Depreciation and interest deductions and the effect of the corporation income tax on investment: A comment

When all jobs are full time and workers cannot substitute alternative jobs, the skills of workers are observable. Nevertheless, the optimum may involve a benefit for those who choose not to work (making their skills unobservable). When the tax structure and benefit for nonworkers are chosen to maximize welfare, they tradeoff the social marginal utility of consumption against the needed incentive to work. In contrast to more conventional models, the optimal tax schedule may have discontinuities and may involve subsidization of the work of low earners.     

Explicit representation of the two-dimensional section of a production possibility set

Technical and scale efficiencies of Data Envelope Analysis are associated with a two dimensionalsection (a convex set) representing the amounts by which the input and output vectors of a reference decision making unit, may be scaled and still lie in the production possibility set. We describe a simple algorithm, closely resembling the simplex algorithm of linear programming, to traverse the boundary of this set. Given the output of our algorithm, the scalar efficiency measures and return-to-scale characterization are trivially determined. Moreover, the set may be graphically displayed for any problem in any number of dimensions with only a minimum of additional computing effort.     

Shareholder Activism, "Voluntary" Restructuring, and Internal Labor Markets

We model an internal labor market in which employee behavior and compensation are affected by the firm's financial position and the threat of hostile takeover or other exercise of shareholder "voice." We show how good past performance can result in excessively generous promotion and pay decisions. While the threat of shareholder activism will remove this "slack," activists optimally face a positive cost barrier, which in turn varies across firms. The cost barrier is higher when cooperation or "helping" between employees is more important, and is lower when employees receive efficiency wages due to an inability to "pay" for their jobs. Since the importance of helping is associated with pay compression and "flat" pay ladders, such firms should also exhibit a greater degree of management entrenchment.