Wage Bargaining in Industries with Market Power

We develop a game-theoretic version of the right-to-manage model of firm-level bargaining where strategic interactions among firms are explicitly recognized. Our main aim is to investigate how equilibrium wages and employment react to changes in various labor and product market variables. We show that our comparative statics results hinge crucially on the strategic nature of the game, which in turn is determined by the relative bargaining power of unions and managers.     

Patient Decision Making: Exponential versus Hyperbolic Discounting

Evidence strongly indicates that human decision makers discount the future using a hyperbolic function instead of following an exponential, which has been the long‐standing assumption. We compare the exponential and hyperbolic models in evaluation of a simple research and development project selection problem, finding that the exponential function favors short‐term choices, while the hyperbolic function favors the long‐term. We demonstrate applications of the hyperbolic function, concluding that the traditional exponential—which does not faithfully represent typical human preferences—leads toward myopic decision making when compared to the hyperbolic. Copyright © 2012 John Wiley & Sons, Ltd.     

Revisiting Occupational Crowding in the United States: A Preliminary Study

In her study of occupational segregation in the United States using the 1960 Census, Barbara R. Bergmann found black males with low levels of education more concentrated in low-skill service and laborer occupations than white males and virtually excluded from higher status occupations. Utilizing a crowding index which, similar to Bergmann's, controls for the education level of the worker, this paper presents an analysis of the employment patterns of black males and females in fifty-nine occupations in Wayne County (Detroit, Michigan) and Allegheny County (Pittsburgh, Pennsylvania) in 1990. Within blue-collar and service employment, males are under-represented in the craft occupations and concentrated in low-skill operative, laborer, and service occupations. Females are under-represented in both craft and operative occupations and concentrated in low-skill service occupations. Within white-collar employment, both males and females are largely excluded from high-skill private sector managerial occupations. Black representation in public sector managerial and private sector professional occupations is better in Detroit than Pittsburgh. The decline in manufacturing employment in both counties has left black males with fewer occupational options and black females over-represented in low status clerical and service occupations.     

Formal Rules versus Informal Relationships: Prudential Banking Supervision at the FSA Before the Crash

Prior to the 2007–9 banking crisis, the UK Financial Services Authority presented itself as a ‘proportionate’ and ‘risk-based’ regulator, preferring firms to adhere to the spirit of high-level principles rather than the letter of detailed rules. Simultaneously, it developed a supervisory regime that was unprecedentedly complex, producing a ‘Handbook’ of intricate secondary legislation that ran to some 8000 pages. Explaining these contradictory aspects of the pre-crisis regime demands a reappraisal of the dominant explanations of the supervisory failures that contributed to the banking crisis. In contrast to accounts that focus on officials' uncritical adherence to efficient market thinking (regulatory groupthink) or the political clout of the financial industry (regulatory capture), this article suggests that supervisory officials' actions can be understood only by reference to their institutional and structural contexts. Amid heightened public sensitivity to risk, officials developed an elaborate and transparent supervisory framework as a defence against potential political censure. At the same time, collegial firm–supervisor relationships were preserved as state-of-the-art risk-management ideas were recombined and repackaged in line with the institutional legacies of earlier ‘club-like’ modes of supervision. Together, these divergent tendencies contributed to overconfidence in the use of predictive risk assessment and neglect of banks' fundamental business risks.     

Jeremy Bentham and Adam Smith on the usury laws: a ‘Smithian’ reply to Bentham and a new problem

Adam Smith justified the contemporary usury laws and was severely criticised by Bentham and most modern writers with the important exception of J.M. Keynes. We argue that pace Bentham, Smith did not intend to preclude loan financing of all ‘risky’ ventures and give a ‘monopoly’ to safe investments and did not neglect the potential emergence of black credit markets. Yet Smith ought to have modified his position independently of Bentham's criticism, considering a marked rise in the rate at which governments borrowed in the late 1770s.     

Human development and alcohol abuse in adolescence

This article gives some exploratory results from estimating a consumer surplus type equation which features a number of economic and demographic variables as regressors. We calculate an income elasticity for the maximum surplus that individuals would ever perceive themselves to be getting by being allowed to buy at a set price. The results also show that those who attend the cinema are significantly less inclined to generate a surplus in flexible price events markets whilst young adults offer to pay quite a large amount more for their heavily desired entertainment. This suggests that part of the burden of a shift in ticket pricing methods may be borne by the parents of young adults.     

Foreign aid and government fiscal behaviour in low-income South Asian countries

The major purpose of this study was to analyse the relationship between foreign aid and government fiscal behaviour using a pooled sample of three low-income South Asian countries: Pakistan, India and Sri Lanka. A simultaneous equation system was developed and estimated using nonlinear three-stage least squares procedure. The results confirm the hypothesis that foreign aid affects both the expenditure and the revenue side of the recipient government budgets. Both grants and loans are used for consumption as well as for investment purposes. However, grants leak into consumption more than loans. Thus, if the purpose of aid is to generate investment, it is more helpful if donors extend loans to the developing countries than by giving grants. The results also indicate that both grants and loans increase the taxation effort. Multilateral aid actually pulls resources out of consumption and places them into investment projects. Thus the results confirm the assertion that a shift from bilateral to multilateral aid will induce a greater increase in investment. This could stem from better economic performance resulting from high-conditionality lending associated with aid from the major multilateral agencies.     

International Technology Diffusion: Theory and Measurement

We model the invention of new technologies and their diffusion across countries. In our model all countries grow at the same steady-state rate, with each country's productivity ranking determined by how rapidly it adopts ideas. Research effort is determined by how much ideas earn at home and abroad. Patents affect the return to ideas. We relate the decision to patent an invention internationally to the cost of patenting in a country and to the expected value of patent protection in that country. We can thus infer the direction and magnitude of the international diffusion of technology from data on international patenting, productivity, and research. We fit the model to data from the five leading research economies. A rough summary of our findings is that the world lies about two-thirds of the way from an extreme of technological autarky to an extreme of free trade in ideas. Research performed abroad is about two-thirds as potent as domestic research. Together the United States and Japan drive at least two-thirds of the growth in each of the countries in our sample.     

Stock market and investment: the signalling role of the market

The evidence in this paper suggests that the q-theory of investment is not adequate to explain capital expenditure decisions at the firm level. Managerial as well as market perception is important, with the former more critical than the latter. The results also suggest that stock market activity has only limited implications for the resource allocation process in the economy. The evidence for the q-theory, based on firm-level data, confirms the previous finding in the literature that the poor empirical performance of the model in the past has been due in part to the use of aggregate data at the economy level. These findings have important implications for the debate in the literature regarding the relationship between shareholder myopia and managerial myopia. There is a notion in the literature that the stock market puts too much pressure on managers, who in turn indulge in myopic behaviour by underinvesting for the long-term, especially by way of R and D expenditures. The results presented here suggest that, given the limited role that market perception elements play in the determination of capital expenditures at the firm-level, shareholder myopia is unlikely to lead to managerial myopia.