discounting and underpricing in seasoned equity offers abstract expected discounting in seasoned equity offers is a cost of uncertainty about firm value marketing new shares and acquiring information that raises the offer price stockholders incorporate predictable discounting in stock prices when equity offers are first announced the surprise component of discounting reflecting the lead bank s final adjustment to the offer price releases information that often causes economically large price swings on the offer day disparities between the issuer s closing price and the price suggested in the lead bank s final order book are a primary source of information the discount surprise appears to be used by lead banks to update capital suppliers with that eleventh hour information before they commit their funds

output prices and the velocity of money in search equilibrium a monetary search model with match specific preferences and traded quantities is analyzed to assess how aggregate output the price level and the velocity of money are affected by various forms of technological change changes in the productive technology lead to output and prices moving in opposite directions but provide no prediction for monetary velocity the matching technology directly affects monetary velocity and output but has little impact on prices transactions technologies which affect the fixed cost of trading are ambiguous with respect to comovements of output and prices but systematically impact velocity

a theory of voting equilibria a voting equilibrium arises when the voters in an electorate acting in accordance with both their preferences for the candidates and their perceptions of the relative chances of various pairs of candidates being in contention for victory generate an election result that justifies their perceptions voting equilibria always exist and the set of equilibria can vary substantially with the choice of voting system we compare equilibria under the plurality rule approval voting and the borda system we consider a candidate positioning game and find that the plurality rule imposes little restriction on the position of the winning candidate in three candidate races while approval voting leads to a winner positioned at the median of the voter distribution we contrast campaign activities intended to influence voter preferences with activities meant to influence only perceptions of candidate viability

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

non existence of single wage equilibria in search models with adverse selection in this paper we explore an interesting feature of a class of equilibrium search models with asymmetric information namely pure strategy symmetric nash equilibria i e single wage equilibria fail to exist non existence is due to non concavity of firms payoff functions which in turn is caused by adverse selection this link between adverse selection and non existence has not been discussed previously in the equilibrium search literature we present a simple equilibrium search model that illustrates the non existence of a single wage equilibrium non existence arises because of an informational asymmetry workers differ according to the disutility of effort and these disutilities which are continuously distributed are workers private information if all firms offer a common wage adverse selection occurs a disproportionate fraction of the unemployed consists of workers with high effort disutilities who would be unwilling to work at the going wage workers with lower effort disutilities are more likely to have accepted job offers and exited the pool of unemployed as a result a wage increase and a wage decrease of equal magnitude have asymmetric effects on the probability that the job will be filled this creates a non concavity in each firm s payoff function at any common wage and implies that a firm can profit by deviating from the common wage when the common wage is low the firm will find it profitable to pay a higher wage the opposite is true when the common wage is high indeed for a common wage that is neither unambiguously too low nor too high positive and negative deviations will both be profitable since it will never be in the firm s interest to offer the common wage a pure strategy symmetric nash equilibrium is precluded the next section presents the search model and the non existence result we then interpret our result link it to the equilibrium search literature and consider its generality concluding remarks are given in the final section

screening market signalling and capital structure theory this paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches the model is developed in the context of a capital market setting in which bondholders produce costly information about a firm s a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm given this schedule the firm s optimal choices of debt equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm s earnings distribution our objectives in this paper are threefold first we discuss an alternative equilibrium mechanism for resolving the informational asymmetry problem in a lemons type market in which some agents are a priori better informed than others this mechanism recently proposed by thakor 19 is distinct from and yet integrates the salient features of the screening see stiglitz 17 and viscusi 21 and signalling bhattacharya 41 paradigms second we demonstrate that the equilibrium notion developed is relevant to the determination of an interior optimal capital structure for a firm in a world of imperfect information this application of our model involves firms with intertemporally distributed cashflows which vary cross sectionally and are not necessarily independent and identically distributed i i d through time we use this multiperiod setting to address our third objective which is to explain a firm s debt maturity decision essentially our argument is that when both the size and timing of a firm s future earnings are indistinguishable ex ante from other firms in the economy the firm s capital structure and debt maturity choices could simultaneously function as signals of these a priori unknown parameters of its earnings the market structure we consider is similar to that in thakor 19 there are sellers each of whom offers a variety of products with qualities dependent upon a common set of exogenous attributes unique to the seller and buyers who are unaware of these attributes buyers interested in one of the products offered

an on the job search model of crime inequality and unemployment we extend simple search models of crime unemployment and inequality to incorporate on the job search this is valuable because although simple models are useful on the job search models are more interesting theoretically and more relevant empirically we characterize the wage distribution unemployment rate and crime rate theoretically and use quantitative methods to illustrate key results for example we find that increasing the unemployment insurance replacement rate from 53 to 65 percent increases unemployment and crime rates from 10 and 2 7 percent to 14 and 5 2 percent we show multiple equilibria arise for some fairly reasonable parameters in one case unemployment can be 6 or 23 percent and crime 0 or 10 percent depending on the equilibrium

