Monopoly,efficient contract,and median voter models of union wage determination: A critical comparison

This article critically compares the monopoly, efficient contract, and median voter models of union wage determination. The models are first analyzed with respect to five theoretical issues: the aggregation of preferences, the principal-agent problem, strike costs, dynamics, and incentive compatibility. The models are then compared with regard to their ability to explain two features of union wage/employment determination: the asymmetric response of union wages to demand shocks and the wide variation in the presence of featherbedding restrictions in union contracts. While all three models suffer from significant short-comings, the median voter model is generally superior. The authors acknowledge the helpful comments of Hank Farber and the financial assistance received from the College of Business Administration, Georgia State University.     

The chilling effect of optimism: The case of final-offer arbitration

This article examines the incentive effects of final-offer arbitration (FOA) when disputants have optimistic (i.e., biased) beliefs about the arbitrator's settlement preferences. Optimism is shown to increase the divergence in Nash equilibrium final offers, and the divergence is largest under naïve, rather than sophisticated, optimism. Therefore, though FOA rules were instituted to lessen the “chilling” effect of arbitration, FOA interacts with optimism to worsen the chilling effect. Data from controlled laboratory experiments confirm that optimism leads to more divergent final bargaining positions and higher dispute rates. These results highlight the role that de-biasing expectations can play in improving bargaining outcomes.     

The effects of the Great Recession on American families

The Great Recession was marked by historic rates of unemployment and foreclosure and caused substantial household economic hardship and widespread economic uncertainty. I review recent social scientific research on the effects of the Great Recession on American families. I first generate a set of expectations for how the Great Recession would have affected (a) marriage and cohabitation, (b) fertility, and (c) relationship quality and divorce based on existing sociological and demographic theory and research. I then discuss the key methods that scholars have used to gauge the effects of the Great Recession in these outcome areas. My review of research to date indicates that the recession had modest effects on marriage and cohabitation, but significant negative effects on fertility. Notably, these fertility effects are evident among unmarried and low socio‐economic‐status (SES) women whom prior research has suggested decouple fertility from economic concerns. Finally, there is modest evidence that the Great Recession reduced relationship quality, but it appears that the costs of divorce restrained any increase in dissolution.     

Risk and final offer arbitration usage rates: Evidence from major league baseball

We use major league baseball data to examine risk and final-offer arbitration usage. Risk attitudes are proxied by the likelihood that FOA-generated salary increases place the player’s baseball employment at risk. Employment risk is inversely related to player quality. Our evidence suggests that higher-quality (low-risk) players are more likely to file for arbitration and seek an arbitrated settlement than lowerquality (high-risk) players. We thank Paul Burgess for helpful comments on an earlier version of this paper.     

THE IMPACT OF ENTITLEMENTS AND EQUITY ON COOPERATIVE BARGAINING: AN EXPERIMENT

In some bargaining situations—for example, collaborative policy making and compulsory arbitration—a third party imposes a backstop position that differs from the status quo. Axiomatic models of cooperative bargaining presume that the status quo in such cases will have no effect on the negotiated outcome, especially if it is Pareto inferior to the backstop. Recent literatures on equity and entitlement, however, suggest that the status quo may establish a focal point that acts as an “anchor” in current negotiations, affecting any ultimate agreement. In a two‐party, two‐attribute experiment, in which subjects jointly select from up to 200 options, we find evidence (1) that the status quo matters, perhaps because of “entitlement effects” and (2) that parties prefer egalitarian outcomes to the Nash bargain. (JEL C92, D74, H44, Q58)     

Cohabiting,Dating, and Perceived Costs of Marriage: A Model of Marriage Entry

This paper investigates the decision to marry among individuals in cohabiting and steady noncohabiting relationships, with emphasis on the effects of cohabitation in the decision‐making process. A model is proposed wherein cohabitation influences the perceived costs and benefits of marriage, which influence intentions and expectations to marry, which influence actual marriage entry. The model is tested using data from the first and second waves of the National Survey of Families and Households. Cohabitation status is found to predict perceived costs and benefits of marriage, and also to predict marriage intentions and expectations. Cost perceptions further predict intentions and expectations among both cohabitors and daters, and perceived costs, intentions, and expectations to marry the partner predict actual marriage behavior. Cohabitation appears to significantly change the context in which decisions about marriage are made in romantic relationships and merits a greater place in the literature on dating and courtship.     

