contract enforcement and trade liberalization in mexico s footwear industry abstract the wave of formal legal system reforms sweeping developing countries provides only a partial solution to the problem of enforcing agreements between firms informal institutions govern the majority of interfirm transactions economic reform also necessitates changes in these institutions this paper examines the evolution of contract enforcement in the mexican footwear industry as trade barriers were removed in the closed economy geographic agglomeration of manufacturing allowed the manufacturers trade associations to maintain information about the behavior of retailers and gave retailers strong incentives to maintain reputations by providing an alternative source for procurement trade liberalization weakened the power of manufacturers

wage employment contracts this paper studies the efficient agreements about the dependence of workers earnings on employment when the employment level is controlled by firms the firms superior information about profitability conditions is responsible for this form of contract governance under plausible assumptions such agreements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk it is shown that if leisure is a normal good and firms are risk neutral employment is always above the efficient level such a one period implicit contracting model cannot therefore be used to explain unemployment as a rational byproduct of risk sharing between workers and a risk neutral firm under conditions of asymmetric information

optimal unemployment insurance and experience rating in the presence of asymmetric information adding a public unemployment insurance ul to labor contracts is potentially pareto improving unfortunately most successful mechanisms are manipulable by coalitions this leads us to design coalition incentive compatible ui systems their welfare effect depends on which coalitions are feasible whenever firm ui coalitions may form one ends up with an impossibility result as contracts are made coalition proof they no longer pareto dominate firm worker contracts however if only firm worker coalitions are feasible the public ui is strictly pareto improving even though it cannot implement the welfare levels that would be reached if no coalition were feasible at all

benefits of a registration policy for microenterprise performance in india this paper evaluates the effects of a voluntary registration policy with government authorities on financial performance of urban microenterprises in the indian manufacturing sector using data from the 2006 world bank survey of indian microenterprises and applying the semi parametric propensity score matching technique we find that being registered leads to significant gains in sales per employee and value added per employee large gains are also noted for male owned firms those operating with or without paid labor and those operating outside of the owner s home

implicit contracts moral hazard and unemployment this paper considers a firm whose marginal revenue product of labor is a random variable we derive the form of an optimal long term contract between workers and the firm under the assumption that labor s marginal product is observed by the firm but not by the workers we show that the existence of asymmetric information causes unemployment to be greater than in a situation where information about labor s marginal product is public or where employment is determined in spot markets in particular unemployment can occur when the marginal product of labor exceeds the reservation wage

downward nominal and real wage rigidity survey evidence from european firms downward nominal and real wage rigidity it has been well established that the wages of individual workers react little especially downwards to shocks that hit their employer this paper presents new evidence from a unique survey of firms across europe on the prevalence of downward wage rigidity in both real and nominal terms we analyse which firm level and institutional factors are associated with wage rigidity our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models e g efficiency wage theory insider outsider theory we also find that wage rigidity depends on the labour market institutional environment collective bargaining coverage is positively related with downward real wage rigidity measured on the basis of wage indexation downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations

schumpeter and venture finance radical theorist broke investor and enigmatic teacher schumpeter s relation to venture finance constitutes a fascinating yet so far unacknowledged chapter of his biography and financial history presenting new historical evidence and pointing out connections that have so far escaped attention we first discuss schumpeter s venture theory of money and banking then his personal history as a broke investor in vienna and finally his influence on the emerging venture industry during his later years at harvard we show how the theoretical vision inspired his own failed effort as a venture investor in the 1920s and provided a powerful intellectual frame for the later development of venture finance in the 1940s

entry deterrence under trade unions this paper argues for the integration of labor unions in the analysis of industrial organization such a linkage is important for at least two reasons first unions are often concentrated in big firms which tend in general to face an imperfectly competitive environment in their product markets second unions are usually able to extract in the form of higher wages some rents which result from the market power of firms see for example freeman and medoff 1984 on the impact of unions on firm profitability in the u s a firms should thus take union behavior into account and in particular realize that strategies toward rival firms will tend to affect unions ability to extract rents we illustrate here the impact of unions in industrial organization by focusing on the topic of entry deterrence ed in section 2 we first argue that unions tend to lower the profitability of two standard widely studied ed strategies limit pricing under incomplete information and the use of sunk costs section 3 then turns to union contracts as a possible alternative ed strategy available to incumbent tirms finally section 4 assesses the welfare impact of unions in these settings while section 5 suggests directions for research

unemployment insurance and labor contracts under asymmetric information theory and facts the paper provides evidence to show that many u s labor contracts havelittle or no private unemployment insurance provision a model of an optional contract under asymmetric information with no private unemployment insurance is presented underemployment and involuntaryunemployment may coexist copyright 1986 by american economic association

wage rigidity implicit contracts unemployment and economic efficiency standard implicit contract theory can explain wage rigidity but not unemployment and pays insufficient attention to the general equilibrium aspects and constraints limiting the set of feasible contracts implicit contracts must specify an enforcement mechanism can only be conditional on observable information and must be of limited complexity without these restrictions contracts generate full employment which is constrained inefficient natural restrictions on enforceability or complexity alone do not produce unemployment though limited observability may with two or more restrictions unemployment may result specifically periodic unemployment can arise if contracts are of limited complexity and cannot be enforced through third parties copyright 1987 by royal economic society

