wall street occupations many finance jobs entail the risk of large losses and hard to monitor effort we analyze the equilibrium consequences of these features in a model with optimal dynamic contracting we show that finance jobs feature high compensation up or out promotion and long work hours and are more attractive than other jobs moral hazard problems are exacerbated in booms even though pay increases employees whose talent would be more valuable elsewhere can be lured into finance jobs while the most talented employees might be unable to land these jobs because they are too hard to manage

nash implementation a complete characterization the authors extend e maskin s results on nash implementation first they establish a condition that is both necessary and sufficient for nash implementability if there are three or more agents the case covered by maskin s sufficiency result second and more important they examine the two agent case for which there existed no general sufficiency results the two agent model is the leading case for applications to contracting and bargaining for this case too they establish a condition that is both necessary and sufficient the authors use their theorems to derive simpler sufficiency conditions that are applicable in a wide variety of economic environments copyright 1990 by the econometric society

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

maskin s theorem with limited veto power abstract we weaken the no veto power condition of maskin maskin e 1999 nash equilibrium and welfare optimality rev econ stud 66 23 38 to limited veto power and prove that any monotonic social choice rule is nash implementable if it satisfies this weaker condition the result is obtained by using the canonical maskin mechanism without modification an immediate corollary is that the weak core is nash implementable in any coalitional game environment an example is given to show that the strong core need not be implementable even when it is monotonic

on nash implementation of social choice correspondences abstract in this paper we extend danilov s conditions for nash implementation to weak preferences over an arbitrary set of alternatives we show that a certain condition of strong monotonicity is necessary for nash implementation if the domain of preferences is sufficiently large furthermore in any preference domain of weak orders it is also sufficient for nash implementation if there are at least three agents

the creation and capture of rents wages and innovation in a panel of u k companies this paper examines the impact of technological innovation on wages using a panel of british firms a head count measure of major innovations between 1945 and 1983 is combined with share price and accounting information innovating firms are found to have higher average wages but rival innovation tends to depress own wages this appears consistent with a model where wages are partly determined by a sharing in the rents generated by innovation in other words innovation may be a good instrument for proxies for rents such as profitability quasi rents or tobin s average q instrumental variable estimates of the elasticity between wages and quasi rents are about 0 29

implementation via nash equilibria this paper is concerned with a problem of implementation of a given social choice correspondence the authors introduces an essential monotonicity condition and show that any implementable social choice correspondence satisfies this condition conversely in a case of three or more participants any essentially monotone social choice correspondence is implementable in a case of two participants the essential monotonicity condition must be completed by a requirement that the social choice correspondence is close to an individually rational correspondence copyright 1992 by the econometric society

endogenous agency problems and the dynamics of rents agents choose to acquire skills corresponding to simple and transparent tasks or complex and opaque ones while potentially more productive the latter generate severe agency problems in our overlapping generations model agents compete with their predecessors with dynamic contracts long horizons help principals incentivize agents agents with short horizons are more diffi cult to incentivize than agents with long horizons hence old agents are imperfect substitutes for young ones this reduces competition between generations as a result young managers can opt for more opaque and complex technologies and therefore larger rents than their predecessors thus in equilibrium complexity and rents rise over time our theoretical results are in line with the increase in complexity and rents observed in the finance sector

financial intermediary capital we propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households that is have a collateralization advantage intermediaries require capital as they have to finance the additional amount that they can lend out of their own net worth the net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity such as investment and financing the accumulation of net worth of intermediaries is slow relative to that of the corporate sector the model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch namely their severity their protractedness and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns the model captures the tentative and halting nature of recoveries from crises

