effort and wages evidence from the payroll tax this is a pre copy editing author produced pdf file of an article accepted for publication canadian journal of economics following peer review this accepted manuscript is being archived under the conditions specified in the bu open access policy

incentives productivity and labor contracts the relationship between age earnings profiles and worker incentives is examined by contrasting wage and salary workers with the self employed it is argued that the steepness of wage and salary workers age earnings profiles reflects the desire to provide work incentives to those workers since self employed workers do not face this agency problem they are used as a benchmark to gauge productivity empirical support of the proposition is provided and the effects of human capital accumulation are separated empirically from incentive effects the most important conclusion is that under some strong assumptions most of the slope in age earnings profiles is accounted for by the desire to provide incentives rather than by on the job training

testing the morale theory of nominal wage rigidity this paper tests the morale theory of nominal wage rigidity according to which firms resist making nominal cuts to workers pay even in adverse economic conditions because such cuts hurt worker morale and productivity the authors analyze data from an employer employee survey they conducted in japan in 2000 that year coincided with a rare spell of deflationary recession which the authors argue is a good setting in which to study how nominal pay cuts affect morale they find that a nominal annual pay freeze experienced by 21 of the sampled workers demoralized workers by reducing their trust in the firm and that even greater demoralization not wholly attributable to reduced trust was associated with a nominal pay cut which affected 17 of the workers the observed negative relationship between nominal pay cuts and morale persists even when the estimation includes controls and firm fixed effects

pricing variation within dual distribution chains the different implications of externalities and signaling for high and low quality brands within many of the multioutlet branded chains that dominate the retail and services landscape the organizational form e g company management franchising used to manage an outlet varies from site to site as do the prices charged at those sites i propose that organizational form and prices may be systematically related as a result of brand externalities in particular i develop logic that the relevant form of externality should differ for upper quality tier brands and lower tier brands using panel data on price and organizational form from more than 6 700 branded u s hotels affiliated with 40 dual distribution brands those brands that simultaneously company manage and franchise individual outlets i find that consistent with the brand externality arguments company managed locations have higher prices within high quality chains whereas franchisees price higher in the lower tiers this paper was accepted by bruno cassiman business strategy

contractual design and networks performance empirical evidence from franchising this article deals with the links between networks performance and the design of vertical contracts it provides evidence broadly consistent with the hypothesis that within franchising systems constraining contracts for the retailers favour a better performance at the network level

a multisector model of efficiency wages the pattern of effort and wages is derived in a multisector efficiency wage model firms choose effort endogenously easily monitored or low turnover jobs have high effort and may have low wages in equilibrium empirical wage differentials from a measure of supervision are smaller than observed industry differentials that have been attributed to efficiency wage models and are closer to those predicted by the model workers can search for and avail of on the job offers if sectors grow at different rates or the unemployment rate changes the pattern of wage differentials is unaffected

relational contracts limited liability and employment dynamics this paper studies a relational contracting model in which the agent is protected by a limited liability constraint the agent s effort is his private information and affects output stochastically we characterize the optimal relational contract and compare the dynamics of the relationship with that under the optimal long term contract under the optimal relational contract the relationship is less likely to survive and the surviving relationship is less efficient in addition relationships always converge to a steady state under the optimal long term contract but they can cycle among different phases under the optimal relational contract

organizations space and capital in the development of korea s electronics industry suarez villa l and han p h 1990 organizations space and capital in the development of korea s electronics industry reg studies 25 327 343 this paper analyses the effect of foreign and domestic capital on the organization of production and the spatial distribution of korea s electronics industry an assessment of korea s international advantages and their impact on trade labour employment and foreign capital is followed by factor analyses using data collected through establishment surveys these provide a set of significant organizational dimensions based on a differentiation of capital and regional location where scale is found to be a most important factor in production domestic capital contributes more than foreign capital to the integration of electronics in korea s productive structure but has a lower export emphasis and tends to concentrate more in the primate metropolitan region suarez villa l et han p h 1991 organisations espace et capital dans le developpement de l electroniqu

is there a trade off between supervision and wages an empirical test of efficiency wage theory abstract the logic of efficiency wage theory suggests a trade off between wages and supervision this paper reports evidence that high levels of supervision are indeed associated with lower wage levels the empirical investigation centers on the effect that safety supervision by host employers has on the wages of contract maintenance workers in the petrochemical industry this narrow focus is important special institutional features of the contract employment relationship in petrochemicals make it possible to ameliorate econometric problems that may have influenced earlier studies