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

informal family insurance and the design of the welfare state we study unemployment benefit provision when the family also provides social insurance in the benchmark case more generous state transfers crowd out family risk sharing one for one an extension gives the state an advantage in enforcing transfers through taxes whereas families rely on self enforcement more generous state transfers lead to more than one for one reductions in intra family insurance so that total transfers to the unemployed fall as the state s generosity increases this does not imply that the optimal size of the welfare state is zero our results still hold when families are assumed to be better than the state at monitoring job search activities of unemployed

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

wages profits and rent sharing the paper suggests a new test for rent sharing in the u s labor market using an unbalanced panel from the manufacturing sector it shows that a rise in a sector s profitability leads after some years to an increase in the long run level of wages in that sector the paper controls for workers characteristics for industry fixed effects and for unionism lester s range of wages is estimated for rent sharing reasons alone at approximately 24 per cent of the mean wage

employment with asymmetric information in an economy without informational and other distortions entrepreneurs and workers can write labor contracts that support a pareto optimal allocation of resources this paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers asymmetric information generally results in a suboptimal allocation of both risk and worker effort in particular if consumption and leisure are perfect substitutes employment will be less than fully pareto optimal in all but the most favorable states of nature

endogenous adverse selection and unemployment insurance in this paper we consider how the presence of private information may explain the failure of the private sector to provide unemployment insurance in particular we show how the interaction of private information regarding employees preferences for work with the unobservable level of effort exerted on the job may explain the absence of private unemployment insurance we also reflect on the implications of our findings for the role of the public sector in providing unemployment insurance

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

why firms avoid cutting wages survey evidence from european firms firms very rarely cut nominal wages even in the face of considerable negative economic shocks this paper uses a unique survey of fourteen european countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why the firms avoid cutting wages the paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types restrictions created by collective bargaining were found to be an important consideration for firms in western european eu 15 countries but were one of the lowest ranked obstacles in the new eu member states in central and eastern europe

insider bargaining power starting wages and involuntary unemployment recent analyses of wage bargaining has emphasized the distinction between insiders and outsiders yet one typically assumes that insiders and recently hired outsiders are paid the same wage we con

competitiveness and industrial policy from rationalities of failure towards the ability to evolve this article elaborates a dynamic rationale of industrial policy focusing on how to strengthen the socio economic system s ability to evolve i e how to achieve high real income together with qualitative change it highlights that the ubiquitous rationalities of failure be it of markets governments or systems are rooted in a peculiar habit of accepting hypothetical perfect states as normative benchmarks in contrast a dynamic logic of intervention should start from the question what the system aims to accomplish combining the structuralist ontology of micro meso and macro with the functional principles of evolutionary change the paper proposes a general typology of economic policies based on their respective contributions to the system s ability to evolve

profit sharing employment efficiency and wage stability a contract between a risk neutral firm and its risk average workers is considered under uncertainty about product demand we show that profit sharing can be used to attain the efficient level of employment and at the same time preserve optimal risk sharing between the parties optimal profit sharing does not imply wage variability instead wages are stabilized across states

associations versus registration as alternative strategies of small firms small firms especially those in developing countries face several serious problems 1 costs of regulation including corruption 2 contract enforcement and 3 idiosyncratic risks that leave their owners with high costs of finance to deal with these problems it is recognized that firms exercise choice over their degree of formality little attention however has been given to the alternative strategies that firms may choose in gaining formality and dealing with these problems this article examines the choice between two different strategies 1 registering with official entities and 2 participating in private associations we develop hypotheses concerning factors that would favor one such choice over the other and then test these hypotheses with data taken from a large sample survey of mexican microenterprises the results provide support in some cases strong support for most of the hypotheses

does innovation cause stock market runups evidence from the great crash this article examines the stock market s changing valuation of corporate patentable assets between 1910 and 1939 it shows that the value of knowl edge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions innovation was an important driver of the late 1920s stock market runup and the great crash did not reflect a significant revaluation of knowledge capital relative to physical capital although substantial quantities of influential patents were accumulated during the post crash recovery high technology firms did not earn significant excess returns over low technology firms for most of the 1930s

union wages temporary lay offs and seniority it is widely believed that the seniority system in conjunction with the collective bargaining process contributes significantly to the determination of the unemployment level in unionized sectors causa i empiricism suggests that real wage demands often remain buoyant in these sectors in the face of seemingly high rates of unemployment among union members james medoff 1979 p 380 convincingly documents the evidence that adjustment through lay offs is substantially greater in unionized firms than in comparable non unionized firms the usual but somewhat informal explanation is that the outcome of union voting is greatly influenced by senior workers who are fairly certain that they will not be laid off when normal shifts in the industry s demand for labour occur 2 these inframarginal workers are believed to vote for higher wage settlements than they would if their own jobs were not so secure

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

downward nominal and real wage rigidity survey evidence from european firms it has been well established that the wages of individual workers react little especially downwards to shocks that hit their employer this paper presents new evidence from a unique survey of firms across europe on the prevalence of downward wage rigidity in both real and nominal terms the authors analyse which firm level and institutional factors are associated with wage rigidity the results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models e g efficiency wage theory insider outsider theory the analysis also finds that wage rigidity depends on the labour market institutional environment collective bargaining coverage is positively related with downward real wage rigidity measured on the basis of wage indexation downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item