nash equilibrium efficiency wage distributions this paper extends the shirking model of efficiency wages by introducing worker heterogeneity with respect to the disutility of effort heterogeneity leads to a problem of adverse selection in addition to the moral hazard problem that is present in the original model as a result of adverse selection an equilibrium in which all firms offer the same efficiency wage cannot exist rather a continuously differentiable distribution of wages will be offered in equilibrium we demonstrate this equilibrium by construction and derive it explicitly in the case of a uniform distribution of the effort aversion parameter

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

job search with bidder memories this paper revisits the no recall assumption in job search models with take it or leave it offers workers who can recall previously encountered potential employers in order to engage them in bertrand bidding have a distinct advantage over workers without such attachments firms account for this difference when hiring a worker when a worker first meets a firm the firm offers the worker a sufficient share of the match rents to avoid a bidding war in the future the pair share the gains to trade in this case the diamond paradox no longer holds

estimating a market equilibrium search model from panel data on individuals from albrecht and axell 1984 and is based on workers who are homogeneous in terms of market productivity and heterogeneous in terms of nonmarket productivity and on firms which are heterogeneous in terms of productive efficiency the equilibrium model is contrasted in terms of its fit to the data with an unrestricted version of the model which is based on a mixture of negative binomial distributions the equilibrium model fails to conform to the data in exactly the dimension of its major focus namely it implies that measurement error accounts for almost all of the dispersion in observed wages the equilibrium model also does not do well in fitting the unemployment duration distribution compared to the unrestricted model the problem is that the duration distribution itself does not support the existence of significant heterogeneity as evidenced by the estimates of the unrestricted model the paper also illustrates the use of such models for policy analysis by simulating the welfare effects of a minimum wage

spatial equilibrium with entry this paper examines spatial equilibrium in political competition when established parties choose their platforms competitively while rationally anticipating entry of a vote maximizing third party the resulting equilibrium is substantially different from the hotelling median equilibrium established parties are spatially separated and third parties will generally lose the election this provides one theoretical explanation for the stability of two party systems namely that non cooperative behavior between established parties can effectively prevent third parties from winning

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

oligopsony and the distribution of wages we propose a simple model of wage dispersion arising from oligopsonistic competition in the labor market our model has workers who are equally able but who have heterogeneous preferences for non wage characteristics while employers have heterogeneous productivity characteristics we completely and explicitly solve for the equilibrium wage distribution and show that inside and outside forces interact in wage determination this interaction generates spillover effects of minimum wages in a manner which is consistent with the empirical evidence

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

worker mobility in a search model with adverse selection we analyze the effects of adverse selection on worker turnover and wage dynamics in a frictional labor market we consider a model of on the job search where firms offer promotion wage contracts to workers of different abilities which is unknown to firms at the hiring stage with sufficiently strong information frictions low wage firms offer separating contracts and hire all types of workers in equilibrium whereas high wage firms offer pooling contracts promoting high ability workers only low ability workers have higher turnover rates and are more often employed in low wage firms the model replicates the negative relationship between job to job transitions and wages observed in the u s labor market

wage posting in two sided search and the minimum wage this article focuses on wage formation in an equilibrium two sided model of search with match specific heterogeneity despite a large number a continuum of employers search provides sufficient isolation to generate market power by posting wages employers without collusion capture most of the surplus that accrues to any match the equilibrium wage is below that which maximizes employment an example using calibrated parameter values is used to reconcile some recent otherwise contradictory empirical results on the employment effects of minimum wage adjustments

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

cross sectional efficiency and labour hoarding in a matching model of unemployment we study positive and normative aspects of steady state equilibrium in a market where firms of endogenous size experience idiosyncratic shocks and undergo a costly search process to hire their workers the stylized model we propose highlights interactions between job security provisions and sectoral shocks in determining the natural rate of unemployment the allocation of labour and the extent of labour hoarding and rationalizes cross sectional asymmetries of gross employment flows at the firm level in our model where productivity and search costs are dynamically heterogeneous across firms decentralized wage bargains imply important cross sectional inefficiencies which overshadow the static search inefficiencies on which simpler models focus

asymmetric information and search frictions a neutrality result this paper integrates asymmetric information between firms into a canonical model of on the job search workers are heterogeneous in ability but not all employers observe a worker s type wage dispersion caused by search frictions makes the equilibrium wage distribution insensitive to informational asymmetries hence the equilibrium outcome may be the same as when a worker s ability is known to every firm the supportability of the full information outcome depends on market parameters related to productivity knowledge and search the theoretical results elucidate an empirical puzzle about demographic differences in asymmetric information between employers

