in patient case mix the cost of providing care generally or hospital quality the findings reveal that systems can impact the market power of hospitals in ways that have not been considered in recent antitrust analysis

some further results on rosen and quandt s labor market model abstract this note presents some new evidence on estimation of rosen and quandt s disequilibrium aggregate labor market model it is found that the earlier results of rosen and quandt are not robust in terms of computational aspects the specification of the minimum condition differencing and different data samples

antitrust treatment of nonprofits should hospitals receive special care nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities extending this rationale suggests that nonprofit hospital mergers should be evaluated differently than mergers of for profit hospitals because suppression of competition may also allow nonprofits to cross subsidize care for the poor using detailed california data we find no evidence that nonprofit hospitals are more likely than for profit hospitals to provide more charity care or offer unprofitable services in response to an increase in market power therefore we find no empirical justification for applying as some courts have suggested different antitrust standards for nonprofit hospitals jel i11 l1 l44

liquidity constrained employment contracts abstract kahn and scheinkman 1985 have shown that optimal contracting between risk averse workers and risk neutral but liquidity constrained firms results in underemployment if firms have better information than workers this result is extended here by allowing the firm to divide its wealth between capital and liquid assets so that liquidity is a choice variable the firm generally chooses a portfolio under which it is optimal not to choose the risk neutral i e expected profit maximizing employment contract the underemployment result is thereby shown not to be strongly dependent on the choice of parameters

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

annual bonuses employment and productivity change in taiwan s manufacturing sector abstract taiwanese manufacturing firms have traditionally made annual bonus payments to employees concentrated around the lunar new year holiday this paper uses industry data to investigate the connection between compensation volatility and the volatility and growth rate of employment we observe a significant relationship between employment and seasonally predictable compensation volatility implying that industries in which firms commit themselves to paying regular new year bonuses employ more workers more stably we also investigate the relationship between compensation profits and productivity growth we find a significant role for productivity growth in the determination of profits and for profits in the determination of bonuses however it appears that productivity growth itself is mainly determined by exogenous factors and is only slightly responsive to the bonus system

the impact of hospital market structure on patient volume average length of stay and the cost of care a variety of recent proposals rely heavily on market forces as a means of controlling hospital cost inflation sceptics argue however that increased competition might lead to cost increasing acquisitions of specialized clinical services and other forms of non price competition as means of attracting physicians and patients using data from hospitals in 1972 we analyzed the impact of market structure on average hospital costs measured in terms of both cost per patient and cost per patient day under the retrospective reimbursement system in place at the time hospitals in more competitive environments exhibited significantly higher costs of production than did those in less competitive environments

competition between microfinance ngos evidence from kiva summary this paper investigates empirically the effect of competition between microfinance ngos seeking subsidized capital from individual social investors although ngo behavior in competitive environments is often subject to controversy there is little formal empirical evidence to illustrate theoretical findings and inform policy using data from kiva an online peer to peer p2p microfinance platform we find that competition has a sizable negative impact on projects funding speed and that the effect is stronger between close substitutes this is important because competition for subsidized capital implies organizational pressures similar to those faced when ngos compete for donations

wage rigidity implicit contracts unemployment and economic efficiency standard implicit contract theory can explain wage rigidity but not unemployment and pays insufficient attention to the general equilibrium aspects and constraints limiting the set of feasible contracts implicit contracts must specify an enforcement mechanism can only be conditional on observable information and must be of limited complexity without these restrictions contracts generate full employment which is constrained inefficient natural restrictions on enforceability or complexity alone do not produce unemployment though limited observability may with two or more restrictions unemployment may result specifically periodic unemployment can arise if contracts are of limited complexity and cannot be enforced through third parties copyright 1987 by royal economic society

nonprofit hospital mergers and the exercise of market power government challenges to mergers within the hospital industry have become more frequent many of those mergers involve nonprofit organizations rather than the for profit firms that are the norm in most other industries this difference in ownership has made no apparent difference in the antitrust agencies approach to proposed hospital mergers in this article i test the proposition that nonprofit and for profit hospitals price differently in response to the structure of the markets in which they compete based on a cross sectional analysis of california hospitals i find that estimated merger effects on hospital prices do vary by type of ownership in response to either higher market share or to the joint combination of higher share and higher market concentration private nonprofit hospital prices are statistically significantly lower than for profit hospital prices and on balance in this sample there is no evidence of any systematic price increasing effect on private nonprofit hospitals

