support systems for the diffusion of renewable energy technologies an investor perspective concern over climate change impacts and the projected depletion of fossil fuels has urged more governments to adopt policies that stimulate the diffusion of renewable energy technologies ret with an increasingly diverse suite of support instruments the question emerges as to which instruments or combinations are able to achieve faster more substantial diffusion results although various support instruments were extensively addressed in policy studies there is still no consensus this is partly because many policy studies take a policy maker approach in comparing support instruments leaving relationships between policy design and policy results as a black box this paper proposes an investor oriented perspective to analyze the diffusion potential of support systems for ret the main argument is that it is not the type of support instrument but rather its risk profitability characteristics that influence investor behavior and the rate of diffusion the two instruments most frequently discussed and compared are the feed in tariff and the quota model the analysis in this paper concludes that policy design is crucial while often feed in tariffs are applauded and quota system feared feed in tariffs may also bring about disappointing diffusion results when poorly designed while quota systems may be also conceived as attractive instruments for independent power producers

public sector pay and corruption measuring bribery from micro data abstract this study provides the first systematic measure of bribery using micro level data on reported earnings household spending and asset holdings we use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved unofficial compensation i e bribes of public sector employees in the case of ukraine we find that public sector employees receive 24 32 less wages than their private sector counterparts the gap is particularly large at the top of the wage distribution at the same time workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of non reported compensation in the public sector using the conditions of labor market equilibrium we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in ukraine is between 460 million and 580 million u s dollars 0 9 1 2 of ukraine s gdp in 2003

corruption and government size a disaggregated analysis using annual state level data over 1983 1987 this paper examines the effect of government size on corruption by public officials by including both demand and supply side incentives for engaging in corrupt practices our objectives are twofold first we assess the relationship between the incidence of corruption and overall measures of the size of the federal government and the state local sector in each state second we explore what kinds of government activities are more likely to be successful in deterring abuse of public office our results are generally supportive of becker s crime and punishment model regarding the primary focus of the paper our results show that government size in particular spending by state governments does indeed have a strong positive influence on corruption

do contracts matter in canada this paper empirically examines the view that wage rigidity in long term labor contracts matters for the behavior of employment in particular i follow bils s 1991 approach which looks for systematic employment patterns in the first year of long term contracts using a new panel data set which includes annual firm level employment observations from the canadian manufacturing sector i find evidence in many industries that employment over adjusts to shocks that occur during the contract my examination of wage dynamics however indicates that for those industries in which contracts appear to matter for the behavior of employment there is little indication that contractual wage rigidity is the source of the over adjustment of employment

the timing of monetary policy shocks a vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output we show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock when the monetary policy shock takes place in the first two quarters of the year the response of output is quick sizable and dies out at a relatively fast pace in contrast output responds very little when the shock takes place in the third or fourth quarter we propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters using a stylized dynamic general equilibrium model we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data

price prediction errors and real activity a reassessment price prediction errors and real activity a reassessment i introduction macro models employing rational expectations and natural rate assumptions have proven to be powerful and tractable analytical tools in these models output and employment fluctuations are typically demand driven with aggregate demand disturbances transmitted to the real sector through price prediction errors the waning popularity of natural rate models is due in part to the widely held belief that although theoretically appealing the models are of questionable empirical relevance this view appears to be based on a small number of studies which fail to find evidence of a robust empirical relationship between price level surprises and aggregate real activity indeed the available evidence has led some influential macroeconomists to conclude that the channels through which aggregate demand influences the economy have yet to be identified 1 this has had the two fold effect of i stimulating research on channels other than price through which aggregate demand may affect the economy and ii discouraging research on channels that do act through the price level while the first of these effects may be desirable the second is of concern this paper is motivated by our conviction that potentially valuable research has been discouraged on the basis of thin and seriously suspect evidence the sections that follow reassess the role of price prediction errors in determining aggregate real activity we provide evidence that the inability of other researchers to verify a positive correlation between demand driven price prediction errors and real activity is due to misspecified models and in some cases inappropriate estimation procedures we demonstrate that in a more correctly specified and estimated model the relationship between price surprises and real activity is positive and strongly significant thus we conclude that previous researchers were incorrect in discarding the major natural rate paradigms as empirically irrelevant these models do appear to identify an important channel namely price surprises through which aggregate demand influences the real sector ii issues and early evidence price prediction errors play a central role in the most prominent natural rate macro models these models typically fall into one of two general classes equilibrium models and contracting models in both classes of models unanticipated movements in the price level are the channel through which aggregate demand disturbances influence the real sector the exact nature of transmission process however differs across the two sets of theories equilibrium models of the sort pioneered by lucas 1973 depend on the assumption of incomplete information to produce non neutrality of aggregate demand disturbances in the best known examples of this kind of model confusion between relative and aggregate price movements causes firms to react to unanticipated price level movements as though they were at least in part relative price movements thus positive price level shocks cause all firms to increase output and generate positive deviations of aggregate output from its natural rate contracting models as developed in the work of fischer 1977 and gray 1976 depend on contractually set wages to produce non neutrality in these models nominal wages are incompletely responsive to unexpected changes in the price level during the term of the contract under which they are set consequently an unanticipated rise in the price level causes a fall in the real wage of all workers whose contracts are not in the process of renegotiation at that moment with employment determined by the firm during the contract interval the result is a rise in aggregate employment and output our present concern is with testing the common implications of equilibrium and contracting models possibilities for distinguishing between the two classes of models are explored in separate work

