RETAINED EARNINGS DYNAMIC, INTERNAL PROMOTIONS AND WALRASIAN EQUILIBRIUM

In the early stages of the process of industry evolution, firms are financially constrained and pay different wages because workers have heterogeneous expectations about the prospects for advancement offered by each firm's job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of a Walrasian equilibrium. To some extent, it is not technological efficiency but workers' self-fulfilling expectations about their prospects for advancement within the firm what explains which firms have lower unit costs, grow more and dominate the market.Industry Evolution - Market Selection Hypothesis - Production under Incomplete Markets - Retained Earnings Dynamic - Self-Fulfilling Expectations - Internal Labor Markets

Retained Earnings Dynamic, Internal Promotions and Walrasian Equilibrium

In the early stages of the process of industry evolution, firms are financially constrained and might pay different wages to workers according to their expectations about the prospects for advancement offered by each firm’s job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of aWalrasian equilibrium. To some extent, it is not technological efficiency but workers’ self-fulfilling expectations about their prospects for advancement within the firm that explains which firms have lower unit costs, grow more, and dominate the market.Industry Evolution ; Market Selection Hypothesis ; Production under Incomplete Markets ; Retained Earnings Dynamic ; Self-Fulfilling Expectations ; Internal Labor Markets

Retained earnings dynamic, internal promotions and Walrasian equilibrium

In the early stages of the process of industry evolution, firms are financially constrained and might pay different wages if workers have heterogeneous expectations about the prospects for advancement offered by each firm's job ladder. This paper argues that, nevertheless, if the output market is competitive, the positive predictions of the perfectly competitive model are still a good description of the long run outcome. If firms maximize the discounted sum of constrained profits, financing expenditure out of retained earnings, profits are driven down to zero as the perfectly competitive model predicts. Ex ante identical firms may follow different growth paths in which workers work for a lower entry-wage in firms expected to grow more. In the steady state, however, workers performing the same job, in ex-ante identical firms, receive the same wage. I explain when the long run outcome is efficient, when it is not, and why firms that produce inefficiently might drive the efficient ones out of the market even when the steady state has the positive properties of a Walrasian equilibrium. To some extent, it is not technological efficiency but workers' self-fulfilling expectations about their prospects for advancement within the firm what explains which firms have lower unit costs, grow more, and dominate the market

Essays on Occupational Choice and Entrepreneurial Ventures

This dissertation consists of three independent articles on the subjects of entrepreneurial ventures and occupational choice. The first article examines the flow of information between entrepreneurs and investors in a theoretical venture capital market, analyzing how informational asymmetries and evaluative bias affect equilibrium fundraising, investment, and implementation strategies. The second article investigates the gender income differential using a model of occupational choice, maternity choice, and the ability to stochastically wage climb. The third article theoretically examines the location choice and endogenous growth dynamics of television productions facing labor supplies that are heterogeneous in skill level. Location choice is influenced by tax considerations, as well as the regional accessibility of talent; the model is used to explain why studios and producers have begun shifting television production outside of Hollywood despite the high concentration of production talent in Los Angeles

Implicit labour contracts in hierarchical firms : some theoretical considerations

This thesis is a theoretical study of employment relations between hierarchical firms and individual workers. The focus point is on the characteristics of the optimal contracts that are implicitiy entered into between the two parties. The role of hierarchical firms in the collection of information about the worker's abiUty is investigated. It is shown that, when the firm uses this information to decide its job assignments/promotions and job signalling exists in the labour market, the possibility of quitting results in an upward sloping wage profile for the high ability worker, a downward rigid wage profile for the low ability worker, and the worker's initial wage being less than his expected average productivity. These conclusions remain unchanged when there are more than two perceived ability levels, or the firm offers two possible career structures to its workers. Another function of the hierarchical firm is the imposition of supervision to prevent its workers from shirking. When this activity is added to the production and insurance activities, it is shown that the conclusions of the symmetric information implicit labour contract must be modified : invariant wage income across states does not necessarily hold and the optimum employment level changes. The existence of the supervision activity in the firm also precludes work sharing as a way of eliminating involuntary unemployment. A hierarchical firm can also be treated as an internal labour market where junior/unskilled workers and senior/skilled workers interact. The senior workers transmit skills (either general or specific) to junior workers and provide them with promotion prospects, and the firm can recruit skilled workers from outside. Under these circumstances the conditions under which wages do not equal marginal value product of labour are fully investigated. This approach also provides an explanation for why a worker's wage profile may diverges from his product profil

