human fallibility and economic organization doctrines concerning what is a good way to organize a society have influenced human societies more deeply than any other set of doctrines specifically beliefs that one way of organizing production and exchange is better than others have inspired a number of socioeconomic experiments leading to modern capitalist and socialist societies with far reaching implications yet surprisingly the central doctrines though a source of continuing ideological debate have been the subject of only limited scientific enquiry the major proposition the so called langelerner taylor theorem asserting the equivalence between competitive capitalist economies and decentralized socialist economies which make use of the price system made a point in stressing that the issue of the ownership of the means of production might not be central in the comparison of economic systems the theorem however was based on models both of capitalism and of market socialism in which the most important differences between the two systems were suppressed this paper describes a research program attempting to delineate some of the critical differences among alternative forms of economic organization we contend that central to an understanding of these differences is an understanding of differences in the organization of decision making of who gathers what information how it gets communicated and to whom and how decisions get made both concerning what actions to take and who should fill decision making positions this view should be contrasted with the traditional economic paradigm in which decision making plays no role the manager for instance simply looks up in a book of blueprints what the appropriate technique of production is for the given set of factor prices in the conventional paradigm moreover mistakes are never made either in gathering or transmitting information or in making decisions and indeed there are no costs associated with these activities by contrast the view we take here is that to err is human and that different organizational systems differ not only in what kinds of errors individuals make in them but also in how the systems aggregate errors as a result organizations differ systematically in the kinds of errors they make and thus in their overall economic performance organizations also differ in the costs associated with information collection with information communication and processing and with decision making indeed as we discuss below perfect decision making can be achieved by arranging enough decision makers in an appropriate manner no matter how fallible the decision makers are provided their decisions are not purely random or worse what prevents perfect decision making is the cost we refer to the specification of the structure of information gathering communication and decision making as an organization s architecture the objective of our research program has been to construct stylized models of an economic organization within which the consequences of alternative organizational architectures can be examined using these models not only can we compare the performance of particular organizational forms but we can also ask given a particular set of objectives and circumstances what is the optimal structure within tdiscussants david kreps stanford university paul milgrom yale university

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

on the effects of downstream entry we study the effects of entry in a downstream market where firms e g compaq and ibm cvs and safeway buy an input e g microprocessor grocery items from an upstream supplier e g intel procter gamble and sell their output to consumers we show demand conditions where contrary to conventional wisdom entry of a new downstream firm lowers the downstream market output and increases the consumer price thus consumers may be better off with fewer sellers in such markets we also show that this entry may cause the profit of each incumbent downstream firm to i remain unchanged ii decrease or iii even increase also for a class of widely used demand conditions the supplier s optimal price is shown invariant to the entry exit of its downstream buyer firms we classify all possible effects of downstream entry in terms of fundamental market demand conditions

supply chain competition with multiple manufacturers and retailers we study competition in a supply chain where multiple manufacturers compete in quantities to supply a set of products to multiple risk averse retailers who compete in quantities to satisfy the uncertain consumer demand for the symmetric supply chain we give closed form expressions for the unique equilibrium we find that provided there is a sufficiently large number of manufacturers and retailers the supply chain efficiency the ratio of the aggregate utility in the decentralized and centralized chains can be raised to 1 by inducing the right degree of retailer differentiation also risk aversion results in triple marginalization retailers require a strictly positive margin to distribute even when they are perfectly competitive because otherwise they are unwilling to undertake the risk associated with the uncertainty in demand for the asymmetric supply chain we show how numerical optimization can be used to compute the equilibria and we find that the supply chain efficiency may drop sharply with the asymmetry of either manufacturers or retailers we also find that the introduction of asymmetric product assortment reduces the degree of competition among retailers and thus has an effect similar to that of reducing the number of retailers we show that unlike in the symmetric chain the asymmetric chain efficiency depends on product differentiation and risk aversion because of the interaction between these features and the asymmetry of manufacturers and retailers

competition wages and teacher sorting lessons learned from a voucher reform this paper studies how local school competition affects teacher wages at markets where wages are set via individual wage bargaining using regional variation in private school entry generated by a swedish reform which allowed private schools to enter freely and a comprehensive matched employer employee data covering all high school teachers in sweden over 16 years i analyze the effects of competition on wages as well as labor flows the results suggest that competition translates into higher wages also for teachers in public schools while the average increases are modest new teachers gain 2 percent and high ability teachers in math and science receive 4 percent higher wages in the most competitive areas compared to areas without any competition from private schools several robustness checks support a causal interpretation of the results which together highlight the potential gains from school competition through a more differentiated wage setting of teachers