financing energy projects experience of the international finance corporation this paper provides an overview of the recent trend towards private ownership and financing of power projects in the developing countries focusing on the role played by both private and public agencies in meeting the large financing challenges the paper draws upon the operational experience of the international finance corporation which has been involved in the financing of more than 30 private power projects in the developing countries over the past three decades among the issues that affect implementation of private power projects is the balancing of risk and reward to equity investors and to commercial lenders the paper discusses the principal sources of risk and the strategies used to manage them a related issue is the competition for capital on the international markets and the techniques that are being devised to bring more finance to the power sector finally the paper considers the role of government in bringing private investors to the power sector and the approaches being adopted to balance the needs of investors with the needs of the public

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

industrial output variability and real wage fluctuations determinants and implications i introduction the study of business cycles has been at the heart of macroeconomic theory for decades theoretical efforts have focused on providing an adequate explanation for sources of economic fluctuations and toward this explanation new keynesian models have emphasized rigidity that interferes with market forces and exacerbates the effects of demand fluctuations on the supply side of the economy the form of rigidity is in sharp contrast between sticky wage and sticky price models sticky wage models have emphasized rigidity in the labor market to explain economic fluctuations labor contracts specify in advance the nominal wage that prevails for the contract duration following contract negotiation a positive disturbance to aggregate demand raises the price of the output produced in the absence of any stipulation for wage indexation the increase in price lowers the real product wage faced by firms causing it to fall below its market clearing value the fall in the real wage causes output and employment to rise above their natural full equilibrium levels output adjustments moderate the increase in price that is necessary to clear the product market in addition sticky price models have emphasized rigidity in the product market to explain economic fluctuations monopolistically competitive firms face small menu costs when they change prices menu costs are resources involved in announcing and implementing a price change firms may opt therefore to change prices at specific intervals given price rigidity producers adjust output in the face of demand shocks accordingly an increase in the real wage correlates with an increase in output in the face of demand shocks to test competing theoretical explanations efforts have focused on the cyclical behavior of the real wage and accompanying output fluctuations in the face of demand shocks 1 the evidence appears conflicting and therefore does not convincingly support a given explanation 2 unlike previous empirical research on the subject the objective of this investigation is to study the cyclical behavior of the real wage and the relative response of the nominal wage and price to demand shocks toward this objective the present investigation estimates the time series response of real wage rates to aggregate demand shocks in each of 28 private industries of the united states listed in appendix table a1 differences in the response across industries are then used to discriminate between sticky wage and sticky price explanations the evidence establishes the relation between output fluctuations and the response of the real wage to demand shocks across industries the results across industries of the united states produce the following evidence contrary to the implications of sticky wage models the price response to demand shocks does not move closely with the nominal wage response consistent with the implications of sticky wage models however an increase in nominal wage flexibility rigidity moderates exacerbates industrial output fluctuations in the face of demand shocks nonetheless an increase decrease in price flexibility relative to nominal wage flexibility moderates increases the output response to demand shocks across industries consistently industrial output fluctuations increase with the cyclical response of the real wage to demand shocks for example an increase in the real wage correlates with an increase in real output during periods of expansionary demand in general industrial prices adjust independently of the nominal wage to demand shocks increasing real wage variability further industrial real output variability does not vary significantly with nominal wage flexibility in the face of demand shocks in contrast an increase in the price response to demand shocks moderates output variability across industries consistently an increase in the real wage response to demand shocks correlates with an increase in industrial real output variability as predicted by sticky price models of business cycles

