Selecting Social Goals: J. M. Keynes and the Emergence of Ontological Rationality in Economics

In this paper we discuss the fundamental inconsistency that results from employing the two traditional concepts of rationality as the basis of selecting social goals. We then consider the possibility that the selection of social goals must be based on explicitly ethical criteria. To do so a third concept of rationality namely, ontological rationality, should be adopted. Moreover, we argue that J. M. Keynes in A Tract Monetary Reform based his public policy recommendations on a modified version of ontological rationality, thereby introducing ontological rationality into economics as the basis for selecting social goals.A previous version of this paper was presented at the Fifty-Eighth International Atlantic Economic Conference, October 7–10, 2004. The authors are grateful to session participants for their helpful suggestions, though the authors alone are responsible for the contents of the paper.     

On Perceptions of Fairness: The Role of Valuations, Outside Options, and Information in Ultimatum Bargaining Games

This study examines fairness perceptions in ultimatum bargaining games with asymmetric payoffs, outside options, and different information states. Fairness perceptions were dependent on treatment conditions. Specifically, when proposers had higher chip values, dollar offers were lower than when responders had higher chip values. When responders had an outside option, offers were higher and were rejected less often than when proposers had an outside option. However, a given offer was rejected more often when responders had an outside option. Therefore, similar to the first mover advantage, the “advantaged” or “entitled” player received a higher monetary payoff than they would otherwise. When there was complete information about payoff amounts (payoff conversion rates and outside options), rejections occurred more often, and given offer amounts were rejected more often than when there was incomplete information. When there was incomplete information, offers were higher in the initial rounds than in the final rounds. These results suggest that proposers made offers strategically, making offers that would not be rejected, rather than out of a concern for fairness.     

Trucking deregulation and highway safety: The effect of the 1980 Motor Carrier Act

The relationship between deregulation in the trucking industry and highway safety is an important economic and social issue. Analyses thus far have concentrated on the relationship between the downward pressure imposed on freight rates by deregulation and total safety investment by firms. Two issues which have been ignored are the effects that deregulation had on route carriage restrictions and total firm mileage. We show that the inclusion of these factors yields a model in which the relationship between motor carrier deregulation and highway safety is dependent upon the relative effects of all three factors. Estimation of the model using accident data implies that trucking deregulation did not deteriorate highway safety and may have actually improved it.     

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.     

The business cycle with nominal contracts

Summary In this paper we study the quantitative implications of nominal wage contracts for business cycle fluctuations. We address this issue using a model economy based on the neoclassical growth model supplemented by the assumption that cash is needed to purchase goods. We consider a variation of the standard recursive competitive equilibrium concept that is intended to capture the important features of wage contracting. We use this equilibrium construct to address three issues. First, we consider whether monetary shocks, propagated by nominal contracts, constitute a viable alternative to technology shocks as a source of aggregate fluctuations. Our results suggest that, while monetary shocks and nominal rigidities succeed in causing output volatility of the required magnitude, the resulting data have properties that are inconsistent with several key features of U.S. data. Second, we consider how the behavior of the economy varies with contract length. We find that the volatility induced by both monetary and technology shocks increases sharply with contract length. Finally we consider how much rigidity would be necessary to match the volatility of U.S. output. We find that only a very small amount of rigidity would be necessary to cause output volatility of the magnitude observed.We have received helpful comments from David Chapman, Paul Gomme, Jeremy Greenwood, Gary Hansen, Michael Keane, Tim Kehoe, Lee Ohanian, Edward Prescott, and Warren Weber. The usual disclaimer applies. This research is supported in part by NSF Grant SES-8921346 and the John M. Olin Foundation.     

Announced layoffs: Their effect on corporate financial performance

Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal and effective response. In this study, evidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five-year period—two years prior to the announced layoff, the year of the layoff announcement, and two years following it. Contrary to expectations, the results indicate that financial performance worsened, rather than improved, following announced layoffs. Strategic and human resource implications for the management of corporate downsizing are provided.     

Exploring optimization through hierarchies and ratio scales

This paper explores the concept of optimization by solely using the AHP and compares outcomes with those obtained in traditional optimization theory without and with constraints. The difference is essentially in the absence of the traditional black box involving complex manipulations in algebra or the calculus on an assumed linear or nonlinear mathematical structure. This paper is an exploratory attempt to use an individual's understanding together with a way to convert his judgments to ratios to deal with optimization. At first sight it may go contrary to the reader's (learned) intuition, but in the end he must face the question of whether the magic of traditional manipulations gives rise to better answers than one's actual and complete understanding in which one does not abdicate judgmental control of the solution, and why. This idea is ripe for deeper and more detailed exploration.