Adjustment Costs, Inventories and Output

This paper analyzes the optimal adjustment strategy of an inventory-holding firm facing price- and quantity-adjustment costs in an inflationary environment. The model nests both the original menu-cost model that allows production to be costlessly adjusted, and the later model that includes price- and quantity-adjustment costs, but rules out inventory holdings. It is shown that the firm’s optimal adjustment strategy may involve stockouts. At low inflation rates, output is inversely related to the inflation rate, and the length of time demand is satisfied increases with the demand elasticity but decreases with the storage cost and the real interest rate.menu costs, quantity-adjustment costs, inventories, stockouts, output, inflation

Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms

The minimum wage rate has been introduced in many countries as a means of alleviating the poverty of the working poor. This paper shows, however, that an imperfectly enforced minimum wage rate causes small firms to face an upward-sloping labor supply schedule. Since this turns these firms into endogenous monopsonists, the minimum wage rate has the perverse effect of reducing employment in small firms as well as what these firms offer their workers. Thus, if there are only small firms, the minimum wage rate makes all workers that would be employed in the absence of a minimum wage rate worse off.endogenous monopsony, minimum wage, noncompliance, small firms

Uniform and Nonuniform Staggering of Wage Contracts

This paper provides a model that can account for the almost uniform staggering of wage contracts in some countries as well as for the markedly nonuniform staggering in others. In the model, short and long contracts as well as long contracts concluded in different periods are strategic substitutes, which provides a powerful rationale for staggering. We show that for realistic parameter values, there is a continuum of possible equilibria with various degrees of staggering of long contracts. If the contracting cost is not too large, then the lowest possible degree of staggering decreases with the contracting cost and increases with monetary uncertainty.wage contracts, uniform staggering, nonuniform staggering, monetary policy shocks, strategic substitutability, contract duration

Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets

This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.noncompliance, minimum wage, working hours, welfare, competitive labor markets

Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets

This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.competitive labor markets, noncompliance, minimum wage, working hours, welfare

Risk-Aversion and Social Mobility: The Impossibility of Order-Preserving Income Redistributions

The traditional criticism notwithstanding, we show that social mobility can, in principle, explain political income redistributions. Nonetheless, the social-mobility argument for redistribution is not satisfactory, as actual transition probabilities are not consistent with order-preserving redistributions.Political economy, social mobility, income redistribution

On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly

A vast literature analyzes the real effects of price-adjustment costs assuming that quantity adjustments are costless. In this paper, we analyze whether the presence of quantity-adjustments costs, which presumably are significant, change the traditional results on the impact of inflation. In particular, recent findings suggest that quantity-adjustment costs may remove the linkage between output and inflation. We show that this is not the case when inflation is anticipated. On the contrary, quantity-adjustment costs may significantly amplify the consequences of price-adjustment costs. Une vaste littérature analyse les effets réels de coûts d'ajustement des prix en supposant que les ajustements de quantités sont sans coûts. Dans ce papier, nous analysons si la présence de coûts d'ajustement des quantités, qui sont probablement significatifs, change le résultat traditionnel sur l'impact de l'inflation. En particulier, des résultats récents suggèrent que les coûts d'ajustement des quantités peuvent supprimer le lien entre inflation et production. Nous montrons que cela n'est pas le cas lorsque l'inflation est anticipée. Au contraire, les coûts d'ajustement des quantités peuvent amplifier significativement les conséquences des coûts d'ajustement des prix.Output-Inflation Relationship, Menu Costs, Quantity-Adjustment Costs

Symmetric and Asymmetric Committees

This paper studies the assignment of decision makers to two committees that make decisions by a simple majority rule. There is an even number of decision makers at each of various skill levels and each committee has an odd number of members. Surprisingly, even with the symmetric assumptions in the spirit of Condorcet, a symmetric composition of committees is not always optimal. In other words, decision makers with different skill levels should not generally be evenly divided among the committees. However, in the special case of only two skill levels, it is optimal to compose the committees evenly.committees, collective decision making, simple majority rule

On the Output-Inflation Relationship when Price and Quantity Adjustments are Costly

A vast literature analyzes the real effects of price-adjustment costs assuming that quantity adjustments are costless. In this paper, we analyze whether the presence of quantity-adjustments costs, which presumably are significant, change the traditional results on the impact of inflation. In particular, recent findings suggest that quantity-adjustment costs may remove the linkage between output and inflation. We show that this is not the case when inflation is anticipated. On the contrary, quantity-adjustment costs may significantly amplify the consequences of price-adjustment costs.Output-inflation relationship, menu costs, quantity-adjustment costs

Symmetric and Asymmetric Committees

This paper studies the assignment of decision makers to two committees that make decisions by a simple majority rule. There is an even number of decision makers at each of various skill levels and each committee has an odd number of members. Surprisingly, even with the symmetric assumptions in the spirit of Condorcet, a symmetric composition of committees is not always optimal. In other words, decision makers with different skill levels should not generally be evenly divided among the committees. However, in the special case of only two skill levels, it is optimal to compose the committees evenly.collective decision making, simple majority rule, committees