cyclical comovements in industrial labor and product markets theory and evidence i introduction cyclical fluctuations among economic variables are at the heart of the study of business cycles the explanations for the real and inflationary effects of business cycles can be classified into equilibrium and new keynesian alternatives the equilibrium explanation of business cycles pioneered by lucas 1973 relies on imperfect information about sources of demand shifts that provide an explanation for the output inflation tradeoff in the face of aggregate demand shifts in contrast the common theme of the new keynesian explanation of business cycles concerns nominal rigidity that interferes with market forces in determining the allocation of cyclical shifts among nominal and real magnitudes the form of rigidity varies between sticky price and sticky wage new keynesian explanations the former see e g ball mankiw and romer 1988 advocates the presence of menu costs that determine the frequency of price adjustment and in turn the output inflation tradeoff in contrast contractual wage rigidity see e g gray 1978 advocates the presence of implicit or explicit agreements that determine the frequency of wage and salary negotiations across the economy wage flexibility determines in turn the output inflation tradeoff during business cycles the detailed treatment of cyclical conditions in the labor market is among the primary differences between the contractual wage rigidity explanation and contending explanations of business cycles conditions in the labor market determine cyclical fluctuations in wages and labor employment the resulting tradeoff between wage inflation and unemployment is crucial in determining the price and quantity effects of cyclical fluctuations in contrast conditions in the labor market are not crucial to competing explanations of business cycles in the context of the lucas imperfect information model agents are assumed to be self employed for simplicity this eliminates the need for an explicit treatment of the cyclical fluctuations of wages in the context of the sticky price new keynesian models wages may vary according to conditions in a walrasian labor market or in the form of installment payments that do not fluctuate with the cycle accordingly conditions in the labor market do not explain the output inflation tradeoff during business cycles because business cycles are inherently complex economic phenomena theories tend to be highly controversial this in turn has stimulated the interest of macroeconometric researchers to establish the empirical validity of business cycle theories 1 efforts have focused on testable hypotheses that establish the empirical validity of the alternative explanations in this investigation we seek to contribute to these efforts more specifically the analysis of the paper will seek to evaluate the validity of the unique implications of the sticky wage explanation of business cycles concerning correlations between labor market conditions and the output inflation tradeoff towards this objective we investigate a sample of 28 private u s industries first we use time series data to estimate the cyclical responses of output inflation nominal and real wages to demand and supply shocks impinging on the stochastic structure of each industry the nominal and real wage responses to the various shocks will serve as a measure of the degree of wage flexibility further according to the contractual wage rigidity theory wage rigidity can be influenced by the duration of wage contracts as well as the presence of wage indexation without wage indexation longer contracts are associated with a larger cyclical response of the real wage to demand and supply shocks thus the labor market is hypothesized to be a primary source that influences the output inflation tradeoff across industries secondly we use our time series estimates indicating the cyclical response of wages output and prices to various shocks as a source of data enabling us to provide a comprehensive cross sectional evaluation of the contractual wage rigidity hypothesis

an introduction to the wage curve en conomists and policymakers are interested in understanding the forces that determine the level of unemployment and the level of wages this paper describes an empirical discovery made with the help of international microeconometric evidence covering more than a dozen nations about a link between these two variables the connection can be portrayed on a graph with the level of unemployment on the horizontal axis and the level of wages on the vertical axis then the wage curve as shown in figure 1 is a downwardsloping locus this relationship tells us that holding others things constant if a region has a rise in unemployment in a particular year those who live there will have a fall in their wages in that year what does this curve mean how in a field where fully controlled experiments are almost impossible could there be any convincing scientific basis for this wage curve what is the relationship between the wage curve and a phillips curve other than that the curve of figure 1 looks like a phillips curve with the vertical axis mislabeled how does the wage curve fit into existing economic knowledge and is the empirical finding consistent with competitive theory this paper sketches answers to these kinds of questions the discussion draws on our book the wage curve blanchflower and oswald 1994 where the points raised here are investigated more fully it also rests upon work done by other economists whose work is listed in the paper and the bibliography