mergers coordinated effects and efficiency in the portuguese non life insurance industry we evaluate the impact on market power and efficiency of a series of mergers on three portuguese non life insurance markets we specify and estimate with a panel of firm level data a structural model which includes preferences technology and a market equilibrium condition firms demand curves are not very elastic firms technologies exhibit scale and scope economies and high cost efficiency scores we find that for the period following the mergers there is no evidence of i an increase in market power through coordinated behavior or ii changes in cost efficiency levels in addition social welfare increased

mandatory retirement as a clause in an employment insurance contract this paper postulates the existence of an employment insurance contract in which firms insure the employment of workers at a predetermined wage against potential age related declines in productivity to limit its liability the firm establishes an age limit to its promise the mandatory retirement age it is demonstrated that pareto efficient contracts exist which involve mandatory retirement at a specific age the existence of these contracts including mandatory retirement increases workers life time utility and encourages the accumulation of human capital empirical results are consistent with the predictions of the model

efficient labor contracts with employment risk this article analyzes efficient employment agreements where the demand for consumption insurance can be satisfied by noncontractual means we assume that workers can save and that consumption is determined by a strong form of the permanent income hypothesis under conditions of asymmetric information about exogenous shocks to labor demand we derive a unique compensation schedule that efficiently guides decisions by both workers and employers efficient employment outcomes are generated without a need for third party enforcement or monitoring and workers choose a consumption policy that leaves them indifferent among realizations of labor demand within this solution it is both costless and efficient for workers to delegate employment decisions to the firm within the context of the model we analyze implications for the equilibrium distribution of wages and for empirical studies of labor supply

price and concentration in hospital markets the switch from patient driven to payer driven competition perhaps the most widely accepted paradigm of industrial organization i o is that competition lowers prices or alternatively that price cost margins are lower in less concentrated markets 1 the applicability of this paradigm for hospital markets has been questioned for example in united states vs carilion health system and roanoke valley hospital the district and appellate courts accepted evidence that hospital prices are lower in more concentrated markets and thereby approved a merger between the two largest hospitals in a three hospital market 2 the view that competition has a weak or perverse effect on hospital prices is shared by a number of researchers 3 is a common theme in newspaper stories

the competitive effects of not for profit hospital mergers a case study applying conventional horizontal merger enforcement rules to nonprofit hospitals is controversial critics contend that the different objective function of not for profits entities should mitigate competitive concerns about mergers involving nonprofit hospitals we analyze a merger that reduced the number of competitors both nonprofit in the alleged relevant market from three to two we find that the transaction was followed by significant price increases we reject the hypothesis that these price increases reflect higher post merger quality this study should help policymakers assess the validity of current merger enforcement rules especially as they apply to not for profit enterprises

price and quantity controlled agricultural markets and disequilibrium econometrics a survey abstract this survey reviews the literature on estimating single markets in disequilibrium in the presence of regulated price and or quantity controls e g minimum price regimes and or marketing quotas most of the literature is found to describe pure econometric technique with only a few applications having emerged to date various reasons for the broad non acceptance of this literature are offered including a perceived lack of realism proposals to close this econometric theory application gap are put forward including the use of effective demand concepts in specifying demand and supply functions synthesizing some closely related literature on agricultural price quantity controls with disequilibrium econometrics i e endogenous government policy and the effects controls have on yield uncertainty and price risk and outlining more applicable econometric technique extensions

the price ain t right hospital prices and health spending on the privately insured we use insurance claims data for 27 6 percent of individuals with private employer sponsored insurance in the us between 2007 and 2011 to examine the variation in health spending and in hospitals transaction prices we document the variation in hospital prices within and across geographic areas examine how hospital prices influence the variation in health spending on the privately insured and analyze the factors associated with hospital price variation four key findings emerge first health care spending per privately insured beneficiary varies by a factor of three across the 306 hospital referral regions hrrs in the us moreover the correlation between total spending per privately insured beneficiary and total spending per medicare beneficiary across hrrs is only 0 14 second variation in providers transaction prices across hrrs is the primary driver of spending variation for the privately insured whereas variation in the quantity of care provided across hrrs is the primary driver of medicare spending variation consequently extrapolating lessons on health spending from medicare to the privately insured must be done with caution third we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures for example hospital prices for lower limb mris vary by a factor of twelve across the nation and on average two fold within hrrs finally hospital prices are positively associated with indicators of hospital market power even after conditioning on many demand and cost factors hospital prices in monopoly markets are 15 3 percent higher than those in markets with four or more hospitals

