CONTRACTING FOR GOVERNMENT SERVICES: THEORY AND EVIDENCE FROM U.S. CITIES*

Local governments can provide services with their own employees or by contracting with private or public sector providers. We develop a model of this ‘make‐or‐buy’ choice that highlights the trade‐off between productive efficiency and the costs of contract administration. We construct a dataset of service provision choices by U.S. cities and identify a range of service and city characteristics as significant determinants of contracting decisions. Our analysis suggests an important role for economic efficiency concerns, as well as politics, in contracting for government services.     

ARE LONGER SCHOOL SESSIONS A GOOD INVESTMENT?

Educational reform for elementary and secondary schools has become a major industry in the past three years. At the national and state levels, commissions and legislatures have begun to act (e.g., National Commission on Excellence in Education 1983; Task Force on Education for Economic Growth 1983; Griesemer and Butler 1983; U.S. Department of Education 1984). One central recommendation of these reports is to adopt longer school days and longer school years. The most publicized of the reports, "A Nation at Risk," called for seven-hour school days in place of the present five to six hours, and 200-to-220-day school years in place of the typical 180 days at present (National Commission on Excellence in Education 1983, 29). In response, some states have increased already both daily and annual school sessions (U.S. Department of Education 1984). For example, California appropriated $257 billion in 1984 to increase the amount of instruction by about 5 percent.     

Labor Force Participation and Monetary Policy in the Wake of the Great Recession

This paper provides compelling evidence that cyclical factors account for the bulk of the post‐2007 decline in the U.S. labor force participation rate (LFPR). We then formulate a stylized New Keynesian model in which the LFPR is practically acyclical during “normal times” but drops markedly following a large and persistent aggregate demand shock. These considerations have potentially crucial implications for the design of monetary policy, especially when interest rate adjustments are constrained by the zero lower bound; specifically, monetary policy can induce a more rapid recovery of the LFPR by allowing the unemployment rate to fall below its natural rate.     

QUALITY DISCLOSURE AND COMPETITION*

We analyze costly quality disclosure with horizontally differentiated products under duopoly and a cartel, and characterize the effect of competition on disclosure and welfare. We show that expected disclosure is higher under a cartel than under duopoly, and the welfare comparison depends on the level of disclosure cost: when the disclosure cost is low, welfare is higher under a cartel than duopoly, but when the disclosure cost is high, welfare is higher under duopoly. In either market structure, disclosure is excessive in terms of total surplus, but insufficient in terms of consumer surplus.     

The Impact of Surplus Schooling on Worker Productivity

Human capital theory suggests that education enhances worker productivity and is reflected in higher individual earnings. We use data from the 1969 Survey of Working Conditions and the 1973 and 1977 Quality of Employment Surveys, and a model derived from the industrial psychology literature, to test the proposition that workers' education in excess of what their jobs require can have adverse effects on job satisfaction and other correlates of worker productivity. Our results support earlier studies that have found surplus schooling has a negative effect on job satisfaction. Our findings also indicate that the negative impact of surplus schooling on job satisfaction and turnover is more significant for workers with a higher level of surplus education. Finally, the negative effects of surplus schooling appear to change over time.     

Cyclical Changes in Firm Volatility

We characterize trends and cycles in the volatility of U.S. firms using a measure that we argue more cleanly captures firm‐specific volatility in sales and earnings growth than standard measures do. While earlier literature has emphasized a trend increase in the volatility of publicly traded firms, we find that a typical publicly traded firm has become more stable. We find that the negative association between firm‐specific volatility and the business cycle is weaker than earlier research based on dispersion measures suggests. We find that during the Great Recession of 2007–2009, firm‐specific volatility increased moderately but never substantially exceeded its sample mean. Our results are inconsistent with the hypothesis that firm‐specific volatility is an important driver of the business cycle, as it theoretically could be through an effect of default risk on credit spreads.     

Consumers' Attitude Change Across Sequences of Successful and Unsuccessful Product Usage

In two experiments we examine how consumers are affected by a sequence composed of an initial product-failure experience followed by a success experience. Our interest is to assess how consumers' evaluation of the product and of their own performance change after the second experience. A preliminary experiment used hypothetical scenarios describing consumers' experiences with different products. In the main experiment, participants received actual hands-on experience with a Smith-Corona Personal Typewriter/Word Processor. A major result was that product evaluations could be as high following a failure-success sequence of experiences as following success alone. This was especially true with hands-on experiences. However, the main experiment showed that negative affect (frustration) expressed following an actual product failure experience remained even after a subsequent success. Marketing implications of these dual results are discussed.