sticky wage or sticky price analysis of the cyclical behavior of the real wage the study of business cycles has been at the heart of macroeconomic theory for decades theoretical efforts have focused on providing an adequate explanation for sources of economic fluctuations new keynesian explanations have emphasized rigidity that interferes with market forces increasing the effect of demand shocks on the output produced the form of rigidity is in sharp contrast between sticky wage and sticky price models the former imposes rigidity on the shortrun adjustment of wages to demand shocks 20 47 the latter in contrast imposes rigidity on the short run price adjustment to demand shocks 2 34 40 9 43 4 the theoretical plausibility of competing explanations of business cycles has stimulated interest to establish their empirical validity 32 28 1 8 11 23 21 26 these efforts have focused attention on cyclical fluctuations of the real wage in response to demand shocks the real wage may move procyclically or countercyclically according to the relative adjustment of wages and prices the interest in studying the cyclical behavior of the real wage relates to its implications to the real effects of aggregate demand shocks in the context of sticky wage models nominal wage rigidity reinforces the countercyclical response of the real wage to demand shocks and the real effect of these shocks on output growth sticky price models in contrast advocate that price rigidity increases the procyclical response of the real wage to demand shocks and their real effect on output growth the results of earlier investigations of the cyclical behavior of the real wage appear conflicting and therefore do not lend support to a given explanation 2 the present investigation seeks to contribute to this literature unlike previous empirical research on the subject the objective of this investigation is to study the cyclical behavior of the real wage and the relative flexibility of the nominal wage and the price level that determines this behavior in response to demand shocks using data for the united states in the preand post world war ii sample periods the cyclical

the credibility revolution in empirical economics how better research design is taking the con out of econometrics since edward leamer s memorable 1983 paper let s take the con out of econometrics empirical microeconomics has experienced a credibility revolution while leamer s suggested remedy sensitivity analysis has played a role in this we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs the advantages of a good research design are perhaps most easily apparent in research using random assignment we begin with an overview of leamer s 1983 critique and his proposed remedies we then turn to the key factors we see contributing to improved empirical work including the availability of more and better data along with advances in theoretical econometric understanding but especially the fact that research design has moved front and center in much of empirical micro we offer a brief digression into macroeconomics and industrial organization where progress by our lights is less dramatic although there is work in both fields that we find encouraging finally we discuss the view that the design pendulum has swung too far critics of design driven studies argue that in pursuit of clean and credible research designs researchers seek good answers instead of good questions we briefly respond to this concern which worries us little

monetary innovations capital taxation and real wage movements some new evidence central to many new classical macroeconomic models is the notion that unanticipated money growth affects real wages adversely while anticipated money growth is neutral to date however the empirical evidence on the subject has been mixed early studies of sargent and sims 29 and sims 30 reported that monetary surprises had a positive effect on real wages leiderman 18 however provided evidence consistent with the implications of these models the results of more recent studies have also been ambiguous koray 16 concludes that anticipated money growth has an adverse effect on total real wages but unanticipated money growth is neutral in contrast kim 15 finds that both anticipated and unanticipated money growth have negative effects on real wages one difficulty with these studies is the implicit assumption that real wage movements are primarily caused by aggregate demand disturbances in a recent paper sumner and silver 33 assert that real shocks can also have an important influence on real wages and should be taken into account

stock returns and inflation in a principal agent economy abstract we study a monetary system in which final goods sell on spot markets while labor and dividends sell through contracts firms and workers confuse absolute and relative price changes a positive price level shock makes sellers think they are producing better goods than they really are they split this apparent windfall with workers who get a higher real wage hence unexpected inflation shifts real income from firms the principals to workers the agents and thereby lowers stock returns a predictable money supply rulestrictlypareto dominates random money supply rules journal of economic literatureclassification numbers e43 e51

real shocks efficient risk sharing and the duration of labor contracts it is widely believed that increased uncertainty leads to shorter duration of labor contracts this is indeed also the result obtained in the formal analysis in gray 1978 who concludes that a s expected increased variability regardless of source shortens contract length 1978 p 8 the basic argument is that production is inefficient unless the real wage happens to equate the demand and supply of labor and that the loss due to inefficient production increases with the deviation of the actual real wage from the real wage that would equate the demand and supply of labor it is assumed that the economy is exposed to both aggregate real shocks and nominal shocks but that the wage can only be indexed to the general price level an imperfect signal of the underlying shocks since uncertainty is greater for more distant periods the deviation of the actual real wage from the real wage that would equate the demand and supply also tends to be greater for more distant periods and it follows that the per period expected loss due to inefficient production increases with contract duration consequently increased uncertainty provides an incentive to reduce contract durations the reason contracts do not become arbitrarily short is the existence of a fixed contracting cost that militates against shortening the contract duration the oil price hikes of 1973 and 1978 presumably increased the a priori importance of aggregate real shocks and the efficientproduction hypothesis therefore leads one to expect a decrease in contract durations in the years following the price hikes the empirical fact however is that there has been no such tendency at least not in the united states this is clearly brought out in table i which shows that the average duration of major collective bargaining settlements negotiated in 1972 1987 has remained roughly constant

