TAKEOVERS: MANAGERIAL INCOMPETENCE OR MANAGERIAL SHIRKING?

Agency theory identifies managerial shirking as the cause for takeovers, while other explanations focus on low ability managers. This paper formalizes Jensen's free cash flow variant of agency theory by constructing a simple two-period game which captures the distinctive empirical implications of the two theories.
Using data for petroleum firms following the oil price shock of 1979-80, we find that firms undergoing financial restructuring exhibited higher values of Tobin's q. Additionally, evidence of management turnover and workforce cuts emphasizes that takeovers appear primarily designed to address agency concerns.     

THE HAZARDS OF MORAL HAZARD: COMMENT ON GOFF, SHUGHART, AND TOLLISON

Goff et al. [1997] argue that the sharp increase in the number of hit batsmen after the adoption of the designated hitter rule is due to moral hazard. I argue instead that simple changes in the composition of batters faced explains much of the observed effect. Pitchers are bad hitters and therefore are much less likely to be hit than their designated hitters. Furthermore, there is no correlation between the frequency with which individual pitchers hit opposing batsmen and their personal likelihood of being hit by a pitch while batting, contrary to the predictions of the moral hazard model. ( JEL D81, J28)     

INDUSTRIAL DYNAMICS AND THE NEOCLASSICAL GROWTH MODEL

This paper studies industry-level dynamics and demonstrates the ability of a modified neoclassical growth model to capture a range of empirical facts. The paper begins by using U.S. data to document skilled and unskilled labor trends within industry sector classifications as well as industry sector output trends. Using Current Population Survey data from 1968 to 2004, it is shown that the ratio of skilled workers to unskilled workers employed has risen in all industries. The absolute increase in this ratio was larger in the more skilled industries, while the growth rate was larger in the less skilled industries. Furthermore, using national income account data, it is shown that relatively high-skilled industries have accounted for an increasing share of output over time. A version of the neoclassical growth model is then constructed to match these observations. One important feature of this model is a structure that introduces new goods into the economy at each moment of time. The model is able to capture a rich set of labor market movements between sectors and between skill levels as well as changes in the relative output shares across industries, yet preserves many nice features of the neoclassical growth model. ( JEL E13, J20, 030)     

EVALUATING THE EFFECTIVENESS OF CHILD SAFETY SEATS AND SEAT BELTS IN PROTECTING CHILDREN FROM INJURY

Young children are required to use child safety seats, and the age threshold at which children can legally graduate to seat belts has steadily increased. This article tests the relative effectiveness of child safety seats, lap‐and‐shoulder seat belts, and lap belts in preventing injuries among motor vehicle passengers aged 2–6 yr. We analyze three large, representative samples of crashes reported to police, as well as linked hospital data. We find no apparent difference in the two most serious injury categories for children in child safety seats versus lap‐and‐shoulder belts. Child safety seats provide a statistically significant 25% reduction in the least serious injury category. Lap belts are somewhat less effective than the two other types of restraints but far superior to riding unrestrained. (JEL I18)     

SOURCES OF ORGANIZATIONAL COMMITMENT: THE EFFECTS OF INTERNAL LABOR MARKETS AND WORKER VALUES

Data from the 1991 General Social Survey and National Organizations Survey are used to assess how organizational commitment is structured by one “demand side,” organizational-based factor, firm internal labor markets, and one “supply side,” individual-based factor, the values/preferences of workers. Findings indicate that organizational commitment is best explained by the joint influence of these two factors rather than by their independent effects. Specifically, firms with internal labor markets are conducive to the development of high levels of organizational commitment to the extent that what they offer, namely, opportunities for career-status and long-term employment “fit” what workers desire: job security and possibilities for promotion with their current employer. We offer directions for future research that may shed additional light on the manner in which internal labor markets and the values/preferences of workers may structure organizational commitment.     

NONLINEAR PRICING STRATEGIES AND COMPETITIVE CONDITIONS IN THE AIRLINE INDUSTRY

This paper empirically examines the effect of competitive conditions on nonlinear pricing strategies in the airline industry. We use a unique data set to analyze the impact of concentration and the competitive pressures generated by Southwest and other low cost carriers on the relative prices within a menu of fares. The menu orders tickets by quality based upon cabin and ticket restrictions. We analyze the ratio of fares charged for various qualities within the menu to the fares charged for the lowest quality nonrefundable, restricted tickets. We observe a fare compression for only the highest fares on only the most concentrated (i.e., monopoly) routes. This result is something of a puzzle given a monopolist's market power. We find, however, that actual and potential competition from Southwest reduces low end fares and generally leads to substantial fare compression throughout the fare menu. (JEL L11, L93)     

AN EXPERIMENTAL MODEL FOR INVESTIGATING THE SENSITIVITY OF JOB SHOP PERFORMANCE TO JOB RELEASE TIME DISTRIBUTION PARAMETERS

Work flows in a job shop are influenced by the load per release and time interval between release factors. We focus on the latter factor, job release times. Building on Elvers' work, this study evaluates the impact of different job release time distributions on shop performance. Using a computer simulation of a random job shop and a full factorial experimental design, we demonstrate that the type of distribution does affect performance–a finding consistent with results from job shops characterized by good shop floor control practices. These findings are explained by examining the shape and variance traits of the underlying job release time distributions.