economic liberalization and income inequality further evidence on the sri lankan experience abstract a recent paper by the author in this journal argued that inequality in sri lanka was lower after the 1977 economic liberalization policies were adopted this conclusion was based on two household surveys taken in 1969 1970 and 1980 1981 this note re examines the argument using five household surveys from 1969 1970 and 1981 1982 although the conclusionstill holds in general it is necessary to put it in a proper perspective

a survey of agency models of organizations abstract in recent years neoclassical economists have begun to turn their attention to issues of firm organization stimulated in large part by methodological advances in the economics of incentives and incomplete information the paradigm on which much of this work is based views an organization as an agency relationship agency models incorporate two basic features of organizations incomplete information and goal conflict among members of the organization this essay characterizes and critiques the existing research on agency models of organizations in order to broaden the set of consumers of such models and to stimulate the production of new research

testing alternative theories of the firm transaction cost knowledge based and measurement explanations for make or buy decisions in information services firms boundary choices have undergone careful examination in recent years particularly in information services while transaction cost economics provides a widely tested explanation for boundary choice more recent theoretical work advances competing knowledge based and measurement cost explanations similar to transaction cost economics these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance these theories however offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make buy choices traditional empirical specifications of make buy models are unable to comparatively test among these alternative theories by developing and testing a model of comparative institutional performance rather than institutional choice we examine the degree of support for these competing explanations of boundary choice hypotheses are tested using data on the governance of nine information services at 152 companies our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex requiring integration of transaction cost knowledge based and measurement reasoning 1998 john wiley sons ltd

small is bountiful labor markets and establishment size although there exist no detailed published studies on trends in workplace size most research in stratification and industrial sociology has operated with the implicit assumption that in the course of the twentieth century workers have found themselves in increasingly larger establishments this assumption has focused considerable attention on such concomitants of the assumed increase as growth in bureaucratic control and internal labor markets this paper gives thefirst systematic empirical account of the evolution of workplace size and presents results that call into question the appropriateness of the current allocation of research energy it is suggested that far more attention be paid to analysis of small firms and establishments it is well known that one of the major changes in the organization of work during the twentieth century has been the shift from small to large employers in contested terrain edwards 1979 vii notes that seventy five or a hundred years ago nearly all employees worked for small firms while today large numbers toil for the giant corporations from the theory of segmented labor markets we know that the internal labor market in the large company has become an increasingly standard locale for intragenerational mobility and that as thurow points out the need for on the job training leads employers to eliminate competition for jobs among those who must train one another the net result is the formation of a series of internal labor markets with limited ports of entry thurow 1975 85 86 dunlop 1966 32 observes in a similar vein that for the typical enterprise hiring in jobs are only a small fraction of the total number of job classifications the forces that have brought about this transformation of the workplace have been extensively documented advances in technology have facilitated increasingly large operations with corresponding scale

an agency theory of the division of managerial labor should responsibility for strategic planning and execution be assigned to the same manager should a firm have a chief operating officer with responsibilities distinct from those of the chief executive officer how does the division of labor affect managerial opportunism this paper uses a formal agency theoretic model to address these questions and present a new theory of the division of managerial labor building on penrose s typology penrose e 2009 the theory of the growth of the firm 4th ed blackwell oxford uk the theory identifies when to assign i entrepreneurial services which relate to strategic planning and the acquisition of resources and ii managerial services which relate to execution to the same generalist manager rather than to different specialists the analysis reveals the critical importance of separability i e whether a supervisor can separately observe the outcomes of entrepreneurial and managerial services if managers and their supervisor have symmetric information about separability hiring a generalist dominates because managerial services which are easier to assess reduce the scope for opportunism associated with entrepreneurial services which are harder to assess conversely if managers have better information regarding separability and the probability of separability is low hiring specialists dominates because hiring a generalist allows the potential for opportunism associated with entrepreneurial services to contaminate the provision of managerial services even so the benefits of hiring a generalist may be restored if the services are sequenced appropriately an implication of such sequencing is that a firm will grow in fits and starts giving rise to a penrose effect even if labor market frictions do not impede the assimilation of new managers

the revealed preferences of high technology acquirers an analysis of the innovation characteristics of their targets this paper investigates whether acquisitions involving public high technology firms are best understood in terms of acquirers taking over firms with superior innovation performance to access their assets or acquiring firms with inferior innovation performance to turn them around innovation performance is proxied by r d intensity r d expenditure over assets patent intensity patents per us million of assets i e the r d productivity of a firm s assets and the patent stock i e the accumulated r d output we find substantial overlaps between target and non acquired firm characteristics nevertheless targets have a relatively high r d intensity and a large patent stock which is consistent with acquirers targeting firms with a superior innovation performance however these targets have significantly lower pre acquisition patent intensity and hence a lower r d productivity the targets are also experiencing weak financial performance our results are consistent with a selection process in which acquirers seek out firms that have a superior past innovation performance but that are failing in terms of recent r d productivity and financial performance a comparison of the performance of the targets with their acquirers reinforces this conclusion

