Moral Hazard in High Office and the Dynamics of Aristocracy

Both aristocratic privileges and constitutional constraints in traditional monarchies can be derived from a ruler's incentive to minimize expected costs of moral‐hazard rents for high officials. We consider a dynamic moral‐hazard model of governors serving a sovereign prince, who must deter them from rebellion and hidden corruption which could cause costly crises. To minimize costs, a governor's rewards for good performance should be deferred up to the maximal credit that the prince can be trusted to pay. In the long run, we find that high officials can become an entrenched aristocracy with low turnover and large claims on the ruler. Dismissals for bad performance should be randomized to avoid inciting rebellions, but the prince can profit from reselling vacant offices, and so his decisions to dismiss high officials require institutionalized monitoring. A soft budget constraint that forgives losses for low‐credit governors can become efficient when costs of corruption are low.     

Stochastic Choice and Revealed Perturbed Utility

Perturbed utility functions—the sum of expected utility and a nonlinear perturbation function—provide a simple and tractable way to model various sorts of stochastic choice. We provide two easily understood conditions each of which characterizes this representation: One condition generalizes the acyclicity condition used in revealed preference theory, and the other generalizes Luce's IIA condition. We relate the discrimination or selectivity of choice rules to properties of their associated perturbations, both across different agents and across decision problems. We also show that these representations correspond to a form of ambiguity‐averse preferences for an agent who is uncertain about her true utility.     

Promotion,Turnover, and Compensation in the Executive Labor Market

This paper develops a generalized Roy model with human capital accumulation, moral hazard, and career concerns. We identify and estimate the model with a large panel that matches data on publicly listed firms to information on their executives. The structural estimates obtained are used to decompose the firm‐size pay gap. We find that although total compensation and incentive pay increase with firm size, certainty‐equivalent pay decreases with firm size. In larger firms, and for more highly ranked executives, weaker signal quality about effort results in higher risk premiums. This risk premium accounts for roughly 80 percent of the firm‐size gap in total compensation. Larger firms are also willing to pay more than smaller ones to attract executives. Finally, the estimated coefficients on human capital accumulation from formal education and experience gained from different firms are individually significant, but their collective effect on firm‐size pay differentials nets out.     

Why Competition from a Multi‐Channel E‐Tailer Does Not Always Benefit Consumers*

Empirical studies have delivered mixed conclusions on whether the widely acclaimed assertions of lower electronic retail (e‐tail) prices are true and to what extent these prices impact conventional retail prices, profits, and consumer welfare. For goods that require little in‐person pre‐ or postsales support such as CDs, DVDs, and books, we extend Balasubramanian's e‐tailer‐in‐the‐center, spatial, circular market model to examine the impact of a multichannel e‐tailer's presence on retailers' decisions to relocate, on retail prices and profits, and consumer welfare. We demonstrate several counter‐intuitive results. For example, when the disutility of buying online and shipping costs are relatively low, retailers are better off by not relocating in response to an e‐tailer's entry into the retail channel. In addition, such an entry—a multichannel strategy—may lead to increased retail prices and increased profits across the industry. Finally, consumers can be better off with less channel competition. The underlying message is that inferences regarding prices, profits, and consumer welfare critically depend on specifications of the good, disutility and shipping costs versus transportation costs (or more generally, positioning), and competition.     

A Dynamic Model of Demand for Houses and Neighborhoods

This paper develops a dynamic model of neighborhood choice along with a computationally light multi‐step estimator. The proposed empirical framework captures observed and unobserved preference heterogeneity across households and locations in a flexible way. We estimate the model using a newly assembled data set that matches demographic information from mortgage applications to the universe of housing transactions in the San Francisco Bay Area from 1994 to 2004. The results provide the first estimates of the marginal willingness to pay for several non‐marketed amenities—neighborhood air pollution, violent crime, and racial composition—in a dynamic framework. Comparing these estimates with those from a static version of the model highlights several important biases that arise when dynamic considerations are ignored.     

