empathy or antipathy the impact of diversity mixing across ethnic and class lines could potentially either spur understanding or inflame tensions between groups we find that white students at a large state university who were randomly assigned african american roommates in their first year are more likely to endorse affirmative action policies several years later whites who were randomly assigned black roommates are also more likely to say they have more personal contact with and interact more comfortably with members of minority groups whites who were assigned either black or low income roommates are more likely to view a diverse student body as essential for a high quality education students become less supportive of higher taxes for the wealthy when assigned roommates from high income families and they appear more likely to volunteer when assigned roommates from low income families taken together these results suggest that students become more empathetic with the social groups to which their roommates belong

on the demographic composition of colleges and universities in market equilibrium achieving diversity in the racial and ethnic makeup of the student body is one of the objectives that a college pursues in making decisions about admission and financial aid there has been a tremendous amount of debate about policies that colleges should adopt or be proscribed from adopting with respect to diversity rather than join this largely normative debate we adopt a positive focus investigating how colleges quests for ethnic and racial diversity affect admission and financial aid policies the college quality hierarchy and the distribution of whites and nonwhite students across colleges of differing qualities we provide a theoretical framework for investigating the effects of preferences for diversity augmented with results from a parallel computational model calibrated to u s data the effects of efforts to achieve diversity in colleges depend not only on the weight that colleges give to diversity but also on the value that prospective students place on diversity diversity may be of concern to no one only to colleges to both colleges and students or to colleges and a subset of students we first describe a baseline model without preferences for diversity and then examine three alternatives in which preferences for racial diversity are present

the role of application assistance and information in college decisions results from the h r block fafsa experiment growing concerns about low awareness and take up rates for government support programs like college financial aid have spurred calls to simplify the application process and enhance visibility we present results from a randomized field experiment in which low income individuals receiving tax preparation help were also offered immediate assistance and a streamlined process to complete the free application for federal student aid fafsa for themselves or their children treated participants were also provided with aid estimates that were compared against tuition cost amounts for nearby colleges the combined assistance and information treatment substantially increased fafsa submissions and ultimately the likelihood of college attendance persistence and aid receipt in particular high school seniors whose parents received the treatment were 8 percentage points more likely to have completed two years of college going from 28 to 36 during the first three years following the experiment families who received aid information but no assistance with the fafsa did not experience improved outcomes the findings suggest many other opportunities for using personal assistance to increase participation in programs that require filling out forms to become eligible jel codes i2 h4 j24 copyright 2012 oxford university press

early decision and financial aid competition among need blind colleges and universities abstract this paper presents a stylized theoretical model of competition among need blind colleges and universities that implement early decision admissions under need blind admissions an applicant s financial aid status cannot affect their likelihood of admission in the model a need blind school can use early decision admissions as a screening mechanism to indirectly identify a student s ability to pay while superficially maintaining a need blind policy as a result in equilibrium non financial aid students are more likely to be admitted than financial aid students of comparable quality

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

the analytics of the pricing of higher education and other services in which the customers are inputs many services provide outputs that depend partially on the customers as inputs the presence of other customers often contributes to the output experienced by each purchaser higher education is the premier example others are legion we provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services prices that charge customers for what they get on net output minus input from the firm both are competitive and support efficient allocations these prices internalize the apparent external effects of customers on each other few examples of such prices exist in the real world

affirmative action in higher education how do admission and financial aid rules affect future earnings this paper addresses how changing the admission and financial aid rules at colleges affects future earnings i estimate a structural model of the following decisions by individuals where to submit applications which school to attend and what field to study the model also includes decisions by schools as to which students to accept and how much financial aid to offer simulating how black educational choices would change were they to face the white admission and aid rules shows that race based advantages had little effect on earnings however removing race based advantages does affect black educational outcomes in particular removing advantages in admissions substantially decreases the number of black students at top tier schools while removing advantages in financial aid causes a decrease in the number of blacks who attend college

