bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

labor market segmentation a cluster analysis of job groupings and barriers to entry real expenditures on public assistance programs have increased substantially in the past two decades as has real per capita income investments in a variety of education programs have risen and a number of jobs programs have been tried although there have been some gains for example a decline in the percentage of the population in poverty 31 474 a number of disparities persist unemployment remains at record levels and the prospect for sizable reductions in the unemployment rate seems quite small there are persistent differences between the mean household incomes of blacks and whites that have not narrowed at all during the past two decades 15 there is also a widespread perception that a disadvantaged segment of the u s population has no effective access to good jobs and if such persons get them they do not stay employed for long this means that many such adults are caught in a cycle of unemployment welfare dependency bad jobs and intermittent employment whereas there is nearly universal agreement that the persistent disparities in well being are undesirable there is considerable disagreement on what to do about this in part the disagreement stems from ignorance about the facts for example rigorous operational definitions of good and bad jobs have not been developed the notion that some persons do not have access to the good jobs is primarily based on anecdotes fortunately longitudinal data bases are now available that permit more rigorous empirical analysis of such issues

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

on avoiding bank runs abstract can bank runs be avoided and should they be avoided i analyze a banking environment where bank runs can occur as a result of negative signals about the bank s investments in this environment banks can make sure that runs do not occur by designing the deposit contract appropriately i show that there are conditions under which it is profit maximizing for the bank to avoid runs and others under which occasional runs are part of optimal bank behavior i also compare the banking arrangement to an arrangement based on trading in equity

does marriage really make men more productive this paper presents new descriptive evidence regarding marital pay premiums earned by white males longitudinal data indicate that wages rise after marriage and that cross sectional marriage premiums appear to result from a steepening of the earnings profile data from a company personnelfile that includes information on job grades and supervisor performance ratings reveal large marital status pay differences within a narrow range of occupations managers and professionals and environments a single firm married workers tend to be located in higher paying job grades there are very small pay differentials within grades married men receive higher performance ratings than single men as a result they are much more likely to be promoted controlling for rated performance however eliminates the promotion differential sanders korenman is an assistant professor of economics and public affairs at princeton university and is a faculty associate of the office of population research at princeton university and a research affiliate of the national bureau of economic research nber david neumark is an assistant professor of economics at the university of pennsylvania and a research affiliate of the nber korenman wishes to acknowledge the hewlett foundation and the harvard university center for population studies for financial support the authors are grateful to james medofffor making available an extract from the company personnelfile questions regarding data availability should be directed to professor james

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

incentives for motivated agents under an administrative constraint consider an agent who has an expertise in producing a non marketable good this good is valued by a single principal and there is a verifiable measure of the agent s performance crucially the agent is intrinsically motivated due to warm glow altruism in addition the agent s budget which is controlled by the principal must not be less than the monetary performance cost faced by the agent this gives rise to a limited liability constraint it also restricts the agent s ability to under report costs in such environment we determine the link between the agent s budget and performance our results come in contrast to the received solution of the principal agent problem and to most in the literature on mission motivated organisations and public services provision

comparing tax expenditures and direct subsidies the role of legislative committee structure abstract this paper analyzes the impact of legislative committee structure on policy outcomes comparing a tax committee enacting tax expenditures and a decentralized system of specialized committees undertaking direct spending an endogenous commodity taxation framework is combined with models of legislative bargaining and committee voting the main conclusion is that the tax committee structure gives rise to lower subsidy levels under a wide range of circumstances however it is only under a more restrictive set of assumptions that social welfare is higher in the tax committee regime this theoretical analysis is illustrated by two examples of institutional change in congress

detecting and removing discrimination under equal opportunities policies abstract this paper surveys part of the recent voluminous literature on the economics of discrimination focusing on two key questions first how should discrimination be measured and can in fact unambiguous estimates be derived as the basis for detecting where discrimination is present and setting in train measures to eliminate it second to what extent has the implementation of equal opportunities legislation improved the relative standing of women and minority workers in the labour force this section includes a discussion of the likely effects of recent changes in the law such as the equal value amendment in the uk or the introduction of comparable worth in the usa the survey concludes that our ability to detect discrimination at all precisely is still rudimentary and consequently policy measures are likely to be inefficient for this reason