针对灰色营销进行道德培训的实验效果

本文以道德培训为操纵变量,以工商管理专业的大学生为实验对象,研究了灰色营销的道德培训对人们灰色营销道德判断和行为倾向的影响.结果发现:第一,针对灰色营销的短期道德培训能够显著改进被培训者针对灰色营销的道义论评价和目的论评价,但是不能降低其灰色营销行为倾向;第二,尽管针对灰色营销的短期道德培训能够改进人们针对灰色营销的道义论评价和目的论评价,并且后者对人们的灰色营销行为倾向也有显著影响,但是它们不能中介短期道德培训对灰色营销行为倾向的影响.本文最后讨论了研究结果的理论贡献与实际应用.     

Time and No Lotteries: An Axiomatization of Maxmin Expected Utility

This paper axiomatizes an intertemporal version of the maxmin expected‐utility model. It employs two axioms specific to a dynamic setting. The first requires that smoothing consumption across states of the world is more beneficial to the individual than smoothing consumption across time. Such behavior is viewed as the intertemporal manifestation of ambiguity aversion. The second axiom extends Koopmans' notion of stationarity from deterministic to stochastic environments.     

Search With Adverse Selection

This paper analyzes a sequential search model with adverse selection. We study information aggregation by the price—how close the equilibrium prices are to the full‐information prices—when search frictions are small. We identify circumstances under which prices fail to aggregate information well even when search frictions are small. We trace this to a strong form of the winner's curse that is present in the sequential search model. The failure of information aggregation may result in inefficient allocations.     

Feedback Mechanisms,Judgment Bias,and Trust Formation in Online Auctions*

Online markets, like eBay, Amazon, and others rely on electronic reputation or feedback systems to curtail adverse selection and moral hazard risks and promote trust among participants in the marketplace. These systems are based on the idea that providing information about a trader's past behavior (performance on previous market transactions) allows market participants to form judgments regarding the trustworthiness of potential interlocutors in the marketplace. It is often assumed, however, that traders correctly process the data presented by these systems when updating their initial beliefs. In this article, we demonstrate that this assumption does not hold. Using a controlled laboratory experiment simulating an online auction site with 127 participants acting as buyers, we find that participants interpret seller feedback information in a biased (non‐Bayesian) fashion, overemphasizing the compositional strength (i.e., the proportion of positive ratings) of the reputational information and underemphasizing the weight (predictive validity) of the evidence as represented by the total number of transactions rated. Significantly, we also find that the degree to which buyers misweigh seller feedback information is moderated by the presentation format of the feedback system as well as attitudinal and psychological attributes of the buyer. Specifically, we find that buyers process feedback data presented in an Amazon‐like format—a format that more prominently emphasizes the strength dimension of feedback information—in a more biased (less‐Bayesian) manner than identical ratings data presented using an eBay‐like format. We further find that participants with greater institution‐based trust (i.e., structural assurance) and prior online shopping experience interpreted feedback data in a more biased (less‐Bayesian) manner. The implications of these findings for both research and practice are discussed.     

Backward Induction Foundations of the Shapley Value

We present a noncooperative game model of coalitional bargaining, closely based on that of Gul (1989) but solvable by backward induction. In this game, Gul's condition of “value additivity” does not suffice to ensure the existence of a subgame perfect Nash equilibrium that supports the Shapley value, but a related condition—“no positive value‐externalities”—does. Multiple equilibria can arise only in the event of ties, and with a mild restriction on tie‐break rules these equilibria all support the Shapley value.     

