A model of periodic job training

This paper examines conditions under which a demand-constrained, cost-minimizing firm will provide industry-specific on-the-job-training to its employees, when a flexible stock of outside labor is available for hire. The term industry-specific is used to describe training with general components valued by other firms in the industry. This definition of on-the-job-training offers the possibility that trained workers could be poached by competing firms and provides limited opportunities for newly trained workers to seek alternative employment. The firm's decisions involve whether or not to invest in on-the-job-training, and whether to use in-house labor exclusively or a mix of in-house and outside labor. The cost-minimizing strategy is crucially dependent upon the mutual loyalty of the firm and its workers.This paper has benefited from numerous comments from the participants of the 41st International Atlantic Economic Conference in Paris, March 12–19, 1996.     

Is sustainable growth optimal?

This paper analyzes sustainable growth in a stochastic environment, with human extinction as a possible outcome. The basic constraint of sustainability is that consumption never decreases over an infinite horizon, which requires that the probability of extinction be maintained at zero. We show that this problem can be examined in a standard optimal-growth model. Under certain conditions, the solution of this problem is a corner solution with probability of survival equal to one, at the cost of economic growth. These conditions depend on the initial development level and on the elasticity of utility with respect to consumption. In some circumstances, which depend on the social discount rate, optimal-growth paths do not exist. In these situations, the sustainable-growth concept has a clear autonomy with respect to the usual optimality criterion.     

Accountability of independent directors: Evidence from firms subject to securities litigation

We examine which independent directors are held accountable when investors sue firms for financial and disclosure-related fraud. Investors can name independent directors as defendants in lawsuits, and they can vote against their reelection to express displeasure over the directors’ ineffectiveness at monitoring managers. In a sample of securities class action lawsuits from 1996 to 2010, about 11% of independent directors are named as defendants. The likelihood of being named is greater for audit committee members and directors who sell stock during the class period. Named directors receive more negative recommendations from Institutional Shareholder Services, a proxy advisory firm, and significantly more negative votes from shareholders than directors in a benchmark sample. They are also more likely than other independent directors to leave sued firms. Overall, shareholders use litigation along with director elections and director retention to hold some independent directors more accountable than others when firms experience financial fraud.     

Rent seeking and the allowed rate of return: A recursive model

In this paper, we estimate a three-equation recursive model of the rate-of-return phase of the regulatory hearing process. Separate equations are estimated for the firm's requested rate of return, the staff's recommended rate of return, and the commission's approved rate of return. The sample used in this estimation contains 122 observations of actual rate cases that were decided between 1980 and 1984. There are 73 electric companies and 37 states represented in this sample. The model differs from prior work in this area by (1) incorporating a separate equation to explain the commission staff's recommended rate of return, and (2) including the regulated companies' actual expenditures on the hearing process as a variable in all three equations.