costly monitoring financial intermediation and equilibrium credit rationing abstract this paper establishes a link between equilibrium credit rationing and financial intermediation in a model with asymmetrically informed lenders and borrowers costly monitoring and investment project indivisibilities intermediation is shown to dominate borrowing and lending between individuals and these financial intermediaries exhibit several of the important features of intermediaries as we know them equilibrium interest rates and the aggregate quantity of loans respond quite differently to changes in taste and technology parameters depending on whether or not there is rationing in equilibrium

the margin of safety and turning points in house prices observations from three developed markets using quarterly data from 1960 united kingdom 1963 united states and 1977 japan through the second quarter q2 of 2010 all three markets the authors examined long run mean reverting relationships between house prices and inflation disposable income gdp and rents at the end of q2 2010 u s prices were below their mean reverting levels and at the lower end of their historical range equivalent u k and japanese prices were at or slightly above their mean reverting levels

pay for percentile we propose an incentive scheme for educators that links compensation to the ranks of their students within comparison sets under certain conditions this scheme induces teachers to allocate socially optimal levels of effort moreover because this scheme employs only ordinal information it allows education authorities to employ completely new assessments at each testing date without ever having to equate various assessments this removes incentives for teachers to teach to a particular assessment form and eliminates opportunities to influence reward pay by corrupting assessment scales education authorities can employ separate no stakes assessment systems to track trends in scaled measures of student achievement jel i21 i28 j33 j45

heterogeneity in bank valuation of ldc debt evidence from the 1988 brazilian debt reduction program abstract using data on bank choices in the 1988 brazilian debt reduction deal we confirm predictable heterogeneity in bank valuation of brazilian claims in the presence of a functioning secondary market for ldc debt the source of this heterogeneity is unclear we introduce a model in which regulatory concerns influence bank choice bank choices in debt reduction programs are aimed at maximizing the magnitude of their transfer from regulatory agencies as a result bank choices reflect their characteristics including financial strength and exposure to the debtor country the directions of influence correspond to the predictions of our model

the impact of ownership on price setting in retail energy markets the german case abstract this paper analyzes whether public ownership has an impact on providers price setting under the assumption of more efficient energy provision which benefits customers a large number of former energy monopolists have been privatized in line with the liberalization of energy markets in germany at the end of the 1990s however current re municipalizations are justified by similar arguments in the public debate based on a dataset on the ownership structure of energy providers we find that public property or private property itself is not the decisive factor for lower retail and wholesale prices rather a high ownership concentration leads to low prices regardless of the type of owner as public investors often seek total ownership of a provider households which are less willing to switch benefit at least indirectly from public ownership tests for robustness of our results applying different owner and concentration measures confirm the results independently from the underlying estimation specification

does work experience increase productivity a test of the on the job training hypothesis using data on wage claims investigations of a state labor department we test the proposition that work experience increases productivity productivity is measured as the fraction of wages an employer allegedly owes an employee which the investigator is able to collect the recovery of back wages is accomplished without the availability of an official enforcement mechanism the empirical estimates indicate that investigators become significantly more productive during the first six years of job experience while the uniqueness of this occupation prevents generalizing this finding the study raises some important methodological issues

trading between agents for a better match this paper studies externalities that arise when agents can trade outcomes ex post i show that when agents can trade outcomes ex post principals are incentivized to contract with agents ex ante to reduce ex post transfers to outside agents with whom the principals do not directly contract this causes principals to offer agents piece rates that are inefficiently low and lower than the piece rates they would offer if trading was not allowed although trading reduces an agent s effort and could increase the agent s outside option of rejecting a principal s ex ante contract principals ultimately gain from allowing ex post trading because such trading results in outcomes that better match their tastes