Moral Utility Theory: Understanding the motivation to behave (un)ethically

Moral Utility Theory provides an integrative framework for understanding the motivational basis of ethical decision making by modeling it as a process of subjective expected utility (SEU) maximization. The SEUs of ethical and unethical behavioral options are proposed to be assessed intuitively during goal pursuit, with unethical conduct emerging when the expected benefits of moral transgressions outweigh the expected costs. A key insight of the model is that any factors that increase the value of a goal—including incentives, framings, and mindsets—can motivate misbehavior by increasing the SEU of unethical conduct. Although Moral Utility Theory emphasizes the automatic and habitual nature of most SEU appraisals, it also describes a mechanism for initiating the deliberative moral reasoning process: the experience of moral uncertainty. Moral uncertainty is proposed to occur when the SEUs of ethical and unethical behaviors are similar in magnitude, thereby activating the behavioral inhibition system and motivating the allocation of attentional resources toward the decision process. This framework bridges the gap between affective and cognitive perspectives on ethical decision making by identifying automatic evaluations as a central driver of moral decisions while also specifying when and how moral reasoning processes are initiated. By combining dual-process models of morality with well-validated principles from the science of motivation, Moral Utility Theory provides theoretical parsimony and formal modeling potential to the study of ethical decision making. The framework also suggests practical strategies—from employee selection and training to goal setting and compensation systems—for encouraging ethical behavior in organizations.     

Ethical leadership and employee knowledge sharing: Exploring dual-mediation paths

Drawing on social learning and self-determination theories, this study investigates the mediating effects of controlled motivation for knowledge sharing and moral identity in the relationship between ethical leadership and employee knowledge sharing. We conducted a field study with 337 full-time employees to test our hypotheses. Results supported the mediating effects of both controlled motivation and moral identity in accounting for the relationship between ethical leadership and employee knowledge sharing. Our study is among the first to examine whether and why ethical leadership predicts employee knowledge sharing. Theoretical and practical implications are discussed.     

The Political Economy of Moral Conflict: An Empirical Study of Learning and Law Enforcement Under Prohibition

The U.S. Prohibition experience shows a remarkable policy reversal. In only 14 years, a drastic shift in public opinion required two constitutional amendments. I develop and estimate a model of endogenous law enforcement, determined by beliefs about the Prohibition‐crime nexus and alcohol‐related moral views. In turn, the policy outcomes shape subsequent learning about Prohibition enforcement costs. I estimate the model through maximum likelihood on Prohibition Era city‐level data on police enforcement, crime, and alcohol‐related legislation. The model can account for the variation in public opinion changes, and the heterogeneous responses of law enforcement and violence across cities. Results show that a 15% increase in the homicide rate can be attributed to Prohibition enforcement. The subsequent learning‐driven adjustment of local law enforcement allowed for the alcohol market to rebound to 60% of its pre‐Prohibition size. I conclude with counterfactual exercises exploring the welfare implications of policy learning, prior beliefs, preference polarization, and alternative political environments. Results illustrate the importance of incorporating the endogenous nature of law enforcement into our understanding of policy failure and policy success.     

Elite Recruitment and Political Stability: The Impact of the Abolition of China's Civil Service Exam

This paper studies how the abolition of an elite recruitment system—China's civil exam system that lasted over 1,300 years—affects political stability. Employing a panel data set across 262 prefectures and exploring the variations in the quotas on the entry‐level exam candidates, we find that higher quotas per capita were associated with a higher probability of revolution participation after the abolition and a higher incidence of uprisings in 1911 that marked the end of the 2,000 years of imperial rule. This finding is robust to various checks including using the number of small rivers and short‐run exam performance before the quota system as instruments. The patterns in the data appear most consistent with the interpretation that in regions with higher quotas per capita under the exam system, more would‐be elites were negatively affected by the abolition. In addition, we document that modern human capital in the form of those studying in Japan also contributed to the revolution and that social capital strengthened the effect of quotas on revolution participation.     

Toward an Ethical Model of Effective Crisis Communication

The goal of this study was to develop and demonstrate a new ethical model for crisis communication. This article examined the crisis communication practices as well as literature and found essential elements—what, how, and when—for ethical and effective crisis communication. Based on these three variables, a new three‐part model, the TTR Test, was proposed, utilizing three principles: Transparency (what), Two‐way symmetrical communication (how), and Right time (when). To investigate how the test can be applied to the real world, this article examined BP's crisis communication during the 2010 Gulf of Mexico oil spill.     