plurality and runoff systems and numbers of candidates although political scientists have in the last few decades learned much about the abstract properties of multicandidate electoral systems we have accumulated little theoretical knowledge on the ways in which strategic behavior of voters and candidates changes when we move from one voting system to another this essay has illustrated how the relative desirability of voting systems can change when the number of candidates usually considered fixed in such comparisons is taken as endogenous to the voting system in force at the time our main conclusion is therefore that the method of voting must be understood in relation to the total electoral system it is not enough to analyze properties of voting systems in the abstract but also in terms of the interactions that voting systems have with political groups and the constitutional setting

timing of investment and financing decisions in imperfectly competitive financial markets the authors present a model in which firms can time their projects they show that financing and investment decisions are interrelated if financial markets are not perfectly competitive resulting in apparent timing of financing decisions the authors obtain the result that the proportion of equity financing relative to debt is higher when economic conditions are improving they also show that the type of financing depends both on current and past economic conditions finally the authors show that there will be relatively more equity financing in industries in which obsolescence is more likely copyright 1993 by university of chicago press

choosing a runoff election threshold this paper investigates when a runoff election is desirable and when a plurality result is good enough a runoff election increases the likelihood that the condorcet winner will be elected but also entails additional costs the metric for determining whether a runoff election is desirable will be the probability that the winner of the plurality election would win an ensuing runoff statistical models of voter behavior are developed that estimate this probability which are verified with runoff election data from united states elections the models allow governments to make more informed choices in creating rules to decide when to hold runoff elections

expectations and preferences in british general elections t a te address two questions how do people form their expectations about the likely winner of the next general election and what are the links between expectations and votes using v v data collected by the gallup organization in great britain we find that the expectations formation process 1 has a significant inertia component but also a rapid adjustment to current information 2 reflects voters ability to translate economic expectations into political forecasts and 3 is time bounded possessing special characteristics immediately before and after a general election the analysis also confirms the existence of a small bandwagon effect whereby expectations that one party will win inflate that party s vote the ability of voters to make reasonable forecasts without being unduly influenced by their own preferences suggests that under normal circumstances voters are expressing real preferences and not simply following the crowd

determinants of target capital structure the case of dual debt and equity issues abstract we examine whether market and operating performance affect corporate financing behavior because they are related to target leverage our focus on firms that issue both debt and equity enhances our ability to draw inferences consistent with dynamic trade off theories dual issuers offset the deviation from the target resulting from accumulation of earnings and losses our results also imply that high market to book firms have low target debt ratios on the other hand consistent with market timing high stock returns increase the probability of equity issuance but have no effect on target leverage

debt versus equity under asymmetric information in a world of asymmetric information in which only the insiders know the quality of the firm it is claimed that debt even if it is risky is more advantageous than outside equity because issuance of debt is less attractive to inferior firms the advantage to debt arises from the fact that it can keep unprofitable firms out of the market thus improving the average quality of firms in the market this advantage exists even if the firms cannot be perfectly sorted in the signaling equilibrium

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

an econometric analysis of reservation wages this paper describes an analysis of survey data on unemployed people who reported their asking wage and the wage they expected to earn we show that if agents behavior is described by the standard optimal job search model one can use these data to deduce structural parameters rather than estimate them and we report our deductions from two surveys 1 of british unemployed people

an empirical equilibrium job search model with continuously distributed heterogeneity of workers opportunity costs of employment and firms productivities and search on the job in this paper we present and estimate a synthesis of previous equilibrium search models allowing for continuous distributions of workers opportunity costs of employment as wellas firms productivities the model allows for on the job search and we assume that job offer arrival rates for workers are independent of their labormarket state we derive the theoretical implications of these assumptions we provide simulations and we develop a semi parametric estimation procedure that we apply to a dataset ofindividual labor market histories

frictional wage dispersion in search models a quantitative assessment we propose a new measure of frictional wage dispersion the mean min wage ratio for a large class of search models we show that this measure is independent of the wage offer distribution but depends on statistics of labor market turnover and on preferences under plausible preference parameterizations observed magnitudes for worker flows imply that in the basic search model and in most of its extensions frictional wage dispersion is very small notable exceptions are some of the most recent models of on the job search our new measure allows us to rationalize the diverse empirical findings in the large literature estimating structural search models

endogenous entry to security bid auctions we endogenize entry to a security bid auction where participation is costly and bidders must decide given their private valuations whether to participate we first consider any minimum reserve security bid of a fixed expected value that weakly exceeds the asset s value when retained by the seller demarzo kremer and skrzypacz 2005 establish that with a fixed number of bidders auctions with steeper securities yield the seller more revenues counterintuitively we find that auctions with steeper securities also attract more entry further enhancing the revenues from such auctions we then establish that with optimal reserve securities auctions with steeper securities always yield higher expected revenues