intrametropolitan variation in wage rates the case of atlanta fast food restaurant workers this paper utilizes a unique data base to provide some rare evidence on wage variation within a metropolitan area positively sloped wage gradients are found for both black and white employees of fast food restaurants in atlanta georgia blacks are found to work on that portion of the gradient where wage rates are lowest evidence on discrimination suggests that consumer prejudice affects the wages paid to black workers as distance from the central business district center increases the positive wage gradient effect is found to strongly dominate the negative effect on wages from greater consumer discrimination copyright 1994 by mit press

investment strategy and selection bias an equilibrium perspective on overoptimism investors of new projects consider the returns of implemented projects delivering the same impression and invest if the empirical mean return exceeds the cost the steady states of such economies result in suboptimal investment decisions due to the selection bias in the sampling procedure and the dispersion of impressions across investors assuming better impressions are associated with higher returns investors assessments of their projects are overoptimistic and there is overinvestment as compared with the rational benchmark the presence of rational investors aggravates the overoptimism bias of sampling investors thereby illustrating a negative externality imposed by rational investors

the impact of franchising on labor standards compliance recent studies document pervasive noncompliance with basic labor standards in industries with high concentrations of low wage workers the authors examine how franchising a common form of business organization in low wage industries affects compliance they estimate the effect of franchise ownership on compliance with federal minimum wage and overtime standards in the fast food industry using unique data on top 20 branded restaurants franchised outlets have far higher levels of noncompliance than comparable company owned establishments the authors argue that observed differences arise from internal incentives facing franchisees versus franchisors rather than from external enforcement pressures facing the parties

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

labor issues in korea s future abstract the abundant supply of highly educated and motivated human resources extremely favorable to the rapid growth of an export led labor intensive manufacturing sector has been the primary source of korean economic development during the past quarter century now the korean economy is undergoing a tremendously rapid industrial structural change into an oecd type of mature economy this paper examines four sets of problems korean labor will face in the transition period of the 1990s changes in the age sex educational composition of the labor force changes in the structure of labor demand leading to possible skill mismatches rising labor costs and reform in the remuneration system moves toward participatory and democratic labor management relations

efficiency wage models of unemployment a second view kevin lang and shulamit kahn efficiency wage models in which firms find it profitable to pay wages above workers reservation wages provide a promising explanation for unemployment and interindustry wage differentials one criticism of such models is they imply firms should sell jobs by requiring up front bonds from new workers however only some efficiency wage models imply this moreover firms might not require bonds for many reasons we show that moral hazard and adverse selection models together explain many labor market phenomena the efficiency wage model conforms well to empirical finding but certain anomalies suggest the need to consider rent sharing models carmichael s paper in this volume is an important contribution to the debate over the importance of efficiency wages he clearly outlines some of the deficiencies in the theory and thus points out areas needing further research nevertheless his conclusions are far too negative he greatly exaggerates the theoretical weakness of the efficiency wage model and gives insufficient recognition to the empirical implications generated by this model and to tests of these implications i shirking models there is direct empirical evidence that shirking is a serious problem for firms firms spend significant sums monitoring workers levine 1987 reviews the evidence that worker shirking is widespread and costly the evidence in burroway 1979 and mars 1982 also demonstrates the importance of shirking and stealing carmichael s primary argument against shirking models is that if the payment of efficiency wages to deter shirking led to an excess supply of workers workers would buy their jobs by posting bonds since we do not observe workers posting bonds he concludes that firms do not pay efficiency wages either given the importance of shirking the absence of market clearing bonds needs explaining one explanation is that the market has found some reasonable substitute for bonds such as deferred wage payments it is theoretically feasible to substitute deferred wage payments for up front bonds as noted by akerlof and katz 1989 however the empirical evidence of industries with deferred payments i e where low beginning wages are balanced by high subsequent wages is mixed dickens and katz 1987b krueger and summers 1988 and abraham and farber 1987 indicate that industries which pay high wages to high tenure workers tend to pay high wages to low tenure workers on the other hand high wage industries also tend to have steeper earnings profiles which may be evidence of deferred earnings in these industries as shapiro and stiglitz 1984 note a second possible explanation for the absence of market clearing bonding is that bonding gives firms an incentive to fire workers immediately upon collecting their bonds however this explanation assumes that a firm will immediately fire every worker who posts a bond if there are any reputation costs at all some firms sometimes will not fire bond posting workers and we should observe some bonding yet with finite length contracts there must be some reputation costs because otherwise firms would never pay workers in the last period thus firm incentives to cheat and fire workers cannot explain the complete absence of bonding clearly the absence of market clearing bonding is not fully understood and further theoretical work is needed dickens katz lang and summers 1989 review a wide variety of possible reasons that bond posting is limited the important point is that there are many potential reasons for limited bonding other than the absence of efficiency wages on the other hand the lack of bonding despite the importance of shirking does not demonstrate that firms pay efficiency wages there may be reputation or other costs to the worker caught shirking even in the absence of bonding as dickens katz lang and summers 1989 demonstrate in the absence of bonding whether paying efficiency wages dominates relying solely on increased monitoring depends on the parameters of the model and is therefore an empirical issue