banks debt maturity and financial crises abstract we develop a model in which the maturity of external debt of banks their level of international reserves and the term structure of interest rates are jointly determine self fulfilling runs may occur and banks take this possibility into account when choosing the structure of their assets and liabilities if the probability of a run is sufficiently small banks will deliberately choose an illiquid asset liability position and expose themselves to a run in that case short term debt will be cheaper than long term debt and the maturity structure of foreign debt will depend on attitudes towards risk

deposit insurance and lender of last resort functions we consider issues concerning the design of a banking system safety net when both a deposit insurer and a lender of last resort are present in our model both entities have a role to play moreover issues related to deposit insurance pricing are relatively unimportant in this context whereas issues related to discount window access and pricing are not we discuss when and why or why not a lender of last resort should lend liberally but charge high rates of interest and we raise the possibility that discount window policy may enhance or reduce the scope for multiplicity of equilibria

incentive compensation in a corporate hierarchy abstract a theoretical and empirical analysis of within job and promotion based incentives for middle managers is presented using personnel data from a firm within job incentives are stronger than implied by previous studies evidence is provided that promotions sort employees by ability and also generate incentives promotions are associated with large increases in lifetime earnings as long as performance is sustained in the future there is little evidence that the firm trades off within job and promotion based incentives as predicted instead it appears to use a simple incentive scheme resulting in declining incentives for those passed over for promotion

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

the public private sector gender wage differential in britain evidence from matched employee workplace data this article shows that little of the gender earnings gap in the public and private sectors in britain are explained by differences in employee characteristics the differences in workplace characteristics however make a significant sizeable contribution it is shown that performance related pay and company pension schemes are associated with higher relative earnings in the private sector whilst increased provision of family friendly employment practices in the public sector is associated with higher relative earnings for women

organized debt buybacks no cure for free riding abstract this paper discusses the possibility of resolving the international debt overhang problem through an organized buyback at the secondary market prices suggested by peter kenen we focus on one aspect of the feasibility the elimination of the free rider problem of creditors in the presence of the secondary market for sovereign debt the analysis shows that there are equilibria in which the organized buyback can be blocked by the free riding among banks

how foolish are internet investors we offer the first systematic evidence that stock recommendations published on the internet move prices and trading volumes we found that buy announcements for small cap growth stocks published in the nightly performance recap of the motley fool s rule breaker portfolio engender statistically significant abnormal returns the effects were generally larger than those following secondhand buy recommendations published in the print media or after a stock purchase recommendation on the television program wall treet week our finding of unusual trading volume also provides evidence consistent with the hypothesis that the motley fool buy announcements are closely followed and acted on by internet investors

mining fool s gold we discuss the popular motley fool s foolish four portfolio as a case study in data mining we document the performance of the foolish four portfolio and use it to illustrate the mistaken inferences that can plague any investment research project we describe the warning signs of data mining and discuss the antidotes to it out of sample tests and the adjustment of returns for risk transaction costs and taxes finally we document that the foolish four and dow 10 trading rules have become popular enough to influence selected stock prices at the turn of the year

promotion incentives in the public sector evidence from chinese schools abstract we provide evidence that promotion incentives influence the effort of public employees by studying china s system of promotions for teachers predictions from a tournament model of promotion are tested using retrospective panel data on primary and middle school teachers consistent with theory high wage increases for promotion are associated with better performance teachers increase effort in years leading up to promotion eligibility and they reduce effort if they are repeatedly passed over for promotion evaluation scores are positively associated with teacher time use and with student test scores diminishing concerns that evaluations are manipulated