Modelling spatial economic effects of transport infrastructure policies: a computable general equilibrium approach

The purpose of this doctoral thesis is to suggest and operationalise several important extensions and improvements in the methodology used to evaluate regional economic effects of the large-scale transport infrastructure and pricing policies. The main contributions are divided into the static modelling part and the dynamic modelling part. In the static modelling part, our focus is on the implications of the assumptions of partial capital mobility and wage rigidity for the evaluation of border-crossing infrastructure projects. In particular, we introduce a negative relationship between the regional real wage and the unemployment rate, usually called the "wage curve", into the model. We show that including these assumptions substantially increases the magnitude of the indirect effects predicted by the model. We also identify and describe the mechanisms governing these effects. In the dynamic modelling part, we make a first attempt to introduce full forward-looking dynamics into the spatial CGE modelling framework by specifying the intertemporal optimization problems of the households and the firms. This framework also allows us to rep-resent incomplete capital mobility in a more plausible way than in the static model by introducing the costs of investment. We perform numerical simulations in order to study the properties of the model, and to understand the added value of this approach as compared to static analysis. Both models are employed to analyse the economic impacts of the Fehmarn Belt railway axis project, in particular the indirect effects thereof

Extrinsic Rewards and Intrinsic Motives: Standard and Behavioral Approaches to Agency and Labor Markets

Employers structure pay and employment relationships to mitigate agency problems. A large literature in economics documents how the resolution of these problems shapes personnel policies and labor markets. For the most part, the study of agency in employment relationships relies on highly stylized assumptions regarding human motivation, e.g., that employees seek to earn as much money as possible with minimal effort. In this essay, we explore the consequences of introducing behavioral complexity and realism into models of agency within organizations. Specifically, we assess the insights gained by allowing employees to be guided by such motivations as the desire to compare favorably to others, the aspiration to contribute to intrinsically worthwhile goals, and the inclination to reciprocate generosity or exact retribution for perceived wrongs. More provocatively, from the standpoint of standard economics, we also consider the possibility that people are driven, in ways that may be opaque even to themselves, by the desire to earn social esteem or to shape and reinforce identity.agency, motivation, employment relationships, behavioral economics

The Relative information content of complementary and supplementary narrative commentary in UK interim reports.

The main objective of the research is to investigate the relative information content of complementary and supplementary narrative commentaries in UK interim reports. The study also examines the relative importance of complementary and supplementary narrative attributes. The subsidiary objective of the study is to investigate incremental information content of complementary and supplementary narratives. The study used 309 interim reports of 103 companies for the years 2005 to 2007. The returns used were daily market adjusted cumulative abnormal returns ±5 days around the announcement of interim reports. The disclosure index method was used to capture complementary and supplementary information using disclosure variety (number of information items) and disclosure depth set of attributes (good news, amounts and comparison of current with past performance, reasons for performance and forward-looking). The control variables included financial performance measures of dividend yield, earnings per share and total assets. Event studies based multiple regression models were used to measure information content. The findings in respect of the main objective indicate that supplementary narratives had higher but insignificant infonnation content than complementary narratives for the model based on disclosure variety. However, when disclosure depth is used, complementary narratives have higher and significant relative information content than supplementary narratives. The results also show that complementary good news, complementary amounts and comparisons of current with past performance and complementary reasons for performance were associated with returns unlike their respective counterparts in supplementary narratives. Both complementary and supplementary forward-looking attributes were not associated with returns. The results of the subsidiary objective suggest that the disclosure varit)ty model combining complementary and supplementary narratives when compared with the disclosure variety model having supplementary narratives does not have a significant difference. All other incremental information content comparisons based on either disclosure variety or disclosure depth had significant differences. This study has a number of research and policy implications, especially after the 2007 subprime financial crisis