the relevance of unanticipated money growth in explaining output variation this paper tests a reduced form equation in which real gnp for the united states is explained by deviations of multi period m1 growth rates from ex ante expectations of those rates formed from one to eight quarters earlier the theoretical model is suggested by stanley fischer s 1977 article and may be thought of as a new keynesian model the equations are tested in both level and first difference specifications to allow for possible unit roots empirical results strongly support this model in preference to new classical and keynesian alternatives ex ante expectations or m1 growth are formed from multi period forecasts made by chase econometrics inc between 1970 and 1979

socio technical analysis of the electricity sector of mexico its historical evolution and implications for a transition towards low carbon development abstract the electricity sector of mexico has been found itself in continuous transitions since its beginning in the 19th century however the historical reform to the sector that recently took place together with new energy market configurations around the globe may pose an important challenge to transitioning towards a low carbon sector the work presented here was aimed at understanding in a qualitative manner the complex interactions between the main social technical and environmental aspects that have guided the sector in the past their influence on the current structure and its future development through the application of the multi level perspective mlp with a governance and agency perspective additionally the work tried to elucidate the implications of the incumbent position of the natural gas industry and the possibilities for low carbon technologies the conclusions remark the importance of previous sector configurations in the present structure the important role of government in promoting low carbon technologies together with investment by market actors and the possible window of opportunity that the natural gas industry in mexico may provide to low carbon energy technologies

unions in a frictional labor market abstract a labor market with search and matching frictions where wage setting is controlled by a monopoly union that follows a norm of wage solidarity is found vulnerable to substantial distortions associated with holdup with full commitment to future wages the union achieves efficient hiring in the long run but hikes up wages in the short run to appropriate rents from firms without commitment in a markov perfect equilibrium hiring is too low both in the short and the long run the quantitative impact is demonstrated in an extended model with partial union coverage and multiperiod union contracting

variations in the response of real output to aggregate demand shocks a cross industry analysis using industry data this paper investigates the determinants of the response of real output to aggregate demand shocks across industries of the u s economy the purpose of this investigation is to verify the empirical validity of two competing explanations for this response a new classical explanation and a new keynesian explanation the author finds that the impact of aggregate demand shocks on industrial real output is negatively related to the mean inflation of industrial output price and positively related to the variability of the demand for this output in addition some industry specific factors are important in differentiating the cyclical behavior of real output across industries this evidence does not provide a clear support for any of the competing explanations considered in this paper the evidence however sheds some light on important factors that differentiate the response of real output to aggregate demand shocks across industries of the economy copyright 1991 by mit press

cost of living escalators in major union contracts this paper analyzes the price indexation provisions of a sample of major canadian collective bargaining agreements concluded between 1968 and 1975 under these contracts escalated wage increases comprised about one third of total wage increases and represented a major source of erosion in the relative wages of skilled workers the author argues that indexation provisions are usefully characterized by the marginal elasticity of the contractual wage rate to increases in prices measures of this responsiveness indicate that on average contractual wage rates are only slightly less than unit elastic with respect to price increases there is considerable variation across industries however in the extent to which wages respond to price changes

the financing of the mexican electrical sector abstract this paper analyses the financial pattern of the mexican electricity sector its financial limits in both development and modernization of this strategic sector and the main options for resolving this financing problem including the proposals of the president fox government our allocation of risks and profitability analysis explain the present success in attracting private investments to expand both generation and transmission capacity through blt and ipp projects the financial limitation is nevertheless the low self financing of federal electricity commission cfe that will make it very difficult to obtain financing to fulfil blt and ipp contract compromises and to invest large sums in the expansion and modernization of the electricity sector the main options to resolve the financial problems of the mexican electricity sector are 1 the improvement of the present financial pattern 2 the opening of generation and supply segments to private capital with the preservation of the vertically integrated state owned utilities and 3 the proposals of the president fox economic transition team that consider the opening of generation and supply segments the setting up of an independent state owned company to operate both the electrical dispatching and a power pool and finally the transformation of cfe into a holding of state owned utilities of generation distribution and transmission

