ADJUSTMENT TO PRODUCTION UNCERTAINTY AND THE THEORY OF THE FIRM

This paper considers the behavior of the firm which faces uncertainty in its production process but can adjust its output once the uncertainty is resolved. Ex post adjustment, unlike previous treatments, involves a marginal cost penalty if more output is required and a lowering of price if too much is produced. With ex post adjustment allowed in this fashion, it is found that nonlinear risk preferences do not affect the sign of the firm's marginal risk premium at optimum ex ante output. The firm will produce less output than under certainty whether it is risk averse, risk neutral, or prefers risk.     

SAFETY FIRST, BANKRUPTCY, AND THE PRICING AND INVESTMENT DECISIONS OF THE FIRM

The paper analyzes the impact of imposing a constraint on the probability of bankruptcy for the pricing and investment choices of firms. Two models are presented in which a firm faces stochastic demand; in one costs are known with certainty, and in the other costs of production are probabilistic. In both cases the constraint induces a reduction in optimal price if demand is elastic. For less elastic demand, price increases may be indicated. With constant costs, the constraint lowers optimal investment. The results are applicable to the analysis of rating agencies' behavior, or to the design of bond covenants, especially for public utilities.     

ADJUSTMENT TO PRODUCTION UNCERTAINTY AND THE THEORY OF THE FIRM: REPLY

This reply responds to two comments on our 1986 article in this journal under the same title. The comments discuss a special case of the model which gives a certainty result, and also propose several alternative formulations of the model. The reply argues that the special certainty result is not an interesting or reasonable case, and discusses the relationship between the proposed alternative formulations and the original model. The influence of risk preferences on optimal output is analyzed through comparative statics for changes in risk in the context of the original model.     

ADJUSTMENT TO PRODUCTION UNCERTAINTY AND THE THEORY OF THE FIRM: A COMMENT

This paper reconsiders the model presented by Flacco and Kroetch [1986]. It shows that with additive technological uncertainty the firm will produce and contract to sell the same output as under certainty. When the Flacco/Kroetch model is generalized to allow the firm to select contract commitments and planned output ex ante, no simple comparisons with certainty are possible. These results are broadly consistent with those obtained by Mills [1959; 1962] for demand uncertainty.     

THE DIVISION OF LABOR IN THE FIRM

In this paper, Adam Smith's theory of labor specialization is formulated and tested. The restrictions in the theory are explicitly derived, and Smith's Theorem — that specialization will rise with the output rate — is rigorously stated. A simple human capital model is then employed to derive testable implications of the theory. Wage equations are estimated for the U.S. shipbuilding industry during World War II. The peculiarities of the war data notwithstanding, the results are strongly supportive of the theory.     

A NOTE ON ADJUSTMENT TO PRODUCTION UNCERTAINTY AND THE THEORY OF THE FIRM

This paper analyzes the impact of production uncertainty on the firm's optimal output decision. If uncertainty is introduced by an additive risk variable, then short-run optimal output is unchanged, but the owner-manager's expected utility can change causing long-run output effects. If uncertainty is introduced by a multiplicative random variable, then short-run output can change as well.     

A CLEAR AND PRESENT MINORITY: HETEROGENEITY IN THE SOURCE OF ENDOWMENTS AND THE PROVISION OF PUBLIC GOODS

We conduct public goods experiments in which participant groups are heterogeneous in regards to the source of their endowments. We find that this dimension of heterogeneity significantly reduces contributions to the public good, yielding strong support for the Nash prediction of minimal contributions. These minimal contributions arise in environments in which there exists a clear minority in terms of source of endowments. We discuss these results in light of current research on the influence of heterogeneous populations on public goods provision and redistributive policies. (JEL C9, D63, H4, J15)     

WORKER POWER, FIRM POWER, AND THE STRUCTURE OF LABOR MARKETS

The purpose of this article is to advance the conceptual development of structurally-oriented approaches to stratification by elaborating a behavioral model of the structure of labor markets that is based on power relations among both individual and collective actors. After reviewing the various approaches to the study of stratification and enumerating some of its shortcomings, a theory of the operation of labor markets that synthesizes a number of the elements in extant theories is presented. A labor market typology is developed based on the relative power of firms and workers and four distinct types of markets are delineated, i.e., worker-controlled, firm-internal, worker-firm negotiated, and competitive. In addition, the dynamics by which these labor markets are transformed is discussed. It is argued that this conceptual framework solves a number of problems inherent in extant theories of the operation of labor markets and the article concludes by suggesting areas for future research based on the theory.     

STUDYING THE EFFECTS OF HOUSEHOLD AND FIRM CREDIT ON THE TRADE BALANCE: THE COMPOSITION OF FUNDS MATTERS

In this article, we focus on distinguishing between household and corporate sector credit and investigate the effects these two types of credit have on the trade balance. A higher level of private credit indicates better developed financial markets and easier credit access for businesses and households. Yet, both types of borrowers vary in terms of the use of credit. Our model and empirical analysis suggest that the composition of credit does matter for the trade balance: lending to consumers has a negative effect on net exports, while firm loans contribute to a rise in net exports . ( JEL F32, F41, G21)     

THE IMPACT OF MANAGERIAL CHANGE ON PERFORMANCE: THE ROLE OF TEAM HETEROGENEITY

When a key responsibility of a manager is to allocate more or less attractive tasks, subordinates have an incentive to work hard and demonstrate their talents. As a new manager is less well informed, management dismissals reinvigorate this tournament competition—but only in sufficiently homogeneous teams. We investigate this hypothesis using a large dataset on dismissals of soccer coaches, whose main task is indeed the selection of players. We find that dismissals enhance performance (only) in homogeneous teams. Moreover, we show that there is typically a negative selection bias when evaluating succession effects, which reconciles previous contradictory findings. (JEL D22, J44, J63)