Job security,wage bargaining and duopoly outcomes

This paper develops a model where labour supply is constrained because training new workers is costly and redundant workers cannot be fired. An entrant draws labour from an incumbent firm through a wage contest while wages in the latter are bargained with its unionized workers. In a Cournot equilibrium, the union's bargaining power has a positive effect on the incumbent's output, but a negative effect on the industry output. Social welfare under duopoly may fall short of the monopoly level. The distribution of bargaining gains within the incumbent firm is sensitive to whether wage and output choices are made sequentially or simultaneously.     

CROSS SUBSIDIZATION AND TELECOMMUNICATIONS SECTOR WAGES

ABSTRACT 1 : This study has examined wage determination in the presence of cross‐subsidization of firms in the telecommunications industry. How variations in cross subsidies received, via the separations mechanism used in the industry, influence some firms to pay a greater level of wages is assessed. The firms studied have been almost the entire population of local exchange carriers in the US telecommunications industry between 1995 and 2000. The analysis has established that firms which are able to obtain greater cross‐subsidies, on average, in fact pay higher wages and the elasticity of the relationship is quite high. The study is the first of its kind assessing the relationship between an important regulatory variable that measures a ubiquitous process, such as cross subsidization, and the impact on employee wages.     

Did Liberalization Impact Productivity of the Indian Electronics Hardware Industry?

In this paper, we analyse the trends in productivity, both partial and total, in the four sectors of the Indian electronics hardware industry after liberalization. Using an innovative combination of two established but independent methodologies, we estimate the contributions of technical efficiency change and technological progress to total factor productivity growth (TFPG) and thereby to output growth. Contrary to expectations, we found that none of the four sectors in the industry achieved impressive growth in capital productivity and TFPG despite the new economic reforms. The firms emphasised technological progress at the cost of technical efficiency change but failed to sustain TFPG as the liberalization of policies intensified further. Surprisingly the firms’ effort to employ skilled labour, larger scales of production and their strategy to improve production technology through R&D and/or imports did not benefit productivity substantially. In a comparative study with China, we found that the Indian electronics hardware industry did not perform as well as that of China due to the persistent rigid and bureaucratic procedures, labour market inefficiencies and inadequate infrastructure, among others.     

Corporate borrowing and profitability in India

This paper examines effects of different types of corporate borrowing on firm profitability in India. We show that in contrast to the conventional thinking on the importance of monitored debt in determining firm performance, what matters more is arm's‐length lending in the form of fixed deposits in influencing firm profitability. We argue that the strategic implications of fixed deposits can be mainly attributed to the fact that they are both unsecured and privately held, which make the creditors associated with this type of debt the most likely to monitor firms' performance. The results suggest that debt structure matters, and it is important to take into account institutional differences and the heterogeneity of debt in the analysis of capital structure on firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

PATTERNS OF TRADE AND GROWTH UNDER INCREASING RETURNS: ESCAPE FROM THE POVERTY TRAP*

We consider a two-sector model of intertemporal resource allocation in which the investment good sector exhibits an initial phase of increasing returns in production. The economy maximizes a discounted sum of one period utilities derived from the consumption good. If it is autarkic, it may face a poverty trap from which it cannot escape even if it follows an optimal policy. If it engages in trade with the outside world as a price taker, it may escape from the trap. The optimal patterns of production and trade are analysed for such an economy.     

Decentralized evolutionary mechanisms for intertemporal economies: A possibility result

We consider a stationary, infinite horizon aggregative model with one consumer and one producer living in each period. A decentralized intertemporal mechanism, satisfying the following evolutionary property, is constructed: if the current period's producer and consumer verify their equilibrium conditions, then the allocation is actually executed, without further verification by future agents. The mechanism is based on the idea of continual planning revision. It is shown that the outcome is an intertemporally efficient allocation which maximizes the long run average of one period utilities from consumption.We would like to thank L. Hurwicz, E. Malinvaud, and R. Radner for valuable discussions, and two referees for helpful comments. Research on this project was partially supported by a National Science Foundation Grant.     

Market-Share Contracts with Asymmetric Information

In this paper, a dominant firm and competitive fringe supply substitute goods to a retailer who has private information about demand. We show that it is profitable for the dominant firm to condition payment on how much the retailer buys from the fringe (market-share contracts). The dominant firm thereby creates countervailing incentives for the retailer and, in some cases, is able to obtain the full-information outcome (unlike in standard screening models, where the agent earns an information rent in the high-demand state and output is distorted in the low-demand state). Our results have implications for fidelity rebates, all-units discounts, and competition policy. Although some crowding out of the fringe may occur when demand is low, we show that market-share contracts need not be harmful for welfare.     

Strategic analysis of petty corruption with an intermediary

This note reports part of a larger study of “petty corruption“ by government bureaucrats in the process of approving new business projects. Each bureaucrat may demand a bribe as a condition of approval. Entrepreneurs use the services of an intermediary who, for a fee, undertakes to obtain all of the required approvals. In a dynamic game model we investigate (1) the multiplicity of equilibria, (2) the equilibria that are “socially efficient”, and (3) the equilibria that maximize the total expected bureaucrats’ bribe income. We compare these results with those for the case in which entrepreneurs apply directly to the bureaucrats.     

Petty corruption: A game-theoretic approach

The paper explores a game-theoretic model of petty corruption involving a sequence of entrepreneurs and a track of bureaucrats. Each entrepreneur's project is approved if and only if it is cleared by each bureaucrat. The project value is stochastic; its value is observed only by the entrepreneur, but its distribution is common knowledge. Each bureaucrat clears the project only if a bribe is paid. The bribe for qualified projects ("extortion") and unqualified projects ("capture") may differ. We identify the nature and welfare implications of different types of equilibria under appropriate technical assumptions on the structure of the game.