another century of economic science there is a widespread consensus that during the past century economic science has come of age it has developed powerful statistical tools to analyse economic data to make forecasts and to test alternative hypotheses and it has employed sophisticated mathematical techniques to articulate its theories and to prove basic theorems characterising the economy samuelson 1947 encapsulated the mid century enthusiasm for the scientific method in his classic foundations of economic analysis arguing that economics should be based on observable behaviour and testable hypotheses and with his theory of revealed preference showing how this could be done with the theory of consumers behaviour

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

estimating the employer switching costs and wage responses of forward looking engineers this article estimates worker switching costs and how much the employer switching of experienced engineers responds to outside wage offers i use data on engineers across swedish private sector firms to estimate the relative importance of employer wage policies and switching costs in a dynamic programming discrete choice model of employer choice the differentiated firms are modeled in employer characteristic space and each firm has its own age wage profile a majority of engineers have moderately high switching costs and a minority of experienced workers are responsive to outside wage offers younger workers are more sensitive to outside wage offers

estimating the firm s labor supply curve in a new monopsony framework school teachers in missouri in the context of certain dynamic models it is possible to infer the elasticity of labor supply to the firm from the elasticity of the quit rate with respect to the wage using this property we estimate the average labor supply elasticity to public school districts in missouri we leverage the plausibly exogenous variation in prenegotiated district salary schedules to instrument for actual salary these estimates imply a labor supply elasticity of about 3 7 suggesting that school districts possess significant market power the presence of monopsony power in this teacher labor market may be partially explained by its institutional features

the effect of salaries and opportunity costs on duration in teaching evidence from michigan this paper demonstrates that salaries and opportunity costs have important influences on how long teachers stay in teaching the empirical work is based on a new longitudinal dataset providing information on the careers of 7800 michigan public school teachers the generalized least squares estimation technique accommodates censored observations time varying covariates and fixed effects one implication of the result is that predictions from the current generation of teacher supply and demand models are likely to be misleading copyright 1989 by mit press

an empirical equilibrium job search model with search on the job and heterogeneous workers and firms in this article we present and estimate a synthesis of previous equilibrium search models allowing for continuous distributions of workers opportunity costs of employment as well as firms productivities the model allows for on the job search and we assume that job offer arrival rates for workers are independent of their labor market state we derive the theoretical implications of these assumptions we provide simulations and we develop a semiparametric estimation procedure that we apply to a dataset of individual labor market histories

labor market monopsony there has been a renewed interest in monopsony in labor markets in recent years that includes both the traditional static approach to monopsony ably reviewed by boal and ransom 1997 and the new approach to monopsony with more attention paid to dynamic issues developed in detail by manning 2003 the articles presented in this supplement highlight both approaches and illustrate the range of labor market settings in which the exercise of monopsony power may be important the first use of the term monopsony in economics is widely attributed to robinson 1969 robinson conceived of monopsony as analogous to monopoly whereas monopoly refers to the case of a single seller confronted in a market by many buyers monopsony refers to the case of a single buyer confronted in a market by many sellers just as the monopolist faces a downward sloping demand curve for his product and

leadership and competition in network supply chains this paper considers network supply chains with price dependent demand by modelling them as large acyclic networks such large networks are common in the automobile and apparel industries we develop a model to analyze the effect of these large scale problems involving long sequences of contracts and show that contract leadership as well as leader position in the network affect the performance of the entire supply chain we generalize spengler spengler j 1950 vertical integration and anti trust policy j political econom 58 347 352 to a game on a contract tree for a particular supply chain and extend the concept of double marginalization so that it can be applied in the form of a transformation to each contract that is offered by one member to another in the contract tree we construct an algorithm to find the equilibrium solution and derive the optimal location of the leader optimal being the leader location that maximizes total supply chain profits our work formalizes many intuitive insights for example member profits are determined by systemwide rather than individual costs finally we model cournot competition between competing supply chains both two heterogeneous trees and multiple identical trees and show the effect of changes in leader position as well as cost structure on the equilibrium