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

the efficiency of search under competition and monopsony this paper compares monopsonistic and competitive search equilibria while the competitive equilibrium is efficient the monopsonistic equilibrium is not there is too much search and the employment rate is too low

capital structure and signaling game equilibria in this article we model the financing decisions of a firm as a sequential signaling game we prove that when insiders have perfect information regarding the firm s future case flows the application of refinements to the set of admissible equilibria leads to the dominance of debt over equity financing however we show that when insiders observe the firm s cash flows imperfectly there may exist sequential equilibria in which this pecking order breaks down and some firms strictly prefer equity to debt financing we also prove that despite the breakdown of the pecking order the announcement effect of equity financing will be negative relative to debt financing

estimating a structural search model the transition from school to work this paper presents a finite horizon search model that is econometrically implemented using all of the restrictions impli ed by the theory following a sample of male high school graduates fr om the youth cohort of the national longitudinal surveys from graduat ion to employment search parameters are estimated reservation wages and offer probabilities are estimated to be quite low simulations a re performed of the impact of changing the parameters on the expected duration of unemployment copyright 1987 by the econometric society

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

is the market surprised by poor earnings realizations following seasoned equity offerings we examine the stock price reaction to earnings announcements in the five years following seasoned equity offerings seos on average post seo earnings announcements are met with a significantly negative abnormal stock price reaction although this negative reaction accounts for a disproportionately large portion of long run post seo abnormal stock returns on average abnormal stock price reactions to post seo earnings announcements are reliably negative only within the smallest quartile of equity issuers for small firms therefore these findings are broadly consistent with the hypothesis that firms issue equity when the market overestimates the firm s future earnings perfomance

wage premiums and profit maximization in efficiency wage models abstract the standard shirking model of efficiency wages is essentially a continuous time repeated prisoners dilemma game thus to sustain an equilibrium with employment requires sufficient gains from future co operation each division of these gains corresponds to some equilibrium efficiency wages correspond to employees receiving the gains bonds allow firms to receive them in markets well informed about agents pasts employment is independent of the distribution of gains but in anonymous markets with more workers than jobs employment is highest in efficiency wage equilibria efficiency wages thus arise naturally as the unique efficient equilibrium without recourse to assumptions that limit bonding

equilibrium search with time varying unemployment benefits we show how time varying unemployment benefits can generate equilibrium wage dispersion when identical firms post wages and homogeneous risk averse workers search for jobs we model a two tier system similar to real world ui programmes the unemployed initially receive benefit b eventually if a worker does not find a job the benefit falls to s the duration of high benefits is treated as an exponential random variable so the model is stationary we characterise the equilibrium and derive the comparative statics effects of changes in the two benefit levels and the expected duration of the high benefit state on equilibrium wages and unemployment in this article we analyse the implications of time varying unemployment insurance in an equilibrium search model we consider a two tier system i e a system with a high and a low benefit level this is the form taken by most real world ui programmes unemployed workers initially receive unemployment compensation but eventually if a worker does not find a job in the meantime this benefit is terminated the worker then has access only to lower social assistance benefits or in some countries to no benefits at all specifically we consider an economy in which newly unemployed workers initially receive unemployment benefits at rate b eventually if a worker does not find and accept a job in the meantime the unemployment benefit falls to a lower level s we assume the event that triggers the fall from b to s occurs at poisson rate k 1 this allows us to do our equilibrium analysis in a stationary framework while focusing on the most important aspect of time varying unemployment compensation namely that after some point the benefit falls this representation of time varying unemployment compensation enables us to derive a two point equilibrium wage distribution in a simple stationary setting we derive this equilibrium distribution using a wage posting model of sequential search we allow for free entry and exit of jobs and for matching frictions in the sense that the rate at which unemployed workers and vacant jobs contact one another depends on overall labour market tightness the use of a matching function to determine the job contact rate for workers and the worker contact rate for jobs is relatively unusual in wage posting models which typically assume a fixed contact rate our model can thus be viewed we thank participants at the tinbergen institute s conference on search and assignment for useful comments in particular we thank gerard van den berg who shared notes with us on an alternative approach to the topic of this paper we also thank lucas navarro for valuable research assistance 1 our model can be interpreted as one in which the search activity of unemployed workers is imperfectly monitored by a government agency suppose unemployed workers are punished by a reduction in their benefits from b to s when found to be putting forth less search effort than required and that detection of insufficient search effort occurs at poisson rate k if all workers choose to put forth less than the required effort and this is a plausible assumption given that workers are homogeneous then this sanctions model is equivalent to our model with time varying benefits that is our model can

