A New Look at Old Coefficients

For more than 50 years, numerous studies have shown low price–quality correlation coefficients, mostly close to 0.2. That prices fail to function as valid indicators of product quality has been interpreted as informational market failure. This article, however, argues, that, according to the economic theory of price formation, prices are not an indicator of quality, but an indicator of scarcity. This allows the conclusion that workable consumer goods markets, at least as seen from the consumer’s point of view, should be characterized by low or even negative correlation coefficients rather than by strong positive coefficients.     

Unfair incentives: A behavioural note on sharecropping

We conducted a laboratory‐in‐the‐field experiment with real‐life tenants in Ethiopia to test the incentive effects of fixed wage, sharecropping, fixed rent, and ownership contracts. The experimental task resembles a common process in agricultural production. The sharecropping contract is a piece rate scheme framed as a profit‐sharing agreement. Sharecropping output was about 12 percent smaller than the fixed rent output. Surprisingly, it is statistically indistinguishable from the fixed wage output, despite substantial piece rates. This effect is driven by real‐life sharecroppers. Their sharecropping output was smaller than that of non‐sharecroppers, especially in a region where a controversial land reform took place. We argue that our subjects dislike sharecropping contracts because of the unfair profit sharing and the disputed allocation of land. Fairness concerns, therefore, may be another impediment to efficiency under the sharecropping contract.     

Has the EMU reduced wage growth and unemployment? Testing a model of trade union behavior

Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. According to Grüner, monetary centralization increases the amplitude of national business cycles, which leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups, resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.