optimal financial crises empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of sunspots panics occur when depositors perceive that the returns on bank assets are going to be unusually low we develop a simple model of this in this setting bank runs can be first best efficient they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios however if costly runs or markets for risky assets are introduced central bank intervention of the right kind can lead to a pareto improvement in welfare from the earliest times banks have been plagued by the problem of bank runs in which many or all of the bank s depositors attempt to withdraw their funds simultaneously because banks issue liquid liabilities in the form of deposit contracts but invest in illiquid assets in the form of loans they are vulnerable to runs that can lead to closure and liquidation a financial crisis or banking panic occurs when depositors at many or all of the banks in a region or a country attempt to withdraw their funds simultaneously prior to the twentieth century banking panics occurred frequently in europe and the united states panics were generally regarded as a bad thing and the development of central banks to eliminate panics and ensure financial stability has been an important feature of the history of financial systems it has been a long and involved process the first cerntral bank the bank of sweden was established more than 300 years ago the bank of england played an especially important role in the development of effective stabilization policies in the eighteenth and nineteenth centuries by the end of the nineteenth century banking panics had been eliminated in europe the last true panic in england was the overend gurney company crisis of 1866

sovereign debt repurchases no cure for overhang troubled debtor countries do not gain by repurchasing external bank debt at market discount even if a buyback would stimulate investment by relieving debt overhang the reason is that buybacks allow creditors to reap more than 100 percent of any efficiency gains that might result from increased investment we show that open market buybacks provide a benchmark for evaluating more complex negotiated buyback deals by comparing any given deal with a hypothetical market buyback of the same size one can derive upper and lower bounds on the gain to the country we apply our model to the 1990 mexican debt deal

imf conditionality as a screening device a theoretical model is developed in which adoption of an imf programme signals a country s productivity it is assumed that there are two types of country one with a high return on investment and the other with a low return the country s type is known only to itself in the presence of a debt overhang the high productivity country may choose not to undertake the investment despite it being socially efficient to do so in this case the creditor would like to offer the country some debt reduction but the low productivity type will also benefit from the debt reduction this problem can be avoided if the country has sufficient resources to engage in a debt buyback in order to gain the debt relief only the high productivity type would be prepared to sacrifice current resources for the debt reduction and thus a separation of the types is achieved this is similar to an argument found in acharya and diwan 1993 we argue however that it is unlikely that a heavily indebted country will have sufficient resources for a buyback if the country is credit constrained an alternative screening mechanism is to undertake an imf programme in return for debt reduction and possibly an imf loan this mechanism can be the equilibrium outcome even if the programme creates only disutility for the country s policy makers

are buybacks back menu driven debt reduction schemes with heterogeneous creditors abstract we analyze the mechanics of menu driven debt reduction deals similar to those recently initiated by debtor countries in which heterogeneous banks choose freely between selling or retaining their debt claims we show that menu deals can facilitate discrimination across heterogeneous banks because of imperfections in the secondary market for debt this implies that menu deals are likely to dominate market buybacks and pure concerted relending agreements particularly when banks differ widely in their valuation of claims on the debtor

concerted lending did large banks bear the burden a game theoretic model of lending with banks heterogeneous by size is introduced in which atomistic small banks free ride on the relending efforts of a large bank an empirically testable corollary conclusion suggests that news concerning the underlying economic condition of the debtor nation will have a greater impact on the large bank this empirical prediction is validated for the latin american crisis period using evidence from long term bond spread data poolings of cross sectional time series data reveal that the equity values of large banks are relatively more sensitive to adverse news concerning the quality of latin american loans copyright 1992 by ohio state university press

when will housing recover an interesting perspective on recent trends in the u s housing market is gained by noting how housing prices correspond to per capita income a traditional measure of affordability the ratio of housing prices to per capita income is high but close to historical norms in many regional markets however notable exceptions do exist in california housing prices recently reached levels relative to per capita income far above historical norms a significant pricing correction has begun in that market similarly housing prices are correcting sharply in arizona florida and nevada investors need to be mindful of the potential for housing market related losses and the potential for contagion among asset classes see comments and response on this article