A comparison of pricing rules for auctions and fair division games

Consider an auction or fair division game where every bidder knows his true value of the single object but is only incompletely informed about the true values of his competitors. By imposing the axiom of envy freeness with respect to stated preferences the set of pricing rules is restricted to the prices between the highest and second highest bid. Whereas for auctions one also can satisfy incentive compatibility, the same is not true for fair division games. We analyse and compare the different pricing rules, partly incentive compatible and partly not, by deriving the optimal bidding strategies. By comparing the payoff expectations induced by the various pricing rules we can prove directly a special equivalence statement saying that expected payoffs do not depend on the pricing rule. It is interesting that in fair division games equivalence of pricing rules is only valid if information is sufficiently incomplete.The authors gratefully acknowledge the helpful comments of an anonymous referee     

ENFORCEMENT COSTS and THE CHOICE OF POLICY INSTRUMENTS FOR CONTROLLING POLLUTION

Economic incentive based policies have long been advocated for controlling pollution because they can minimize firms' abatement costs. However, the social costs of controlling pollution consist not only of abatement costs but also enforcement costs. I show that the conditions for minimizing abatement costs and minimizing enforcement costs differ. As a result, enforcement costs can be higher for incentive based policies than for policies based on direct controls. A complete evaluation of alternative policies requires a comparison of both abatement and enforcement costs.     

The determinants of organizations’ usage of employee dismissal: Evidence from Australia

Substantial variation exists across organizations in their use of dismissal. While it has been suggested that this variation reflects organizational-level factors relating to disciplinary issues, little evidence exists regarding the effect of these factors. Using data from 1,596 workplaces in the Australian Workplace Industrial Relations Survey, we examine how organizational-level factors that reflect the incidence of disciplinary problems as well as the expected costs and benefits of dismissal are related to dismissal usage. For each organization, data were collected on organizational characteristics and practices in interviews with the employee relations manager and the senior line manager. Data were also collected on whether or not dismissal was used by the firm and on the number of employees dismissed. Using both logistic regression and tobit analysis, our results suggest that dismissal is affected by procedural and institutional restrictions on the use of discipline, interactions among those restrictions, compensation level, labor market factors, workforce human capital, operating capacity, work group influence, the use of incentive pay, workforce size, and industry classification. Copies of the AWIRS Data set are available for purchase from the Australian Government Publishing Service, Commonwealth Department of Industrial Relations, Canaberra, Australia. The authors thank Alan Morris and Lindsay Turner for their assistance in managing the AWIRS data set. Michelle Brown is now at the University of Wisconsin-Milwaukee, WI 53201.     

Divorce in Korea: Trends and Educational Differentials

The authors extend comparative research on educational differences in divorce by analyzing data from Korea. A primary motivation was to assess whether the theoretically unexpected negative educational gradient in divorce in Japan is also observed in Korea. Using vital statistics records for marriages and divorces registered between 1991 and 2006, the authors calculated cumulative probabilities of divorce, by marriage cohort (N = 5,734,577) and educational attainment. The results indicated that the relationship between education and divorce was negative even in the earliest cohort and that this negative gradient has become more pronounced in more recent cohorts. Contrary to expectations, however, little evidence was found that the concentration of divorce at lower levels of education was exacerbated by the Asian economic crisis in the late 1990s. The authors discuss these findings in light of conventional emphases on the costs of divorce and highlight the importance of better understanding this distinctive east Asia pattern of divorce.     

