Firm-Specific Training

This paper introduces two complementary models of firm-specific training: an informational model and a productivity-enhancement model. In both models, market provision of firm-specific training is inefficient. However, the nature of the inefficiency depends on the balance between the two key components of training, namely productivity enhancement and employee evaluation. In the informal model, training results in a proportionate increase in productivity enhancement and employee evaluation, and training is underprovided by the market. In the productivity-enhancement model, training results in an increase in productivity enhancement but no change in employee evaluation, and training is overprovided by the market. In both models, turnover is inefficiently low.Firm-specific training, productivity enhancement, employee evaluation, firm-specific human capital.

Decade of dissent: explaining the dissent voting behavior of Bank of England MPC members

We examine the dissent voting record of the Bank of England Monetary Policy Committee (MPC) in its first decade. Probit estimates indicate the impact of career experience on dissent voting is negligible, whereas the impact of forecast inflation is pronounced. In addition to finding a role for dynamics, we also find a role for unobserved heterogeneity in the form of member-specific fixed-effects, suggesting previous literature characterizing voting behavior as largely determined by whether members are appointed from within or outside the ranks of Bank of England staff (internal and external members respectively) is overly simplistic.Bank of England, Monetary Policy Committee, career background effects, dissent voting, unobserved heterogeneity

The Dynamics of Optimal Risk Sharing

We study a dynamic-contracting problem involving risk sharing between two parties – the Proposer and the Responder – who invest in a risky asset until an exogenous but random termination time. In any time period they must invest all their wealth in the risky asset, but they can share the underlying investment and termination risk. When the project ends they consume their final accumulated wealth. The Proposer and the Responder have constant relative risk aversion R and r respectively, with R > r > 0. We show that the optimal contract has three components: a non-contingent flow payment, a share in investment risk and a termination payment. We derive approximations for the optimal share in investment risk and the optimal termination payment, and we use numerical simulations to show that these approximations offer a close fit to the exact rules. The approximations take the form of a myopic benchmark plus a dynamic correction. In the case of the approximation for the optimal share in investment risk, the myopic benchmark is simply the classical formula for optimal risk sharing. This benchmark is endogenous because it depends on the wealths of the two parties. The dynamic correction is driven by counterparty risk. If both parties are fairly risk tolerant, in the sense that 2 > R > r, then the Proposer takes on more risk than she would under the myopic benchmark. If both parties are fairly risk averse, in the sense that R > r > 2, then the Proposer takes on less risk than she would under the myopic benchmark. In the mixed case, in which R > 2 > r, the Proposer takes on more risk when the Responder’s share in total wealth is low and less risk when the Responder’s share in total wealth is high. In the case of the approximation for the optimal termination payment, the myopic benchmark is zero. The dynamic correction tells us, among other things, that: (i) if the asset has a high return then, following termination, the Responder compensates the Proposer for the loss of a valuable investment opportunity; and (ii) if the asset has a low return then, prior to termination, the Responder compensates the Proposer for the low returns obtained. Finally, we exploit our representation of the optimal contract to derive simple and easily interpretable sufficient conditions for the existence of an optimal contract.

Firm-Specific Training

This paper introduces two complementary models of firm-specific training: an informational model and a productivity-enhancement model. In both models, market provision of firm-specific training is inefficient. However, the nature of the inefficiency depends on the balance between the two key components of training, namely productivity enhancement and employee evaluation. In the informational model, training results in a proportionate increase in productivity enhancement and employee evaluation, and training is underprovided by the market. In the productivity-enhancement model, training results in an increase in productivity enhancement but no change in employee evaluation, and training is overprovided by the market. In both models, turnover is inefficiently low.firm-specific training, productivity-enhancement, employee evaluation, components of training

A Developmental Model of Infantile Nystagmus

The possibility that infantile nystagmus (IN) may reflect a failure in early sensorimotor integration has been proposed for more than a century, but is only recently being borne out in animal studies. The underlying neural and genetic substrate for this plasticity is complex. We propose that, in most cases, IN develops as a developmental response to reduced contrast sensitivity to high-spatial frequencies in an early "critical period," however caused, whether by structural malformations (e.g. foveal hypoplasia) or poor optics (e.g. cataract). As shown by psychophysics, contrast sensitivity to low spatial frequencies is enhanced by motion of the image across the retina. Based on our previous theoretical study (Harris & Berry, Nonlinear Dynamics, 2006), we argue that the best compromise between moving the image and maintaining the image near the fovea (or its remnant) is to oscillate the eyes with jerk nystagmus with increasing velocity waveforms, as seen empirically. The generation of jerk waveforms relies heavily on the saccadic system, which is immature in infancy. Pendular waveforms may therefore provide an alternative to jerk waveforms, and may explain why they are seen more often in young infants. We discuss the implications of this developmental model for the need to synchronize sensory and motor developments in normal development. Failure of this synchronization may also explain some idiopathic cases