the price of anarchy in supply chains quantifying the efficiency of price only contracts in this paper we quantify the efficiency of decentralized supply chains that use price only contracts with a price only contract a buyer and a seller agree only on a constant transaction price without specifying the amount that will be transferred it is well known that these contracts do not provide incentives to the parties to coordinate their inventory capacity decisions we measure efficiency with the price of anarchy poa defined as the largest ratio of profits between the integrated supply chain that is fully coordinated and the decentralized supply chain we characterize the efficiency of various supply chain configurations push or pull inventory positioning two or more stages serial or assembly systems single or multiple competing suppliers and single or multiple competing retailers

monopsonistic competition low wage labour markets and minimum wages an empirical analysis abstractthis article investigates the degree of monopsony power of employers in different industries against the background of a statutory minimum wage introduction in germany in january 2015 a semi structural estimation approach is employed based on a dynamic model of monopsonistic competition the empirical analysis relies on a linked employer employee data set which allows to control for observed heterogeneity both on the worker and on the firm side the results show important differences in monopsonistic competition among low wage industries while retailing the hotel and restaurant industry as well as agriculture can be described as monopsonistic labour markets this is not true for other services and manufacturing of food products from a policy point of view the introduction of a uniform minimum wage may therefore lead to different employment reactions in industries with a similar minimum wage bite

the optimal decision rule for fixed size committees in dichotomous choice situations the general result this paper presents a general pairwise choice framework and derives the optimal decision rule for fixed size committees the main result generalizes a number of earlier results in the subject copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

entry and exit decisions in flexible teams the present study identifies a major limitation of current research on multinational enterprises mnes joint decision making in a distributed setting is of critical importance in practice but has received little attention in our theories to address this gap in knowledge we examine the effects of flexible decision teams when mnes assess turbulent markets remarkably flexible teams composed of fallible evaluators can outperform what is usually thought of as an optimal decision our main result supports the claims advanced in recent empirical studies structural flexibility can help mnes achieve high levels of performance even in conditions of turbulence

competing manufacturers in a retail supply chain on contractual form and coordination it is common for a retailer to sell products from competing manufacturers how then should the firms manage their contract negotiations the supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many possibly competing retailers we find that some key conclusions from those market structures do not apply in our setting where multiple manufacturers sell through a single retailer we allow the manufacturers to compete for the retailer s business using one of three types of contracts a wholesale price contract a quantity discount contract or a two part tariff it is well known that the latter two more sophisticated contracts enable the manufacturer to coordinate the supply chain thereby maximizing the profits available to the firms more importantly they allow the manufacturer to extract rents from the retailer in theory allowing the manufacturer to leave the retailer with only her reservation profit however we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale price contracts and this may leave them worse off and the retailer substantially better off in other words although in a serial supply chain a retailer may have just cause to fear quantity discounts and two part tariffs a retailer may actually prefer those contracts when offered by competing manufacturers we conclude that the properties a contractual form exhibits in a one manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer

the risk averse and prudent newsboy the effects of risk and risk aversion in the single period inventory newsboy problem are examined comparative static effects of changes in the various price and cost parameters are determined and related to the newsboy s risk aversion the addition of a random background wealth and of an increase in the riskiness of newspaper demand are also examined although many of the comparative effects generally are ambiguous some fairly simple restrictions on preferences and or risk increases are shown to lead to qualitatively deterministic results

decentralization duplication and delay we argue that although decentralization has advantages in finding low cost solutions these advantages are accompanied by coordination problems which lead to delay or duplication of effort or both consequently decentralization is desirable when there is little urgency or a great deal of private information but it is strictly undesirable in urgent problems when private information is less important we also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

fairness and frictions the impact of unequal raises on quit behavior we analyze how separations responded to arbitrary differences in own and peer wages at a large us retailer regression discontinuity estimates imply large causal effects of own wages on separations and on quits in particular however this own wage response could reflect comparisons either to market wages or to peer wages estimates using peer wage discontinuities show large peer wage effects and imply the own wage separation response mostly reflects peer comparisons the peer effect is driven by comparisons with higher paid peers suggesting concerns about fairness separations appear fairly insensitive when raises are similar across peers suggesting search frictions and monopsony are relevant in this low wage sector

did regional economic diversity influence the effects of the great recession using data for u s counties from 2005 to 2012 we test whether higher levels of economic diversity mediated the effects of the great recession via four measures of stability spatial spillover effects are modeled by the use of the spatial durbin estimator with heteroscedastic errors the data generally support the central hypothesis that higher levels of diversity within a county are associated with enhanced employment stability across all counties as well as subsets of metro and nonmetro counties results for wage stability however appear to contradict our other findings we suggest that underlying labor elasticities can bridge these apparent contradictory results jel r11 r12 o47