Trust, repute and the role of non-profit enterprise

This article examines the trust hypothesis: the claim that asymmetric information can explain the existence of non-profit enterprise in certain markets. We argue that this hypothesis, in order to be viable, has to meet three challenges: ‘reputational ubiquity’, ‘incentive compatibility’ and ‘adulteration’. Drawing on modern agency theory, we conclude that the trust hypothesis stands on shaky ground. It can be sustained only under particular conditions that have been neither carefully described in theory nor subject to empirical assessment. The available evidence, patchy and inadequate as it is, seems to suggests that there are some ownership-related differences in aspects of organisational performance connected with asymmetric information. However, there is little evidence that this relates to trustper se or provides a rationale for the existence of non-profit ownership in these industries. We conclude with a plea for substantial research on consumer expectations and provider motivations. Visiting Associate Professor at Rutgers University, New Brunswick, New Jersey.     

PRODUCT DIFFERENTIATION UNDER CONGESTION: HOTELLING WAS RIGHT

We introduce negative network externalities—“congestion costs”—into H. Hotelling's (1929) model of spatial competition with linear transportation costs. For any firm locations on opposite sides of the midpoint, a pure strategy price equilibrium exists and is unique if congestion costs are strong enough relative to transportation costs. We analyze product differentiation and find that Hotelling's Principle of Minimum Differentiation comes closer to holding in the presence of congestion costs. The greater are congestion costs, the less differentiated products can be in (locationally symmetric) equilibrium. In fact, minimum differentiation comes arbitrarily close to holding depending on the magnitude of these costs relative to transportation costs. Intuitively, greater congestion effects stabilize competition at closer quarters, eliminating aggressive pricing equilibria. Thus, negative network externalities can play a significant role in product differentiation. (JEL D21, L15, R12)     

“Chilling” under arbitration and mixed strike-arbitration regimes

This paper investigates the “chilling effect” of arbitration hypothesis using data from public sector collective bargaining activity in Minnesota. Settlement rates under a regime requiring the compulsory arbitration of impasses are compared to rates under a regime permitting a limited right to strike. The authors find a significantly lower settlement rate under the pure arbitration regime. Other factors that could result in this rate differential are discussed. While not ruling out the possibility of unmeasured differences, the authors conclude that the differential is due to differences in regime and not to the confounding factors discussed. The authors wish to thank Paul Schumann and an anonymous referee for comments resulting in substantial improvements in this paper.     

Structural and motivational mechanisms of academic achievement: a mediation model of social‐background effects on academic achievement

This paper takes up ongoing discussions on the inequality of educational opportunities and formulates a conceptual model to link separate lines of research. Our particular focus is on combining motivational and structural approaches into a mediation model that explains differences in academic achievement. In the literature, four main mechanisms of social reproduction are discussed. Two main pathways refer to (1) parents’ expectations regarding their children’s academic success and (2) replicating cultural capital through intra‐familial cultural practices. (3) Parents’ perception of children’s abilities depends on social position and is influential for expectations of success. (4) For all three pathways, we expect effects on students’ motivational characteristics, which in turn influence academic achievement. We test our conceptual model by structural equation modelling using longitudinal data from primary school students in Germany. Empirical evidence is in line with the assumptions in the model. Cultural reproduction and expectations of success can be seen as the key components of the model. However, both chains of reproduction are related to each other by parents’ perception of child’s ability, and their effects are mediated by child’s motivational characteristics.     