the measurement of income inequality under inflation correction formulae for three inequality measures abstract inflation which occurs during the period of time in which a survey is taken will affect measures of inequality of the distribution of incomes or expenditures recorded in such a survey this paper examines the effect of inflation on three commonly used measures of income inequality the variance of the logarithm of incomes and theil s two entropy measures it is shown that inflation always exaggerates the actual degree of inequality if the sample is drawn from the entire population at each point in time when the sample is drawn from different regions of a country at different times underestimation of inequality is possible correction formulae are derived for all three inequality measures and for the entire class of generalized entropy measures which include the two theil measures

explaining organizational diseconomies of scale in r d agency problems and the allocation of engineering talent ideas and effort by firm size the comparative efficiency and success of small firms in r d remains largely unexplained this paper empirically examines scale diseconomies in offering employment contracts as an explanation for diseconomies of scale in r d the paper argues that small firms more efficiently resolve the severe agency problems of hidden information and hidden behavior in r d small firms more efficiently offer contracts that reward performance than large firms and consequently small firms attract and retain engineers with higher ability and skill further small firms through these more performance contingent contracts induce higher levels of effort than large firms the study tests and generally confirms these hypotheses using data collected from 912 current and former engineering employees of two large high technology companies

nested models and model uncertainty uncertainty about the appropriate choice among nested models is a concern for optimal policy when policy prescriptions from those models dier the standard procedure is to specify a prior over the parameter space ignoring the special status of sub models e g those resulting from zero restrictions following sims 2008 we treat nested sub models as probability models and we formalize a procedure that ensures that sub models are not discarded too easily and do matter for optimal policy for the united states we nd that optimal policy based on our procedure leads to substantial welfare gains compared to the standard procedure

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

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 recognition and reward of employee performance this paper examines when and to what extent an individual s relative wage depends on his her productivity relative to others doing the same job starting wages were influenced by background characteristics and training cost realizations but not by relative productivity wages one year later were influenced by productivity but the effects were small the wage elasticity was 2 at small establishments and 0 at establishments with over 400 employees the wage response to relative productivity and training costs was weaker in small labor markets suggesting that wages do not fully respond to performance because of the firm specificity of job performance differentials

workers trust funds and the logic of wage profiles this paper defines a concept a worker s trust fund which is useful in analyzing optimal age earnings profiles the trust fund represents what a worker loses if dismissed from a job for shirking in considering whether to work or shirk a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort this concept is used to show that the implicit bonding in upward sloping age earnings profiles is not a perfect substitute for an explicit up front performance bond or employment fee it is also shown that the second best optimal earnings profile in the absence of an up front employment fee pays total compensation in excess of market clearing in a variety of stylized cases

aspects of inequality in greece abstract inequality in the distribution of consumption expenditure per equivalent adult is measured and decomposed using the primary data of two greek household expenditure surveys 1974 1982 among the factors included in the decomposition analysis only education accounts for a relatively large part of aggregate inequality between 1974 and 1982 inequality declined substantially both within groups and between groups although changes in the structure of the population had an adverse effect on inequality

the returns to foreign r d extant research on research and development r d internationalization has not examined how effective foreign r d investments are in generating positive returns for the investing firms in particular in comparison and conjunction with the effects of domestic r d investments we examine the effectiveness of international knowledge sourcing through foreign r d in an empirical analysis of the productivity effects of foreign and domestic r d investments in a large panel of firms based in the netherlands we argue that foreign and domestic r d will exhibit complementarity in their effects on productivity but that the roles of domestic and foreign r d depend on the relative position of the home country with respect to the global technology frontier and the related relative opportunities for knowledge sourcing abroad we estimate a dynamic panel data model derived from a knowledge stock augmented production function framework allowing for productivity convergence and declining returns to r d we confirm that for firms active in industries in which the home country is behind the global technology frontier foreign r d provides positive returns and has a complementary relationship with domestic r d for industries at the global technology frontier in contrast domestic r d is the primary source of productivity growth

resource and capability constraints to innovation in small and large plants in an attempt to enhance firm s competitiveness policy initiatives have sought to encourage more firms to innovate with a particular focus on small firms the success of such initiatives however depends on a clear understanding of the factors that are constraining innovation activity and whether these differ for firms of different sizes this paper examines those resources and capabilities that firms identify as constraining their innovation activity the difference in these for small and larger plants and the actual impact of these perceived constraints on the probability of innovating and the degree of innovation success drawing on longitudinal data the paper demonstrates that innovation is an evolutionary process with the constraints to innovation being different for small and larger plants from a policy perspective initiatives to overcome constraints to innovation in small plants should extend beyond those of finance to include greater networking opportunities cost reduction programmes and marketing strategies to increase the profit margin on new products human resource management practices on implementing change and easier access to information about new technologies in contrast policies to promote innovation in larger plants should focus on minimising the risk of development and enhancing access to specialist expertise