a comparative analysis of the use of information inputs in the manufacturing sectors of korea and japan abstract the paper examines the use of two information inputs information labor and purchased information services in korean and japanese manufacturing sectors in 1980 marginal products and substitution elasticities are calculated from translog production function estimates for the average manufacturing sector both inputs seem to be relatively more underused in korea second the elasticity estimates suggest several hypotheses about the growth of private bureaucracies in the two economies the results are unlikely to apply to other economies which have not yet attained an advanced industrial structure a simplistic stages theory of economic development based on the growth of the information labor force is rejected

a stochastic multiple leader stackelberg model analysis computation and application we study an oligopoly consisting of m leaders and n followers that supply a homogeneous product or service noncooperatively leaders choose their supply levels first knowing the demand function only in distribution followers make their decisions after observing the leader supply levels and the realized demand function we term the resulting equilibrium a stochastic multiple leader stackelberg nash cournot sms equilibrium we show the existence and uniqueness of sms equilibrium under mild assumptions we also propose a computational approach to find the equilibrium based on the sample average approximation method and analyze its rate of convergence finally we apply this framework to model competition in the telecommunication industry

monopsony mobility and sex differences in pay missouri school teachers we examine the sex differences in the pay of school teachers in missouri in missouri school districts pay is determined by a salary schedule that maps teaching experience and education level of an individual to a salary level in spite of this apparently mechanical rule for determining pay female teachers earn less than male teachers after controlling for experience and education we explore how such a difference could arise from differential job mobility and find some evidence to support this idea however within district differences in pay are a more important source of differences in pay between men and women

the elasticity of labor supply at the establishment level monopsonistic wage setting power requires that the supply of labor directed toward individual establishments is upward sloping this study utilizes institutional features to identify the supply curve the elasticity of labor supply is estimated using data for the norwegian teacher labor market in a period where the only variation in the wage level was determined centrally and with information on whether there is excess demand or not at the school level in fixed effects models the supply elasticity faced by individual schools is estimated to about 1 4 and is in the range 1 0 1 9 in different model specification

some consequences of giantism the case of india the consequences of giantism on india are discussed in terms of management of the economic system decentralization and markets human resource dimensions such as personnel training and the international sphere of trade governance and foreign aid the indian case supports the notion that population size leads to large economies which are cumbersome and function with hierarchical systems and that size handicaps effective functioning managers have limited horizontal reach or span of control over subordinates there are more virtical chains of command the population ends of delivery systems are larger than in smaller countries additional layering in the hierarchy is not trivial addition it impedes operational communications hence operations themselves adding a 10th or 11th bureaucratic level in moving from a country of 8 million to 800 million is not an arithmetic increase in but an exponential increase in distortions delays and misunderstandings the coping mechanisms available are to speed up management decision making by delegation of political and administrative decision making downward hierarchically and sideways sometimes labor saving devices such as self adjusting servomechanisms generate socially acceptable decisions without continuing day to day intervention by officials pluralism and policy experimentation in general may be encouraged growth and productive efficiency can be enhanced by greater reliance on well framed markets to lead the ordering of economic decisions internal competition must not supercede the importance of export trade which supports the imports of technology and goods there is an association of poverty with a low propensity for trading an advantage of large numbers is the enormous pool of talent from which to draw the top leaders the training of elites and professional cadres is facilitated the quality of training is a function of the size of the centers and their programs a critical mass of professionals is easily reached and brain drain is not a problem such as in bangladesh big countries have diminished representation in multilateral councils and bilateral development assistance is apportioned with less per capita aid to larger countries regional development banks have more agreeable arrangements

technical note a comparison of bertrand and cournot profits in oligopolies with differentiated products we compare equilibrium profits of bertrand price and cournot quantity competition in oligopolies with an arbitrary number of nonsymmetric firms offering differentiated substitutable products under an affine demand function we provide a precise characterization of the profit relationship in terms of 1 the number of firms 2 their relative quality and cost differences and 3 the competition intensity defined as the maxiumum absolute value of total change in competitors demand over change in own demand due to a unit change in own price we first examine the case where firms have the same demand sensitivity to own price and the same demand sensitivity to competitor prices but different cost and quality parameters for this case we prove that the total profit of the industry under cournot competition is at least as high as the total profit under bertrand competition if the number of firms is less than 28 or if the competition intensity is less than 0 909 or if the differences in quality and cost competitiveness between firms are small we also prove that for each firm the profit achieved under cournot competition is at least as high as the profit achieved under bertrand competition if the number of firms is less than eight or if the competition intensity is less than 0 739 we then provide numerical and analytical results that qualitatively support the same conclusions for general affine demand functions with variable demand sensitivities to prices