INTERNATIONAL EFFECTS OF EURO AREA VERSUS U.S. POLICY UNCERTAINTY: A FAVAR APPROACH

Estimating a large‐scale factor‐augmented vector autoregressive model for 18 Organisation for Economic Co‐operation and Development member countries, we quantify the global effects of economic policy uncertainty shocks. More specifically, we check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a U.S. and a Euro area policy uncertainty shock. According to our results, an increase in economic policy uncertainty has a strong negative impact on economic activity (gross domestic product), consumer prices, equity prices, and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo‐Saxon countries. U.S. uncertainty shocks have a bigger impact than those for the Euro area. Economic policy uncertainty does not only affect that country where the shock originates but also has large cross‐border effects. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long‐term interest rates to an economic policy uncertainty shock, our results reveal a strong “North‐South” divide within the Euro area with rates decreasing less significantly in the South. Moreover, economic policy uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin. (JEL C32, F42, D80)     

Social stratification and attitudes: a comparative analysis of the effects of class and education in Europe

A classic topic in the sociology of inequality lies in the subjective consequences of people's stratification position. Many studies have shown that education and occupational class have significant effects on attitudes, but little is known about how the magnitude of these effects depends on the societal context. There has been debate in the scholarly literature, with some authors arguing that effects of class and education are less important when societies are more developed, whereas other authors argue that effects are either stable (for class) or increasing (for education). We use a meta-analytical design to address this debate. More specifically we examine the effects of class and education for a broad range of attitudes (21 scales) in 22 European countries using data from the 1999 wave of the European Values Study. We pool summary-measures of association (Eta-values) into a new dataset and analyse these Eta-values (N = 453) applying multilevel models with characteristics of countries and characteristics of attitudes as the independent variables. Our results show that there is no evidence that the effects of class on attitudes are lower when countries are more modern, but we do find larger effects of education in more modern countries.     

On the formation of inflationary expectations: Some empirical evidence from Finland, 1979–1980

The results of a survey of inflationary expectations executed in 1979–1980 are reported. The respondents form one “informed” and one “uninformed” group. The purpose of the study are: (1) to test standard hypotheses on the formation of inflationary expectations, (2) to study the term structure of those expectations, (3) to study their dispersion among individuals, (4) to investigate the uncertainty in the formation of expectations.The results suggest that the adaptive expectations formation model works best for the uninformed group, while the extrapolative model is more satisfactory for the informed group. The lagged rate of unemployment was found to be a significant explanatory variable as well. Long-run inflationary expectations turned out to be very similar to short-run predictions, although the dispersion among individuals was greater in the former case. The uninformed respondents also expressed expectations with a greater dispersion than the informed respondents. The standard deviation of the expectations was quite stable over the observation period. The proxy used for subjective uncertainty also indicates a high degree of stability.     

THE CHANGING RESPONSIVENESS OF WAGES TO PRICE-LEVEL SHOCKS: EXPLICIT AND IMPLICIT INDEXATION

The article provides evidence for the U.S over the period 1961-84 that the responsiveness of nonunion wages to price-level shocks changes through time much as the degree of indexation in union contracts does, suggesting that there exists implicit as well as explicit indexation. When coupled with the result from previous research that indexation responds positively to inflation uncertainty, the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity. In the context of a rational expectations model with long-term wage contracts, a decline in the effectiveness of an activist monetary policy could result.     

Conditional Cash Incentive and Use of Health Care Services: New Evidence from a Household Experiment

Studies have recently provided insights into the effects of incentive modalities in the health care sector. However, there is insufficient evidence on the underlying causes of the partial effectiveness of these strategies in the health systems of developing countries. This study presents results from a large-scale randomized experiment across 6848 households in Afghanistan that evaluates the impact of a conditional incentive pay scheme on health facilities. Supported by the target-income hypothesis framework and relaxing the compliance assumption in the empirical modeling, the estimated coefficients yield causal effects of the supply-side conditional incentive on the utilization for health care services. After 2 years, the conditional incentive increased the use of pre-targeted maternal and children health care services among the households at lower levels and at contracted-out health facilities. Additionally, the incentive scheme is associated with sizable efficiency gains at the facility level. These gains are realized at the expense of deterring service users’ satisfaction with physicians’ communication qualities. This study establishes that margins of improvement do exist in the supply-side performance conditioning on an organizational structure and the service contractual arrangements of health facilities. This work provides a framework for the plausible implementation of incentive policies in the health care sector.