default estimation correlated defaults and expert information abstractcapital allocation decisions are made on the basis of an assessment of creditwor thiness default is a rare event for most segments of a bank s portfolio and datainformation can be minimal inference about default rates is essential for e cientcapital allocation for risk management and for compliance with the requirementsof the basel ii rules on capital standards for banks expert information is crucialin inference about defaults a bayesian approach is proposed and illustrated usingprior distributions assessed from industry experts a maximum entropy approach isused to represent expert information the binomial model most common in appli cations is extended to allow correlated defaults yet remain consistent with basel ii the application shows that probabilistic information can be elicited from expertsand econometric methods can be useful even when data information is sparse keywords bayesian inference basel ii risk management prior elicitation small probability estimation

trade unions and economic efficiency in this paper i shall investigate a role for trade unions in increasing economic efficiency this role is enabling an improvement in the allocation of riskbearing between a firm and its employees the essential idea is straightforward if employers and employees are both risk averse the optimal wage contract will not leave one party bearing all the risk if state contingent contracts are possible grossman and hart 1981 give several reasons for firms being risk averse that firms are indeed risk averse would seem to follow from the fact that employees bear substantial risks few firms offer a job for life at a guaranteed real wage employees bear the risks of layoff redundancy and changes in the real value of their earnings with transactions costs in finding and moving to another job which may be substantial in periods of high unemployment these are real risks yet the states of the world in which these eventualities are to occur are rarely specified in any legally enforceable form indeed it is hard to imagine that they ever could be both because of the problem of envisaging all the relevant states of the world the bounded rationality of simon 1979 and because of the problem of defining those states in such a way that the courts could in the event of a dispute decide which state had occurred in the absence of legal enforceability of state contingent contracts the analysis depends on whether or not decisions about production must be made before a firm knows which state has occurred if they do not have to be then it is not essential to negotiate any contract before the firm knows the state but it may still be desirable from a risk sharing point of view to have a long term contract covering different possible states for that case hall and lilien 1979 and grossman and hart 1981 have argued that some degree of state contingency may be achieved by negotiating a contract which allows the firm in the light of the state which occurs to choose between limited combinations of employment and wages the firm may for example be permitted to reduce wages under the contract but only at the expense of reducing employment so that it is only in its interest to do so if marginal productivity is low this can overcome some of the moral hazard problems arising when states are observed only by firms but as grossman and hart show only at the cost of pareto inefficiency in the employment contract at an empirical level it may explain provisions for compulsory overtime at premium rates this type of contract will work only in the case in which the firm observes the state of the world before making employment decisions but given that

a model of rationing and labour supply theory and estimation a number of authors most prominently clower 1965 and leijonhofvud 1968 have interpreted keynes s theory of unemployment as a disequilibrium model nominal price and wage rigidity prevent the labour market from clearing the actual level of employment is given by the minimum of the effective demand for labour and the effective supply general disequilibrium models of income and employment determination have been developed by barro and grossman 1976 and malinvaud 1977 the model has been extended to the open economy by dixit 1978 and to a two period rational expectations context by neary and stiglitz 1979 the econometric implications of the disequilibrium approach have been developed by goldfeld and quandt 1972 maddala and nelson 1974 and rosen and quandt 1978 among others in summary the disequilibrium approach has provided a fruitful context for analysing macroeconomic behaviour in a competitive walrasian system the notional supply of labour is defined as the amount of labour a worker wishes to provide when he can buy and sell as much as he would like in all markets subject only to his budget constraint and given prices and wages the notional supply of labour then is given by l where 1 c attains the indirect utility function

the changing effects of competition on non profit and for profit hospital pricing behavior abstract has the nature of hospital competition changed from a medical arms race in which hospitals compete for patients by offering their doctors high quality services to a price war for the patients of payors this paper uses time series cross sectional methods on california hospital discharge data from 1986 1994 to show the association of hospital prices with measures of market concentration changed steadily over this period with prices now higher in less competitive areas even for non profit hospitals regression results are used to simulate the price impact of hypothetical hospital mergers