raiding opportunities and unemployment this article studies the impact of raiding opportunities in a labor market in which worker abilities differ recruiting firms can either raid an elsewhere employed worker of known ability by bidding up his wage or go through costly search to find a good worker among the unemployed in equilibrium all types of workers experience unemployment high ability workers involuntarily the raiding opportunities give rise to involuntary unemployment without changing the basic properties of the competitive model and thus suggest new implications of various institutional parameters on unemployment in particular unemployment compensation minimum wages wage taxation and search requirements

an estimable dynamic stochastic model of fertility and child mortality this paper develops a finite horizon dynamic stochastic model of discrete choice with respect to life cycle fertility within an environment where infant survival is uncertain the model yields implications for the number timing and spacing of children a tractable estimation method is developed for the linear constraint quadratic utility case that is intimately tied to the dynamic optimization problem and the method is applied to malaysian household data estimation is based on integrating the numerical solution of the dynamic programming model of behavior with a maximum likelihood procedure

multiple equilibria and minimum wages in labor markets with informational frictions and heterogeneous production technologies it is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it in this article we analyze a model with search frictions and heterogeneous production technologies in which imposition of a minimum wage affects wages even though after imposition the lowest wage in the market exceeds the minimum wage the model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other imposition of a minimum wage may improve social welfare

did henry ford pay efficiency wages we examine henry ford s introduction of the five dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination we conclude that the ford experience strongly supports the relevance of these theories ford s decision to increase wages dramatically is most plausibly the consequence of labor problems of the kind efficiency wage theorists stress the structure of the five dollar day program is consistent with the predictions of efficiency wage theories there is vivid evidence that the introduction of the five dollar day resulted in substantial queues for ford jobs significant increases in ford productivity and profits accompanied the new regime

positive information from equity issue announcements abstract the myers and majluf 1984 model predicts a nonpositive price reaction to an announcement of a new issue of equity this paper shows that the myers and majluf result is a direct outcome of their assumption that all potential projects facing the firm have a nonnegative net present value refining the myers and majluf model by allowing for the realistic possibility of potential projects having negative net present values leads to different predictions the refined model predicts positive as well as negative stock price responses consistent with recent empirical evidence concerning the stock price effects of new stock issues

announcement effects of convertible bond loans and warrant bond loans an empirical analysis for the dutch market abstract this study investigates the announcement effects of offerings of convertible bond loans and warrant bond loans using data for the dutch market the event study analysis shows that announcement effects of convertible bonds are associated with positive but insignificant abnormal returns and that announcements of warrant bonds are associated with significant positive abnormal returns these findings are similar to the results for japanese hybrid debt as reported by kang et al 1995 kang j k kim y c park k j stulz r m 1995 journal of financial and quantitative analysis pp 257 270 and kang and stulz 1996 kang j k stulz r m 1996 review of financial studies pp 109 139 but they contrast with studies for the united states that generally find significant negative abnormal returns for convertible bond loans and insignificant negative abnormal returns for warrant bond loans our results cannot be attributed to differences in the corporate governance structures of the netherlands and the united states we find that the positive abnormal returns for the warrant bond loans are caused by the packaging of the announcements with other good firm specific news

efficiency wages and wage dispersion the efficiency wage hypothesis has normally been used to generate an equilibrium level of unemployment the authors use it instead to generate an equilibrium wage distribution this paper starts by generalizing the previous work of r m solow in this area they then use their results on effort wage elasticities to derive a model of wage dispersion the wage rate is shown to be an increasing function of the damage potential of workers that is workers with the highest damage potential receive the highest wage the analysis of the equilibrium of the wage distribution provides interesting qualitative insights into the nature of actual wage differentials copyright 1991 by the london school of economics and political science

corporate earnings and financings an empirical analysis this article examines the long term behavior of corporate earnings around three corporate financing events sales of common stock convertible bonds and straight bonds the article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline these findings indicate that external financings are motivated by earnings declines no evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements these findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing copyright 1990 by the university of chicago

contractual distortions in a market with frictions abstract this paper analyses contract design in a decentralized market environment with frictions while principals e g firms have all contractual power their market power is constrained as agents e g workers can choose to wait and search for better offers we find that results depend crucially on how market frictions affect agents utilities with type independent costs of search and waiting equilibrium contracts are always first best if agents are impatient and discount future payoffs however distortions vanish only gradually in the latter case we also characterize equilibrium offers and show that the market exhibits two types of externalities both of which are absent in the case of type independent costs of search