the comparative advantage of public ownership evidence from u s electric utilities studies of the performance effects of public vs private ownership have found mixed evidence this paper draws on theory suggesting that public enterprise may have an advantage in producing goods and services whose quality attributes are difficult to specify a priori using a comprehensive data set of u s electric utilities to estimate cost functions we find that while privately owned systems achieve lower costs in generation public systems generally have an advantage in the end user oriented distribution function with its more non contractible quality attributes other evidence on quality differences by ownership type and by enterprise size supports this distinction jel classification l33 l94 l avantage comparatif de la propriete publique resultats pour la production d electricite auxetats unis les etudes de la performance des entreprises publiques et privees ont produit des resultats qui ne sont pas determinants ce memoire se fonde sur la theorie qui suggere que l entreprise publique peut avoir un avantage dans la production de biens et services dont la qualite est difficile a definir a priori a partir de donnees extensives sur les producteurs d electricite aux etats unis on definit des fonctions de couts il appert que quand ils sont entre des mains privees les systemes de production reussissent a obtenir des couts de generation plus bas d autre part les systemes publics ont un avantage pour ce qui est de la fonction de distribution orientee vers les besoins de l usager a cause des attributs de qualite plus difficiles a contractualiser d autres resultats quant aux differences de qualite par types de propriete et par tailles d entreprises viennent confirmer l importance de cette distinction

how much is a tulip worth the kind of passion to possess tulip bulbs that gripped holland some 350 years ago may be alive and well today among certain u s equity investors

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

non economic engagement and international exchange the case of environmental treaties we examine the role of non economic partnerships in promoting international economic exchange since far sighted countries are more willing to join costly international partnerships such as environmental treaties environmental engagement tends to encourage international lending countries with such non economic partnerships also find it easier to engage in economic exchanges since they face the possibility that debt default might also spill over to hinder their non economic relationships we present a theoretical model of these ideas and then verify their empirical importance using a bilateral cross section of data on international crossholdings of assets and environmental treaties our results support the notion that international environmental cooperation facilitates economic exchange

incentives wages and promotions theory and evidence i study an incentive problem that has been largely ignored in the agency literature incentives for repeated human capital investment the optimal contract is very simple but still provides rich implications for incentive and wage structures in large organizations the empirical evidence is presented using personnel records of health insurance claim processors in a large u s insurance company these processors are white collar nonmanagerial female service industry workers a rapidly growing but rarely studied labor group the empirical findings are consistent with the main features of the optimal contract

are bureaucrats paid like ceos performance compensation and turnover of top civil servants abstract recent research explores the effect of financial and career incentives on public sector hiring processes and subsequent performance the reverse relation between performance and bureaucrats compensation and turnover has received only limited attention due to the distinct features of public sector organizations bureaucrats are traditionally argued to require either permanent positions and fixed wages or low powered performance incentives this article studies how the performance of top civil servants in norwegian local governments affects their compensation and turnover we thereby build on a unique new dataset over the period 1991 2014 our results indicate that better performing top civil servants obtain a higher compensation and are less likely to be replaced nonetheless these incentives remain low powered in line with agency theory prescriptions

the dartboard column second hand information and price pressure this study analyzes the effect of second hand information on the behavior of security prices and volume using analysts recommendations published in the monthly dartboard column of the wall street journal for the two days following the publication of the recommendations average positive abnormal returns of 4 percent nearly twice the level of abnormal returns documented in previous research on analyst recommendations and average volume double normal volume levels on the two days following publication of the recommendations are documented the positive abnormal return on announcement is partially reversed within 25 trading days the authors conclude that the positive abnormal return on announcement of the recommendations is a result of naive buying pressure as well as the information content of the analysts recommendations

the internal economics of a university evidence from personnel data using a rich personnel data set of a large european university we find strong evidence for the existence of an internal labor market first there is a strong port of entry at the lowest academic rank and in fact even prior to entering professorship resulting in very long internal careers second wages do not follow external wage developments we subsequently consider various incentive theories regarding the dynamics of promotions as organized through annual tournaments as expected a rigid set of research and teaching criteria determine the speed of promotions at the same time administrative rigidities play an important role

