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A model of reputation is developed to show how firms operating in concentrated sectors can use the sponsorship of general human capital investments to specifically trained…
A model of reputation is developed to show how firms operating in concentrated sectors can use the sponsorship of general human capital investments to specifically trained workers as a device of commitment with prospective employees. Employees of firms that operate in concentrated sectors learn skills that are valuable only for a limited number of alternative employers. This gives monopsonistic power to the training firm over the trained workers. Anticipating it, potential employees will be reluctant to work for the firm unless the employer is able to commit oneself’ must be turned back to ‘herself. I argue that human resource policies including the provision of general human capital to workers reduce employers’ commitment costs. Evidence from two representative samples of workers from Spain and the United Kingdom show that, consistent with the predictions of the model, firms from more concentrated sectors are more likely to sponsor their employees’ education.
In this article we design an econometric test for monotone comparative statics (MCS) often found in models with multiple equilibria. Our test exploits the observable…
In this article we design an econometric test for monotone comparative statics (MCS) often found in models with multiple equilibria. Our test exploits the observable implications of the MCS prediction: that the extreme (high and low) conditiona l quantiles of the dependent variable increase monotonically with the explanatory variable. The main contribution of the article is to derive a likelihood-ratio test, which to the best of our knowledge is the first econometric test of MCS proposed in the literature. The test is an asymptotic “chi-bar squared” test for order restrictions on intermediate conditional quantiles. The key features of our approach are: (1) we do not need to estimate the underlying nonparametric model relating the dependent and explanatory variables to the latent disturbances; (2) we make few assumptions on the cardinality, location, or probabilities over equilibria. In particular, one can implement our test without assuming an equilibrium selection rule.
We model the interaction between a profit-maximizing firm and an activist using an infinite-horizon dynamic stochastic game. The firm enhances its reputation through…
We model the interaction between a profit-maximizing firm and an activist using an infinite-horizon dynamic stochastic game. The firm enhances its reputation through “self-regulation”: voluntary provision of an abatement activity that reduces a negative externality. We show that in equilibrium the externality-reducing activity is subject to decreasing marginal returns, which can cause the firm to “coast on its reputation,” that is, decrease the level of externality-reducing activity as its reputation grows. The activist, which benefits from increases in the externality-reducing activity, can take two types of action that can harm the firm’s reputation: criticism, which can impair the firm’s reputation on the margin, and confrontation, which can trigger a crisis that may severely damage the firm’s reputation. The activist changes the reputational dynamics of the game by tending to keep the firm in reputational states in which it is highly motivated to invest in externality-reducing activity. Criticism and confrontational activity are shown to be imperfect substitutes. The more patient the activist or the more passionate it is about externality reduction, the more likely it is to rely on confrontation. The more patient the firm and the more important corporate citizenship is to firm’s brand equity, the more likely that it will be targeted by an activist that relies on confrontation.
This chapter develops a growth model of a country under a Hobbesian environment with international conflicts in which national defense is the only way to prevent external…
This chapter develops a growth model of a country under a Hobbesian environment with international conflicts in which national defense is the only way to prevent external predation. The long run growth path is determined by the equilibrium of a dynamic game with three players: the external predator, the government, and the family. The equilibrium growth path has three phases: submissive equilibrium, tolerant equilibrium, and full-protected equilibrium. Different defense strategies result in different growth prospects, and sustainable growth will endogenously induce adjustment of defense strategies.
Are ethnic specialization and thus a downward sloping labor demand curve fundamental features of labor market competition between ethnic groups? In a general equilibrium…
Are ethnic specialization and thus a downward sloping labor demand curve fundamental features of labor market competition between ethnic groups? In a general equilibrium model, this chapter argues that spillover effects in skill acquisition and social distances between ethnic groups engender equilibrium regimes of skill acquisition that differ in their implications for ethnic specialization. Specifically, fundamental relationships through which relative group sizes determine whether ethnic specialization arises and in what degree are established. Thus, this chapter theoretically justifies a downward sloping labor demand curve and explains why some ethnic groups earn more than others, ethnic minorities underperforming or outperforming majorities.
Purpose and approach – We examine theoretically and experimentally how unequal abilities to contribute affect incentives and efficiency when players compete for membership…
Purpose and approach – We examine theoretically and experimentally how unequal abilities to contribute affect incentives and efficiency when players compete for membership in stratified groups based on the contributions they make. Players have either a low or a high endowment. Once assigned to a group based on their group contribution, players share equally in their group’s collective output. Depending on the parameters, the mechanism has several distinct equilibria that differ in efficiency.
Findings – Somewhat counter to conventional expectation our theoretical analysis indicates that as long as certain assumptions are satisfied, efficiency increases rather than decreases the more abilities to contribute differ. The analysis also suggests various follow-up experiments about equilibrium selection, tacit coordination, and the effect of unequal abilities in systems with endogenous grouping. We conduct an experiment that shows that subjects tacitly coordinate the mechanism’s asymmetric payoff-dominant equilibrium with precision; this precision is robust to a change in the structure and complexity of the game.
Implications – The results suggest that people respond to merit-based grouping in a natural way and that competitive contribution-based grouping encourages public contributions even when abilities to contribute differ, which is the case in all communities and societies.