Knowledge Life Cycle,Knowledge Inventory,and Knowledge Acquisition Strategies*

For a knowledge‐ and skill‐centric organization, the process of knowledge management encompasses three important and closely related elements: (i) task assignments, (ii) knowledge acquisition through training, and (iii) maintaining a proper level of knowledge inventory among the existing workforce. Trade‐off on choices between profit maximization in the short run and agility and flexibility in the long term is a vexing problem in knowledge management. In this study, we examine the effects of different training strategies on short‐term operational efficiency and long‐term workforce flexibility. We address our research objective by developing a computational model for task and training assignment in a dynamic knowledge environment consisting of multiple distinct knowledge dimensions. Overall, we find that organizational slack is an important variable in determining the effectiveness of training strategies. Training strategies focused on the most recent skills are found to be the preferred option in most of the considered scenarios. Interestingly, increased efficiencies in training can actually create preference conflict between employees and the firm. Our findings indicate that firms facing longer knowledge life cycles, higher slack in workforce capacity, and better training efficiencies actually face more difficult challenges in knowledge management.     

The Influence of Cost and Quality Priorities on the Propensity to Outsource Production*

Outsourcing of production has escalated over the past decade due to unprecedented competition and worldwide access to low‐cost labor markets. This article examines how cost and quality priorities—two key attributes of manufacturing strategy—influence a manufacturer's propensity to outsource. By doing so, we bridge the existing gap between research on manufacturing strategy and firm boundaries. We develop a theory‐based model that links a manufacturer's cost and quality priorities to its plans to outsource production. Our empirical analyses, based on survey data obtained from 867 manufacturing business units, control for firm‐specific factors previously shown to impact outsourcing, including asset specificity, uncertainty, and current capabilities in cost and quality. We found that the competitive priority placed on cost played an integral role in sourcing decisions, while, surprisingly, conformance quality priorities did not. The cost result is consistent with our expectations and observations in practice. The significant effect of cost priority on outsourcing shows that any theory of firm boundaries that fails to consider competitive priorities is incomplete. The finding regarding quality, which was counter to our expectations, may partially explain why there is an emergence of so many nonconforming products associated with outsourcing. Taken together, our results provide theoretical insights for future research into how manufacturing managers can improve their decision making on outsourcing production.     

中国情景下消费者的伦理购买意向研究——基于TPB视角

本文运用大样本问卷调研法,基于TPB视角重点分析消费者的伦理购买决策机制,旨在考察中国情景下影响消费者伦理购买意向的深层次因素。研究结果发现,行为态度、主观规范与感知行为控制会显著影响消费者的伦理购买行为意向,其中主观规范是购买意向最有影响的预测变量,表明中国情景下消费者在进行伦理购买决策时更倾向于遵从社会规范的影响;进一步感知行为控制不仅直接显著作用于伦理购买意向,还通过行为态度对伦理购买意向产生间接的重要影响,表明在中国情景下如何真正提高消费者伦理购物时的感知行为控制程度是企业实施伦理营销时面临的关键性问题。总体而言,本文结果表明,修正后的计划行为理论对中国情景下消费者的伦理购买意向能够进行有效地解释与预测,说明计划行为理论具有良好的跨文化适应性。最后,本文为中国企业伦理营销战略的实施提供重要建议。     

Robustness and Separation in Multidimensional Screening

A principal wishes to screen an agent along several dimensions of private information simultaneously. The agent has quasilinear preferences that are additively separable across the various components. We consider a robust version of the principal's problem, in which she knows the marginal distribution of each component of the agent's type, but does not know the joint distribution. Any mechanism is evaluated by its worst‐case expected profit, over all joint distributions consistent with the known marginals. We show that the optimum for the principal is simply to screen along each component separately. This result does not require any assumptions (such as single crossing) on the structure of preferences within each component. The proof technique involves a generalization of the concept of virtual values to arbitrary screening problems. Sample applications include monopoly pricing and a stylized dynamic taxation model.     

Prices,Markups, and Trade Reform

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi‐product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity‐based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory‐gate prices and that output tariff declines have the expected pro‐competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass‐through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.