incentive contracting with asymmetric and imperfect precontractual knowledge abstract the pareto optimal contract between principal and risk neutral agent is analyzed for the case in which the agent s information is initially imperfect but better than that of the principal in contrast to the case where precontractual information is symmetric the final contract between principal and agent will not always guarantee an efficient outcome however in contrast to the case where the agent s information is initially perfect the agent may be unable to command rents from his superior information and the outcome will always be efficient the conditions under which efficient or inefficient outcomes are guaranteed differ qualitatively according to whether the random stete of nature follows a continuous or a discrete distribution journal of economic literature classification numbers 022 026 611

credit rationing and implicit contract theory an empirical study abstract this paper investigate whether or not implicit contract relations predominate in the japanese bank loan market and produce equilibrium credit rationing the empirical evidence suggests that risks are shared between banks and firms through interest rate arrangements this implies that commercial banks in japan operate in a market dominated by implicit contract relations however the evidence does not support the view that japanese commercial banks execute credit rationing in the sense of fried and howitt 1980 furthermore the results show that large banks differ from small banks in the risk consideration of loan contracts these empirical results are completely consistent with the intermarket business group hypothesis such that the group formation aims to share risks and profits among members

teacher sorting teacher quality and student composition abstract using panel data for norwegian schools we establish a two equation supply and demand model for teachers with approved education taking into account nationally determined teacher pay and a strict teacher appointment rule the data enable us to separately estimate supply and demand functions for certified teachers the results clearly indicate that the student body composition and in particular students belonging to ethnic minorities influences both teacher supply and teacher demand the implied negative relationship between excess demand for certified teachers and the share of minority students is likely to be important for teacher quality

implicit contracts with asymmetric information and bankruptcy the effect of interest rates on layoffs this paper develops a model in which a firm writes labour contracts with workers and debt contracts with creditors firms have more information than do the owners of the factors of production and they are also subject to limited liability we show that if the limited liability constraint is binding then the employment level is inefficient relative to a situation of symmetric information the firm is then embedded into a partial equilibrium model in which the real rate of interest is exogenously determined we show that increases in the real rate of interest increase the inefficiency of the optimal employment contract and lead to layoffs in more states of nature than would occur at lower real interest rates recent literature in the area of implicit contracts has shown considerable interest in the assumption of asymmetric information henceforth a i papers by azariadis 1982 green and kahn 1982 and grossman and hart 1981 have all shown that a i will interfere with optimal risk sharing but although these models produce non walrasian outcomes it is not clear that they are capable of explaining the observed variations in employment over the business cycle in the absence of a link between the level of employment and other macroeconomic variables these new versions of contract theory are open to the charge that they are presenting a complicated explanation of frictional unemployment one potential link between variations in output and variations in intertemporal prices is suggested by models which explicitly allow for the possibility of bankruptcy sappington 1983 has shown that bankruptcy will generate inefficient outcomes even between risk neutral agents and farmer 1984 has shown that if sappington type contracts are incorporated into a macroeconomic structure then the resulting model predicts that bankruptcies will vary countercyclically over the business cycle although bankruptcy is important however it is unlikely that bankruptcies alone will account for all of the output loss during a recession the purpose of this paper is to show that the assumptions of a i and limited liability will generate a model in which the employment level is inefficient and in which the magnitude of this inefficiency varies systematically with the expected real rate of interest this model predicts that the observed increase in the incidence of layoffs during recessions is directly attributable to the effects of high interest rates on aggregate supply some evidence of the phenomenon to be explained is presented below

insurance within the firm we evaluate the allocation of risk between firms and their workers using matched employer employee panel data unlike previous contributions this paper focuses on idiosyncratic shocks to the firm which are the correct empirical counterpart of the theoretical notion of diversifiable risk we allow for both temporary and permanent shocks to output and find that firms absorb temporary fluctuations fully but insure workers against permanent shocks only partially risk sharing considerations can account for about 15 percent of overall earnings variability the remainder originating from idiosyncratic shocks to individual workers our welfare calculations indicate that firms are an important vehicle of insurance provision