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

inter industry technology flows in the united states abstract this paper presents for the u s economy a technology flows matrix tracing 1974 industrial r d expenditures from their industries of origin to industries in which the use of resulting products and processes was anticipated the distinction between origin and using industries is crucial to understanding the links between r d and productivity growth a regression analysis reveals high social rates of return and substantial productivity impacts from r d attributed to industries of use

optimal contracts with shirking i explicitly derive the optimal dynamic incentive contract in a standard continuoustime agency setting where the agent has a shirking action my solution generates two dynamic contracts new to the literature both contracts include phases when the agent frequently shirks in one contract the shirking phases are relaxation periods rewarding the agent for good performance in the other the shirking phases are suspension type arrangements punishing the agent for poor performance in addition i also explore the relationships between optimal contracting and taxes bargaining and renegotiation

reexamination of maskin s theorem on nash implementability abstract we reexamine maskin s theorem by proposing slight modifications on maskin s conditions of monotonicity and no veto power we show that any social choice correspondence scc that satisfies strict monotonicity strict no veto power and unanimity can be implemented in nash equilibria

spatial analysis of change trend and influencing factors of total factor productivity in china s regional construction industry total factor productivity tfp is a measure of long term economic growth and a comprehensive industry level productivity measure there are large gaps in china s regional construction industry dev

interindustry technology flows and productivity growth a reexamination the relationship between productivity growth and r and d intensity is reexamined using detailed data for 193 us manufacturing industries and a breakdown of r and d into own product and process improvement oriented components and imported r and d from other industries a significant interindustry relationship between total factor productivity growth and r and d intensity is reconfirmed with used r and d having larger coefficients than own product r and d components but own product r and d is also significant and the explanatory power of the used r and d component rather than the embodied component imported from other industries thus the evidence for r and d spillovers remains tenuous 6 references 2 tables

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

dynamic security design convergence to continuous time and asset pricing implications an entrepreneur with limited liability needs to finance an infinite horizon investment project an agency problem arises because she can divert operating cash flows before reporting them to the financiers we first study the optimal contract in discrete time this contract can be implemented by cash reserves debt and equity the latter is split between the financiers and the entrepreneur and pays dividends when retained earnings reach a threshold to provide appropriate incentives to the entrepreneur the firm is downsized when it runs short of cash we then study the continuous time limit of the model we prove the convergence of the discrete time value functions and optimal contracts our analysis yields rich implications for the dynamics of security prices stock prices follow a diusion reflected at the dividend barrier and absorbed at zero their volatility as well as the leverage ratio of the firm increase after bad performance stock prices and book tomarket ratios are in a non monotonic relationship a more severe agency problem entails lower price earning ratios and firm liquidity and higher default risk

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

the effect of liquidity constraints on consumption a cross sectional analysis this paper examines the effect of liquidity constraints on consumption expenditures using a single year cross section data set a reduced form equation for consumption is estimated on high saving households by the tobit procedure to account for the selectivity bias since high saving households are not likely to be liquidity constrained the estimated equation is an appropriate description of how desired consumption that would be forthcoming without liquidity constraints is related to the variables available in the cross section data when the reduced form equation is used to predict desired consumption the gap between desired consumption and measured consumption is most evident for young households

nash implementation in exchange economies with single peaked preferences abstract in exchange economies with single peaked preferences we find that 1 several solutions satisfy theorem 1 of doghmi and ziad doghmi a ziad a 2008 this issue reexamination of maskin s theorem on nash implementability economics letters 2 strict monotonicity is equivalent to maskin monotonicity we examine also the implementation of the weak core in coalitional games

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

on the sources of technological change assessing the evidence this paper uses a selective review of the economic literature on technological change to support four points that are important for interpreting and incorporating technological change into formal models of energy and the environment the review 1 supports the notion that no single source dominates the process of technological change it supports roles for rd 3 indicates that these spillovers are often indirect requiring own industry activities to utilize and 4 indicates that simple experience curve calibrations often used in formal models likely include a range of sources of technological change in addition to learning by doing some of which might not be induced by the sorts of policies typically considered in the climate context

accounting for the economic growth of firms in uk manufacturing since 1973 the dual relationship between the growth of total factor productivity and the growth of the price differential between inputs and outputs is used to decompose productivity changes since 1973 the decline in total factor productivity 1973 79 is best explained by the dual increase in the average output price input price differential resulting from the squeeze in profit rates in 1979 86 the average increase in total factor productivity was not significantly different from zero there was no thatcher productivity miracle growth of output is determined primarily by growth of inputs and not by general increases in efficiency c 1996 academic press limited copyright 1996 by oxford university press

international coordination of fiscal policy in limiting economies we examine the limiting behavior of cooperative and noncooperative fiscal policies as countries market power goes to zero we show that these policies converge if countries raise revenues through lump sum taxation however if there are unremovable domestic distortions such as distorting taxes there can be gains to coordination even when a single country s policy cannot affect world prices these results differ from the received wisdom in the optimal tariff literature the key distinction is that contrary to the tariff literature the spending decisions of governments are explicitly modeled

