Implicit Employment Contracts: The Limits of Management Reputation for Promoting Firm Productivity

Implicit employment contracts are a common way to motivate firm productivity but also require that employees trust management to be fair when allocating postproduction firm resources between employees and owners. We use an experiment to study the problem of motivating firm productivity, which depends on levels of owner investment and employee productive effort, when managers have an incentive to favor the owner's interests over those of the employee. Drawing on research in psychology and behavioral economics, we argue that reputation concerns can more effectively promote firm productivity when manager compensation is relatively insensitive to how much the owner is allocated after production occurs. Consistent with our predictions, we find that reputation concerns lead to greater firm productivity and higher payoffs for all firm members, but only when manager pay is relatively insensitive to the owner's ex post allocation. In addition to offering testable empirical implications, our theory and results are important because they can help explain why executive compensation is, in practice, surprisingly insensitive to owner returns.     

EFFECTS ON INTEREST RATES OF IMMEDIATELY RELEASING FOMC DIRECTIVES

Prior to February 1994, the Federal Open Market Committee (FOMC) did not officially release its current Domestic Policy Directives to the public until after the next FOMC meeting, a lag of approximately 45 days. Thus, the public never knew the FOMC's latest decisions about short-run monetary policy. On 11 occasions between early 1989 and May 1993, however, the essence of the directives was "leaked" to the Wall Street Journal within one week of an FOMC meeting. This study tests Federal Reserve officials' original assertion that early release of directives would increase volatility in financial markets by creating announcement effects. The study finds some evidence of announcement effects in certain instances, but the assertion that an immediate release would "roil the markets" appears unfounded .     

Economic Viewpoint

The search for a policy device which will yield the benefits of monetary discipline without the pain is as old as it is fruitless, and the central message of this Economic Viewpoint is that going into the EMS will not provide a magic answer to our problems. However we believe that if we go into the EMS at today's rate, and pursue monetary policies consistent with maintaining that rate, the authorities' target of 3 per cent inflation by 1988 is well within reach… Our analysis of the experience of other countries, inside and outside the EMS, over the floating rate period suggests that membership of the EMS should also reduce exchange rate fluctuations and help to create a more stable environment for business planning. However, sterling's vulnerability to oil-related fluctuations cannot be eliminated just by joining the EMS. We therefore suggest that an oil bond, which capitalises the value of our North Sea assets, is created and sold to our EMS partners, thus equalising the exposure to fluctuations in oil prices and removing one major cause of exchange rate instability.     

Liquidity,Reconstitution, and the Value of U.S. Treasury Strips

An apparent pricing anomaly exists in the market for U.S. Treasury strips: zero-coupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero-coupon strips created from coupon payments. In addition to documenting this phenomenon, this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation.     

Strategic Jobs and Wage Structure in the Steel Industry: 1910–1930

The concept of strategic occupations is used to explain individualistic bargaining power during the nonunion era of the U.S. steel industry. It is hypothesized that integrative technical change homogenized the wage structure, but job categories associated with strategic work resisted this pattern. The results show that the degree of wage homogenization corresponded to the degree of technical diffusion in given steel industry departments. Moreover, strategic job categories did resist the pattern of wage homogenization.     

Secondary Trading Costs in the Municipal Bond Market

Using new econometric methods, we separately estimate average transaction costs for over 167,000 bonds from a 1‐year sample of all U.S. municipal bond trades. Municipal bond transaction costs decrease with trade size and do not depend significantly on trade frequency. Also, municipal bond trades are substantially more expensive than similar‐sized equity trades. We attribute these results to the lack of bond market price transparency. Additional cross‐sectional analyses show that bond trading costs increase with credit risk, instrument complexity, time to maturity, and time since issuance. Investors, and perhaps ultimately issuers, might benefit if issuers issued simpler bonds.     

The Impact of Credit Counseling on Subsequent Borrower Behavior

The study examined the impact of individualized credit counseling delivered to nearly 8,000 consumer clients during 1997. Credit bureau data provided objective measures of credit performance at a variety of margins between 1997 and 2000 for counseled clients, relative to a comparison group of uncounseled borrowers. Receipt of counseling was associated with a positive change in borrower credit profiles. Techniques to control for self‐selection into counseling reveal that much of the improvement was attributable to characteristics unique to consumers who sought counseling. But counseling itself was associated with substantial reductions in debt and account usage, and appeared to provide the greatest benefit to those borrowers who had the least ability to handle credit prior to counseling.     

SOCIOLOGICAL ASPECTS OF FOOD BEHAVIOUR: AN ANALYSIS OF RECENT TRENDS IN BRITAIN

The paper reviews post-war trends in food consumption in Britain based on an analysis of the annual National Food Surveys. Long-term trends are distinguished from the consequences of short-term shortages and changing welfare and subsidy policies. The data are used in particular to illustrate the interaction between social class and family size effects. In the second half of the paper emergent food trends are considered in the light of three sets of factors: economic and political, technological, and social and cultural. It is concluded that food behaviour is fundamentally a social phenomenon imbued with cultural significance and meaning, and reflecting traditional beliefs and values and dominant power differentials both within families and between different social groups.