internal bargaining labor contracts and a marshallian theory of the firm the theme of this paper is due to alfred marshall who states that nearly the whole income of a business may be regarded as a composite quasi rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness and the division of quasi rents entails de facto some sort of profit loss sharing between almost every business and its employees principles of economics 8th ed book vi ch viii sec 10 pp 520 21 marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer employee connections were dissolved in this view bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties consequently internal bargaining models of the firm may be applicable to the analysis of european style codetermination and japanese style labor management also as the relative bargaining strength between labor and management changes such a view of the firm admits as its extrema the organization of a labor managed firm lmf and the textbook case of a profit maximizing firm pmf masahiko aoki 1980 1982 and jan svejnar 1982 have recently explored models of an internal bargaining firm their analyses however consider the firm s long run behavior only under restricted circumstances without market uncertainty the relevance of the internal bargaining approach to profit sharing and labor management would be enhanced if we integrated the firm s short run wage employment policies with its long run plans for the rate of growth and capital labor substitutions this i do by underscoring the firm s organizational basis which is essentially a long term contractual association between workers and management i combine costas azariadis 1975 and martin baily s 1974 apparatus of labor contracting with efficient bargaining to investigate the effect of varying degrees of labor s bargaining power upon the firm s shortand long run policies under uncertainty these results are then contrasted with the empirical findings of collective bargaining for example richard freeman and james medoff 1981 conventional results of lmf models jaroslav vanek 1970 benjamin ward 1958 and the recent macroeconomic approaches to wage employment adjustments ian mcdonald and robert solow 1981

is there chronic excess supply of labor designing a statistical test abstract we devise and implement a statistical test of the hypothesis that the labor market has chronic excess supply we find that the data reject this hypothesis

optimal labour contracts and involuntary unemployment under costly and imperfect monitoring this paper provides an explanation for the concurrence of rigid wages and involuntary unemployment we consider cases in which a firm monitors its workers but at some cost a key assumption in the model is that the firm cannot perfectly distinguish shirkers from nonshirkers thus the firm has to rely on negotiated compensation and work effort as well as monitoring to reduce the incentive to shirk we find that rigid wages and involuntary unemployment arise simultaneously when monitoring costs are large and the effectiveness of monitoring is low

labor contracts and the role of monetary policy in an overlapping generations model abstract this paper characterizes labor contracts in a dynamic economy subject to both real and nominal shocks in this environment we compare alternative means of trading labor services spot markets fixed nominal wage contracts and price contingent contracts the welfare ordering of these market structures is shown to depend on the relative variability of the real and nominal shocks and the costs of contingent contracts the paper also investigates the role of monetary policy and the neutrality of feedback rules finally we demonstrate that the optimal policy is nonstochastic

competition among hospitals the traditional view of hospital competition has posited that hospitals compete primarily along quality dimensions in the form of fancy equipment to attract admitting physicians and pleasant surroundings to entice patients price competition among hospitals is thought to be non existent this paper estimates the effects of various hospital market characteristics on hospital prices and expenses in an attempt to determine the form of hospital competition the results suggest that both price and quality competition are greater in markets that are less concentrated although the net effect of the two on prices is insignificant it appears therefore that despite important distortions hospital markets are not immune to standard competitive forces

enforcement of implicit employment contracts through unionization in a world in which employment contracts are incomplete it is costly for a firm to establish credibility for honoring implicit terms of employment agreements by monitoring the employment relationships between the firm and its workers the labor union may provide the workforce with valuable information regarding the firm s adherence to these implicit agreements thus the union provides a signaling mechanism that allows workers to coordinate their actions in order to discipline the firm for a breach of the implicit contract this mechanism enhances the firm s credibility when forming employment contracts and facilitates increased employment levels

default probability estimation via pair copula constructions abstract in this paper we present a novel approach for firm default probability estimation the methodology is based on multivariate contingent claim analysis and pair copula constructions for each considered firm balance sheet data are used to assess the asset value and to compute its default probability the asset pricing function is expressed via a pair copula construction and it is approximated via monte carlo simulations the methodology is illustrated through an application to the analysis of both operative and defaulted firms

pricing by non profit institutions the case of hospital cost shifting abstract this paper shows that a hospital whose objective function includes output as well as profits may raise price to private paying patients in response to cuts in the price it receives for madicaid or medicaid patients evidence is presented to show that hospitals in illinois cost shifted in this manner in response to substantial reductions in medicaid payments in the early 1980s as private sector pricing becomes more competitive however the ability and willingness of hospitals to cost shift will wane