wages and recruitment evidence from external wage changes in this article the author estimates the causal effect of the wage level on the recruitment rate in establishments during the 1990s the wage setting for certified teachers in norway was completely centralized with a state paid wage premium of about 10 at some schools with severe recruitment problems the empirical approach exploits within school variation in wage premium eligibility and that actual teacher supply is empirically observed at schools with excess demand for teachers in a difference in differences framework the wage premium increases the recruitment rate by 6 to 7 percentage points this finding is robust to model specification and indicates that the recruitment elasticity to the wage is equal to the separation elasticity in absolute terms the implied short run labor supply elasticity for individual establishments is about 1 4 it is also evidence of a diminishing return to scale in recruitment activity a central assumption in search theoretic models of imperfect competition in the la

the division of labour worker organisation and technological change the model developed in this article explains differences in the division of labour across firms as a result of computer technology adoption changes in the division of labour result from reduced production time and improved communication possibilities the first shifts the division of labour towards generic structures while the latter enhances specialisation our estimates for a sample of dutch establishments in the period 1990 6 suggest that productivity gains have been the main determinant for shifts in the division of labour these productivity gains induced skill upgrading while in firms gaining from improved communication possibilities specialisation increased and skill requirements have fallen the rapid spread of computer technology has led to substantial changes in the division of labour and a shift in the demand for labour in favour of skilled workers mostly these changes have been accompanied by flatter organisational structures larger autonomy for workers or workgroups the application of innovative human resource management practices and so on there are also less typical examples where computerisation is associated with increased specialisation e g the rapid increase of call centres scripting of communication with clients and stricter procedures although the empirical relationship between information and communication technology ict adoption and organisational change has been well documented disagreement remains about the reasons why computerisation provides firms with incentives to change the structure of their organisation and the skill requirements of their workforce

technical note sequential multiproduct price competition in supply chain networks we analyze a general model in which at each echelon of the supply process an arbitrary number of firms compete offering one or multiple products to some or all of the firms at the next echelon with firms at the most downstream echelon selling to the end consumer at each echelon the offered products are differentiated and the firms belonging to this echelon engage in price competition the model assumes a general set of piecewise linear consumer demand functions for all products potentially brought to the consumer market where each product s demand volume may depend on the retail prices charged for all products consumers preferences over the various product retailer combinations are general and asymmetric similarly the cost rates incurred by the firms at the most upstream echelon are general as well we fully characterize the equilibrium behavior under linear price only contracts and we show how all equilibrium performance measures can be computed via a simple recursive scheme moreover we establish how changes in the model parameters in particular exogenous cost rates or intercept values in the demand functions impact the system wide equilibrium these comparative statics results allow for the quantification of cost pass through effects and the measurement and characterization of the firms brand value lastly we illustrate what qualitative impacts various changes in the structure of the supply chain network may bring forth

finance innovation and industrial change abstract this paper investigates the impact financial structures upon industrial dynamics whenever the system is permanently characterized by unexploited opportunities for innovation highly bounded rationality and trial and error search processes in these circumstances it is argued specific financial set ups such as market based vs credit based mechanisms of allocation control and ownership transfer are likely to exert different influences on the rates and modes of industrial innovation relatedly one suggests some hypotheses on the links between financial systems and features of industrial evolution and some tentative taxonomies

hierarchies and the survival of prisoners of war during world war ii using a comprehensive database of american prisoners of war during world war ii we find that survival from captivity generally declines as the hierarchy of a prisoner s group becomes steeper or more closely matches the military s established hierarchy there is no evidence that survival is enhanced by being held in more hierarchical groups one interpretation of these findings that is consistent with survivors accounts is that the military s hierarchy was too inflexible to adapt from the battlefield to captivity and this inflexibility impeded trading among the prisoners this paper was accepted by brad barber finance

is there monopsony in the labor market evidence from a natural experiment recent theoretical and empirical advances have renewed interest in monopsonistic models of the labor market however there is little direct empirical support for these models we use an exogenous change in wages at department of veterans affairs va hospitals as a natural experiment to investigate the extent of monopsony in the nurse labor market we estimate that labor supply to individual hospitals is quite inelastic with short run elasticity around 0 1 we also find that non va hospitals responded to the va wage change by changing their own wages