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

crime inequality and unemployment there is much discussion of the relationships between crime inequality and unemployment we construct a model where all three are endogenous we find that introducing crime into otherwise standard models of labor markets has several interesting implications for example it can lead to wage inequality among homogeneous workers also it can generate multiple equilibria in natural but previously unexplored ways hence two identical neighborhoods can end up with different levels of crime inequality and unemployment we discuss the effects of anti crime policies like changing jail sentences as well as more traditional labor market policies like changing unemployment insurance this abstract was borrowed from another version of this item

dynamic labour force participation of married women and endogenous work experience this paper presents and estimates a dynamic model of married women s labour force participation and fertility in which the effect of work experience on wages is explicitly taken into account because current participation alters future potential earnings the investment return to work will be an important factor in the current work decision in any forward looking behavioural model the model is estimated using the national longitudinal surveys mature women s cohort we use the estimates of our model to predict changes in the lifecycle patterns of employment due to changes in schooling fertility husband s income and the magnitude of the experience effect on wages we find that although work experience increases the disutility of further work the effect is overwhelmed by the positive effect of experience on wages leading to persistence in the employment patterns of these women in addition we find that an increase in young children and in husband s income substantially reduces participation while increased schooling has a powerful positive impact on participation this paper presents an estimable structural dynamic model of married women s labour force participation and fertility in which wages are stochastic and work experience or cumulative participation is endogeneous the model is structural in the sense that the parameters which are estimated are contained in the fundamental relationships governing behaviour namely the utility function and the constraints the model is contained in the class of models which describe the life cycle capital accumulation process with endogeneous labour supply such as weiss 1972 and heckman 1976 it is closest in spirit to that of weiss and gronau 1981 1 the basic feature of their model and ours is that labour market participation affects future wages which then affects future participation the investment return to current work will necessarily be taken into account in any forward looking optimizing model as weiss and gronau note estimates of labour supply models have ignored the inherent behavioural dynamics associated with a positive wageexperience profile there is no adequate empirical treatment of the human capital investment dimension of the labour force participation decision in the literature heckman and willis 1977 have studied a sequential discrete choice model of the labour force participation of married women in a reduced form framework their work

efficiency of simultaneous search this paper presents an equilibrium labor search model in which workers can simultaneously apply to multiple firms to increase their search intensity they observe firms wage postings before choosing where to apply owing to coordination frictions a firm may not receive any applications otherwise it is able to hire unless all its applicants have better offers it is shown that the equilibrium converges to the efficient walrasian outcome as application costs vanish even for nonnegligible application costs the entry of firms the search intensity and the number of filled vacancies are constrained efficient wage dispersion is essential for constrained efficiency

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

occupational self selection in a labor market with moral hazard abstract this paper studies the determinants and implications of self selection when firms imperfectly observe worker effort the effects of the resulting moral hazard problem on the self selection mechanism are analyzed in a model in which workers simultaneously choose an employment sector and an effort level the implications of the model reveal that in the presence of moral hazard workers effort decisions become an additional mechanism determining the pattern of selection into sectors workers sector specific endowments impact sectoral allocation through their effect on workers comparative advantage as well as their effect on workers shirking propensity the model is then used in an empirical application that analyzes workers self selection into white collar and blue collar occupations the estimation results based on data from the national longitudinal survey of youth suggest that workers occupational self selection leads to higher wages and lower dismissal rates in both occupations compared to an economy in which workers are randomly assigned to each occupation the difference in dismissal rates between the two occupations is driven by the higher expected productivity in the white collar sector the positive effects of occupational sorting diminish as the labor market becomes increasingly characterized by moral hazard results also suggest that human capital investments in skills that are most relevant to blue collar jobs may generate higher wages and lower dismissal rates in both white collar and blue collar occupations

voting as communicating this paper develops a model where voters trade off two different motives when deciding how to vote they care about current decision making they are strategic but they also care about communicating their views about their most preferred candidate so as to influence future elections by influencing other voters opinion and or party positioning in effect voters in this model are intermediate between strategic and sincere voters of conventional models in elections with more than 2 candidates this allows us to better investigate the relative efficiency of various electoral systems our main conclusion is that since voting is used as a communication device electoral systems should be designed to facilitate efficient communication e g by opting for 2 round systems rather than 1 round systems

information production dilution costs and optimal security design abstract we investigate the problem of a firm wishing to finance a project by issuing securities under asymmetric information we find that when outside investors can produce noisy information on the firm s quality the degree of information asymmetry resulting in equilibrium is endogenous and depends on the information sensitivity of the security issued thus in contrast to the prediction of the pecking order theory see e g myers and majluf j financial econom 13 1984 187 a security with low sensitivity to private information such as debt does not always dominate one with high information sensitivity such as equity a firm s preference for equity rather than debt depends on the costs of information production the precision of the information production technology and the extent of the information asymmetry we also study the optimal security design problem and find that depending on the cost and precision of the information production technology risky debt or a composite security with a convex payoff emerges as optimal securities