profit sharing and employee share ownership profit sharing and employee share ownership saul estrin paul grout and sushil wadhwani this paper evaluates the likely effects of linking a part of a worker s pay to the employer s profits it has been suggested by weitzman that this would raise employment by lowering the cost of taking on an extra worker however this can only happen if existing workers are willing to let their share of value added fall and experience of those firms in the uk who already operate profit sharing schemes suggests that the weitzman mechanism is not operative there is however some evidence that profit related pay does boost productivity but there are other ways of raising productivity such as performance related pay which may be more effective productivity enhancing effects are likely to be greatest when employees are involved in decision making as well but this is likely to undermine the weitzman case still further even if the argument that profit sharing raises employment is not compelling it is sometimes suggested that it can do little harm however there is evidence that it may well be inflationary in which case the government would be advised to proceed cautiously we argue that there is very little case for the introduction of a permanent subsidy to encourage increased profit sharing although there may be a case for a temporary one to overcome managerial inertia however there is a danger that a subsidy will promote cosmetic schemes designed to be eligible for the subsidy but which do not reflect any real change in behaviour

hospital competition in hmo networks abstract we develop a framework for analyzing bargaining relationships between hospitals and hmos under selective contracting using a unique dataset on hospitals in the los angeles area from 1990 to 1993 we estimate the determinants of actual negotiated prices paid to hospitals by two major hmos we find that a hospital s bargaining power and thus its price decrease when the hmo can readily turn to alternative networks that exclude the hospital we simulate the effect of hypothetical hospital mergers on bargaining power and find that some hospital mergers even in urban areas with many nearby hospitals can lead to significant price increases

what is a liquidity crisis abstract this paper investigates the role of liquidity it is argued that the firm holds money as a guarantee of solvency to its contractual partners by holding liquid assets the firm is able to increase the efficiency of its contracts variations in the opportunity cost of holding money cause variations in the firm s demand for money and consequent variations in the frequency of contract failures this mechanism is suggested as an alternative explanation of the observed relationship between money income and interest rates

testing for labor market equilibrium with an exact excess demand disequilibrium model a bstract the standard disequilibrium model is supplemented with outside information on the extent of market excess demand estimation of this supplemented model is considerably less involved than that of the standard model and certain desirable structural features such as improved dynamics are obtained in addition a simple nested test of the hypothesis of market equilibrium is available the model is estimated with aggregate u s post war labor market data and the econometric test rejects the hypothesis of labor market equilibrium

modelling the dynamic relationship between wages and prices in finland the purpose of this paper is to discuss finnish wage price dynamics with emphasis on the collective wage bargaining mechanism the results indicate that the dynamics of the system can be adequately described by means of a linear difference model with a rather sparse amount of lags completed by error correction mechanisms to ensure proper long term behavior specification of the collective wage bargaining procedure turns out to be a very important part of the model building another noteworthy feature is the stabilization period in 1968 69 during which a different data generating mechanism was in operation the results do not provide any evidence in favor of the argument that wage indexation prior to stabilization would have had a sizeable effect on the wage price mechanism in finland

a characterization of employment distortions in labor contracts with asymmetric information abstract employment distortions are characterized for different combinations of firm s risk aversion and the degree of normality of leisure in worker s preferences using a novel method all previously established results are derived and the previously unresolved cases are worked out

dynamic contractual enforcement a model of strikes this paper provides a theory of strikes as part of a constrained efficient enforcement mechanism for an implicit contractual agreement a firm possessing contemporaneously private information about demand engages in an enduring relationship with its workforce if the information becomes perfectly observable subsequently then modulo discounting the first best is implementable but strikes are always off the equilibrium path if the observations of the workforce are imperfect strikes occur in equilibrium the dynamic contracting problem is modeled as a repeated game with imperfect monitoring the equilibrium exhibits production inefficiency and incomplete insurance to mitigate the inefficiencies caused by strikes

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

managerial incentives investment and aggregate implications scale effects we explore a managerial model of investment behaviour in which an incentive problem arises because one input factor managerial effort is not publicly observed we show that an optimal incentive contract leads to investment levels which are below first best in low states and that this phenomenon can account for greater cyclical variability in aggregate production and investment from the perspective of incentive scheme design a special feature of the model is that screening takes place over two variables investment and output rather than one as is customary