heterogeneous creditors and the market value of bank ldc loan portfolios abstract a standard proposition used in many empirical studies is that the value of an ldc loan does not depend on the identity of the lender i test this proposition using bank securities prices and prices for ldc loans trading in the secondary market i find significant cross sectional differences in the sensitivity of bank stocks to changes in the price of ldc loans differences in sensitivity appear to be related to changes in bank exposure to ldcs i also find evidence consistent with the hypothesis that cds are implicitly insured

promotion signaling gender and turnover new theory and evidence we extend promotion signaling theory to incorporate gender and across firm mobility within and across job levels evidence from worker firm linked finnish panel data supports our theory for some groups controlling for worker performance inferred from performance related pay within firm promotion probabilities are increasing and wage increases from promotion are decreasing in educational attainment for some educational groups with results stronger for first than for subsequent promotions women have lower promotion probabilities than men and a greater sensitivity of promotion probability to educational attainment across firm promotions are rare but bring wage increases exceeding those for internal promotions and across firm lateral moves

strengthening state capabilities the role of financial incentives in the call to public service we study a recent recruitment drive for public sector positions in mexico different salaries were announced randomly across recruitment sites and job offers were subsequently randomized screening relied on exams designed to measure applicants intellectual ability personality and motivation this allows the first experimental estimates of i the role of financial incentives in attracting a larger and more qualified pool of applicants ii the elasticity of the labor supply facing the employer and iii the role of job attributes distance attractiveness of the municipal environment in helping fill vacancies as well as the role of wages in helping fill positions in less attractive municipalities a theoretical model guides each stage of the empirical inquiry we find that higher wages attract more able applicants as measured by their iq personality and proclivity towards public sector work i e we find no evidence of adverse selection effects on motivation higher wage offers also increased acceptance rates implying a labor supply elasticity of around 2 and some degree of monopsony power distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities

solvency runs sunspot runs and international bailouts abstract this paper introduces a model of intervention by an international financial institution ifi under asymmetric information the ifi is unable to distinguish between runs due to fundamentals and those which are the result of pure sunspots however it maximizes global welfare by offering a relending package consistent with generating a separating equilibrium where voluntary creditor participation implies that underlying fundamentals are good the need for direct ifi lending in the package is shown to depend on the commitment capacity of creditors this adverse selection problem provides an alternative rationale for bagehot s principle of last resort lending at high rates of interest to the moral hazard motivation commonly found in the literature

sovereign risk and secondary markets conventional wisdom says that in the absence of default penalties sovereign risk destroys all foreign asset trade we show that this conventional wisdom rests on one implicit assumption that assets cannot be retraded in secondary markets without this assumption foreign asset trade is possible even in the absence of default penalties this result suggests a broader perspective regarding the origins of sovereign risk and its remedies sovereign risk affects foreign asset trade only if default penalties are insufficient and secondary markets work imperfectly to reduce its effects one can either increase default penalties or improve the working of secondary markets jel f34 g12 g15

performance promotion and the peter principle this paper considers why organizations use promotions rather than just monetary bonuses to motivate employees even though this may conflict with efficient assignment of employees to jobs when performance is unverifiable use of promotion reduces the incentive for managers to be affected by influence activities that would blunt the effectiveness of monetary bonuses when employees are risk neutral use of promotion for incentives need not distort assignments when they are risk averse it may sufficient conditions for this are given the distortion may be either to promote more employees than is efficient the peter principle effect or fewer

an endogenous policy model of hierarchical government endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents each enjoying some degree of autonomy in this paper policies are the outcome of the choices made by two agents within a hierarchy a legislator decides on the budget to be successively spent by a bureaucrat both agents are lobbied by one or two interest groups the combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group s depends on the exchange between the same interest group s and the agent at the other tier our results concerning multi tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one tier lobbying in particular the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies moreover the legislator benefits from lobbying only when there is competition between interest groups at the upper tier it is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures like federations or firms