equilibrium unemployment as a discipline device when finding employment is costly in this paper we study a model that incorporates costly job search into an efficiency wage model we show that the relationship between wages and detection rates is ambiguous in this framework the model can generate a positive relationship consistent with empirically reasonable values for unemployment rates job finding rates and employment duration dans ce memoire on etudie un modele qui incorpore une recherche d emploi couteuse dans un modele de salaire d efficience on montre que la relation entre salaires et taux de detection est ambigue le modele peut generer une relation positive consistante avec des valeurs empiriquement raisonnables pour les taux de chomage les taux de detection d emplois et les durees d emplois

rational overoptimism and other biases rational agents with differing priors tend to be overoptimistic about their chances of success in particular an agent who tries to choose the action that is most likely to succeed is more likely to choose an action of which he overestimated rather than underestimated the likelihood of success after studying the comparative statics of this mechanism i show that it also causes agents to attribute failure to exogenous factors but success to their own choice of action to disproportionately believe that they will outperform others to overestimate the precision of their estimates and to overestimate their control over the outcome

should i stay or should i go career choices for young workers in latin america labor market institutions shape the return to workers skills they define the incentives of firms and workers to invest in general and specific skills affecting the returns to experience and tenure this paper presents an empirical assessment of this hypothesis we take advantage of rich administrative data from brazil and chile two countries with different regulatory frameworks we focus on young workers as they face to a greater extent the trade off between accumulating general or specific skills the analysis is motivated by a simple conceptual framework from which we derive empirical predictions it takes into account the potential endogeneity of occupational choices while allowing for heterogenous returns to tenure and experience we find positive average returns to both dimensions in both countries with larger returns to tenure in brazil and larger returns to experience in chile this is consistent with the original conjecture as the more rigid labor market legislation in brazil encourages firms to carry out additional investments in young workers s specific skills chile s institutions on the contrary promote the acquisition of general skills we further examine how these returns differ by educational attainment an important policy consideration in the region and find that more educated workers in both countries face larger returns to experience and tenure relative to their less educated counterparts

the effect of organizational form on quality the case of franchising abstract the organizational form of franchising has been shown to yield higher profits and faster growth through reducing agency costs why then does anyone not franchise in this paper i argue that the diffuse residual claims of the franchise system reduce overall system quality and that this problem is inherent in the nature of franchising the theory is tested by examining evidence from both the restaurant and the hotel industries including chains that franchise and ones that own all of their units in both industries quality is negatively related to the percent franchising in the chain controlling for size growth in units monitoring costs market segment ownership structure multi chain operation and price the results suggest that the franchise contract increases free riding and decreases quality in decentralized service chains and that quality is not contractible in this setting

the franchise life cycle and the penrose effect abstract the paper suggests that the received economic analyses of franchising give insufficient consideration to its apparent role in facilitating the rapid development of networks of outlets a characteristic which receives much attention in the industry s own periodicals the paper argues that franchising based upon standardization and replication with contractual policing rather than the direct monitoring of branches assists a rapidly growing chain to circumvent the penrose constraint on organizational development this gives rise to a life cycle effect evidence from a large sample of us franchises appears to confirm our growth facilitation hypothesis

limited entrepreneurial attention and economic development economic development depends on the allocation of entrepreneurial resources to efforts to discover new profit opportunities limited entrepreneurial attention is allocated between maintaining current activities and starting new activities this paper addresses the problem of allocating limited entrepreneurial attention in a variety of contexts the issues that are addressed are product improvement and new product development the choice of career as an innovative entrepreneur a managerial entrepreneur or a salaried employee the venture capitalist s attention to current and new ventures and funds the writing of internal contracts and market contracts and the supervising of current employees and hiring additional employees