variation in the effects of aggregate demand shocks evidence and implications across industrial countries over a sample of nineteen industrial countries more variable aggregate demand and or higher mean inflation attenuates augments the effect of aggregate demand shocks on real output growth wage and price inflation while having no effect on the response of the real wage to such shocks in all countries examined aggregate demand shocks are positively negatively correlated with nominal variables real output among explanations of the business cycle based on shocks to aggregate demand this evidence favors the new keynesian sticky wage explanation over the sticky price and the new classical imperfect information explanations

the determinants of contract length an empirical analysis based on canadian micro data abstract recent theoretical work on the determinants of wage contract length focuses on inflation uncertainty as an explanatory variable additional to the more traditional variable of transactions costs this paper analyses the empirical determinants of contract duration using a large sample of contract data and confirms the conclusions reached in the theoretical literature

corruption tax evasion and the role of wage incentives with endogenous monitoring technology the importance of high salaries to circumvent bureaucratic corruption has been widely recognized in the policy debate yet there appears to be much reluctance when it comes to the implementation in this paper we argue that deterring corruption through wage incentives may become prohibitively expensive that the government finds it optimal to accept higher net revenues at the expense of honesty deviating from the existing literature we set an endogenous monitoring technology that allows us to capture the dual role of auditing as a complement with and as a substitute for wage incentives to deter bribery we find that the government is better off either completely eliminating corruption or accepting corruption by offering wages lower than the market wage offering public wage premium that does not deter bribery is suboptimal when it is optimal to deter bribery the government can do it either through wage incentives or monitoring the role of wage incentives decreases in societies with higher level of dishonesty jel d73 h26 j33 j41

how corruption may corrupt abstract the incidence of corruption appears to vary strongly across societies even for comparable activities the model highlights how the profitability of bureaucratic corruption may be related to its frequency and points toward a few mechanisms that can be used in explaining the stylized facts of varying incidence of corruption there might be multiple self fulfilling equilibria levels of corruption even when both supply and demand of corrupt acts are considered

the mexican electricity sector policy analysis and reform 1992 2009 this article analyses the cause effect relation of the structural reform in the mexican electricity sector called the public electricity service act from 1992 to 2009 one of the main arguments of the reform is to attract private investment in order to reduce the financial load of the government in infrastructure for the development of the national electric power system by means of six modalities power self supply cogeneration small power production independent power production power export and power import the article presents the global context of reforms adopted in 1990 the major policies and events are presented in chronological order before and after reform in addition it analyses the new institutional framework the evolution of modalities technologies of electricity generation and tariffs the main conclusion is that the result of reform could be considered a partial progress the independent power production modality shows greater participation while power self supply and cogeneration are lower the subsidy policy is maintained progress is needed in policies and strengthening and also in updating regulatory and normative frameworks

a dynamic model of corruption deterrence abstract this paper presents a model of corruption deterrence with a simple overlapping generations structure built into it a crucial assumption is that when corruption becomes more prevalent in the economy it is harder to audit a corrupt official effectively it is shown that this assumption may give rise to several stationary equilibrium levels of corruption this possibility has been exploited to explain why sometimes a government may temporarily resort to an extremely severe deterrence policy and why the same deterrence scheme may imply quite different levels of corruption a case study is provided to give empirical support to the model

what differentiates industrial business cycles a cross country investigation theoretical explanations appear in sharp contrast concerning the determinants of demand driven industrial business cycles aggregate factors are likely to differentiate cyclical fluctuations for a given industry across countries industry specific factors are likely to differentiate cyclical fluctuations across industries of a given economy the differences are evaluated using data for industries producing private domestic output across a group of major industrial countries aggregate factors dominate industryspecific factors in explaining industrial cyclical fluctuations in response to aggregate demand shifts consistent with the various explanations higher variability of aggregate demand moderates the response of industrial output to aggregate demand shifts across countries contrary to the implications of the new classical imperfect information model cyclical fluctuations in industrial output appear also smaller in response to higher trend price inflation across countries business cycles appear the

how strong is the macroeconomic case for downward real wage rigidity we explore the existence of downward real wage rigidity drwr at the industry level based on data from 19 oecd countries for the period 1973 1999 the results show that drwr compresses the distributions of industry wage changes overall as well as for specific geographical regions and time periods but there are not many real wage cuts that are prevented more important however drwr attenuates larger real wage cuts thus leading to higher real wages there is stronger evidence for downward nominal wage rigidity than for drwr real wage cuts are less prevalent in countries with strict employment protection legislation and high union density

