Bargaining by Limiting Cooperation: Withholding Consent for the Level of a Public Good

This paper analyzes how the ability to limit cooperation influences the outcome of complete information bargaining between two players. When cooperation involves prompt resolution of a conflict, as in alternating-offer games and wars-of-attrition, the solutions equate the marginal rates of substitution between earlier resolution and more private goods. When cooperation involves consent for the level of a public good, the outcome again equates the marginal rates of substitution between greater cooperation (more public good) and more private goods (lower cost shares). Here, the equilibrium consists of balanced linear cost shares given by the ratio of marginal-willingness-to-pay to marginal cost.     

Aversive Workplace Conditions and Employee Grievance Filing: The Moderating Effects of Gender and Ethnicity

Studies examining the direct effects of employee demographic differences on grievance filing have yielded mixed results. Moreover, little is known regarding the possible moderating effect that such differences might have on the link between workplace adversity and grievance filing. Using a sample of 866 blue‐collar workers drawn from four unions, we examine the potential moderating effects of gender and race/ethnicity. Our findings suggest that while gender and ethnicity are not significantly associated with perceptions of workplace adversity, grievance filing in response to certain forms of adversity is amplified among women (as compared to men) and among African Americans and Hispanics (as compared to whites). The meaning and implications of these findings are discussed.     

Men, Women and the Hiring Function

This paper examines the idea of ranking of groups and genders of unemployed labour force participants in terms of their hiring probabilities.We find a clear ranking of men over women in the hiring process in Australia. We also find that amongst males, employed job seekers are ranked above those unemployed and, in turn, above those not in the labour force. For women, the unemployed and employed are not found to be competing with each other, whilst those not in the labour force are ranked below the unemployed.     

Presidential Address: Collateral and Commitment

Optimal dynamic capital structure choice is fundamentally a problem of commitment. In a standard trade‐off setting with shareholder‐debtholder agency conflicts, full commitment counterfactually predicts the firm would rely almost exclusively on debt financing. Conversely, absent commitment a Modigliani‐Miller‐like value irrelevance and policy indeterminacy result holds. Thus, the content of dynamic trade‐off theory must depend on the commitment technology. In this context, collateral is valuable as a low‐cost commitment device. Because ex ante optimal commitments are likely to be suboptimal ex post, observed capital structure dynamics will exhibit hysteresis and depart significantly from standard predictions.     

Intrafirm resource allocation: The economics of transfer pricing and cost allocations in accounting*

Abstract. A theory of intrafirm allocation under information asymmetry based on Myerson's general theory of mechanisms is developed. From the general model, it is shown that every Myerson equilibrium resource allocation mechanism is a “cost plus” type of transfer pricing. Specializing the general model to allow risk-neutral agents, we derive the exact form of the compensation schemes in dominant strategy equilibrium transfer pricing mechanism. The general Myerson agency problem is transformed into a central planner's problem enabling us to bypass the first-order approach to the problem. The closed form solution shows that each of the agents' compensation schemes is composed of a profit-sharing component, a cost refund, taxes, and subsidies, making it a Groves-like scheme. Additional results show that if the principal is asymmetrically informed about one of the agents only, the agent may derive rent from private information under monotonic compensation schemes, and we provide additional conditions under which Hirshleifer's classical marginal cost pricing is in equilibrium. Résumé. Les auteurs élaborent une théorie d'affectation des ressources internes au sein de l'entreprise, en situation d'asymétrie de l'information, à partir de la théorie générale des mécanismes de Myerson. En se fondant sur le modèle général, les auteurs démontrent que chaque mécanisme d'affectation des ressources correspondant à l'équilibre de Myerson tient du prix de cession interne de type « prix coûtant majoré ». En spécialisant le modèle général de façon à permettre l'introduction de mandataires neutres à l'égard du risque, ils dérivent la forme exacte de régimes de rémunération correspondant au mécanisme de détermination du prix de cession en situation d'équilibre de la stratégie dominante. Le problème mandant-mandataire général de Myerson se transforme en problème de planificateur central, ce qui permet de court-circuiter le premier ordre d'analyse du problème. La solution de nature fermée révèle que tout régime de rémunération des mandataires est composé d'un élément de participation aux bénéfices, de remboursement de frais, de taxes et de subventions, ce qui l'apparente à celui de Groves. D'autres résultats indiquent que si le mandant obtient de l'information asymétrique de l'un des mandataires seulement, ce dernier peut tirer, dans le cadre de regimes de remuneration monotoniques, un loyer de l'information privilégiée qu'il communique. Les auteurs ajoutent des conditions supplémentaires selon lesquelles l'établissement du prix selon la méthode classique de Hirshleifer en fonction des coûts marginaux est en équilibre.     

Uban Tolled Roads and the Value of Travel Time Savings*

The recent interest in the privatization of major urban roads has opened up the debate on the tolling of such facilities. Central to the identification of optimal tolls is a knowledge of the amount of money individuals are willing to outlay to save travel time. This paper combines a utility maximization framework with stated response data to determine values of time savings in the presence of varying levels of toll for the full set of urban journey purposes. The empirical results provide a basis for establishing one benchmark for toll setting, in the context of substantial lengths of urban roads. There are no tolled urban roads in any major urban area throughout the world     

Forward Rates,Interest Rates,and Expectations Under Alternative Exchange Rate Regimes*

A model comprising spot and forward foreign exchange markets and a domestic credit market is used to examine the trade-off between volatility in the nominal exchange rate and domestic interest rate. It also shows how a slowly crawling spot rate can raise interest rate volatility and the amplitude of reserve flows. Finally, the paper extends a finding by Driskill and McCafferty that the exchange rate effects of external shocks are differently affected by the responsiveness of speculation to expected profits; high responsiveness makes the spot exchange rate more sensitive to foreign financial shocks but less sensitive to trade balance shocks.     

The Valuation of Sequential Exchange Opportunities

Sequential exchange opportunities are valued using the techniques of modern option-pricing theory. The vehicle for analysis is the concept of a compound exchange option. This security is shown to exist implicitly in several contractual settings. A valuation formula for this option is derived. The formula is shown to generalize much previous work in option pricing. Several applications of the formula are presented.