efficiency wages and employment rents the employer size wage effect in the job market for lawyers the efficiency wage hypothesis offers an explanation for employment rents according to this hypothesis firms pay wages above the opportunity cost of labor to elicit productivity or quality enhancing behaviors from employees firms pursue this strategy when alternative incentive schemes are unavailable or too costly thus firms will not pay premium wages when employees post sufficiently large performance bonds this article examines employment rents in a setting where employees post sizable performance bonds large law firms contrary to the efficiency wage hypothesis we find that associates in these large firms post substantial performance bonds while also receiving substantial ex ante rents

franchising agency problems and the cost of capital explanations for franchising are examined in the context of the us hotel industry the study is distinct from previous research on franchising because it explicitly recognizes the existence of three organizational forms whereas previous research has focused exclusively on two of these three forms the two organizational forms examined in previous work are franchising and company ownership the additional organizational form is company management investor ownership which involves management by the franchisor and ownership by outside investor groups a plausible explanation for the existence of the last organizational form is based on the availability of low cost capital from non chain sources

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

the role of employer employee interactions in labor market cycles evidence from the self employed self employed workers are less likely to be affected by implicit contracts efficiency wages and other forces that mute wage cyclicality and exacerbate employment cyclicality this observation motivates our comparison of the cyclical experience of the self employed with wage and salary workers who clearly have an employer we find negligible or small differences in annual hours cyclicality between the two groups but hourly wages and annual earnings are much more cyclical for the self employed these results are consistent with efficient contracting models where employers smooth workers income without causing inefficiencies in hours of work

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

firm types price setting strategies and consumption tax incidence abstract we analyze price responses to large restaurant vat rate reductions in two different european countries our results show that responses in the short and medium run were clustered around two focal points of zero pass through and full pass through differences between independent restaurants and chains is the key explanation for this pattern while nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged a substantial fraction of restaurants belonging to chains chose a rapid and complete pass through in the longer run prices converged but primarily through a price reversion among chain restaurants the stark difference in price responses does not appear to arise because of different market characteristics such as location initial price levels meal types and restaurant segment

an empirical look at franchising as an organizational form franchise contracts are identified as a hybrid form of economic organization motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm firm growth managerial and employee selection a nd brand name capital empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available the results s uggest that both principal agent incentives and informational incenti ves favor the use of franchise arrangements copyright 1988 by the university of chicago

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

the effects of new franchisor partnering strategies on franchise system size many young firms use strategic actions to attract partners who help them increase the size of their operations quickly this article examines the use of strategic actions to attract partners and increase system size in the context of franchising we build on research in entrepreneurship marketing organization theory strategic management and finance to develop specific hypotheses about the influences of franchisor pricing policy and strategic control decisions on system size we test these hypotheses empirically using panel data on a sample of 1 292 business format franchise systems from 152 industries that were established in the united states between 1979 and 1996 and followed from their inception forward in time our model accounts for the endogeneity of strategic decisions controls for unobserved firm and industry factors and accounts for selection effects due to system failure the results show that franchisors that grow larger 1 lower royalty rates as the systems age 2 have low up front franchise fees that rise over time 3 own a small proportion of outlets and lower that percentage over time 4 keep franchisees initial investment low and 5 finance their franchisees

an empirical study on contractual heterogeneity within the firm the vertical integration franchise contracts mix this paper tests a discrete choice model on the mix of franchised and company owned outlets contractual heterogeneity within the firm this is often explained by the existing literature as due to heterogeneous characteristics of the outlets however correspondence between outlets and contracts characteristics is not often observed in reality an explanation is proposed which suggests that contract mixing is driven by the contractual choice of both principal and agents and that heterogeneous agents will choose contracts that match their characteristics this hypothesis is supported by econometric results based on outlet level microdata collected by means of a survey of uk firms

the spatial distribution of black employment between the central city and the suburbs i introduction smock 1968 kain 1968 and leonard 1987 have shown that the share of jobs held by blacks is smaller in the suburbs in comparison to the central city little is known concerning the factors accounting for this skewness in the spatial distribution of black employment because of the absence of suitable data a number of possible factors can be suggested first there may be no incentive to commute to the suburbs if wages are no higher or jobs no more available than within the central city that is the alleged spatial mismatch that has presumably created a surplus of less educated workers living in the central city and a shortage of these workers living in the suburbs may in fact not exist second the distances to jobs in the suburbs may make commuting to these jobs prohibitively costly and may limit the information readily available to urban blacks on suburban job opportunities third becker type consumer and or employer discrimination may cause employers to prefer hiring blacks in the central city or prefer hiring whites in suburban areas or both finally in comparison to central city jobs fewer suburban jobs are within walking distance of a public transit stop and many central city blacks do not own automobiles 1 from a policy perspective it is crucial to determine the relative importance of the above explanations for black employment segregation for example based upon a belief in the spatial mismatch hypothesis kasarda 1989 orfield 1985 hughes 1989 skinner 1989 and wilson 1992 have recommended that improved public transportation be provided to reverse commuters however on its own this strategy may not be particularly effective if blacks encounter greater hiring discrimination outside the central city and or know little about suburban jobs to shed some light on the spatial distribution of black employment between the central city and the suburbs this paper 1 provides some evidence on whether the central city labor market is tighter or looser than the suburban labor market for less educated workers 2 develops and estimates a model which explains the racial composition of firms workforces and 3 uses the parameter estimates from this model to investigate the relative importance of the aforementioned factors as explanations for black employment segregation the data come from a survey which we conducted of the managers of 102 fast food hamburger restaurants in the atlanta georgia metropolitan area the results yield three conclusions first expected wages the probability of employment times the wage rate are higher in the suburbs than within the central city which lends support to the spatial mismatch hypothesis and reinforces the need to understand the spatial distribution of black employment second the manager s race the percentage of the restaurant s customers who are white distance from the central business district and the proximity of the restaurant to mass transit are all found to have an important influence on the racial composition of the restaurant s crew third all of these variables are found to play an important role in explaining the difference in black employment share between central city and suburban restaurants of particular interest is that approximately 36 percent of this difference can be attributed to the fact that suburban restaurants are less frequently served by public transit the next section reviews the literature on the spatial mismatch hypothesis and relates this hypothesis to black employment segregation section iii describes the data evidence is presented on the quality and availability of suburban in comparison to central city jobs in section iv a model of the racial mix of the restaurant s crew is developed in section v the results from estimating this model are discussed in section vi policy implications and suggestions for future research conclude the paper ii the spatial mismatch hypothesis and black employment segregation the last half of the 1980s witnessed a revival of interest in the old idea that the suburbanization of jobs and involuntary housing market segregation have acted together to create a surplus of workers relative to the number of available jobs in inner city neighborhoods where blacks are concentrated

where to go workers reasons to quit and intra vs interindustry job mobility we show that workers reasons for quitting their job affect their decision to stay in or leave their industry using survey data among public sector employees in the netherlands workers quitting for e g pay work pressure or job duties move relatively often to another industry in contrast to workers quitting for commuting time or the atmosphere at work this suggests that workers use their experience in the initial job to update their expectations on other jobs in the industry as the first set of job aspects is more likely to be related among jobs within an industry than the latter furthermore it is shown that workers reasons to quit fully explain the differences in wage growth between intra and interindustry job movers lastly we find that workers who quit for pay or management often leave the public sector altogether the data used in this article are proprietary

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

efficiency wages deferred payments and direct incentives in agriculture empirical evidence from agricultural labor markets is consistent with efficiency wage theory and inconsistent with several alternative explanations according to this theory the higher wage or deferred payment benefits that direct hire growers pay relative to that of farm labor contractors is an efficiency wage growers use this extra compensation to lower their monitoring expenses and reduce shirking by workers copyright 2002 oxford university press

crossing mother entrepreneur franchisees attempts to reduce franchisor influence abstract contractual terms guide many entrepreneur franchisees actions with the franchisor however it is impossible for franchisors to completely specify all future actions they compensate by continually attempting to influence franchisees using what franchisees perceive as suasion in their ongoing interactions we develop a theoretical framework for understanding the informal interaction dynamics between franchisors and franchisees most franchise arrangements include the payment of royalties based on sales this encourages a growth oriented strategy usually appropriate for the franchisees during the initial stages of their operations whereas a franchising strategy can reduce entreprenerial risk for franchisees it does not eliminate it thus as sales of the franchisees increase profit oriented strategies will be favored because they represent the payoffs that accrue to continuing entrepreneurial effort and risk taking these strategies may be in opposition to franchisors sales orientation when market conditions do not allow continual growth without margin penalties a research model is developed depicting the relationship between franchisees strategies and performance and the moderating effect that contractual goals and franchisees perception of franchisors attempts at suasion have on this relationship a set of research hypotheses was then empirically tested using a large sample of franchisees from the commercial truck retailing industry the results indicate that sales growth and profit growth goals are not always congruent balancing the goals of the franchisor and franchisee did not appear to be a popular option either one or the other was emphasized more importantly the results indicate that when franchisees perceive attempts by franchisors to use suasion lower levels of profits result but there is no corresponding increase in the level of sales in the long term franchisors are likely to determine that current contractual arrangements are not protecting their longer term interests thus they will be expected to attempt to modify franchise contracts in ways that force franchisees to implement sales gain strategies this will require that entrepreneur franchisees anticipate future events more carefully at the time they are examining the original franchise contract because most entrepreneurs are concerned with immediate survival at the start up stage this makes examination of the contract less likely to happen the franchise option is attractive because it reduces such risks we recommend that entrepreneurs write ex ante contingent claims contracts that ensure a gradual reduction of franchisor influence although this would assume a power or knowledge balance that favors the franchisees which is unlikely during the start up phase it will change over time as franchisees gain a better understanding of the local competitive dynamics thus it may well serve the franchisees to take a defensive posture or push a royalty arrangement that decreases the emphasis on sales over time this is most likely to be effective where the entrepreneur is considering several competing franchises at the time of the signing of the contract finally we recommend that entrepreneur franchisees should not assume that the expert advice offered by their franchisor is always in their best interests although technical advice is more likely to be unbiased and should be fully exploited as this is what makes the franchise valuable strategic advice or that which relates to goal setting may well be colored by the financial interests of the franchisor franchisors are unlikely to consider the possibility that franchisees would be better served by formulating their own strategies nor are they likely to consider that the franchise network would be better off in the longer term by the collective impact associated with numerous franchisees independently formulating their own strategies in short although we do not suggest that franchisees should always assume that crossing mother is the best response to all perceived franchisor suasion efforts they should carefully examine all strategic advice

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

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

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

credit incentives and reputation a hedonic analysis of contractual wage profiles a hedonic analysis of principal agent employment contracts is developed in which workers and employers exchange labor services and contractual payment patterns within this framework tests of alternative hypotheses are formulated and applied to contract data from a unique household level survey of economic activity in rural china in 1935 the results indicate that credit market constraints motivated workers and employers contract choices that shirking by workers rather than by employers was the dominant incentive issue that reputational concerns rather than threats of termination were the key worker disciplining device and finally that the contract s third party acted as an enforcement device rather than as a matchmaker subject to the availability of matched agent principal data this structural approach to modeling agency relationships can also be used in contemporary settings

what you see is all there is news reports and communication are inherently constrained by space time and attention as a result news sources often condition the decision of whether to share a piece of information on the similarity between the signal and the prior belief of the audience which generates a sample selection problem this article experimentally studies how people form beliefs in these contexts in particular the mechanisms behind errors in statistical reasoning i document that a substantial fraction of experimental participants follows a simple what you see is all there is heuristic according to which participants exclusively consider information that is right in front of them and directly use the sample mean to estimate the population mean a series of treatments aimed at identifying mechanisms suggests that for many participants unobserved signals do not even come to mind i provide causal evidence that the frequency of such incorrect mental models is a function of the computational complexity of the decision problem these results point to the context dependence of what comes to mind and the resulting errors in belief updating

incomplete contracts and the choice between vertical integration and franchising abstract previous studies have demonstrated that geographical dispersion of outlets leads to an incentive for firms to franchise geographical dispersion alone however does not provide a full explanation of the firm s decision to franchise certain industries with highly dispersed retail outlets such as supermarkets almost never franchise this paper uses the incomplete contracting paradigm to demonstrate how the inability to contract over local outlet costs can drive the firm s decision to franchise or integrate since only owners have incentives to reduce cost ownership of the local outlet should rest with the party with the greatest ability to control cost the theory is then applied to several industries

gender wage inequality and export led growth in south korea this article investigates the relationship between gender wage inequality and export led growth in south korea the persistent gender wage gap in korea s manufacturing sector is found to be linked to women s segregation in the country s major export industries where real wage growth has lagged productivity growth despite favorable market conditions that might drive up women s wages relative to those of men the interaction of state and firm level hiring training and promotion practices that structure women s and men s employment opportunities differently appear to have resulted in a relatively weaker fall back position for women in labour markets econometric results are consistent with the hypothesis that women s weaker fall back position limits their ability to bargain for wage increases commensurate with productivity growth further evidence is presented which links gender wage inequality to the growth of korean exports