trade unions nonneutrality and stagflation the claim that in policy games nonneutrality and a stagflation bias emerge in equilibrium if the unions care about inflation per se is discussed this assumption is shown to be not necessary to obtain a stagflation bias the same applies to nonneutrality if a government acts in the economy the question of whether unions should be envisaged as institutions i e interested in variables unrelated to wages and employment is also addressed two model based alternatives providing microeconomic foundations versus macroeconomic foundations to unions behaviour are presented the conclusion is that the modelling of unions remains an unsettled problem

bureaucratic corruption and the rate of temptation do wages in the civil service affect corruption and by how much abstract this paper presents what is to our knowledge the first empirical estimate of the effect of pay in the civil service on corruption first we show that theory is ambiguous on the relationship between civil service pay and corruption then we examine the issue using a new data set on wages for low income countries we find evidence of a statistically and economically significant relationship between relative civil service pay and corruption in regressions based on cross country averages where we control for a wide array of variables the relationship implies that a rather large increase in wages is required to eradicate corruption solely by raising wages

an analysis of the length of labour and financial contracts a study for spain this study investigates the connection between the duration of financial contracts and that of labour contracts workers with long term contracts have incentives to invest in training this makes them attractive to the entrepreneur furthermore this behaviour will be reinforced if financial contracts are long term because it reduces the probability of an early liquidation as well as the dismissal of trained workers as a conclusion significant increases in the length of financing contracts should be accompanied by corresponding increases in the length of labour contracts support for this theoretical contention is found by testing it on a dataset composed of spanish manufacturing firms for the period 1991 2000

labor market frictions and optimal steady state inflation in central theories of monetary non neutrality the ramsey optimal steady state inflation rate varies between the negative of the real interest rate and zero this paper explores how the interaction of nominal wage and search and matching frictions affect the policy prescription we show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation rate that is significantly positive specifically for a standard u s calibration we find a ramsey optimal inflation rate of 1 16 percent per year

does contractual wage rigidity play a role in determining real activity interest in nominal wage ridigity as a source of macroeconomic fluctuations has waxed and waned over the past half century the most recent wave of interest was triggered by the rational expectations revolution of the 1970s which inspired an improved sticky wage paradigm the paradigm posits the existence of short term contractual arrangements that in their simplest form fix wage schedules in nominal terms for a predetermined period the life of the contract and leave employment at the discretion of the firm the most influential examples of the paradigm incorporate rational expectations and satisfy the natural rate hypothesis 9 14 thus meeting the new minimum standards for demand driven theories of the business cycle nominal wage contracting models have been vigorously criticized for both a lack of theoretical rigor and an absence of empirical support despite their critics however the models have remained a popular analytical tool and after almost a decade of inattention economists are showing a renewed interest in empirical tests of nominal contracting models the studies produced to date are small in number and offer conflicting conclusions they are perhaps as important for the objections they provoke as for the answers they provide while the work reported in this paper

a risk sharing view of real wages and contract length this paper models a union and firm choosing between long labor contracts in which wages are predetermined and short contracts in which wages are flexible it is shown that the union strictly prefers short contracts because it dislikes the greater employment volatility in long contracts in contrast the convexity of the firm s profit function leads the firm to prefer the greater uncertainty of long contracts the model predicts that workers are prepared to enter long contracts only if they are compensated with a higher real wage this prediction is tested using a large sample of canadian collective agreements with generally supportive results

nominal wage contracts and real activity evidence from the german economy the research on microfoundations of the phillips curve over the last two decades has produced two alternative new classical explanations of the short run output inflation trade off the nominalwage contracting variety explanation of fischer 4 and gray 7 and the equilibrium explanation of lucas 11 both explanations are similar in their prediction that real activity responds to aggregate demand disturbances through price surprises that they generate they are very different however in mechanisms that generate such response the contracting theory emphasizes the existence of long term contractual arrangements that in their simplest form fix wage schedules in nominal terms for a predetermined period the life of the contract and leave the level of employment at the discretion of the firm in this framework a positive aggregate demand shock that occurs after the contract negotiation date will cause an increase in the general price level a decrease in the real wage and an increase in employment and output by contrast the equilibrium theory makes imperfect information central to the non neutrality of nominal disturbances according to this theory agents lack full current information about aggregate variables and thus cannot dichotomize unanticipated price movements into their relative and absolute components in this framework unanticipated changes in aggregate demand lead to positive movements in output and employment because their price level effects are confused with relative price movements 2 differences between the contracting and equilibrium explanations of the response of real activity to aggregate demand shocks provide empirically testable hypotheses gray kandil and spencer 8 test for the proposition that while both theories predict a positive output response to aggregate demand shocks the size of the response is larger in the contracting model than in the