comparing electoral systems a geometric analysis this paper constructs a game theoretic model of elections inalternative electoral systems with three or four candidates each electoral system specifies how the platforms of thecandidates and their scores give rise to an outcome whengeometrical analysis shows that two outcomes can competeagainst each other for victory a pivot probability isassociated to that pair each voter is rational and picks thecandidate that maximizes her expected utility which resultsfrom the balancing of her preferences and beliefs about thepivot probabilities candidate positioning is endogenous andthe result of a nash game the possible equilibria arecomputed for plurality and runoff majority systems

financial contracting and leverage induced over and under investment incentives this paper investigates the effects of seniority rules and restrictive dividend convenants on the over and under investment incentives associated with risky debt we show that increasing seniority of new debt decreases the incidence of under investment but increases over investment and vice versa under symmetric information the optimal seniority rule is to give new debtholders first claim on a new project without recourse to existing assets i e project financing under asymmetric information the optimal debt contract requires equating the expected return to new debtholders in the default state to the new project s cash flow in the same rate if this is not possible the optimal seniority rule calls for strict subordination of new debt if the expected cash flow in default is small and full seniority if it is large with regard to dividend convenants we show that their effect depends on whether or not dividend payments are conditioned on future investments when they are unconditioned allowing more dividends increases the under investment incentive in contrast conditional dividends decrease the underinvestment incentive and increase the over investment incentive

on the informational content of wage offers this article investigates signaling and screening roles of wage offers in a single play matching model with two sided unobservable characteristics it generates the following predictions as matching equilibrium outcomes i good jobs offer premia if high quality worker population is large ii bad jobs pay compensating differentials if the proportion of good jobs to low quality workers is large iii all firms may offer a pooling wage in markets dominated by high quality workers and firms or iv gresham s law prevails good types withdraw if bad types dominate the population the screening signaling motive thus has the potential of explaining a variety of wage patterns

comparative statics in dynamic programming models with an application to job search abstract this paper presents a technique for qualitative comparative statics analysis in dynamic programming models let the value function be the fixed point of a contraction mapping which depends differentiably on some exogenous parameter ten the derivative of with respect to exists and is also the fixed point of a contraction mapping since this derivative is the fixed point of a contraction mapping its qualitative properties can be investigated using mathematical induction this comparative statics methodology is illustrated with an application to a model of job search

financial contracting under risk neutrality limited liability and ex ante asymmetric information this paper derives equilibrium financial contract forms in a risk neutral capital market with asymmetrically informed borrowers entrepeneurs and investors in doing so the analysis generalizes the work of demeza and webb 1987 by allowing for arbitrary profit distributions arbitrary contract forms and variable investment choices the main result of this inquiry is as follows when higher quality entrepreneurs have better ex post profit distributions in the sense of the monotone likelihood ratio property equilibrium contracts take a standard debt form so long as admissible investor payoff functions are monotone non decreasing in firm profit without the monotonicity constraint contracts often take a different live or die form

stability and coordination in duverger s law a formal model of preelection polls and strategic voting this paper investigates the dynamics of the wasted vote phenomenon and duverger s law i construct a theoretical model in order to consider how preelection polls serve to inform the electorate about the relative chances of the candidates and how that information acts over time to decrease the support of the trailing candidate the results shed light on how public opinion polls can aggregate information in the electorate and coordinate voters on the viable candidates in the election specifically i show that in a bayesian game model of strategic voting there exist non duvergerian equilibria in which all three candidates receive votes in the limit these equilibria require extreme coordination however and any variation in beliefs leads voters away from them to one of the duvergerian equilibria thus non duvergerian equilibria are unstable while two party equilibria are not in addition i describe how preelection polls provide information to voters about the viability of candidates and can thus be used by voters to coordinate on a duvergerian outcome

alternative theories of wage dispersion abstract we analyze labor market models where the law of one price fails i e models with equilibrium wage dispersion we begin considering ex ante heterogeneous workers but highlight a problem with this approach if search is costly the market shuts down we then assume homogeneous workers but ex post heterogeneous matches this model is robust to search costs and delivers equilibrium wage dispersion however we prove that the law of two prices holds equilibrium implies at most two wages we explore other models including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion

an empirical equilibrium search model of the labor market in structural empirical models of labor market search the distribution of wage offers is usually assumed to be exogenous however because in setting their wages profit maximizing firms should consider the reservation wages of job seekers the wage offer distribution is essentially endogenous we investigate whether a proposed equilibrium search model in which the wage offer distribution is endogenous is able to describe observed labor market histories we find that the distributions of job and unemployment spells are consistent with the data and that the qualitative predictions of the model for the wages set by employers are confirmed by wage regressions the model is estimated using panel data on unemployed and employed individuals we distinguish between separate segments of the labor market and we show that productivity heterogeneity is important to obtain an acceptable fit to the data the results are used to estimate the degree of monopsony power of firms further the effects of changes in the mandatory minimum wage are examined