risky business the decline of defined benefit pensions and firms shifting of risk since the early 1980s employment in the united states has undergone significant transformation as the large corporations that once safeguarded employees with stable jobs and rewards for loyalty have replaced these employment relationships with ones based on cost containment and flexibility one important consequence of these developments is that firms have abdicated their role as a critical risk bearer in society although evidence suggests that firms have increasingly shifted market risks onto their workforce to date there have been few detailed analyses exploring what factors have driven this phenomenon this study adds to our understanding of why firms have transferred risk to their employees by examining the decline of a highly institutionalized practice wherein large u s firms used to bear retirement risk the defined benefit db pension plan through a detailed analysis i show that variance in the presence power and interests of shareholders and employees at the firm level differentially affect a firm s willingness to shift the risk of retirement onto its workers specifically i demonstrate empirically that different types of shareholders have differential effects on a firm s retirement practices suggesting that the changing equity ownership structure of large u s firms has played a key role in how risk is allocated between workers and firms declines in employee power have also played a role because firm levels of unionization positively affect rates of db participation for both unionized and nonunionized workers

private equity jobs and productivity private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance to evaluate these claims we construct and analyze a new dataset that covers us buyouts from 1980 to 2005 we track 3 200 target firms and their 150 000 establishments before and after acquisition comparing to controls defined by industry size age and prior growth buyouts lead to modest net job losses but large increases in gross job creation and destruction buyouts also bring tfp gains at target firms mainly through accelerated exit of less productive establishments and greater entry of highly productive ones jel d24 g24 g32

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

government spending and budget deficits in the industrial economies fiscal policy nouriel roubini and jeffrey sachs this paper examines the evolution of the size of government and of budget deficits in oecd economies we highlight the rapid increase in government spending in the 1970s the sharp rise in budget deficits and public debt after 1973 and the reversal in these trends in the 1980s the increase in the size of government was associated in part with the slowdown in growth after 1973 but also reflected gradual adjustment of the ratio of spending to output towards a long run target which depends on political and institutional characteristics of the economy the political orientation of the government the degree of wage indexation and the degree of stability of the political system such factors also explain the size of budget deficits when faced with an adverse shock subsequent deficit reduction requires a measure of political consensus we note that such consensus is hard to achieve in multi party coalitions in consequence countries with such a political structure tended in consequence countries with such a political structure tended toin consequence countries with such a political structure tended to experience much more rapid increases in their debt gnp ratios

mutual monitoring and corporate governance abstract mutual monitoring in a well structured authority system can mitigate the agency problem i empirically examine whether the number two executive in a firm if given authority incentive and channels for communication and influence is able to monitor and constrain the potentially self interested ceo i find strong evidence that 1 measures of the presence and extent of mutual monitoring from the no 2 executive are positively related to future firm value tobin s q 2 the beneficial effect is more pronounced for firms with stronger incentives for the no 2 to monitor and with higher information asymmetry between the boards and the ceos and 3 mutual monitoring is a substitute for other governance mechanisms the results suggest that mutual monitoring provides important checks and balances on ceo power

peer effects in medical school abstract using data on the universe of students who graduated from us medical schools between 1996 and 1998 we examine whether the abilities and specialty preferences of a medical school class affect a student s academic achievement in medical school and his choice of specialty we mitigate the selection problem by including school specific fixed effects and show that this method yields an upper bound on peer effects for our data we estimate positive peer effects that disappear when school specific fixed effects are added to control for the endogeneity of a peer group we find no evidence that peer effects are stronger for blacks that peer groups are formed along racial lines or that students with relatively low ability benefit more from their peers than students with relatively high ability however we do find some evidence that peer groups form along gender lines

competition and cooperation in corporate governance the effects of labor institutions on blockholder effectiveness in 23 european countries we provide an analysis of the costs and benefits of blockholding in europe where it is a dominant but certainly not universal corporate governance strategy for shareholders of publicly listed firms we find that the effectiveness of blockholding is conditioned by the specific labor institutions that distinguish european countries from the rest of the world and that these institutional effects involve both competition and cooperation between blockholders and collective labor interests we also find that relational blockholders are better able to cope with or benefit from these institutional effects than arm s length blockholders empirically we use advanced meta analytic methods on a total sample of 748 569 firm year observations derived from 162 studies covering 23 european countries

