The welfare effects of import “subquotas” on heterogeneous product categories

In spite of its importance to policy makers, surprisingly little attention has been paid to the welfare effects of one aspect of trade policy-how to implement an import quota that applies to a heterogeneous product category. The government can impose a simple quota that applies indiscriminately to all goods within the product category or it can divide the quota among them with subquotas. In this paper, we analyze the welfare effects of subquotas. Under certain simplifying assumptions we find that a system of subquotas nearly always exists that provides greater welfare than a simple quota for a large country that retains quota rights or for a large or small country that gives quota rights away to foreigners. However, subquotas cannot increase the welfare of a small country that retains quota rights. The difference lies in the effect of imports on the home country's terms of trade.The views expressed in this paper are those of the authors and do not necessarily reflect the opinion of the US International Trade Commission. The authors are grateful for helpful comments on an earlier draft by anonymous referees.     

Promise and peril in implementing pay‐for‐performance

Why would managers abandon pay‐for‐performance plans they initiated with great hopes? Why would employees celebrate this decision? This article explores why managers made their decisions in 12 of 13 pay‐for‐performance “experiments” at Hewlett‐Packard in the mid‐1990s. We find that managers thought the costs of these programs to be higher than the benefits. Alternative managerial practices such as effective leadership, clear objectives, coaching, or training were thought a better investment. Despite the undisputed instrumentality of pay‐for‐performance to motivate, little attention has been given to whether the benefits outweigh the costs or the “fit” of these programs with high‐commitment cultures like Hewlett‐Packard was at the time. © 2004 Wiley Periodicals, Inc.     

Distance in organizations

There is perhaps no construct that is so fundamental to interpersonal interactions in organizations, yet so incompletely understood, than distance. Part of the difficulty in developing a comprehensive and informed understanding of the role distance plays in organizations is that theory and research in this area have been quite fragmented, focusing on narrow aspects of the construct and lacking the integration necessary to build a more general knowledge base. For example, Graen (1976) has contributed greatly to our understanding of one aspect of distance, presenting a model based on role theory whereby in-group and out-group members are hypothesized to enjoy different rewards, benefit from different leadership behaviors, and experience different levels of satisfaction and performance ratings based on relative closeness (or distance) in their working relationship with their supervisor. Other researchers have explored the phenomena of psychological distance (Rothaus, Morton, & Hanson 1965), spatial distance (Kerr & Jermier 1978; Ferris & Rowland 1985), and physical distance (Sundstrom, Burt, & Kamp 1980; Sundstrom 1986) in the supervisor-subordinate relationship. This research, although a good starting point, does not adequately define or integrate the various aspects of distance in organizations. This article represents an effort to develop a broader and more extensive understanding of the role distance plays in organizations by integrating the various types of distance into a theoretical model. A model of Dyadic Distance in the supervisor-subordinate relationship is presented which develops the new constructs of Dyadic, Psychological, Structural, and Functional Distance, examines their process dynamics and impact on Human Resource Management issues such as performance evaluations and turnover, and proposes needed directions for future research in this important area.     

A model of public sector wage determination

The paper presents an empirical model of wage determination in the public sector that leads to the specification of a system of interrelated wage equations for municipal employees, which allows for occupational and geographic interdependence of wages. The model also considers the influence of public employee unions, municipal government form, and monopsony power of local governments on the wages of municipal employees. Several variants of the derived system of equations are estimated based upon 1967 cross-section data for 478 cities, and the policy implications of the results are discussed.     

Returns of Small Growth Stocks: An Empirical Analysis

I investigate the mean reversion tendency of small growth stocks. Using a carefully articulated research design employing established and empirically tested principles, my findings should support or refute the anecdotal evidence that small growth stocks make superior investments. The primary motivation for the study springs from the documented differential preference among investors for value and growth stocks. Despite evidence that value stocks tend to outperform growth stocks, investors retain strong interest in growth stocks. Yet in examining the performance of Business Week’s (BW), smaller capitalization companies (called “Hot Growth Companies”) with respect to the overall financial market, Bauman et al. [2002] found positive excess returns in the pre-publication period but negative excess returns in the post-publication period. A limitation of their study is that their analyses relied on only three criteria: sales, BW rank and return on capital, which do not represent completely a firm’s financial health. I replicate Bauman et al.’s study but use a more robust and representative variable set to test the mean reversal hypothesis — Forbes’ financial criteria — and I focus on six variables. In the current study, I look at 4,200 companies listed in Forbes from 1980 to 2000. The results of the expanded study substantiate Bauman et al.’s [2002] study showing that there are positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. An expanded future study will look at five additional variables to see if they make a significant difference on the effects of the returns of small growth stocks.     

Risk-taking incentives of executive stock options and the asset substitution problem

Various theoretical models show that managerial compensation schemes can reduce the distortionary effects of financial leverage. There is mixed evidence as to whether highly levered firms offer less stock‐based compensation, a common prediction of such models. Both the theoretical and empirical research, however, have overlooked the leverage provided by executive stock options. In principle, adjusting the exercise prices of executive stock options can mitigate the risk incentive effects of financial leverage. We show that the near‐universal practice of setting option exercise prices near the prevailing stock price at the date of grant effectively undoes most of the effects of financial leverage. In a large cross‐sectional sample of Canadian option‐granting firms, we find evidence that executives' incentives to take equity risk are negatively rather than positively related to the leverage of their employers.     

'An awkward fence to cross': railway capitalization in Britain in the inter-war years

This paper examines the related problems of the capitalization and financial performance of the railway companies in the inter-war period. It examines the critics' view that the railways were over-capitalized, and places the debate in context by analysing the dividend and accounting policies of the companies and the consequences for investment. It also examines the conflicting views of railway management and shareholders over capital expenditure. The paper concludes that the railways were both financially over-capitalized and physically under-capitalized, and so faced very serious financial problems that were incapable of resolution within the existing ownership structure.     

Delivering Better Transport? An Evaluation of the Ten–Year Plan for the Railway Industry

In July 2000, the Government published Transport 2010, its ten–year plan to improve Britain's transport. This article reviews the proposals to improve the railway system, and examines their likely effects on investment by the railway companies and on passenger safety. The plan is analysed in the context of the structure of the privatized railway industry and its regulatory bodies, with particular reference to the performance of Railtrack (now in administration). The authors conclude that the Government was over–confident in believing that a defective privatized structure could deliver the expansion it wanted. The article shows that the Government has been relying on inadequate and under–performing instruments, over some of which it had little control. This will probably continue unless Railtrack is restructured and taken back into public ownership. Progress so far has been limited, and the prospects of success are not good.