union effects on municipal employment and wages a longitudinal approach this article examines municipal union employment and wage effects in a sample of police fire sanitation streets and highways and finance and control departments from approximately 900 u s cities during 1977 80 cross section results for 1980 suggest positive union contract effects on fire fighter and sanitation employment and wages consistent with demand shifts due to union political influence in municipal bargaining i then model potential omitted variables as nonstationary fixed effects and apply longitudinal models to estimation of employment and wage changes between 1977 and 1980 the longitudinal results provide little support for the demand shift hypothesis

spatial price discrimination in agricultural product procurement markets a computational economics approach significant transport costs and spatially distributed supply and processing create oligopsony power in agricultural markets price discrimination expressed in the form of partial or complete absorption of freight charges by processors is often observed in these environments but we understand little about how these pricing decisions are made analytical approaches are often intractable as an alternative we propose a computational economics approach to analyze a general spatial competition model and study firms choices of spatial pricing policy instead of the commonly presumed free on board pricing we find that buyers choose price discrimination either through uniform delivered pricing or through partial freight absorption

the competitive implications of top of the market and related contract pricing clauses this article examines the competitive implications of contract pricing arrangements which link the contract price to the subsequent cash price we focus on so called top of the market pricing tomp in cattle procurement the tomp clause is shown to have anticompetitive consequences when the same buyers who purchase contract cattle with the tomp clause also compete to procure cattle in the subsequent spot market the tomp clause reduces packers incentives to compete aggressively in the spot market although tomp pricing is not in producers collective interest rational sellers may nonetheless sign these contracts with little or no financial inducement

fob or uniform delivered prices strategic choice and welfare effects in spatial markets firms typically use either fob mill or uniform delivered ud pricing what competitive factors motivate this choice and what are the welfare implications of the choice we study these questions in a duopsony market where farmers with unit elastic supply curves sell to processing firms in results that differ considerably from prior work we show that the equilibrium price policy depends upon the extent of competition in the market with fob pricing emerging under very competitive structures and ud pricing emerging under less competition mixed fob ud pricing may also emerge in equilibrium in most cases welfare is higher under ud than fob pricing

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

the effect of minimum salaries on employment of teachers a test of the monopsony model author affiliation william m boal college of business and public administration drake university des moines iowa 50311 usa e mail william boal drake edu acknowledgment this paper has benefited from helpful comments on earlier drafts by david harrington and ronald oaxaca by seminar participants at drake university and iowa state university and by anonymous referees 1 introductionthe market for schoolteachers has long been cited as an example of labor monopsony where employers that is school districts enjoy market power ehrenberg and smith 2000 hyclak johnes and thornton 2005 the reasons offered are plausible by definition school districts enjoy exclusive territories teachers have specialized training that might not be interesting to nearby nonschool employers many teachers are second earners in their families and might be unwilling to relocate in response to distant job offers there is some evidence that teachers have strong personal geographic preferences boyd et al 2005 it would appear that the set of potential employers available to a certified teacher is limited to the set of school districts within commuting distance of current residence for these reasons it is often argued that the greatest monopsony power is probably held by rural school districts because of their large geographic size an empirical literature dating back to landon and baird 1971 has tried to document monopsony in this market by regressing teacher salaries on measures of geographic concentration of school districts these studies often appear to find a negative effect of geographic concentration on teacher salaries see luizer and thornton 1986 for a survey a major difficulty with the salary concentration research strategy is that concentration is inversely related to urbanization because urban areas tend to have many school districts in close proximity and salaries for all workers tend to be higher in urban areas the apparent negative estimated effect of concentration may disappear when sufficient measures of urbanization are included ransom boal and beck 1998 moreover the urban rural difference in teacher salaries appears similar to the urban rural difference for other professionals hirsch and nottage 1998 1a second difficulty with the salary concentration research strategy is the increasing presence of teachers unions 2 a monopsonist faces or at least perceives an upward sloping supply of labor this upward slope raises marginal labor cost above the current wage causing the monopsonist to reduce employment equilibrium occurs on the labor supply curve but below the monopsonist s labor demand curve by contrast a union tries to raise the wage by moving the equilibrium above the supply curve estimates based on 1970s data show that unionized teachers enjoyed an average wage differential of roughly 10 3 in some cases a union might even move the equilibrium above the demand curve this is the prediction of the so called contract curve model for which eberts and stone 1984 1986 found some evidence among new york state school districts any test for monopsony ought to exclude unionized districts from the sample or control for unionism in some way this has not generally been done 4a recent seemingly unrelated literature has investigated the effects of legal minimum wages on employment in fast food restaurants katz and krueger 1992 card and krueger 1994 this literature has apparently documented slight increases in employment following increases in minimum wages the authors note that this result is incompatible with competitive labor markets and may be evidence for employer monopsony a modest increase in a minimum wage may increase employment in a monopsonized market because it flattens the employer s perceived labor supply curve and thereby lowers the employer s marginal labor cost curve

