Exit Options and Dividend Policy under Liquidity Constraints

We introduce a post-entry liquidity constraint to the standard model of a …rm with stochastic cash ‡ow and irreversible exit decision. We assume that a …rm with no cash holdings and negative cash ‡ow is forced to exit regardless of its future prospects. This creates a precautionary motive for holding cash, which must be traded off against the liquidity cost of holding cash. We characterize the optimal exit and dividend policy and analyze numerically its comparative statics properties. The …rm pays dividends when it is in a sufficiently strong position in terms of cash ‡ow and cash holdings, and the …rm almost surely exits voluntarily to pre-empt forced exit. The direct effect of the liquidity constraint is to impose inefficient exit, but in industry equilibrium it also creates a price distortion that leads to ineffi cient survival. (D81, D92, G35

Studies of talent markets

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003.Includes bibliographical references (p. 109-113).This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.This thesis consists of three studies of labor markets where differences in talent are associated with very large differences in income. The unifying theoretical feature is the view that the analysis of such labor markets should take into account the scarcity of jobs, which is a natural consequence of the combination of finite demand and positive production costs. In Chapter 1 we propose a model where an industry-specific talent can only be revealed on the job and publicly. Individual inability to commit to long-term contracts leaves firms with insufficient incentives to hire novices, inducing them to bid excessively for the pool of revealed talent instead. This causes the market to be plagued with too many mediocre workers, inefficiently low output levels, and excessive rents for the known high talents. We argue that high wages in professions such as entertainment and entrepreneurship may be explained by the nature of the talent revelation process in those markets, and suggest potential natural experiments for estimating the welfare loss and the excessive talent rents predicted by the model. Chapter 2 is an analysis of the labor market of CEOs. We present an assignment model of managers and firms of heterogeneous talent and scale, and show how the value of underlying ability differences can be distinguished from scale effects using the observed joint distribution of CEO pay and market value. The empirical results suggest that the observed size-pay relation in the US is mainly due to differences in firm characteristics rather than differences in managerial ability. Chapter 3 uses a combination of simple versions of the models of the first two chapters to analyze the role of transfer fees in professional sports. There workers are able to commit to long-term wage contracts, and a transfer fee is the price of a remaining contract.(cont.) We show that the abolition of transfer fees would reallocate playing time towards older players and increase salaries by more than the current transfer fees. All clubs, including the bigger clubs that are the current net payers of transfer fees, would lose out in the reform.by Marko Terviö.Ph.D

Self-Esteem, Moral Capital, and Wrongdoing

We present an infinite-horizon model of moral standards where self-esteem and unconscious drives play key roles. In the model, an individual receives random temptations (such as bribe offers) and must decide which to resist. Individual actions depend both on conscious intent and a type reflecting unconscious drives. Temptations yield consumption value, but keeping a good self-image (a high belief of being the type of person that resists) yields self-esteem. We identify conditions for individuals to build an introspective reputation for goodness ("moral capital") and for good actions to lead to a stronger disposition to do good. Bad actions destroy moral capital and lock-in further wrongdoing. Economic shocks that result in higher temptations have persistent effects on wrongdoing that fade only as new generations replace the shocked cohorts. Small parametric differences across societies may lead to large wrongdoing differentials, and societies with the same moral fundamentals may display different wrongdoing rates depending on how much past luck has polarized the distribution of individual beliefs. The model illustrates how optimal deterrence may change under endogenous moral costs and how wrongdoing may be compounded as high temptation activities attract individuals with low moral capital.

Maahanmuuttajien työllisyys kehittynyt suotuisasti viime vuosina

Datahuone on tutkinut maahanmuuttajien päätoimisen työllisyyden kehitystä Tilastokeskuksen yksilötason rekisteriaineistoja käyttäen sekä aivan viimeaikaista kuukausitason palkkasuhteisen työllisyyden kehitystä tulorekisterin avulla. Analyysissä tarkasteltiin maahanmuuttajia erikseen heidän maahanmuuttovuotensa mukaan. Analyysin perusteella maahanmuuttajien päätoiminen työllisyys kasvaa huomattavasti maahanmuuttoa seuraavina vuosina, vaikka päätoimisen työllisyyden lähtötaso oli varsinkin 2000-luvun alussa melko matala. Muutamina viime vuosina maahan muuttaneiden osallistuminen työmarkkinoille maassaolon ensimmäisinä vuosina on ollut huomattavan korkealla tasolla moniin aiempina 2000-luvun vuosina maahan muuttaneisiin verrattuna. Etenkin vuosina 2021 ja 2022 maahan muuttaneet ovat työllistyneet palkkasuhteisiin nopeasti maahantulonsa jälkeen. Suotuisan työllisyyskehityksen syynä voi olla esimerkiksi maahanmuuttajaprofiilin muuttuminen aiempaa enemmän työperäiseksi tai työllistymispotentiaaliltaan korkeammaksi tai kasvanut työvoiman kysyntä. Vielä ei kuitenkaan voida päätellä, onko kyseessä tilapäinen vai pysyvämpi muutos.nonPeerReviewe