voluntary choices in concerted deals the menu approach to debt reduction in developing countries this article examines the mechanics and attributes of concerted debt reduction agreements that offer creditors a choice between exit and relending options the menu approach sets prices for different choices that implement a decentralized equilibrium when banks can commit to choose from the menu and are not allowed to free ride a menu can be designed that assures that the price paid for debt repurchased is equal to the marginal value of the debt claims this can be achieved by taxing the gains that accrue to nonexiters witb a request for new money the equilibrium amount of debt reduction rises when the new money request is increased the importance of banks heterogeneity for menus to dominate simple concerted buybacks and the case in which debt reduction can be financed by loans from international financial institutions are discussed

competitive markets without commitment in the presence of a time inconsistency problem with agency contracts we show that competitive markets can implement allocations that pareto dominate those achieved by a benevolent government and they induce more effort we analyze a model with moral hazard and a two sided lack of commitment after agents have chosen their work firms can modify contracts and agents can switch firms if the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals it is pareto superior to a government s allocation with a complete breakdown of incentives moreover competitive markets without commitment implement more effort in equilibrium under general conditions

stakeholder theory corporate governance and public management what can the history of state run enterprises teach us in the post enron era this paper raises a challenge for those who assume that corporate social responsibility and good corporate governance naturally go hand in hand the recent spate of corporate scandals in the united states and elsewhere has dramatized once again the severity of the agency problems that may arise between managers and shareholders these scandals remind us that even if we adopt an extremely narrow concept of managerial responsibility such that we recognize no social responsibility beyond the obligation to maximize shareholder value there may still be very serious difficulties associated with the effective institutionalization of this obligation it also suggests that if we broaden managerial responsibility in order to include extensive responsibilities to various other stakeholder groups we may seriously exacerbate these agency problems making it even more difficult to impose effective discipline upon managers hence our central question is a strong commitment to corporate social responsibility institutionally feasible in searching for an answer we revisit the history of public management and in particular the experience of social democratic governments during the 1960s and 1970s and their attempts to impose social responsibility upon the managers of nationalized industries the results of this inquiry are less than encouraging for proponents of corporate social responsibility in fact the history of public sector management presents a number of stark warnings which we would do well to heed if we wish to reconcile robust social responsibility with effective corporate governance

information sharing in common agency when is transparency good when should principals dealing with a common agent share their individual performance measures about the agent s unobservable effort for producing a public good in a model with two principals who offer linear incentive schemes we show that information sharing always increases total expected welfare if the principal who is less informed about the agent s effort also cares more about the agent s output if the less informed principal cares somewhat but not too much less than the other principal about the agent s output information sharing reduces total expected welfare in our model the efficient information regime emerges as an equilibrium outcome

the effect of mandatory retirement on earnings profiles in japan using data from the japanese basic survey on wage structure for 1981 and 1986 the authors estimate the effect of the age of mandatory retirement on the rate of growth of earnings with job tenure i

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective

retaining winners can policy boost high growth entrepreneurship abstract we analysed the growth impact delivered by a high growth entrepreneurship policy initiative over a six year period using an eight year panel that started two years before the initiative was launched and propensity score matching to control selection bias we found that the initiative had more than doubled the growth rates of treated firms the initiative had delivered a strong impact also on value for money basis in addition to producing the first robust evidence on the growth impact delivered by a high growth entrepreneurship initiative we contribute to public sponsorship theory with the notion of capacity boosting activities to complement previously discussed buffering and bridging activities

burden sharing in sovereign debt reduction abstract we examine a concerted debt reduction deal between a sovereign debtor a private creditor and an official creditor who insures the deposits of the commercial bank our results show that a weakening of the financial position of the commercial bank reduces the contribution of the commercial bank and increases that of the official creditor without affecting the net terms faced by the debtor this result is robust to changes in seniority moreover leaving both creditor values unchanged requires that commercial banks retire debt at unfairly high prices while official creditors make a net contribution