industrialization and consolidation in the u s food sector implications for competition and welfare good sources for information on recent developments in food market structure include barkema drabenstott and welch u s department of agriculture 1996b and rogers my objective is not to add to this literature but rather to consider what we have learned as a profession about the rapid consolidation in food processing and distribution what are its implications for market power economic efficiency and the distribution of economic welfare among producers consumers and marketers

valuing risky fixed rate debt an extension this paper develops a corporate bond valuation model that takes into account both early default and interest rate risk it corrects a defect of recent contributions where pricing equations do not assure that the payment to bondholders upon bankruptcy is no greater than firm value the bankruptcy triggering mechanism is directly related to the payoff received by bondholders when early bankruptcy is forced upon the firm more specifically the default barrier is defined simply as a fixed quantity discounted at the riskless rate up to the maturity date of the risky corporate bond as soon as this threshold is crossed bondholders receive an exogenously specified fraction ofthe remaining assets deviations from the absolute priority rule also are captured because it accounts for gaussian interest rate uncertainty default risk and deviations from the absolute priority rule this model is capable of producing quite diverse shapes for the term structure of yield spreads

wage and employment determination in a unionized industry the iwa and the british columbia wood products industry two non nested models of union wage and employment determination are estimated using data on the international woodworkers of america iwa and the british columbia wood products industry one model predicts wage and employment outcomes on the labordemand function while the other predicts efficient outcomes on the contract curve the models provide empirical estimates of the union s preferences the production technology and the comparative statics of the models an attempt is made to choose the true model for this industry unfortunately non nested hypothesis tests and other criteria for model discrimination cannot reject one model in favor of the other

a barrier option framework for corporate security valuation abstract this paper proposes a framework for corporate security valuation based on path dependent barrier option models instead of the commonly used path independent approach we argue that path dependency is an intrinsic and fundamental characteristic of corporate securities because equity can be knocked out whenever a legally binding barrier is breached a direct implication of this framework is that equity will be priced as a down and out call option we provide empirical validation of the barrier model by showing that implied barriers are statistically and economically significant for a large cross section of industrial firms additional robustness tests confirm that barriers remain significant over a wide range of input variable estimates and finally we apply the barrier option framework to bankruptcy prediction and find that implied failure probabilities dominate z scores in most cases

optimal investment in transportation infrastructure when middlemen have market power a developing country analysis transportation costs and buyer market power reduce prices and income received by farmers in developing countries transportation costs directly affect the marketing margin and also exacerbate market power by limiting farmers access to buyers this article develops a multistage spatial model to determine optimal investment in transportation improvements taking account of impacts on marketing costs and competition the beneficial impact of investments from farmers perspective is mainly through enhanced competition meaning significant under investment may occur if this effect is ignored however the optimal investment depends on the relative importance of transportation costs in some settings transportation improvements reduce farm prices because buyers rationally over compensate farmers for these costs

