GOLF TOURNAMENTS AND CEO PAY—UNRAVELING THE MYSTERIES OF EXECUTIVE COMPENSATION

Leading financial economists and activist institutional investors have long argued that the proper alignment of manager and shareholder interests requires the use of performance based compensation. Partly in response to these pressures, and in combination with a change in the tax code that encourages performance-based pay, corporate boards have dramatically increased their use of stock grants and executive stock options. Combine this development with the longest bull market in U.S. financial history, and the result is unprecedented levels of CEO pay at the close of the 20th century. This review of executive compensation reveals that the economic theory of tournaments may provide a rationale for the pattern, if not the level, of executive pay. Specifically it finds that the total compensation of the five highestpaid executives in a cross-section of new and old-economy firms is very similar to the pattern of payouts to players in a golf tournament. The author also reports that recent studies show a significant increase in the pay-for-performance correlation throughout the 1990s. But whether that correlation is as high as it should be, and whether current levels of CEO pay are socially "optimal," are questions that remain unanswered.     

Economic design of one-sided screening procedures based on a correlated variable with all parameters unknown

Summary Economic design of one-sided screening procedures for improving outgoing product quality based on a screening variable is considered for the case with all parameters unknown. It is assumed that the performance and screening variables are jointly normally distributed and that costs are incurred by screening inspection, acceptance of an imperfect item, and disposition of a rejected one. A method for finding optimal cutoff value based on the predictive distribution is presented.     

Issues in the estimation and application of latent structure models of choice

Our paper provides a brief review and summary of issues and advances in the use of latent structure and other finite mixture models in the analysis of choice data. Focus is directed to three primary areas: (1) estimation and computational issues, (2) specification and interpretation issues, and (3) future research issues. We comment on what latent structure models have promised, what has been, to date, delivered, and what we should look forward to in the future.     

Managerial Strategies, Labour and Employment Relations and the State: the Canadian Case and Beyond

This paper addresses: (1) the extent to which changes appear to have occurred in managerial strategies and labour and employment relations in Canadian firms, and (2) the role of the state relative to anonymous economic forces in accounting for Canadian developments. The general findings are that, while there have been a number of significant changes, these have been more moderate than expected by 'transformation' theory; furthermore, the Canadian case is consistent with the argument that state actions play a major role relative to more anonymous economic 'forces' in accounting for developments in labour and employment relations. It also suggests an alternative model to that typically assumed by transformation theory, one in which state policies and economic conditions are considered to be important not only for their direct effects on employer policies, but also for their indirect effects, through their implications for worker expectations and union militancy. Although these conclusions are tentative and call for more systematic, comparative research, they are consistent with arguments by Burawoy and others that state actions can serve as an important source of labour regulation at the level of the firm.     

DISCOUNT RATES AND ENERGY EFFICIENCY

Empirical studies provide compelling evidence that economic agents do not adopt the complete range of energy-efficient technologies that are cost-effective under prevailing prices and market conditions. Analysts commonly attribute this anomaly to the use of high discount rates in energy-related decisions-an interpretation that is difficult to reconcile with standard models of rational choice. This paper recasts the controversy from the perspective of economic theory and finds that market failures related to asymmetric information, bounded rationality, and transaction costs are major contributors to the so-called "efficiency gap."     

An Analysis of Occupational Outcomes for Indigenous and Asian Employees in Australia

This paper examines occupational performance in Australia across three racial groups in Australia: Indigenous Australians; Asian people, defined as all those whose language spoken at home was either Chinese, Vietnamese or other forms of a South-east or East Asian language; and white people, defined as the residual category. The paper has as its starting point, observed differences in occupational attainment among the three groups in Australia and sets out to account for these observed differences on the basis of both race and non-racial attributes such as, age, education and area of residence.     

Technological and financial approaches to risk management in agriculture: an integrated approach*

In the present paper, risk‐management problems where farmers manage risk both through production decisions and through the use of market‐based and informal risk‐management mechanisms are considered. It is shown that many of these problems share a common structure, and that a unified and informative treatment of a broad spectrum of risk‐management tools is possible within a cost‐minimisation framework, under minimal conditions on their objective functions. Fundamental results are derived that apply regardless of the producer's preference towards risks, using only the no‐arbitrage condition that agricultural producers never forego any opportunity to lower costs without lowering returns.     

External Sources of Innovative Capabilities: The Preferences for Strategic Alliances or Mergers and Acquisitions

This paper explores the preferences that companies have as they use alternative (quasi) external sources of innovative competencies such as strategic technology alliances, mergers and acquisitions, or a mix of these. These alternatives are studied in the context of distinct industrial, technological and international settings during the first half of the 1990s. Different strategies followed by companies and the role played by routinized sets of preferences are also taken into consideration. The analysis demonstrates that these options are influenced by both different environmental conditions and firm specific circumstances, such as those related to protecting core businesses.     

Regulatory Control of the Track Access Charges of Railtrack plc

Railtrack plc, floated in 1996, was the private sector owner of Britain's railway track, signals and stations. Its major source of revenue came from track access charges, which individual train operating companies (TOCs) paid for use of the infrastructure. Since many of these TOCs received substantial subsidies to assist in paying their track access charges, Railtrack was in effect being heavily subsidised. In October 2001, the Government decided that these arrangements were no longer viable and placed Railtrack into administration. This article explains how the level of indirect subsidies to Railtrack had become excessive, and raises crucial questions that need to be addressed in settling the future shape of the railway industry.     

The political economy of quality measurement: a case study of the USA slaughter cattle market

As agricultural products move from being economic commodities to quality–differentiated goods, price dispersion within specific markets increases and implicit subsidies from high quality producers to low quality producers are removed. The present paper examines how these distributional effects can influence patterns of support and opposition to changes in marketing arrangements. The simple model developed is calibrated using data from the USA slaughter cattle market. Estimates of the impact on prices of measuring quality more accurately are found to be similar in size to previous estimates of market power price suppression in the market.