Time-Varying Markups: Empirical Analysis of Markups in Finnish Industries

In this study, we analyse variation of markups in Finnish industrial sectors, both between industries and over time. The study finds evidence that: - Since the beginning the 1980s, practically every Finnish industrial sector has been able to extract a positive markup. - The average industrial markup has apparently declined over time. In addition to the declining trend, there seems to be procyclical movement in markups. - Despite of the decline in average markups, most industries maintained positive markups in 1995. The same reservations apply to these results as to corresponding macro-level analysis of markups, because the model relies on instantaneous adjustment of the factors of production. If, for any reason, firms are slow to adjust their factors to changes in demand conditions, it would bias our markup estimates upwards. Indeed, we believe this is the case, so we do not recommend giving too much weight to the level of our markup estimates. Rather, we wish to note that the estimated time path for industrial markups is generally plausible. Thus, the decline in markups since 1991 may partly explain Finland's unexpectedly low inflation in recent years.markup; imperfect competition

Markups and Measurement Errors in Six EU Countries

This study of markups, ie prices over marginal costs in manufacturing industries, builds on the work of Robert Hall and Werner Roeger. We analyze several methods used in estimating sectoral markups, and then apply them to empirical analysis of the industrial sectors of six EU countries (Germany, France, Italy, the UK, Sweden and Finland). We argue that measurement errors in the model variables, particularly in the rental price of capital, are likely to be a major problem in markup estimation, and show that due to measurement errors, the approach developed by Roeger is likely to produce markup estimates with an upward bias. Such biased results are particularly deceiving since the outcome tends to produce artificially good fits, high t-values, and markup estimates which are "sensible" in magnitude. We also introduce a "modified" model for markup estimation, which would, if all assumptions were fulfilled and variables correctly measured, yield results identical to those obtained with Roeger's model. Yet, in contrast to Roeger's model, in the presence of measurement errors the markup estimates produced by this model have downward bias. Comparison of these two sets of estimates enables us to assess the seriousness of the measurement problem. We found that the estimates produced by the two models differed in a systematic fashion which is symptomatic of measurement errors. All in all, our results provide strong support for our hypothesis that the markup estimates obtained with Roeger's method are likely to be artifacts created by measurement errors mainly in the rental price of capital.markup; imperfect competition

Secular rise in economically valuable personality traits

Although trends in many physical characteristics and cognitive capabilities of modern humans are well-documented, less is known about how personality traits have evolved over time. We analyze data from a standardized personality test administered to 79% of Finnish men born between 1962 and 1976 (n = 419,523) and find steady increases in personality traits that predict higher income in later life. The magnitudes of these trends are similar to the simultaneous increase in cognitive abilities, at 0.2-0.6 SD during the 15-y window. When anchored to earnings, the change in personality traits amounts to a 12% increase. Both personality and cognitive ability have consistent associations with family background, but the trends are similar across groups defined by parental income, parental education, number of siblings, and rural/ urban status. Nevertheless, much of the trends in test scores can be attributed to changes in the family background composition, namely 33% for personality and 64% for cognitive ability. These composition effects are mostly due to improvements in parents' education. We conclude that there is a "Flynn effect" for personality that mirrors the original Flynn effect for cognitive ability in magnitude and practical significance but is less driven by compositional changes in family background.Peer reviewe

Coexistence of long-term and short-term contracts

We are grateful to the participants at seminars at CREST (Paris), U de Salamanca and U Autònoma de Barcelona and at SAE 2011 (Málaga), 20iDEA 2011 (Barcelona), Games 2012 (Istanbul), CICGTA 2012 (Qingdao), SAET 2013 (Paris), as well as four reviewers and the co-editor for their insightful comments. Financial support from Ministerio de Ciencia y Tecnología (ECO2008-04321, ECO2009-07616 and ECO2012-31962), Generalitat de Catalunya (2009SGR-169), Junta de Andalucía (SEJ-02936 and SEJ-04992), Severo Ochoa Programme (SEV2011-0075), and ICREA Academia is gratefully acknowledgedAltres ajuts: SEJ-02936Altres ajuts: SEJ-04992Altres ajuts: SEV2011-0075We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is revealed during the relationship. The market dictates the trade-off between sorting and incentives. Short- and long-term contracts often coexist: The best firms always use short-term contracts to hire high-ability senior workers, firms with less profitable projects use short-term contracts to save on the cost of hiring junior workers, whereas intermediate firms use long-term agreements to provide better incentives to their workers. We relate our results to the optimal assignment literature that follows Becker (1973)