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

spatial pricing in the united states west germany and japan this paper investigates the spatial pricing policies of a sample of firms in the united states west germany and japan we begin in section i by providing general results for the three countries these suggest that f o b pricing is the exception rather than the rule furthermore there appear to be significant differences between the countries in the degree of spatial price discrimination the remainder of the paper examines whether the inter country differences in spatial discrimination can be explained by a theory of spatial pricing section ii uses the theory of spatial pricing proposed in greenhut and greenhut 1975 to derive an operational model in section iii the parameters of this model are estimated from the individual country data and the results are discussed section iv presents the conclusions the data used in this study were obtained from a survey of firms in the three countries in each country target regions were selected with a similar urban rural proportions as restricted by b existing acquaintanceships with professors in or near these urban rural centres survey constraint b was imposed after a mailed questionnaire pilot study in the united states had indicated a likely need for follow up mailings phone calls and even interviews before a sufficient number of responses from a particular place e g a particular state in the united states could be expected after selecting our comparable survey areas firms were picked at random from industrial lists of business establishments in each country and questionnaires were mailed to them the questionnaire is reproduced in the appendix the firms that returned questionnaires were compared to non responding firms no distinction in size of firm industry type or location was apparent for any country or sub region studied among the respondents we dropped from the sample all firms that were not subject to a significant freight cost defined to be a 5 per cent minimum freight cost to delivered cost ratio on sales to at least one distant market point our findings on pricing strategies are summarized in table 1 firms in the united states tend to price discriminatorily of 174 sampled firms less than one third priced non discriminatorily f o b the spokesmen for the remaining firms 67 per cent admitted that they did not add full freight cost to their mill price on all of their distant sales these firms therefore priced discriminatorily the tendency to price discriminatorily is even greater in west germany and japan with the percentage of discriminating firms approximately

market structure and the demand for unionized labor frequently the separate branches of economics grow up with far too little cross fertilization as a consequence research and results taken for granted in one field are all too frequently ignored in another such is the case with the three decades of work done on pricing behavior within a vertical stream of production the general conclusion of this work is that input monopolies will not alter their price in response to alterations in downstream market structure it is surprising that this work carried out in industrial organization has not received more attention from those studying union wage behavior this is especially so given that several of the more popular models of union behavior are similar to those we impute to the neoclassical monopoly the failure to draw on this work has resulted in several confusions in the contemporary study of unions this paper builds from the work on input pricing to demonstrate that in a very wide variety of cases the elasticity of derived demand for labor is completely invariant to product market structure in addition the specific conditions sufficient for this invariance to hold true are identified such a demonstration is important for discriminating between models of union behavior which assume bargaining along the labor demand curve and models which assume bargaining off the demand curve indeed the demonstration reveals the likely inadequacy of the labor demand curve model the logic for this conclusion is three tiered first demand curve models predict that wages will depend crucially on the elasticity of labor demand second measures of industrial concentration are usually significant in wage equations a result thought in harmony with the elasticity emphasis of demand curve models but third as will be shown market structure will typically not affect the labor demand elasticity this suggests that the conventional interpretation of the second point is wrong and casts doubt on the explanatory power of demand curve models in general while a variety of specific models of union behavior share the characteristic of bargaining along the demand curve these models are tied together by the assumption that unions choose the wage and firms respond with the employment level thus whether one assumes that unions maximize the wage bill collective rents or some explicit objective function of wage and employment

wage pressure bargaining and price cost margins in uk manufacturing to the extent that union employer bargaining is efficient price cost margins in oligopolistic industries are predicted to depend on wage rents and on the elasticity of substitution between wages and employment in union preferences unanticipated wage inflation will also affect margins cross section and time series analysis of price cost margins in u k manufacturing industries finds that margins tend to be eroded by the level of wage rents and are invariant to the rate of wage inflation copyright 1990 by blackwell publishing ltd

union effects on productivity evidence from western u s sawmills the authors conjecture that previous studies have tended to overestimate the productivity of union firms relative to nonunion firms due to inadequate controls for output quality and input usage important omissions if the higher cost of unionized labor leads to less labor intensive products and techniques to avoid those problems this study examines a fairly standardized commodity lumber and controls for detailed product attributes and inputs an analysis of data from a survey administered by the authors shows that unionized sawmills were between 12 and 21 less productive than nonunionized mills in fiscal year 1986 as predicted when product quality and raw material usage are not included in the analysis the estimate of union productivity is biased upward

how does equity capital cost affect bank performance during a financial crisis this article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager s performance reveals the like of higher equity return and the dislike of higher equity risk we derive two main results first an increase in the bank s equity capital cost from an increase of the interest rate of the federal funds results in a reduced loan risk taking at an increased optimal bank interest margin implying better bank performance second by ignoring the dislike we find that the better performance is reinforced during a financial crisis but is reduced during a normal time financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities

private equity and regulatory capital regulatory capital requirements for european banks have been put forward in the basel ii capital framework and subsequently in the capital requirements directive crd of the eu we provide a detailed discussion of the capital requirements for private equity investments under different approaches for the internal model approach we present a structural model that we calibrate to a proprietary dataset we modify the standard merton structural model to make it applicable in practice and to capture stylized facts of private equity investments we also implement the early default feature with a fast simulation algorithm our results support capital requirements lower than in basel ii but not as low as in crd thereby giving adverse incentives to banks for using advanced risk models a sensitivity analysis shows that this finding is robust to parameter uncertainty and stress scenarios

the linkage between life insurer spread behaviour and credit swap transaction policyholder protection analysis the paper develops a contingent claim model to evaluate the equity of a life insurer when the insurer could act as a protection buyer or a protection seller in a credit swap transaction market the

modeling government behavior in collective bargaining a test for self interested bureaucrats this paper tests for self interested behavior by local government bureaucrats engaged in collective bargaining with public employee unions a theoretical model is developed that shows the effect of niskanen style bureaucratic self interest in the two standard bargaining models the demand constrained model and the efficient bargain model these predictions are then tested using national cross section data on unionized police fire and sanitation workers

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

wages and employment in public sector unions i introduction standard economic theory states that a union which raises wages above the competitive level will reduce employment empirical evidence reviewed by lewis 1986 indeed shows that unions raise wages and that unionized establishments in the private sector show slower employment growth than comparable nonunionized establishments 1 studies in the public sector also find that unions raise wages see freeman 1986 and lewis 1988 for reviews but by less than in the private sector unionization in the public sector however often increases employment 2 in a study of 5 144 city and county governments zax 1989 finds that unionized departments increase employment by 3 1 over nonunionized departments we propose an explanation that exploits a key difference between public and private sector employers the quantity of public services provided is determined by a political process in which union members and their supporters have a voice this voice is important when shifts from a decisive voter with a lower income to one with a higher income increase the expressed demand for public services this increase implies the possibility that wages for public sector workers can increase when employment increases this possibility becomes more likely the greater is the difference in income between the previous and current decisive voter public sector workers would therefore use their electoral influence to ensure that the decisive voter is one with as high an income as possible in other words workers in the public sector gain leverage from the elasticity of demand for public sector services with respect to changes in income associated with changes of the identity of the decisive voter most importantly we show that higher employment may result even when union supporters are a small minority of the electorate though this political consideration has been suggested by others including freeman 1986 zax 1989 and zax and ichniowski 1988 it has not been explicitly modeled or explored the essential idea is expressed in the following newspaper story the port authority pat drivers union is working against county commission candidate dan fleck because he has urged pat to appeal a court ruling that ordered discontinuation of a monroeville minibus service run by a private company larry klos president of local 85 of the amalgamated transit union said yesterday we have 2 700 members and they all have relatives and friends we will target mr fleck meaning union members will vote against the thornburg republican pittsburgh post gazette 26 september 1991 p 5 not surprisingly mr fleck lost the election our analysis rests on an important debate begun by dunlop 1944 and ross 1948 concerning union objectives which asks whether unions maximize a well defined objective function such as the wage bill the union s objective has been modeled as reflecting the preferences of the median voter in the union 3 for example suppose workers care only about wages and their own employment that jobs are allocated to the most senior workers and that wage employment bargains must lie on the labor demand curve the union as farber 1986 shows would then set the wage so that the median worker is just retained such a wage policy however would make the union shrink over time researchers extended this median worker model to consider workers with foresight or uncertainty about labor demand and find that union employment shrinks less than suggested by static models or that it need not shrink at all 4 these models however cannot explain the empirical finding that public sector unionization is associated with increased employment an explanation for how unions raise both wages and employment is offered by the efficient bargains or contract curve model which supposes that unions care about both wages and employment and that unions bargain with management over both issues

public sector unions and municipal employment using 1980 data for a large sample of u s cities the author reexamines recent empirical findings of a positive association between public sector unionization and municipal employment several researchers have interpreted this correlation as evidence that public employee unions successfully exert political pressure to raise the demand for municipal services structural estimates of labor demand and the determinants of police and fire unionization reveal however that economies of scale in union formation are at least partly responsible for any positive association between public sector unionization and municipal employment the author concludes that previous studies overstate the amount of political clout wielded by municipal labor unions