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

differences in labor supply to monopsonistic firms and the gender pay gap an empirical analysis using linked employer employee data from germany this article investigates women s and men s labor supply to the firm within a semistructural approach based on a dynamic model of new monopsony using methods of survival analysis and a large linked employer employee data set for germany we find that labor supply elasticities are small 1 9 3 7 and that women s labor supply to the firm is less elastic than men s which is the reverse of gender differences in labor supply usually found at the level of the market our results imply that at least one third of the gender pay gap might be wage discrimination by profit maximizing monopsonistic employers

strategic technology choice and capacity investment under demand uncertainty this paper studies the impact of competition on a firm s choice of technology product flexible or product dedicated and capacity investment decisions specifically we model two firms competing with each other in two markets characterized by price dependent and uncertain demand the firms make three decisions in the following sequence choice of technology technology game capacity investment capacity game and production quantities production game the technology and capacity games occur while the demand curve is still uncertain and the production game is postponed until after the demand curve is revealed we develop best response functions for each firm in the technology game and compare how a monopolist and a duopolist respond to a given flexibility premium we show that the firms may respond to competition by adopting a technology which is the same as or different from what the competitor adopts we conclude that contrary to popular belief flexibility is not always the best response to competition flexible and dedicated technologies may coexist in equilibrium we demonstrate that as the difference between the two market sizes increases a duopolist is willing to pay less for flexible technology whereas the decision of a monopolist is not affected further we find that a firm that invests in flexibility benefits from a low correlation between demands for two products but the extent of this benefit differs depending on the competitor s technology choice our results indicate that higher demand substitution may or may not promote the adoption of flexibility under competition whereas it always facilitates the adoption of flexibility without competition finally we show that contrary to intuition as the competitor s cost of capacity increases the premium a flexible firm is willing to pay for flexibility decreases

minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment we develop a model of monopsonistic competition with free entry to analyse the effects of minimum wages and our predictions fit the empirical results closely under monopsonistic competition we find that a rise in the minimum wage raises employment per firm causes firm exit and may increase or reduce industry employment minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls

the drivers of income inequality in rich countries rising income inequality has recently come centre stage as a core societal concern for rich countries the diagnosis of the forces driving inequality upwards and their relative importance remains hotly contested notably with respect to the roles of globalization versus technology and of market forces versus institutions and policy choices this survey provides a critical review and synthesis of recent research the focus is on income inequality across the entire distribution rather than only on what has been happening at the very top we pay particular attention to including what has been learned from the analysis of micro data to ensuring that the coverage is not unduly us centric and to analyses of the interrelations between the different drivers of inequality the marked differences in inequality trends across countries and time periods reflect how global economic forces such as globalisation and technological change have interacted with differing national contexts and institutions major analytical challenges stand in the way of a consensus emerging on the relative importance of different drivers in how income inequality has evolved in recent decades

organizational decision making quality and the severity of the free riding problem abstract this letter proposes to view organizational decision making as a pure public good the problem of voluntary participation in the provision of the public good the quality of the organization s decisions is analyzed using a stylized game of participation we are chiefly concerned with the clarification of the relationship between the severity of the free riding problem and the quality of the decisional resources available to the organization

on input market frictions and estimation of factors demand in this article we explore the impact of imperfectly competitive input markets on production function estimation first order profit maximizing conditions are altered when frictions in input markets cause the elasticity of input supply to the firm to be finite a consequence of this is that the standard econometric model used for production function estimation will be misspecified we prove that in all nontrivial cases finite elasticities of supply to the firm will lead to inconsistent estimates of production function parameters monte carlo simulations show that the resulting bias can be economically significant

do employers have more monopsony power in slack labor markets this article confronts monopsony theory s predictions regarding workers wages with observed wage patterns over the business cycle using german administrative data for the years 1985 to 2010 and a

