BUSH'S NEW DEAL

The current US policy of spreading democracy across the globe applies New Deal progressivism to a wider world. Like all government interventions, however, it has unintended consequences and is inefficient. The US should return to a more traditional conception of national security and leave the promotion of democratic principles to the private sector.     

Who Benefits from Foreign Direct Investment in the UK?

The presumed higher productivity of foreign firms and resulting spillovers to domestic firms has led governments to offer financial incentives to foreign firms. We investigate if there is any productivity or wage gap between foreign and domestic firms in the UK and if the presence of foreign firms in a sector raises the productivity of domestic firms. Our results indicate that foreign firms do have higher productivity than domestic firms and they pay higher wages. We find no aggregate evidence of intra‐industry spillovers. However, firms with low productivity relative to the sector average, in low‐skill low foreign competition sectors gain less from foreign firms.     

The markup and inflation: evidence in OECD countries

In this paper we evaluate the dynamic inconsistency argument put forth by Kydland and Prescott (1977) and Barro and Gordon (1983) as an explanation for differences in the average inflation experience across OECD countries. The focus is on the empirical evidence relating the overall degree of competition among firms, as measured by the markup of price over marginal cost, and inflation over the 1973–88 period. The prediction is that higher markups raise the monetary authority's incentive to increase output, leading to higher equilibrium rates of inflation. We find that the markup does well in explaining cross-country differences in average inflation. JEL Classification: E31, E58, D43
L'écart du prix par rapport au coût marginal et l'inflation: résultats pour les pays de l'OCDE. Ce mémoire examine l'argument mis de l'avant par Kydland et Prescott (1977) et Barro et Gordon (1983) pour expliquer les différences dans le taux moyen d'inflation entre les pays de l'OCDE. On porte une attention spéciale aux résultats empiriques qui relient le degré général de concurrence entre les entreprises, mesuré par l'écart du prix par rapport au coût marginal, et le niveau d'inflation entre 1973 et 1988. La prédiction est que des écarts prix/coût marginal plus élevés augmentent l'incitation des autorités monétaires à accroître le niveau de production, ce qui entraîne des taux d'inflation d'équilibre plus élevés. Il s'avère que l'écart du prix par rapport au coût marginal tend à expliquer bien les différences dans le niveau moyen d'inflation entre pays.     

Compensation Schemes and Labor Market Competition: Piece Rate versus Wage Rate

We investigate the choice of compensation scheme by firms. Our basic model shows that the unique equilibrium choice for profit maximizing duopsonists in a labor market is for one firm to offer a wage rate and for the other to offer a piece rate. This result arises because the firms recognize that, by offering different compensation schemes, they induce self-selection among workers, which thereby decreases the intensity of competition in the labor market. We find this asymmetry to be robust to allowing for firing, free entry, and a class of more general compensation schemes. When we broaden our model to permit firms to be differentiated in the eyes of workers (either geographically or by "other working conditions," e.g.), we find that our results are preserved when differentiation is low, but that both firms choose to offer a piece rate when differentiation is high.