estimation of correlations in portfolio credit risk models based on noisy security prices portfolio credit risk models are very often constructed with correlation matrices serving as proxies for interrelations in the creditworthiness of each company in addition to the size of the matrix estimation of correlation is also complicated by the fact that defaults are rare and credit sensitive securities such as stocks bonds and credit default swaps cds are noisy therefore we present in this paper an estimation approach based on credit sensitive instruments that accounts for noise and is highly parallelizable the latter being a very important feature for large portfolios in finance a simulation study shows that the method is reliable and has better statistical properties when benchmarked against other correlation estimators in an empirical study based on the cds premiums and stock prices of 225 firms listed on the cdx north american indices we analyze the correlations computed using numerous approaches overall we find that ignoring noise severely underestimates correlations whereas equity correlation is poorly related to the best correlation estimates inferred from the cds market

efficiency wages monopoly unions and efficient bargaining there are two leading models of wage determination for the unionised sector of the economy the first which is labelled the monopoly model mm by oswald i985 assumes that the union sets the wage and the employer chooses the profit maximising employment level the second which is labelled the efficient bargaining model ebm by oswald i985 notes that both sides can improve on the monopoly outcome by jointly bargaining over wages and employment a key strategy in empirically distinguishing between the two models has been to determine whether the employment wage pair appears to be off the firm s demand curve for labour 1 for example brown and ashenfelter i 986 use the significance of a measure of alternative wages in an employment regression as evidence for the ebm efficiency wages hypotheses in various forms have been used to explain why non union firms might find it profitable to offer wages above marketclearing levels 2 while paying high wages entails direct costs this practice may result in benefits such as high worker effort low turnover or a large supply of labour to the firm one motivation for this literature is to explain involuntary unemployment if the efficiency wage framework is valid then firms may not lower wages even in the face of excess supplies of labour stiglitz i987 an additional motivation of this literature appears to be the empirical observation that interfirm or inter industry wage differentials remain even after most possible economic determinants of these differentials have been controlled krueger and summers i988 further these differentials appear to lower quits and raise the length of queues of job seekers attempting to gain entry they suggest the existence of rents associated with efficiency wages katz and summers i 989 if any version of the efficiency wages story is correct then there are reasons for believing that workers alternative wages will affect employment in the unionised sector even in the absence of efficient bargaining intuition suggests that an identical regression to that proposed by brown and ashenfelter i986 would yield a significant alternative wage in the non union sector of the economy since the marginal revenue product of labour is affected by alternative wages

spatial price policies reconsidered the authors provide a comparison of three spatial price policies uniform pricing mill pricing and spatial price discrimination profits consumer surplus and social surplus are compared in a duopoly model until recently oligopoly analysis has been stalled because of nonexistence of equilibrium through the addition of product heterogeneity using a logit specification existence can be restored and price policies compared in contrast to monopoly analysis consumer surplus is highest under uniform pricing and lowest under mill pricing profit and social surplus follow the opposite ranking government regulation to encourage mill pricing may therefore benefit firms to the detriment of consumers copyright 1989 by blackwell publishing ltd

social surplus and profitability under different spatial pricing policies one of the most controversial parts of the u s antitrust laws is the robinson patman act posner has argued it should be discarded entirely 34 bork has called it the misshapen progeny of intolerable draughtsmanship coupled to wholly mistaken economic theory 10 382 the robinson patman act is an amendment passed in 1936 to section 2 of the clayton act in the words of its co sponsor its purpose was to prevent discrimination between competing customers of a seller so that any price differentials should be limited to the sound economic differences in costs 33 5 because of its concern with price discrimination it is the robinson patman act that is relevant to the spatial pricing policies of firms however the precise limitations the law imposes on spatial prices are not exactly well defined one point is relatively clear that no question of unlawful price discrimination would arise so long as the f o b price is 1 uniform and 2 available to all customers on a nondiscriminatory basis no legal requirement exists that the alternative f o b price be of any particular amount or computed in any particular way 85 f t c 1174 1176 1 49 while f o b mill pricing is legally unassailable the legal status of uniform delivered pricing where firms charge the same price at all points of sale is somewhat ambivalent see dunn 16 for a discussion what is certain is that firms charging neither mill nor uniform prices may be open to successful prosecution especially if they set price schedules which have bumpdip changes for example in the utah pie case see breit and elzinga 12 for more details firms were found guilty of price discrimination since their delivered prices were lower in the local utah market than at points closer to their plants

bank capital regulation in a barrier option framework abstract the barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank the regulator insurer of a bank owns a down and in call option on the bank assets which can be balanced against the expected coverage cost raising the regulatory barrier critical asset level triggering bank closure leads to a transfer of wealth from stockholders to the insurer and reduces stockholder incentives to increase asset risk empirical tests on a sample of 152 one bank holding companies show that regulatory barriers are priced in the stock market and are inversely related to tier 1 leverage ratios

probation length and teacher salaries does waiting pay off tenure policies for elementary and secondary school teachers is a controversial issue in many states but there is virtually no empirical evidence on how tenure affects teacher labor markets this paper begins to fill this research void by using cross state variation in tenure policies to identify the effects if any of the length of the probationary period on entry level teacher salaries using data from the schools and staffing survey the authors investigate whether districts in states with longer probationary periods offer higher wages to teachers as a way to compensate for the extended evaluative period results suggest that they do although effects are concentrated in districts that are most likely to be competing for teachers with districts in neighboring states with shorter probation periods the authors also find that the relationship between probation length and wages is stronger for experienced teachers and in districts that engage in collective bargaining

life insurer performance under the bailout of distressed asset purchases abstractthe paper develops a structure break contingent claim model to examine how government bailout affects a life insurer s performance policyholder protection and insurer survival the distre

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

f o b pricing versus uniform delivered pricing a welfare analysis in a stochastic environment abstract under imperfect information but otherwise competitive assumptions spatial market equilibria are examined for two pricing structures under f o b pricing buyers face a price that reflects exactly the transportation cost between sellers and themselves under uniform delivered pricing u d p the seller charges the same price to all buyers inclusive of delivery under both buyers know only of sellers from whom they received ads sent randomly by sellers it is found that u d p equilibria may exist when f o b equilibria do not but not conversely also f o b equilibria are not always welfare superior to u d p ones these equilibria are not robust a new firm often succeeds in penetrating a market using a different pricing structure

unionization and cost of production compensation productivity and factor use effects unionization affects cost of production through compensation premia technology shifts and deviations from the least cost combination of inputs the first two are familiar but the last is not this article distinguishes the three effects illustrates the factor use effect and suggests that it may resolve several apparent inconsistencies union induced cost effects appear larger than those implied by union compensation and productivity differentials union compensation and productivity differentials suggest a larger effect on labor intensity of output than is observed and employers complain that union work rules reduce productivity when there is little evidence that this is so

spatial competition uniform pricing and transportation efficiency in the california processing tomato industry this study examines the role of spatial pricing in the allocation of processing tomatoes from farms to the thirty two processing facilities located in northern and central california a simple theoretical model illustrates that the industry s uniform pricing policy encourages market overlap and excessive transportation costs relative to fob pricing a nonlinear mathematical programming model is developed to determine the optimal allocation of processing tomatoes this allocation is then compared to the estimated actual allocation the analysis reveals foregone profits of only 1 9 from inefficient product allocation simulation results reveal significant competition among processors despite their separation in many cases by long distances

fear of fire sales illiquidity seeking and credit freezes is there any need to clean up a banking system in the midst of a crisis for instance by closing some weak banks and forcing others to sell bad assets or can one wait till the crisis is over we argue that an overhang of impaired banks that may be forced to sell assets in the future can increase the private returns to holding illiquid assets sufficiently that weak banks have no interest in selling them anticipating a potential future fire sale cash rich buyers have high expected returns to holding cash which also reduces their incentive to lock up money in term loans the potential for a worse fire sale than necessary as well as the associated decline in credit origination could make the crisis worse which is one reason it may make sense to clean up the system even in the midst of the crisis we discuss alternative ways of cleaning up the system and the associated costs and benefits

the relative profitability of nash bargaining on the labour demand curve or the contract curve abstract given the nash bargaining solution with parametric bargaining strengths and threat points it is shown that profits are often higher if the bargaining agenda between a union and a single firm or two unions and cournot duopolists excludes employment