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

a model of moral hazard credit cycles this paper considers a simple model of credit cycles driven by moral hazard in financial intermediation financial agents or bankers must earn moral hazard rents but the cost of these rents can be efficiently spread over an agent s entire career by promising large late career rewards if the agent has a consistently successful record dynamic interactions among different generations of financial agents can create credit cycles with repeated booms and recessions in recessions a scarcity of trusted financial intermediaries limits investment and reduces employment under such conditions taxing workers to subsidize bankers may increase employment enough to make the workers better off

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

sectoral patterns of production and use of innovations in the uk 1945 1983 abstract based on information on more than 4000 innovations commercialised in the uk between 1945 and 1983 we analyse sectoral patterns and trends in the production and use of innovations a few core sectors chemical mechanical instruments and electronic are of major importance in the production of technology that gets used over a much wider range of sectors including those outside manufacturing similar sectoral patterns of production and use exist in the uk and usa the trend over time in the uk has been toward greater sectoral interdependence in technology and a higher share of uses outside manufacturing reflecting the growth and spread of the electronic based technological cluster any understanding of the nature determinants and dynamics of intersectoral differences in patterns of production and use of technology will require an integration into empirical and theoretical analysis of the characteristics of innovating firms

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

employment and technological innovation evidence from u k manufacturing firms this article uses british firm level panel data on actual innovative activity drawn from different statistical sources to identify the effect of technical change on jobs previous work tends to find positive associations of proxies for technical change and employment but such studies suffer from various statistical drawbacks in this study even when one controls for fixed effects dynamics and endogeneity innovations have a positive and significant effect on employment which persists over several years there seems to be little direct role for spillover effects from industry innovations or any role for industry wages or union power

optimal long term financial contracting we develop an agency model of financial contracting we derive long term debt a line of credit and equity as optimal securities capturing the debt coupon and maturity the interest rate and limits on the credit line inside versus outside equity dividend policy and capital structure dynamics the optimal debt equity ratio is history dependent but debt and credit line terms are independent of the amount financed and in some cases the severity of the agency problem in our model the agent can divert cash flows we also consider settings in which the agent undertakes hidden effort or can control cash flow risk

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

r d innovations and total factor productivity growth in british manufacturing 1989 r d innovations and total factor productivity growth in british manufacturing applied economics vol 21 no 11 pp 1549 1562

the making of an investment banker stock market shocks career choice and lifetime income i show that stock market shocks have important and lasting effects on the careers of mbas stock market conditions while mba students are in school have a large effect on whether they go directly to wall street upon graduation further starting on wall street immediately upon graduation causes a person to be more likely to work there later and to earn on average substantially more money the empirical results suggest that investment bankers are largely made by circumstance rather than born to work on wall street

debt constrained asset markets we develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature if an agent defaults on a contract he can be excluded from future contingent claims markets trading and can have his assets seized he cannot be excluded from spot markets trading however and he has some private endowments that cannot be seized all information is publicly held and common knowledge and there is a complete set of contingent claims markets since there is complete information an agent cannot enter into a contract in which he would have an incentive to default in some state in general there is only partial insurance variations in consumption may be imperfectly correlated across agents interest rates may be lower than they would be without constraints and equilibria may be pareto ranked

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

nash equilibrium and welfare optimality if is a set of social alternatives a social choice rule scr assigns a subset of a to each potential profile of individuals preferences over a where the subset is interpreted as the set of welfare optima a game form or mechanism implements the social choice rule if for any potential profile of preferences 1 any welfare optimum can arise as a nash equilibrium of the game form implying in particular that a nash equilibrium exists and 2 all nash equilibria are welfare optimal the main result of this paper establishes that any scr that satisfies two properties monotonicity and no veto power can be implemented by a game form if there are three or more individuals the proof is constructive