diminishing marginal returns from r d investment evidence from manufacturing firms this study analyses the association between r d investment rdi and growth opportunities and show that there exists diminishing marginal returns in manufacturing firms extant literature has found that besides r d investment systematic risk financial leverage and complementary asset investment are also associated with growth opportunities accordingly we employ structural equation modelling to simultaneously estimate both a direct influence of rdi as well as indirect influences of rdi on growth opportunities via these three mediating effects we find that the direct effect of incremental rdi on growth opportunities is independent of r d intensity instead the heterogeneous effects of rdi on systematic risk financial leverage and complementary asset investment across firms with different r d intensity level accounts for the diminishing marginal returns to r d investment we specifically observe that the greatest indirect effect is via the financial leverage of the firm this study shows the importanc

are employment and managerial control equivalent evidence from an electronics producer abstract transaction cost economics recognizes two alternative forms of governing production and exchange market coordination and managerial control when examining the contractual relationship between firms and workers researchers generally consider employment to represent managerial control this paper tests the assumption that employment is characterized by managerial control using evidence from an electronics producer this paper tests whether factors affecting the employment status of workers such as asset specificity task interdependence and high knowledge requirements also affect the degree to which workers are managerially controlled this research helps explain a number of market organizational and managerial innovations such as employee self management and the use of temporary workers

the distribution of income in sri lanka in 1969 1970 and 1980 1981 a decomposition analysis abstract in 1977 the sri lankan government implemented a comprehensive policy of economic liberalization removing many government controls on the economy and providing incentives for both foreign and domestic investment the previous policies were often justified as necessary to maintain an equitable distribution of income income data from 1969 1970 and 1980 1981 surveys indicate that inequality has increased but these data are shown to be unreliable for drawing conclusions on changes in the distribution of income expenditure data from the same surveys indicate that inequality has declined in the 1970 s both in the economy as a whole and within all sectors and ethnic groups

measurement error bias in estimates of income and income growth among the poor analytical results and a correction formula abstract in any population income growth among the poor may be higher or lower than overall income growth estimates of income growth among the poor are almost always based on household surveys but income and expenditure data in those surveys are almost always measured with error this article uses the assumption that income follows a lognormal distribution to demonstrate that such measurement error can lead to biased estimates of the mean income of the poor and the growth of that mean income over time in particular when both income and the measurement error are lognormally distributed i measurement error leads to underestimation of the mean income among the poor at any point in time ii increases decreases in measurement error over time for a given level of inequality lead to underestimation overestimation of income growth among the poor and iii increases decreases in inequality over time for a given level of measurement error lead to overestimation underestimation of income growt

new product introduction and capacity investment by incumbents effects of size on strategy we analyze a duopoly where capacity constrained firms offer an established product and have the option to offer an additional new and differentiated product we show that the firm with the smaller capacity on the established market has a higher incentive to innovate and reaches a larger market share on the market for the new product an increase in capacity of the larger firm can prevent its competitor from innovating whereas an increase in capacity of the smaller firm cannot prevent innovation of its larger competitor in equilibrium the firm with smaller capacity on the established market might outperform the larger firm with respect to total payoffs

capabilities transaction costs and firm boundaries although the literature on firm boundaries has been greatly influenced by transaction cost economics strategy scholars often emphasize the importance of capabilities considerations in these decisions this has led to a debate that we suggest has generated more heat than light we argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent competitive explanations is fundamentally misleading we offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach s limitations and provides a unified and logically consistent understanding of boundary decisions

growing apart the changing firm size wage premium and its inequality consequences wage inequality in the united states has risen dramatically over the past few decades prompting scholars to develop a number of theoretical accounts for the upward trend this study argues that large firms have been a prominent labor market institution that mitigates inequality by compensating their low and middle wage employees with a greater premium than their higher wage counterparts large u s firms reduced overall wage dispersion yet broader changes to employment relations associated with the demise of internal labor markets and the emergence of alternative employment arrangements have undermined large firms role as an equalizing institution using data from the current population survey and the survey of income and program participation we find that in 1989 although all private sector workers benefited from a firm size wage premium the premium was significantly higher for individuals at the lower end and middle of the wage distribution compared to those at the higher end between 1989 and

liberalization and inequality in sri lanka a comment abstract paul glewwe has recently argued against the widely held view that the liberalizing policy reform in sri lanka in the late 1970s increased inequality we contend here that glewwe has not convincingly discredited the household income distribution data that he has misinterpreted the expenditure distributions and that he has not considered the welfare distributional effects of the relative price changes induced by the policy reforms furthermore we argue that a sound basis remains for the contention that the policy reforms of the late 1970s increased inequality

worker heterogeneity job screening and firm size a model of job screening is developed in which firms make wage offers to workers based on an imperfect evaluation of their abilities if large firms have higher costs of acquiring information about workers they screen workers with less accuracy and choose a wage compensation scheme different from the one small firms choose this generates the often observed positive correlation between firm size and wages the model also predicts that wage structure and perhaps wage dispersion will differ by firm size and that individuals who acquire more schooling will also choose to work in a larger firm these hypotheses are tested and supported using data from the national longitudinal survey