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

the effect of pre emptive right amendments on shareholder wealth abstract pre emptive rights allow existing shareholders to purchase a new offering of shares before the general public this paper investigates the effect on shareholder wealth of removing pre emptive rights from corporate charters two hypotheses are constrasted 1 shareholder wealth maximization suggests that management uses this extra degree of freedom to pick the least cost method for raising new equity hence the amendment increases shareholder wealth 2 management welfare maximization holds that management will use the passage of the amendment to maximize their own welfare sometimes to the detriment of shareholders hence the amendment decreases shareholder wealth the evidence indicates that the amendment decreases shareholder wealth

the firm as a community explaining asymmetric behavior and downward rigidity of wages abstract this paper models the firm as a community a la akerlof akerlof g a 1980 a theory of social custom of which unemployment may be one consequence quarterly journal of economics 94 749 775 to account for asymmetric behavior and in particular downward rigidity of wages it is shown that through social interaction among workers in the firm community wage cuts can give rise to a large discontinuous fall in labor productivity known as catastrophe furthermore this large fall in labor productivity will persist or display inertia known as hysteresis even if the wages are restored to the pre cut level and beyond our catastrophe hysteresis finding with respect to wage cuts can rationalize the downward rigidity of wage behavior and is consistent with the interview evidence of fragile worker morale emphasized by bewley bewley t f 1999 why wages don t fall during a recession harvard university press cambridge and others in explaining why employers are sensitive to and refrain from cutting worker pay

influence of economic factors on the valuation effects of debt offerings the obejective of this paper is to determine whether the share price responses to debt offerings are influenced cross sectially by economic factors we develop hypotheses that share price responses are inversely related to nominal interest rates and to the issuing firm s stock price level relative to the market and positively related to economic growth after controlling for firm specific characteristics used in previous studies we find that the share price responses to straight debt offerings are not significantly related to the nominal interest rates or to the issuing firm s relative stock price level but are positively related to the economic growth we also find that share price responses to convertible debt offerings are significantly related to the nominal interest rates the issuing firm s relative stock price level and economic growth in the manner hypothesized these results imply that the signal emitted by a firm s debt offering can be influecnced not only by firm specific characteristics

price setting price dispersion and the value of money or the law of two prices abstract we study models combining search money price posting and preference shocks we show how these features interact to influence the price level and price dispersion first price posting equilibria exist with valued fiat currency second although both are possible price dispersion is more common than a single price third we prove that generically there cannot be more than two prices we provide intuition for this law of two prices show it also holds in some nonmonetary search models and discuss variations of the assumptions under which it may not hold

the role of debt and perferred stock as a solution to adverse investment incentives we analyze the optimal mix of debt common equity and preferred equity in a model with an investment opportunity and asymmetric information about its quality and show that an all equity financed firm will overinvest issuing the appropriate amount of debt before the project becomes available resolves this overinvestment problem introducing a second motive for debt such as taxes leads to a role for preferred stock as a means of enhancing the firm s debt capacity by creating additional incentives to invest we derive an opti mal capital structure involving debt preferred stock and common stock this paper examines the ifnpact of a firm s capital structure on its subsequent investment decisions we assume that a firm s equityholders receive private information about the quality of a project that must be funded externally before the project becomes available and before the information asymmetry exists however the equityholders can choose a capital structure from among debt preferred stock and common stock we show that a subsequent informational asymmetry about project quality induces fully equity financed firms to overin vest that is to accept some negative net present value investments this overin vestment will be reflected in security values prior to the investment we then demonstrate that an appropriate initial debt issue eliminates this suboptimal in vestment behavior and results in an optimal initial debt equity ratio not based upon taxes bankruptcy costs or other exogenous factors we then allow for a corporate tax advantage to debt that leads the firm to issue additional debt however the additional debt creates an underinvestment problem we demonstrate that preferred stock has features that generate incen tives for equityholders to invest and so preferred stock enhances the firm s debt capacity i e the firm can issue more debt in conjunction with preferred stock without creating an underinvestment problem

convertible call policies an empirical analysis of an information signaling hypothesis abstract this paper tests an information signaling hypothesis as a potential explanation for corporate convertible bond call policies and for the negative share price reaction to the announcement of the calls we test this hypothesis by trying to ascertain whether the information signaled is realized our results show an unexpected decline in the firm s performance subsequent to the call we also find significant negative cumulative returns during a sixty month period following the calls

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning