optimal contracting and the organization of knowledge we study contractual arrangements that support an efficient use of time in a knowledge intensive economy in which agents endogenously specialize in either production or consulting the resulting market for advice is plagued by informational problems since both the difficulty of the questions posed to consultants and the knowledge of those consultants are hard to assess we show that spot contracting is not efficient because lemons in this case self employed producers with intermediate knowledge cannot be appropriately excluded from the market however an ex ante firm like contractual arrangement uniquely delivers the first best this arrangement involves hierarchies in which consultants are full residual claimants of output and compensate producers via incentive contracts this simple characterization of the optimal ex ante arrangement suggests a rationale for the organization of firms and the structure of compensation in knowledge intensive sectors our findings correspond empirically to observed arrangements inside professional service firms and between venture capitalists and entrepreneurs

an empirical examination of quality certification in a lemons market i introduction researchers have long understood that a variety of mechanisms may be used to overcome problems of adverse selection stigler 1961 224 notes that s ome forms of economic organization may be explicable chiefly as devices for eliminating uncertainties in quality and akerlof 1970 cites independent groups such as the consumers union and united laboratories that test and certify the quality of goods there is however little empirical evidence that illustrates the effectiveness of such mechanisms in this article we examine the effect certification has on a market characterized by adverse selection using data from the market for young thoroughbreds we compare the performance of sales where auction houses provide certification services with sales where certification is absent the thoroughbred racehorse market consists of two distinct types of public auctions certified and noncertified sales in a certified sale auction houses physically inspect the horses nominated to their sales selling only the horses they conclude are from the upper end of the quality distribution in noncertified sales auction houses sell all horses nominated to a sale our empirical strategy is to perform tests that indicate whether adverse selection affects market outcomes in either certified or noncertified sales a finding that adverse selection is present in noncertified sales but absent in certified sales is consistent with the hypothesis that certification alleviates problems of adverse selection we adopt three approaches to test for the presence of adverse selection 1 the first approach is in the spirit of chiappori and salanie 2000 who examine the relationship between unobservable factors from participation and performance equations we model adverse selection as a case of sample selection bias and examine the correlation between errors in participation and price equations 2 to accomplish this we use a unique data set that allows us to estimate how breeder decisions to sell or retain horses affect market prices the data set consists of a 10 random sample of all thoroughbreds born in 1993 and includes both horses retained by their breeders who own a horse at the time of its birth and horses that breeders chose to sell our second test follows genesove 1993 and chezum and wimmer 1997 by examining the relationship between seller characteristics and price theoretically when observable seller characteristics are correlated with seller incentives to select goods adversely prices should reflect these differences chezum and wimmer observe that some breeders sell all of their horses whereas others retain a portion to race they find that market prices are inversely related to the extent of a breeder s involvement in racing concluding that adverse selection affects market outcomes we extend this work in two respects first we isolate the effect seller characteristics have on price through the decision to sell or retain a horse second we compare the effect seller characteristics have on observed prices in certified and noncertified sales our last test follows bond 1982 who attempts to identify adverse selection in the market for used trucks by comparing the repair records of trucks that were sold with the records of trucks retained by their original owners because the horses in our sample had not begun their racing careers at the time they were sold we use data on racetrack earnings as an ex post measure of quality and compare the quality of horses sold in noncertified sales with certified horses and horses retained by their breeders the results from each approach are consistent with certification alleviating problems of adverse selection we find that holding observable attributes constant horses that would receive unusually high market prices in noncertified sales are even more valuable in other options and are less likely to be sold in a noncertified sale

the market for lawyers and quality layers in legal services we study the functioning of the market for lawyers considering the strategic interaction among litigants lawyers and judges we investigate the value of legal representation and of systems of quality certification such as the queen s counsel system in our setting higher quality lawyers obtain better quality evidence and are better able to interpret it judges receive information from the lawyers and have reputational concerns we show that reputational concerns generate a decision bias in favor of certified lawyers and that this causes misallocation of lawyers at the market equilibrium as a result whereas a higher quality of lawyers increases welfare public information over quality may be welfare reducing

altruistic versus egoistic behavior in a public good game this paper analyzes an evolutionary version of the public good game in which boundedly rational agents can use imitation and best reply decision rules several possibilities for both decision rules to be present in the population are considered i show that altruistic behavior might survive if switching between the decision rules occurs less often than the probabilities of errors in choosing a strategy and if local neighborhoods are not too small or too large

matching problems with expertise in firms and markets when should expertise be shared in markets and when in firms knowledge exchanges in the market involve less information about the quality of the provider s expertise but facilitate good utilization of experts knowledge in a firm management holds soft information about individuals expertise and thus improves on the matching of experts to problems however the usage of experts is not smooth and thus firms experience over or underutilization of experts time thus the trade off between firms and markets is between utilization the market allows for better smoother utilization of knowledge than firms and the quality of matching between problems and problem solvers the market provides less information about experts quality

the impact of regulations on the supply and quality of care in child care markets we examine the impact of state child care regulations on the supply and quality of care in child care markets we exploit panel data on both individual establishments and local markets to control for state time and where possible establishment specific fixed effects to mitigate the potential bias due to policy endogeneity we find that the imposition of regulations reduces the number of center based child care establishments especially in lower income markets however such regulations increase the quality of services provided especially in higher income areas thus there are winners and losers from the regulation of child care services

analysis of global bifurcations in a market share attraction model in this paper we demonstrate how the global dynamics of an economic model can be analyzed in particular as an application we consider a market share attraction model widely used in the analysis of interbrand competition in marketing theory we analyze the local and global dynamic properties of the resulting two dimensional noninvertible dynamical system in discrete time the main result of this paper is given by the study of some global bifurcations that change the structure of the attractors and their basins these bifurcations are investigated by the use of critical curves a powerful tool for the analysis of the global properties of noninvertible two dimensional maps 2000 elsevier science b v all rights reserved jel classixcation e32 m30

complicated endogenous business cycles under gross substitutability abstract in this paper we investigate the global behaviour of the output equilibrium time paths in a two dimensional overlapping generations model with productive investment and capital accumulation where agents behave rationally and markets are competitive we show that equilibrium time paths can converge to complicated chaotic attractors as well as periodic attractors when the substitution effect dominates the income effect everywhere the occurrence of complicated equilibrium paths is guaranteed by homoclinic intersections of the stable and unstable manifolds of the autarkic steady state journal of economic literature classificiation number e32

warning labels as cheap talk why regulators ban drugs abstract one explanation for drug bans is that regulators know more than consumers about product quality but why not just communicate the information in their ban perhaps via a would have banned label because product labeling is cheap talk any small market failure tempts regulators to lie about quality inducing consumers who suspect such lies to not believe everything they are told in fact when regulators expect market failures to result in under consumption of a drug and so would not ban it for informed consumers regulators ex ante prefer to commit to not banning this drug for uninformed consumers

living in an imaginary world that looks real abstract in the paper we show using standard approaches general equilibrium modeling and the assumption of complete rationality that the macroeconomic environment is endogenous and is indeterminate specifically it is argued without resorting to sunspot type arguments that microeconomic fundamentals do not suffice to characterize the economy at the macro level in particular we show how perceptions of rational agents of the workings of the economy a shape the environment b affect the environment sufficiently to ensure that rational economic agents find the observed environment consistent with their beliefs even though it is not as a by product we illustrate that endogenous macro uncertainty can arise as an outcome if rational economic agents whose expectations are anchored on endogenous variables expect them to arise finally we show that systematic errors can persist indefinitely under rationality

incidence of strict quality standards protection of consumers or windfall for professionals abstractthis paper examines the effects of upgrading product quality standards on product and professional labor market equilibriums when both markets are regulated the japanese government revised the building standards act in june 2007 requiring a stricter review process for approving the plans of large scale buildings this regulatory change increased the wages of certified architects in tokyo by 30 percent but did not increase their total hours worked because of an inelastic labor supply the stricter quality standards created a quasi rent for certified architects and owners of condominiums at a cost to consumers evidence suggests that the new standards increased the transaction price of existing condominiums by 15 percent in the tokyo metropolitan area

quality reputation and the choice of organizational form this paper revisits the hypothesis that nonprofit organizations emerge in markets that are characterized by contractual incompleteness because they ensure consumers against opportunistic behavior we extend the glaeser and shleifer glaeser e shleifer a 2001 not for profit entrepreneurs journal of public economics 81 99 115 framework which studies an entrepreneur s optimal choice of organizational form and service quality when quality is non contractible into a repeated interaction setting the main result is that when reputations can be sustained then for profit status is the preferred organizational form and high quality services are ensured this finding suggests that existing explanations of nonprofit organizations that focus entirely on contractual imperfections in the producer consumer relationship may be inadequate

the new closed shop the economic and structural effects of occupational licensure during the past few decades licensure a state enforced mechanism for regulating occupational entry quickly became the most prevalent form of occupational closure broad consensus among researchers holds that licensure creates wage premiums by establishing economic monopolies this article demonstrates that contrary to established wisdom licensure does not limit competition nor does it increase wages results are based on a new occupational dataset covering 30 years that exploits interstate variability in licensure across the 300 census identified occupations i argue that licensure instead of increasing wages creates a set of institutional mechanisms that enhance entry into the occupation particularly for historically disadvantaged groups while simultaneously stagnating quality

heterogeneous beliefs and the non linear cobweb model abstract this paper generalizes the evolutionary cobweb model with heterogeneous beliefs of brock and hommes 1997 econometrica 65 1059 1095 to the case of non linear demand and supply agents choose between a simple freely available prediction strategy such as naive expectations and a sophisticated costly prediction strategy such as rational expectations and update their beliefs according to an evolutionary fitness measure such as past realized net profits it is shown that for generic non linear monotonic demand and supply curves the evolutionary dynamics exhibits rational routes to randomness that is bifurcation routes to strange attractors occur when the traders sensitivity to differences in evolutionary fitness increases

queues not just mediocrity inefficiency in decentralized markets with vertical differentiation abstract we analyze a dynamic decentralized market with endogenous entry where in each period the active sellers supply one unit of an indivisible service at varying degrees of quality the customers that have entered the market are randomly matched with the active sellers and prices are set by complete information pair wise bargaining in its unique steady state the market leads to an excess diversity of quality and customers may have to suffer costly delays notably efficiency is not regained as per period delay costs disappear we also show that setting minimal quality standards such as licensing rules by a professional college will improve welfare and even consumer surplus relative to the free market whenever the inefficiency is caused by a large enough excess supply

investment and screening under asymmetric endogenous information this article provides an analysis of screening contracts in a complete but imperfect information environment as opposed to the usual incomplete information bayesian environment an agent faces a hold up situation while making a cost reducing specific investment that is not observed by the principal to prevent the hold up the agent randomizes his investment strategy and the principal offers a screening contract the informational rents provided by the equilibrium contract finance the investment for a large class of cost functions the randomization is such that the marginal surplus follows a power distribution

experimentation imitation and stochastic stability abstract do boundedly rational agents repeatedly playing a symmetric game with a unique symmetric equilibrium learn over time to play it in this paper we model the dynamic interaction of two types of such agents experimenters and imitators whose behavior is characterized by simple rules of thumb we find that the stochastic process describing their play isstable in the large it converges globally and with probability one to a compact neighborhood of the equilibrium however its local behavior near the equilibrium depends in interesting ways on the details of the model journal of economic literatureclassification number d83

learning to play cournot duopoly strategies abstract the paper reports results from experiments designed to determine whether subjects can learn to play cournot duopoly strategies and whether their out of equilibrium play is consistent with the predictions of learning models the experiments include duopolies with constant and with decreasing marginal costs and with theoretically stable and unstable equilibria after a few periods subjects do play stable interior equilibria but they do not play stable boundary equilibria nor unstable interior equilibria subjects out of equilibrium play is inconsistent with the predictions of the learning models

investment moral hazard and occupational licensing i analyse occupational licensing as an input regulation that requires minimum levels of human capital investment by professionals by raising professionals training levels licensing helps alleviate moral hazard problems associated with the provision of high quality services i also consider certification whereby consumers are provided information about professionals training levels i show that licensing and certification tend to benefit consumers who value quality highly at the expense of those who do not licensing may raise total surplus if sellers investments are not observable but is pareto worsening if training levels are observable certification may however lead to excessive investment as a signalling device and thus be pareto inferior to either licensing or to a policy of laissez faire

occupational licensing of a credence good the regulation of midwifery 1 introduction occupational licensing is as old as trade estimates are that in the united states alone at least 800 occupations require some form of license to practice rottenberg 1980 p 2 midwifery is most certainly among the oldest occupations known to homo sapiens and unsurprisingly it has been the subject of licensing regulations over the 20th century there has been however a marked reemergence of the practice over the past 20 years in the united states after nearly being driven from existence by physicians in the early part of the 20th century the percentage of midwife attended births has risen from 0 9 of all births in 1975 to 5 95 of all births in 1995 this latter figure translates into 231 921 midwife attended births for the year 1995 of this figure cnms attended 94 3 or 218 613 births a number of factors account for this resurgence including women s expression of their right to choose birth practitioners and place of birth increased political expression of that right and the escalating costs of traditional childbirth services by obstetricians obs and hospitals butter and kay 1988 in contrast midwife attended births account for a full 75 of all births in europe with far lower infant and maternal mortality rates reported coburn 1997 midwives are classified into two basic categories in this country lay midwife and certified nurse midwife cnm lay midwives typically receive no formal educational training but are clinically trained through apprenticeships on the other hand a cnm is a registered nurse with advanced training in midwifery who possesses evidence of certification by the american college of nurse midwives acnm adams 1989 p 1038 the practice of nurse midwifery as defined by the acnm is the independent management of care of essentially normal newborns and women antepartally before birth intrapartally during birth postpartally after birth and or gynecologically within a health care system which provides for medical consultation collaborative management and referral safriet 1992 p 425 the causes and effects of state regulation that determines the extent of professional independence from physicians of advanced practice nurses apns has been analyzed by dueker et al 2000 for the same general period we employ advanced practice nursing however includes nurse practitioners clinical nurse specialists and nurse anesthetists as well as cnms dueker et al 2000 suggest that for this larger category of nurse specialists apn earnings are lower and physicians assistants earnings are higher in states where apns have attained higher levels of professional independence measured in part by prescriptive authority 1 midwifery has been included along with other heath care professions in interesting studies of the impact of the composition of public licensing boards on particular occupational requirements graddy and nichol 1989 graddy 1991 but to the best of our knowledge midwifery has not been isolated in any study of effects of regulation s 2 the purpose of this paper is thus to analyze empirically the economic impact of alternative forms of regulation within the state markets for midwife services certified nurse midwives are formally recognized by the american college of obstetricians and gynecologists acog and are now able to practice legally in all 50 states including the district of columbia but cnms practice under significant and significantly different regulations that limit their scope of practice and constrain their use by women devries 1985 within the 50 states there are suggestions in the literature that the severity of regulations at the state level a partial product of past pressure by the medical establishment obs in particular has had deleterious effects in the market for midwives services however there has been again to the best of our knowledge no empirical support for such propositions or an analysis of the particular impact of alternative regulations

wage effects of unionization and occupational licensing coverage in the united states recent estimates in standard models of wage determination for both unionization and occupational licensing have shown wage effects that are similar across the two institutions these cross sectional estimates use specialized data sets with small sample sizes for the period 2006 to 2008 the authors analysis examines the impact of unions and licensing coverage on wage determination using new data collected on licensing statutes that are then linked to longitudinal data from the national longitudinal survey of youth nlsy79 from 1979 to 2010 they develop several approaches using both cross sectional and longitudinal analyses to measure the impact of these two labor market institutions on wage determination the estimates of the economic returns to union coverage are greater than those for licensing statutes

endogenous fluctuations under evolutionary pressure in cournot competition abstract an evolutionary game theoretic model of cournot competition is investigated individuals choose from a finite set of different behavioral rules each rule specifies the quantity to be produced in the current period as a function of past quantities using more sophisticated rules may require extra information costs based upon realized payoffs the fractions of the population choosing a certain behavioral rule are updated according to the replicator equation with noise the long run behavior of the evolutionary system consisting of the population dynamics coupled with the quantity dynamics of the cournot game may be complicated and endogenous fluctuations may arise we consider a typical example where firms can choose between two rules the nash rule and the best reply rule we show that a homoclinic tangency between the stable and unstable manifold of the equilibrium occurs as evolutionary pressure increases implying bifurcation routes to complicated dynamics and strange attractors

professional versus consumer interests in regulation the case of the us child care industry professional licensure benefits producers by creating entry barriers into the profession but consumers might also gain if licensure induces producers to supply high levels of quality whether consumers or producers gain most form licensure can be determined by examining the effect of licensure requirements on aggregate consumption this paper uses a cross sectional model to estimate the relationship between variations in state licensure rules and consumption of child care services the results suggest that professional interests and not those of consumers are dominant in the setting of regulatory standards for the us child care industry

analyzing the extent and influence of occupational licensing on the labor market this study examines occupational licensing in the united states using a specially designed national labor force survey estimates from the survey indicated that 35 of employees were either licensed or certified by the government and that 29 were licensed another 3 stated that all who worked in their job would eventually be required to be certified or licensed bringing the total that are or eventually must be licensed or certified by government to 38 we find that licensing is associated with about 18 higher wages but that the effect of governmental certification on pay is much smaller

the self regulating profession slayton and treblicock 1978 the formal analysis of the economics of the self regulating profession has received little attention from theorists if a profession is self regulating in the sense that its current members being the sole suppliers of a certain type of service are free to determine in one way or another whether or not to admit a potential recruit then it might seem prima facie that such a profession could simply be regarded as a monopolistic seller of the service in question so that the effects of self regulation would appear to involve an unambiguous welfare loss the whole rationale for self regulation however rests on the notion that it provides a vehicle through which the quality of the service may be maintained in markets where the consumer cannot readily measure this quality himself it is the analysis of the interplay of these two elements the enhanced price of such services associated with the monopolistic power of the profession and the improved quality of the service which may accompany a reduction in supply which forms the focus of the present paper it is tempting to begin the analysis of such a profession by first positing some particular

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production