a general equilibrium analysis of state and private colleges and access to higher education in the u s abstract we develop a general equilibrium model of the market for undergraduate higher education that captures the coexistence of public and private colleges the large degree of quality differentiation among them and the tuition and admission policies that emerge from their competition for students a quantitative version of the model matches well estimates of enrollment elasticities variation in need based and merit based institutional aid with respectively student income and ability and aggregate characteristics of u s higher education including college attendance in public and private schools tuition levels and the provision of federal aid predictions about the provision of federal aid and the distribution of students across colleges by ability and income match the empirical counterparts well we use the model to examine the consequences of federal and state aid policies a one third increase in the maximum federal aid increases college attendance by 6 of the initial college population most of the increase being in state colleges and mainly of poor students elite private colleges reduce institutional aid and use the net funding gain to spend more on educational inputs and to substitute some highly able poor students for less able rich students reductions in federal or state aid result in substantially reduced attendance mainly by poor students reductions of support to state colleges induce private colleges to increase enrollments modestly and improve in quality as demand shifts toward them

state regulation of takeovers and shareholder wealth the case of new york s 1985 takeover statutes past studies of takeover regulations have found that such rules increase the premiums paid to the shareholders of successfully acquired targets jarrell and bradley argue that these higher premiums harm shareholders by discouraging takeover activity and protecting inefficient managers bebchuk argues that the higher premiums do not significantly reduce the number of takeovers so that shareholders benefit on average from the higher premiums paid in successful acquisitions this article uses the event study method to measure the net effect of two takeover statutes passed by the new york state legislature in 1985 the results support the conclusion of jarrell and bradley that despite the higher premiums paid to successfully acquired target shareholders ex post these laws on average harm shareholders ex ante

state intervention in the market for corporate control abstract this study investigates the impact of pennsylvania senate bill 1310 on the share prices of pennsylvania corporations considered the most severe of the second generation antitakeover laws the statute limits the ability of shareholders to challenge management through the proxy process and eliminates the traditional fiduciary obligation of directors to promote shareholders interests we find that pa sb1310 significantly decreased share values and estimate the loss to shareholders of pennsylvania firms at 4 billion however firms with antitakeover charter amendments already in place were less affected and firms that exempted themselves from pa sb1310 recovered a portion of shareholders wealth

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

college major choice to college then major choice many countries use college major specific admissions policies that require a student to choose a college major pair jointly given the potential of student major mismatches we explore the equilibrium effects of postponing student choice of major we develop a sorting equilibrium model under the college major specific admissions regime allowing for match uncertainty and peer effects we estimate the model using chilean data we introduce the counterfactual regime as a stackelberg game in which a social planner chooses college specific admissions policies and students make enrollment decisions learn about their fits to various majors before choosing one our estimates indicate that switching from the baseline to the counterfactual regime leads to a 1 increase in average student welfare and that it is more likely to benefit female low income and or low ability students

institutional and legal context in natural experiments the case of state antitakeover laws we argue and demonstrate empirically that a firm s institutional and legal context has first order effects in tests that use state antitakeover laws for identification a priori the size and direction of a law s effect on a firm s takeover protection depends on i other state antitakeover laws ii preexisting firm level takeover defenses and iii the legal regime as reflected by important court decisions in addition iv state antitakeover laws are not exogenous for many easily identifiable firms we show that the inferences from nine prior studies related to nine different outcome variables change substantially when we include controls for these considerations

educational vouchers and cream skimming educational vouchers and cream skimming epple and romano 1998 show equilibrium provision of education by public and private schools has the latter skim off the wealthiest and most able students and universal vouchers lead to further cream skimming here we study voucher design that injects private school competition and increases technical efficiencies without cream skimming conditioning vouchers on student ability without restriction on participating schools policies fails to affect significantly cream skimming however by adding restrictions like tuition constraints such vouchers can reap the benefits of school competition without increased stratification this is accomplished while allowing voluntary participation in the voucher system and without tax increases

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

a positive theory of fiscal deficits and government debt this paper considers an economy in which policymakers with different preferences alternate in office as a result of elections government debt is used strategically by each policymaker to influence the choices of his successors if different policymakers disagree about the desired composition of government spending between two public goods the economy exhibits a deficits bias that is debt accumulation is higher than it would be with a social planner the equilibrium level of debt is larger the larger is the degree of polarization between alternating governments and the less likely it is that the current government will be re elected

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

within firm pay inequality financial regulators and investors have expressed concerns about high pay inequality within firms using a proprietary data set of public and private firms this paper shows that firms with higher pay inequality relative wage differentials between top and bottom level jobs are larger and have higher valuations and stronger operating performance moreover firms with higher pay inequality exhibit larger equity returns and greater earnings surprises suggesting that pay inequality is not fully priced by the market our results support the notion that differences in pay inequality across firms are a reflection of differences in managerial talent received march 14 2016 editorial decision january 21 2017 by editor itay goldstein

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

do union wealth concessions explain takeover premiums the evidence on contract wages abstract this paper investigates whether union wealth concessions caused by changes in real wage growth following takeovers explain target firm share price premiums point estimates imply that union wealth changes in the six years following the acquisition account for 1 to 2 of shareholder premiums this figure rises to 5 over 18 years for hostile takeovers union wealth increases by roughly 3 and 10 of shareholder gains over 6 and 18 year periods the 95 confidence interval for wage changes implies that unions may lose up to a quarter or gain up to a fifth of what target shareholders gain

identifying control motives in managerial ownership evidence from antitakeover legislation this study uses the introduction of second generation antitakeover legislation as a natural experimental setting to infer the value that managers place on the control rights conferred by stock ownership we conjecture that managers will reduce their stockholdings in the post legislation period because they can ensure their prior level of control while holding fewer risky shares using a variety of specifications we find robust evidence consistent with this revealed preference hypothesis further demonstrating the key role played by control considerations in managers stockholding decisions the reductions in ownership are concentrated in management teams with higher levels of initial ownership and in firms without poison pills

why a stubborn conservative would run a deficit policy with time inconsistent preferences a conservative government in favor of a low level of public consumption knows that it will be replaced by a government in favor of a larger level of public consumption we show that the resulting level of public consumption is in between the levels the two governments would choose if each were in power both in the present and in the future in particular we show that if the conservative government is more stubborn in a particular sense than the succeeding government the conservative government will borrow more than it would had it remained in power in the future

positive and normative theories of public debt and inflation in historical perspective the study of public finance has progressed along two avenues the first dates to the work of anglo saxon economists at the turn of the century they focused on the normative question of which policy should be chosen by a hypothetical benevolent dictator the second approach originated at about the same time in the work of italian and swedish economists they asked the positive question of how governments choose policies the normative prescriptions of this second approach concern the procedures for reaching public policy decisions rather than the policy decision itself the first approach which focused on the theory of optimal taxation naturally fits in the development of neoclassical economics in this century the second approach was somewhat neglected until buchanan tullock and their associates developed it in the public choice school today these two different traditions are reflected in two active areas of research in macroeconomics the first is the literature on dynamic optimal taxation the second is a political economy literature studying the effects of political incentives and constraints on policy formation these two research programs have more in common than their predecessors the both have a strong empirical motivation and share an emphasis on individual rationality

is there discretion in wage setting a test using takeover legislation anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels testing this popular perception has proven difficult however because independent variation in the extent of managerial discretion is needed in this paper we use states passage of anti takeover legislation as a source of such independent variation passed in the 1980s these laws seriously limited takeovers of firms incorporated in legislating states since many view hostile takeovers as an important disciplining device these laws potentially raised managerial discretion in affected firms if uncontrolled managers pay higher wages we expect wages to rise following these laws using firm level data we find that relative to a control group annual wages for firms incorporated in states passing laws did indeed rise by 1 to 2 or about 500 per year the findings are robust to a battery of specification checks and do not appear to be contaminated by the political economy of the laws or other sources of bias our results suggest that discretion significantly affects wages they challenge standard theories of wage determination which ignore the role of managerial preferences

estimating and interpreting peer and role model effects from randomly assigned social groups at west point abstract the random assignment of cadets to social groups at west point provides a rare opportunity to highlight potentially misleading estimates of social group effects found in many studies estimates of contemporaneous group effects in human capital production are typically positive and significant however evidence in this study suggests that occurrences common to a group may account for much of this correlation models that address these biases provide little evidence of group effects in academic performance although there is evidence of group influences in choice outcomes such as the selection of academic major and the decision to remain in the army

ceo turnover and volatility under long term employment contracts we study the role of the contractual time horizon of chief executive officers ceos for ceo turnover and corporate policies using hand collected data on 3 954 fixed term ceo contracts we show that remaining time under contract predicts ceo turnover when contracts are close to expiration turnover is more likely and is more sensitive to performance we also show a positive within ceo relation between remaining time under contract and firm risk our results are similar across short and long contracts and are driven neither by firm or ceo survival nor technological cycles they are consistent with incentives to take long term projects with interim volatility