the price and profit effects of horizontal merger a case study the economic rationale behind antitrust concern for horizontal mergers rests primarily on the familiar structure performance paradigm that links market concentration with supra competitive profits and implicitly with higher prices a vast empirical literature has demonstrated a positive statistical relationship between measures of industry structure such as entry barriers and concentration and average industry profit using cross section data a small number of cross section studies most dealing with banking services have claimed to find a positive relationship between concentrated market structure and price measures aspinwall 1970 bell and murphy i969 heggestak and mingo 1976 hester i979 lamm i98i landon i97i marion et al 1979 and marvel 1978 but we are unaware of any study that traces the effect of an actual change in market structure on prices or profits in this paper we exploit an unusual opportunity to test for price effects and estimate profit consequences of two acquisitions that resulted in substantial increases in the market share of the acquiring firm the evidence we examine arises from a recent federal trade commission antitrust suit against xidex corporation the world s largest producer of duplicating microfilm the xidex case is unusual in three respects i although the size of the market is small sales under ioo million the acquisitions involved greater changes in market shares than are usual in antitrust actions 2 the suit was brought five years after the first acquisition and two years after the second so a post acquisition record of price behavior exists for this example furthermore the price data used in this study are actual transaction prices 3 special characteristics of the products allow a relatively straightforward test for price effects of the acquisitions the next section provides background information concerning the firms and products involved following that we describe the data and methodology used to estimate the price effects of the acquisitions and present results which indicate significant price increases traceable to the acquisitions we then offer estimates of the incremental profits attributable to those price increases a final section provides a summary the analysis and conclusions set forth in this study are those of the authors and do not necessarily reflect the views of federal trade commission staff or the commission itself all data and other information used in the study are in the public domain this includes information obtained by the commission which has become part of the public record for helpful comments we thank allan fisher ron lafferty paul pautler and rich sciacca of the bureau of economics federal trade commission

the effects of market structure and bargaining position on hospital prices ppos and hmos have gained widespread acceptance due in part to the belief that excess capacity and competitive market conditions can be leveraged to negotiate lower prices with health care providers we investigated prices obtained in different types of markets by the largest ppo in california our findings indicate that greater hospital competition leads to lower prices furthermore as the importance of a hospital to the ppo in an area increases the price rises substantially our testing of alternative methods for defining hospital geographic markets reveals that the common practice of using counties to define the market leads to an underestimate of the price increasing effects of a merger

dynamic labor contracts under asymmetric information abstract this paper discusses the distortion of employment within a two period asymmetric information contracting model in which an exogenous demand shock is serially correlated and is known only to firms the obtained results show that serial correlations of the state of nature can cause not only underemployment but also overemployment even when overemployment never occurs in the context of a static asymmetric information contracting model

a note on overemployment underemployment in labor contracts under asymmetric information abstract models of labor contracts under asymmetric information may predict either overemployment or underemployment this paper shows that this result depends crucially on whether or not leisure is a normal good if firms are risk neutral

default estimation and expert information default is a rare event even in segments in the midrange of a bank s portfolio inference about default rates is essential for risk management and for compliance with the requirements of basel ii most commercial loans are in the middle risk categories and are to unrated companies expert information is crucial in inference about defaults a bayesian approach is proposed and illustrated using a prior distribution assessed from an industry expert the binomial model most common in applications is extended to allow correlated defaults a check of robustness is illustrated with an e mixture of priors

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side

event studies in economics and finance the event study is an important research tool in economics and finance the goal of an event study is to measure the effects of an economic event on the value of firms event study methods exploit the fact that given rationality in the marketplace the effects of an event will be reflected immediately in security prices thus the impact can be measured by examining security prices surrounding the event in this paper event study methods are described including some of the potential complications an example is included to illustrate the approach

a signalling approach to wage rigidity and layoffs this paper presents an alternative approach to optimal labour contracts where rigid wages are used to convey information rather than to insure workers firms with favourable probability distributions over revenue functions signal this to workers by means of wage rigidities and employment distortions including the possibility of layoffs this occurs in the absence of any risk aversion

endogenous unemployment insurance in a monopoly union model when job search matters abstract the aim of the paper is to derive an optimal unemployment insurance policy for a utilitarian trade union when job search matters it is shown that the well known result from the theory of insurance concerning the optimal risk sharing between risk averse agents changes essentially if the search behavior is allowed to affect the performance of the labor market we assume that labor market mismatch decreases with search effort which in turn decreases with the benefit the resulting equilibrium benefit is shown to be a decreasing function of the trade union s share of the costs of the insurance fund the model is also extended to the case where the benefit is made conditional on monitored search effort