assessing bank equity risk under legacy loan program we study the effects of purchasing distressed loan on bank equity risk under the legacy loan program llp in which the government is in partnership with private investors the bank may refuse llp when its knock out value is too low when the bank decides to participate in the llp the participation of a private investor generates a decrease in bank interest margin and an increase in equity risk but the knock out value with the llp assistance generates an increase in bank interest margin and a decrease in equity risk our results suggest that the success of llp depends critically on the willingness of a weak bank to participate in it however the participation of a private investor in llp does not decrease the weak bank s equity risk but poses instability to the banking system

unionization incomplete contracting and capital investment this article examines empirically the hypothesis that incomplete contracts and resulting opportunistic behavior over the return to sunk assets reduces investment union firm contracts are incomplete because they 1 do not prevent all actions aimed at changing the existing contract 2 cover a relatively short time period and 3 do not extend to union members yet to be hired the primary response of firms is to reduce investment in specific durable assets and also to reduce employment growth and increase debt the authors find fairly strong evidence of these effects in a sample of large publicly traded firms using firm specific measures of unionization copyright 1993 by university of chicago press

on the contract curve a test of alternative models of collective bargaining the traditional model of collective bargaining confines unions to settlements constrained by the employer s labor demand curve but an alternative model places wage employment outcomes on a contract curve that extends beyond the labor demand curve this paper derives a multidimensional hedonic contract curve model in which employment security provisions are used to maintain efficient bargains outside the employer s demand curve and distinguishes empirically between the contract curve and demand constraint models using data for public school teachers in new york state estimates clearly support the contract curve model over the demand constraint model by linking the gap between compensation and the value of the marginal product to the strength of employment security provisions

teacher unions and the cost of public education do teacher unions affect the cost of public education based upon data from two national surveys and holding measures of educational output and other factors constant the authors of this paper find that teacher unions raise costs by 7 to 15 percent the estimated differential is not reduced by treating unionization as endogenous by distinguishing between large and small districts or by distinguishing between districts in large and small cities the union effect on cost works through teacher compensation production technology and factor use and is borne primarily by taxpayers with little or no effect on average student achievement

bargaining power and wage employment contracts in a unionized industry input and output data are used in conjunction with negotiated wages and employment to estimate a fully specified bargaining model between a labour union the international woodworkers of america and representatives from the british columbia wood products industry bargaining powers are modelled as functions of exogenous variables believed to have influenced the parties relative strike costs the estimated bargaining powers are plotted over time and compared to the proportion of rents captured by each party parameters of the union utility function and the firms technology are also estimated and hypothesis tests are conducted on various aspects of the model there are still relatively few studies in which fully specified models of bargaining between labour unions and firms are estimated this reflects both the extensive data requirements and the complexity of the models involved a fully specified model includes a representation of the firms objectives and technological constraints the union s goals and constraints and the bargaining structure furthermore even when micro data are available usually more than two parties are involved i e firms will negotiate with several unions and each union will have to deal separately with the many firms operating within the industry this complicates the modelling of the bargaining setting considerably in this study data on the wood products industry in british columbia canada are analyzed during the period under study 1963 1983 negotiations in this industry were highly centralized in fact the bargaining setting can be described as a bilateral monopoly between the international woodworkers of america iwa a powerful and stable union and the forest industrial relations an employer association representing firms in the industry this data set includes information on outputs and nonlabour inputs thus allowing the calculation of profits and the joint determination of output and other inputs along with employment and wages a structural model with four dependent variables wages employment output and a materials and supplies input is estimated firms are assumed to maximize profits and union objectives are modelled by a ces utility function with employment and the difference between union wages and alternative wages as arguments given a representation for the firms technology and the union preferences a

unionism in a competitive industry this article explores a model in which a union confronts many competitive workers firms and consumers under monopoly unionism union coverage may be incomplete then union wages and employment are insensitive to product demand variation under efficient unionism coverage can never be incomplete some union variables necessarily vary with product demand preliminary evidence on the demand independence under incomplete coverage hypothesis is presented also more structure is imposed and further hypotheses are derived and the manner in which the model can be enriched to allow for a variety of union related issues within a consistent framework is set out