does banning affirmative action lower college student quality banning affirmative action from college admissions cannot prevent an admissions office that cares about diversity from achieving it in ways other than explicitly considering race we model college admissions where candidates from two groups with different average quali cations compete for a xed number of seats under affirmative action an admissions office that cares both about quality and diversity admits the best quali ed candidates from each group under a ban it may promote diversity by partially ignoring candidates quali cations and therefore not admitting the best quali ed candidates from either group a ban always reduces diversity and may also lower quality jel j71 j 15 i28

a note on the link between income inequality and inflation abstract using the most recent data on income inequality i find that countries with greater inequality have higher mean inflation even after accounting for standard country specific inflation correlates

market power and price discrimination in the u s market for higher education the main purpose of this paper is to estimate an equilibrium model of private and public school competition that can generate realistic pricing patterns for private universities in the u s we show that the parameters of the model are identified and can be estimated using a semi parametric estimator given data from the npsas we find substantial price discrimination within colleges we estimate that a 10 000 increase in family income increases tuition at private schools by on average 210 to 510 a one standard deviation increase in ability decreases tuition by approximately 920 to 1 960 depending on the selectivity of the college discounts for minority students range between 110 and 5 750

executive option repricing incentives and retention while many firms grant executive stock options that can be repriced other firms systematically restrict or prohibit repricing this article investigates the determinants of firms repricing policies and the consequences of such policies for executive turnover and retention firms that have better internal governance that use more powerful stock based incentives or that face less shareholder scrutiny are more likely to maintain repricing flexibility firms that restrict repricing are more vulnerable to voluntary executive turnover following stock price declines when share price declines are severe restricting firms appear to award unusually large numbers of new options the past several years have witnessed tremendous growth in the use of stock options to compensate corporate executives indeed virtually all of the largest publicly traded u s firms now rely on stock option plans and option grants constitute more than half of the annual pay for chief executive officers murphy 1999 a natural consequence of this growth has been an increasing awareness and sophistication among academics practitioners and the popular press about how the design and administration of option plans can help to enhance or destroy shareholder value although a number of corporate practices pertaining to executive options have elicited controversy perhaps no such practice has been more controversial than repricing which involves effectively lowering the exercise prices of previously granted options on the one hand firms often describe repricing as a useful means for restoring incentives and retaining executive talent and most stock option plans currently in existence permit repricing on the other hand shareholders and institutional investors have voiced intense opposition to the practice on the grounds that it apparently rewards managers for poor performance for instance the council of institutional investors an organization of pension funds controlling over 1 5 trillion in assets has adopted a policy statement calling on companies to restrict repricing according to ann yerger director of research at the council member funds generally detest

the role of local depositors in controlling expenses in small scale financial intermediation an empirical analysis using data on irish loan funds a nineteenth century quasi bank system we explore how the capital structure affects managerial agency to impact non interest expenses these organizations had no equity holders and were financed by deposits and capital comprising donations and accumulated profits creating problems of managerial moral hazard higher net income before non interest expenses is associated with higher salaries and other non interest expenses more surprisingly higher capital deposit ratios led to higher expenses even after controlling for net income while this institution is unique the findings suggest that depositors could assist in controlling expenses in microfinance organizations

managerial legacies entrenchment and strategic inertia this paper argues that the legacy potential of a firm s strategy is an important deter minant of ceo compensation turnover and strategy change a legacy makes ceo replacement expensive because firm performance can only partially be attributed to a newly employed manager boards may therefore optimally allow an incumbent to be entrenched moreover when a firm changes strategy it is optimal to change the ceo because the incumbent has a vested interest in seeing the new strategy fail even though ceos have no specific skills in our model legacy issues can explain the empirical association between ceo and strategy change this paper proposes a model of ceo replacement and puts forward a novel determinant for turnover decisions the legacy potential of a firm s strategy we mean by this the extent to which a manager s decisions affect future firm cash flows potentially beyond the manager s own tenure the replacement of a ceo is arguably one of the most important decisions a firm takes yet the theoretical and empirical finance literature has relatively little to say about the firm and manager specific characteristics that lead to one manager being fired and replaced by another as brickley 2003 points out the only variable that predicts turnover empirically is poor firm performance but it has little pre dictive power theoretical papers on managerial turnover tend to reduce ceo successions to a sequence of static interactions see below for more details as such they do not distinguish between a ceo who is hired and can start a fresh project or one who is constrained in this choice because he inherits a prede cessor s long term strategy our paper focuses on this latter phenomenon and investigates turnover decisions when strategy choices have a legacy potential the fact that a dynamic link exists between a ceo and his predecessor is probably more recognized in the accounting literature than in finance pourciau both authors are from the toulouse school of economics and the institut d administration des

