Occupational self-selection in a labor market with moral hazard

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

Industry equilibrium with outside financing and moral hazard: Implications for market integration

In this paper, we study industry equilibrium under the assumptions that (1) firms need outside financing and (2) they have a moral hazard problem in taking potentially excessive risks. We characterize an industry equilibrium with credit rationing, where firms choose not to take risks, and compare this to the industry equilibrium in the absence of credit rationing. In both cases, we show that competition increases and prices decline as markets integrate. However, in markets with credit rationing there is typically more exit, a smaller decline in prices and, most strikingly, the market value of the industry increases rather than decreases.     

Labor market cycles, unemployment insurance eligibility, and moral hazard

If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to working, so, by itself, it promotes job creation. If individuals are risk neutral, then there is a UI contribution scheme that eliminates any effect of UI on employment decisions. As with Ricardian Equivalence, this result should be useful to pinpoint the effects of UI to violations of its premises. Our baseline simulation shows that if the neutral contribution scheme derived in this paper were to be implemented, the average unemployment rate in the United States would fall from 5.7 to 4.7 percent. Also, the results show that with endogenous UI eligibility, one can simultaneously generate realistic productivity driven cycles and realistic responses of unemployment to changes in UI benefits.     

Lender deception as a response to moral hazard

The paper considers a principal–agent relationship between a borrower and lender based on a model from Bowles (Microeconomics: behavior, institutions, & evolution. Princeton University Press, Princeton, 2003). It expands the model by incorporating borrower collateral as an exogenous variable to partly assuage lender concerns about excessive risk, and a theory of lender deception is then developed. Deception is posited as a costly activity that effectively makes fraud undetectable and extracts the borrower’s economic rent arising from moral hazard despite the presence of third-party enforcement and borrower collateral. We identify under what conditions a lender may have sufficient incentives for employing deception and to what extent they would employ it. The likelihood of, and outcomes from, deception are compared between monopoly lenders those in competitive markets. The model suggests that competitive lenders have more incentive to deceive than a monopoly lender facing the same borrower.     

Conflicting tasks and moral hazard: Theory and experimental evidence

We study a multi-task principal-agent problem in which tasks can be in direct conflict with each other. In theory, it is difficult to induce a single agent to exert efforts in two conflicting tasks, because effort in one task decreases the success probability of the other task. We have conducted an experiment in which we find strong support for the relevance of this incentive problem. In the presence of conflict, subjects choose two efforts significantly less often when both tasks are assigned to a single agent than when there are two agents each in charge of one task.     

Screening risk-averse agents under moral hazard: single-crossing and the CARA case

Principal-agent models of moral hazard have been developed under the assumption that the principal knows the agent's risk-aversion. This paper extends the moral hazard model to the case when the agent's risk-aversion is his private information, so that the model also exhibits adverse selection. We characterize the optimal menu of contracts; while its detailed properties depend on the setting, we show that some of them must hold for all environments. In particular, the power of incentives always decreases with risk-aversion. We also characterize the relationship between the outside option and the optimal contracts. We then apply our results to testing for asymmetric information in insurance markets.The authors thank P.A. Chiappori, D. de Mezza, R. Myerson, C. Prendergast, the late S. Rosen, D. Webb and an anonymous referee for helpful discussions or comments, as well as seminar participants in Berkeley, Chicago, Montré al, Northwestern, Rome, Stanford and Wisconsin. Bruno Jullien gratefully acknowledges financial support from the Fédération Francaise des Sociétés d'Assurance; Bernard Salanié thanks the University of Chicago for its hospitality.     

Reverse moral hazard of liability insurers: evidence from medical malpractice claims

This study investigates putative differences in the legal defense of medical malpractice claims between liability carriers with distinct ownership forms: doctor-controlled and commercial-stock. The scope of a carrier's legal defense is determined by claim characteristics, such as injury severity and liability, and possibly the doctor's private costs from settling or losing a claim. When a carrier does not internalize the doctor's private costs from losing or settling a claim, then a conflict of interest arises as the carrier provides a lower level of legal defense than preferred by the doctor (i.e., reverse moral hazard). The perception is that doctor-sponsored carriers mitigate such conflicts of interest. If this is the case, we should expect to see differences in the amount spent by the carrier in defense of the doctor and the propensity to settle claims. To test these expectations, we use medical malpractice claims filed in Florida between 1985 and 1990. We indeed find differences in legal defense in terms of amount spent on legal defense and settlement rate between carriers with different ownership. The doctor-sponsored carrier we investigated was less likely to settle out-of-court, and did spend more on a doctor's legal defense than stock carriers.     

Deposit insurance and moral hazard problem: the case of Turkish banking system

We investigate the effect of full deposit insurance introduced in 1994 on the financial performance of Turkish commercial banks. We construct a model, under reasonable assumptions, with deposit insurance where banks undertake excessive risk –?moral hazard risk. Empirical investigation using experimental design approach supports our moral hazard hypothesis. Our findings indicate that banks subject to the moral hazard behaviour show significant increases in foreign exchange position risk and deterioration in capital adequacy relative to their benchmark after introduction of full deposit insurance system. We relate this excessive risk-taking to the moral hazard behaviour by commercial banks. The research results indicate that complete deposit insurance system distorts the incentive structure of commercial banks and thus, prevents proper functioning of market discipline mechanism and leads to the taking excessive risk-taking.     

Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard

Equilibrium bidding strategies under most multi-unit auction rules cannot be obtained as closed form expressions. Research in multi-unit auctions has, therefore, depended on implicit characterization of equilibrium strategies using the first-order conditions of the bidders’ expected payoff maximization problem. In this paper we consider the pay-as-bid auction with diminishing marginal values for two units and show that any symmetric equilibrium in continuous strategies has the necessary properties to allow such a characterization. Moreover, any increasing solution to the system of differential equations that is used to characterize the equilibrium strategies describes an equilibrium strategy.Generous suggestions and comments from Richard Engelbrecht-Wiggans, Charles M. Kahn, and an anonymous referee are gratefully acknowledged.     

The response to incentives and contractual efficiency: Evidence from a field experiment

We use data from a field experiment to estimate worker reaction to incentives and the optimality of piece-rate contracts. Our estimate of the elasticity of output with respect to piece rates is 0.39. Regression methods cannot predict performance under hypothetical contracts. Therefore, we apply structural econometric methods (without imposing profit maximization) to evaluate observed-contract optimality. Using profit as a metric, we estimate the distance between observed and profit-maximizing contracts to be negligible. This suggests that observed contracts closely approximate optimal contracts under asymmetric information about worker ability. Under complete information, the firm could increase expected profits by 14 percent keeping workers indifferent to the observed piece-rate contract. Profits could increase between 44 and 49 percent if the firm exploited information about ability to reduce worker utility to the outside alternative.     

金融虚拟化的道德风险及其市场影响:次贷危机的深层反思

由美国次贷危机引发的全球性金融危机和全球性经济衰退仍在蔓延之中,至今仍深未见底。从表面上看是美国房地产泡沫的破灭引发了次贷危机的爆发,但从本质上分析,次级抵押贷款证券化、衍生化和虚拟化过程中各参与主体的道德风险行为才是引发危机的真正根源。正是不断虚拟化所引发的市场信息不对称的加剧为各环节的金融中介提供了道德风险行为的空间;而金融中介道德风险行为的加剧和叠加则增加了金融市场的脆弱性,提高了金融市场的系统风险,最终导致危机的全面爆发。     

Earnings mobility in Spain: the role of job mobility and contractual arrangements

This paper analyses the relationship between earnings mobility, job mobility and changes in the contractual arrangement in Spain using a sample of Spanish workers aged 16–60 years extracted from the European Community Household Panel Survey (ECHP 1995–2001). Overall, earnings mobility remains mostly unchanged over time, although clear differences, both in terms of levels and trends, can be perceived among different types of workers. Results show that, in general, job mobility contributes to increase earnings mobility. Switching into permanent contract are associated with the highest probability of upgrading among those workers who remain with the same employer. In contrast, the highest risk of downgrading among stayers appears when changing from permanent to temporary. An analysis on low pay/no low pay transitions reveals that job mobility always increases the probability of moving from low pay to better-paid jobs among females. For males, in contrast, this occurs only when they were initially employed on a temporary basis. Furthermore, for females it is found that either switching into permanent contract while staying with the same employer, or changing employer while being employed on a permanent basis yield a higher chance of upgrading than staying with the same employer with a permanent contract.      

处在变革当中的韩国劳务市场

上世纪90年代以前,韩国不仅是世界上实力雄厚的国际工程承包商的国家,而且也是最大的劳务输出国之一。然而,随着经济的发展,韩国目前实际上已由劳务输出国成为部分行业劳动力短缺的国家。劳动力缺失严重已经成为困扰韩国中小企业发展的瓶颈据韩国统计厅公布的一份资料显示:2002     

Stock market reaction to dividend announcements: Evidence from the Greek stock market

This study investigates the market reaction to cash dividend announcements for the period 2000–2004 employing data from the Athens Stock Exchange (ASE). In particular, the paper examines both the stock price and trading volume response to dividend distribution announcements. Dividend distributions in Greece demonstrate noticeable differences to those of the US, the UK and other developed markets. First, dividends in Greece are paid annually rather than quarterly or semi-annually. Second, the Greek corporate laws 2190/1920 and 148/1967 specifically designate the minimum amount for distribution from the taxed corporate profits. Third, neither tax on dividends nor on capital gains was imposed during the period under examination. Fourth, Greek listed firms are characterized by high ownership concentration where major owners are usually involved in management and therefore have less need for dividend announcements as an information source. Despite this neutralized information and tax environment, we document significant market reaction to dividend change announcements, lending support to the “information content of dividends hypothesis”.     

Towards a framework to understand purpose in Futures Studies: The role of Vickers' Appreciative System

There have been comments recently about the efficacy of Futures Studies (and scenario planning) projects, relating to confusion on knowledge aggregation and methodology, which can be summarised in the question: “how to determine the purpose of such projects”. The lack of a purpose framework makes it difficult for ‘clients’ initiating such projects to determine if outcomes meet their original expectations. This paper proposes a framework to help understand the nature, objective and purpose of Futures Studies (and scenario planning) projects, which we will argue helps to overcome these concerns. The proposed framework is based on Vickers' definition of an Appreciative System, highlighting how decision making involves three areas of judgment — reality judgment, value judgment, and instrumental judgment. It will be argued that decision-makers and policymakers call for Futures Studies projects when they become aware of an organizational deficiency in one or more of these areas.Each element, alone or in combination, could form the basis of a purpose definition for a Futures Studies project, and, therefore, needs to be considered to ensure that the project meets client expectations and is experienced as purposeful and rewarding. The paper elaborates on each of the three elements, and then discusses their integrated nature. This is followed by a discussion of the implications of Appreciative System theory for three key players in the decision making process, the organizational leadership, the professionals and the organization at large involved in the practice of Futures Studies (and scenario planning) projects.