a review of unemployment the thick volume under review by richard layard stephen nickell and richard jackman is an extensive econometric and theoretical study using time series and cross section data of the central tendency of the unemployment rate and its fluctuations in 19 oecd countries since the mid 50s it thus joins the company of several recent macroeconometric studies of employment determination using international time series data of these it is easily the most far ranging study to date though in its microscopic examination of social legislation it has somehow neglected a range of macro factors right under its nose readers will find an abundance of arresting claims and provocative positions to keep the critical juices flowing for me the volume is significant not or hardly at all as an assemblage of particular modelings and findings but primarily as an early econometric expression of the paradigm shift we are now witnessing in macroeconomics once nearly made extinct by a neoclassical winter a school of economists are today furiously at work on unemployment considered as an equilibrium phenomenon springing from en

unexpected inflation real wages and employment determination in union contracts this paper examines the effect of nominal contracting provisions on employment determination in union contracts in most contracts the nominal wage rate is wholly or partially predetermined real wage rates therefore contain unanticipated components that reflect unexpected price changes and the degree of indexation the empirical analysis based on a large sample of indexed and nonindexed contracts suggests that unexpected real wage changes are associated with systematic employment responses in the opposite direction the author concludes that nominal contracting provisions play a potentially important role in the cyclical properties and persistence of employment movements in the union sector copyright 1990 by american economic association

contracts and money why are contracts not fully indexed in a setting in which fully indexed contracts are feasible we find that when price level data are gathered with delay these contracts are not renegotiation proof the contracts that replace them entail a lower level of welfare for the parties to that contract they also imply that real variables respond to nominal shocks

targeting nominal income a closer look abstract i derive conditions under which the monetary authority should target nominal spending the relevant spending target is a weighted average of income and consumption despite sticky nominal wages under optimal policy the economy behaves as if all markets clear

taxes and bribery the role of wage incentives this paper presents a simple model to evaluate alternative payment schemes for tax inspectors in the presence of corruption we consider problems of both moral hazard which arises because taking bribes cannot be observed without costly monitoring and adverse selection since not all potential tax inspectors can be identified as being honest or dishonest we identify three wage regimes first one could pay the same wage that a tax inspector could earn elsewhere his reservation wage second one could pay a wage which solves the moral hazard problem i e deters bribery this we call an efficiency wage by analogy with recent models examined i n macro economics third the government could pay a wage below the reservation wage at which only the dishonest become tax inspectors the capitulation wage we make precise the conditions under which each yields the greatest amount o f tax revenues net o f administrative costs many countries in the developing world are undergoing structural adjustment programmes which require fundamental fiscal changes outside agencies advise restoration of budget balance a task which involves expenditure cuts and tax increases the treatment of public employee pay scales often poses a particular dilemma i n this process wages and salaries are a significant component of government expenditures and one important question concerns the extent to which wages rather than employment cuts should be used to save money there is sometimes a reluctance to advocate wage cuts stemming in part from a feeling that this might impair the performance of the public sector hence tanzi 1990 argues that a policy of wage cutting is likely to increase the inefficiency of public sector employees especially at a time when the public sector is expected to play a larger role in restructuring the economy p 16 in the context of tax collection the issue is particularly pressing given the need to raise more tax revenues a reduction in efficiency in this branch of the government i s likely t o mean that fewer returns are processed and when individuals living standards are squeezed their incentive to accept bribes in lieu o f collecting taxes i s increased o n this count i t i s even sometimes suggested that wages of tax inspectors should be increased to aid the effort to the comments of henry bienen john hey and two anonymous referees have been helpful in revising this paper the authors are also grateful t o the john m olin program for the study o f economic organization and public policy at princeton university and the pew charitable trusts for financial support mclaren also acknowledges support from the international finance section of princeton university none of the above should be implicated in any way see for example goode 1984 chapter 1 3 and gould and amaro reyes 1983