on the effectiveness of uniform subsidies in increasing market consumption we study the problem faced by a central planner trying to increase the consumption of a good such as new malaria drugs in africa the central planner allocates subsidies to its producers subject to a budget constraint and endogenous market response the policy most commonly implemented in practical applications of this problem is uniform in the sense that it allocates the same per unit subsidy to every firm primarily because of its simplicity and perceived fairness surprisingly we identify sufficient conditions of the firms marginal costs such that uniform subsidies are optimal even if the firms efficiency levels are arbitrarily different moreover this insight is usually preserved even if the central planner is uncertain about the specific market conditions further in many cases uniform subsidies simultaneously attain the best social welfare solution additionally simulation results in relevant settings where uniform subsidies are not optimal suggest that they induce a nearly optimal market

monopsony in the labor market this paper surveys recent theoretical and empirical research on monopsony in labor markets broadly defined as upward sloping labor supply to an employer we compare older monopsony models based on small numbers of employers with newer models based on labor market frictions such as moving costs and search we also compare older econometric approaches that focus on static wage concentration relationships with newer approaches that focus on dynamics our review of empirical estimates suggests that monopsony power based on small numbers of employers is probably rare but occasionally large while monopsony power based on frictions is probably widespread but small on average

investment criteria in single and multi member economic organizations this paper compares the determination of investment criteriain single and multi member organizations individualdecisional skills are assumed to be endogenous variables thatdepend on the investment criteria our main result specifiesthe condition that determines the relationship between theinvestment criteria in single and multi member organizations given the size of the multi member organization the decisionrule it applies and the function relating the individual sdecisional skills to the investment criterion theimplications of our main result are developed for specialorganizations such as hierarchies and polyarchies ouranalysis implies that the criteria in a multi memberorganization may be stricter than the criteria set in asingle member organization even though in the former case theorganization may worsen the average decision making ability ofits members the analysis can be applied not only in singleand multi member decision making settings but also in somecontexts of centralized and decentralized decisions this isillustrated in the case of decisions by editors ofprofessional journals regarding the acceptance or rejection ofsubmitted papers

monopsony power pay structure and training although interest in monopsonistic influences on labor market outcomes has revived in recent years only a few empirical studies provide direct evidence on this topic in this article the authors analyze the effect of monopsony power on pay structure using a direct measure of labor market thinness the authors find evidence of monopsony power as firms facing fewer local competitors offer lower wages to skilled labor and trainees but not to unskilled labor the findings have important implications for the economic theory of training as most recent models assume monopsonistic pay setting for skilled labor but not for trainees

collective decision making and the limits on the organization s size this essay clarifies the relationship between the technology of organizational decision making and the limits on the size of the group of decision makers within the organization viewing the number and quality of decision makers and the time required for decision making as inputs in the production of collective decisions we show that there exist generic organizational forces that offset the incentive to unlimited expansion of the organization even in a long run competitive environment with perfect markets for managers unlimited duplication of the firm may not be economically feasible we first analyze in a general setting and then illustrate in two stylized examples the interplay between individual decisional quality time required for an individual decision direct and indirect costs of decision making and the optimal number of decision makers for example management size

competition and structure in serial supply chains with deterministic demand supply chains often consist of several tiers with different numbers of firms competing at each tier a major determinant of the structure of supply chains is the cost structure associated with the underlying manufacturing process in this paper we examine the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price sensitive linear deterministic demand the entry stage is modeled as a simultaneous game where the players take the outcomes of the subsequent post entry cournot competition into account in making their entry decisions we derive expressions for prices and production quantities as functions of the number of entrants at each tier of a multitier chain we characterize viability and stability of supply chain structures and show using lattice arguments that there is always an equilibrium structure in pure strategies in the entry game finally we examine the effects of vertical integration in the two tier case altogether the paper provides a framework for comparing a variety of supply chain structures and for studying how they are affected by cost structures and by the number of entrants throughout the chain

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

teacher mobility responses to wage changes evidence from a quasi natural experiment low mobility responses to wage changes imply rents associated with existing employment relationships for example continued employment after a wage cut all else equal reflects rents in the hand of the worker at the outset and symmetrically voluntary quits after a

new market power models and sex differences in pay in the context of certain models it is possible to infer the elasticity of labor supply to the firm from the elasticity of the quit rate with respect to the wage we use this strategy to estimate the elasticity of labor supply for men and women workers at a chain of grocery stores identifying separation elasticities from differences in wages and separation rates across different job titles within the firm we estimate that women have lower elasticities so a robinson style monopsony model can explain reasonably well the lower relative pay of women in the retail grocery industry