employment determination in a unionized public sector labor market the case of ontario s school teachers a standard efficient contracts model of employment determination in a unionized labor market is contrasted with a naive model of labor supply and demand that allows for the possibility of monopsony in the market for public school teachers the standard model is consistent with the data and suggests that employment contracts are strongly efficient but a more surprising result is that the simple supply demand model is not rejected by the data either estimates of the latter suggest that the demand for teachers is inelastic and that the supply curve is slightly upward sloping rather than perfectly elastic at the union wage

union effects on productivity profits and growth has the long run arrived this article interprets literature examining union effects on economic performance production function studies indicate small overall union impacts on productivity positive effects where they exist appear to result from management response to decreased profit expectations and from a natural selection process lower profitability among unionized firms is well established more interesting is the possibility that unions appropriate quasi rents deriving from long lived tangible and intangible capital the connection between unions investment behavior and productivity growth emerges as a particularly fruitful line of empirical inquiry although it does not encourage a sanguine view of unionism s long run impact

the effect of wage bargains on the stock market value of the firm the author estimates the change in the value of common stock resulting from an unexpected change in collectively bargained labor costs using bargaining unit wage data and nyse stock returns he estimates a dollar for dollar trade off between these variables this result is consistent with stock valuations based on present value maximizing managerial decisions that is the results are consistent with hotelling s lemma the author also finds support for the hypothesis that collective bargains maximize the sum of shareholder and union member wealth that is the results are consistent with strong efficiency in the contracting environment copyright 1989 by american economic association

optimal bank interest margin under capital regulation and deposit insurance this paper examines the relationships among capital regulation deposit insurance and the optimal bank interest margin in a model where loan losses are the source of uncertainty changes in capital regulation or deposit insurance premiums have direct effects on the bank s interest margin an increase in bank capital requirement or in deposit insurance premiums results in a reduced interest margin under nonincreasing risk aversion comparative static analysis also explores the relation between asset quality and interest margin it is shown that a mean preserving spread of the distribution of loan losses results in a reduced margin

the maturity structure of corporate debt we provide an empirical examination of the determinants of corporate debt maturity our evidence offers strong support for the contracting cost hypothesis firms that have few growth options are large or are regulated have more long term debt in their capital structure we find little evidence that firms use the maturity structure of their debt to signal information to the market the evidence is consistent however with the hypothesis that firms with larger information asymmetries issue more short term debt we find no evidence that taxes affect debt maturity

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

delivered pricing fob pricing and collusion in spatial markets in this situation the choice variable for the firm is a price system that specifies a price per unit of product at each location each firm must choose a function p x where x is the distance between the location of the consumer and the location of the firm in practice different industries use different types of pricing systems p x and this suggests that the prevailing pricing system depends on the structural elements of the market when the pricing policy is fob consumers can pick up the product at the mill paying the mill price p and incurring the transportation cost from the producer s to the consumer s location i e p x p t x or the seller may deliver the good to the buyer s location as long as it charges mill price plus transportation costs delivered pricing policies are pricing rules p x that are not based on consumers picking up the product at the mill the firm delivers the product at the consumer s location in a perfectly competitive world with a continuum of firms an fob pricing system would be expected p x c t x where c is the marginal cost of production in the case of a market with two firms located at the

the priority structure of corporate liabilities most discussions of corporate capital structure effectively assume that all debt is the same yet debt differs by maturity covenant restrictions conversion rights call provisions and priority here we examine priority structure across a sample of 4995 compustat industrial firms from 1981 to 1991 we analyze the variation in the use of capital leases secured debt ordinary debt subordinated debt and preferred stock both as a fraction of the firm s market value and as a fraction of total fixed claims our evidence provides consistent support for contracting cost hypotheses mixed support for tax hypotheses and little support for the signaling hypothesis

do unions contract for added employment the efficient contract model predicts unions will contract for added employment that is a level of employment higher than would be predicted by the demand curve for labor using three data sets on canadian industries in 1971 81 u s industries in 1972 and u s construction projects in 1973 74 and several estimation techniques the author estimates and compares labor demand equations for both union and nonunion firms some regressions that control for few variables support the added employment hypothesis but those with more complete specifications reject it