do hostile takeovers reduce extramarginal wage payments hostile takeovers may have significant implications for long term employment contracts if they facilitate the opportunistic expropriation of extramarginal wage payments we test the expropriation hypothesis by studying the relationship between proxies for extramarginal wage payments and subsequent hostile takeover activity this paper improves on existing research by using firm and establishment level data from a salary survey of employers in addition we observe characteristics of wage and employment structures both before and after the occurrence of a hostile takeover and hence can see whether the data are consistent with reductions in extramarginal wage payments following such takeovers results from this ex post experiment provide evidence consistent with the hypothesis that hostile takeovers result in reductions of extramarginal wage payments to more tenured workers mostly through cutbacks in senior positions at firms with relatively steep wage profiles

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

multi dimensional skills specialization and oligopolistic competition in higher education abstract this paper develops a differentiated products model of school competition that distinguishes among different dimensions that matter in the skill acquisition process the model predicts that when identical schools compete for students specialization may arise as a competition strategy this serves rich students education goals well poorer students however may attend schools with specializations that do not cater to their relative strengths by doing so these poorer students complement the weaknesses of the richer students through peer effects and receive financial aid in return the empirical analysis provides strong support for the model s predictions about within school implications of specialization

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

it s not your peers and it s not your friends some progress toward understanding the educational peer effect mechanism abstract using a new administrative panel data set from the university of maryland this paper explores conventional peer effects and the effects of socially proximate peers at a large public university where some students are randomly assigned to housing results show that there is little evidence of robust residential peer effects on undergraduate performance the impact of socially proximate peers characteristics on student achievement is then examined using an instrumental variables technique results indicate that social friends do not impact performance more than randomized peers the paper casts doubt on the notion that social tie formation is the route to peer effects and urges caution in the continued pursuit of peer effects in education without substantial empirical or theoretical innovation

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

enjoying the quiet life corporate governance and managerial preferences much of our understanding of corporations builds on the idea that managers when they are not closely monitored will pursue goals that are not in shareholders interests but what goals would managers pursue this paper uses variation in corporate governance generated by state adoption of antitakeover laws to empirically map out managerial preferences we use plant level data and exploit a unique feature of corporate law that allows us to deal with possible biases associated with the timing of the laws we find that when managers are insulated from takeovers worker wages especially those of white collar workers rise the destruction of old plants falls but the creation of new plants also falls finally overall productivity and profitability decline in response to these laws our results suggest that active empire building may not be the norm and that managers may instead prefer to enjoy the quiet life

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

admission tuition and financial aid policies in the market for higher education we present an equilibrium model of the market for higher education our model simultaneously predicts student selection into institutions of higher education financial aid educational expenditures and educational outcomes we show that the model gives rise to a strict hierarchy of colleges that differ by the educational quality provided to the students we also develop a new estimation procedure that exploits the observed variation in prices within colleges identification is based on variation in endowments and technology it does not rely on observed variation in potentially endogenous characteristics of colleges such as peer quality measures and expenditures we estimate the structural parameters using data collected by the national center for education statistics and aggregate data from peterson s and the national science foundation

the effects of firm initiated clawback provisions on bank loan contracting abstract although firm initiated clawbacks reduce accounting manipulation they also induce managers to engage in suboptimal activities e g reduce research and development r d expenses to achieve earnings targets to assess the effectiveness of clawback provisions we examine their impact from debtholders point of view we find that banks use more financial covenants and performance pricing provisions in the loan contracts and decrease interest rates after firms initiate clawbacks moreover we also find that loan maturity increases and loan collateral decreases subsequent to clawback adoption taken together our findings indicate that firm initiated clawback provisions enhance financial reporting quality thereby reducing the information uncertainty that financing providers face