Incentives and Careers in Organizations

This paper surveys two related pieces of the labor-economics literature: incentive pay and careers in organizations. In the discussion of incentives, I first summarize theory and evidence related to the classic agency model, which emphasizes the tradeoff between insurance and incentives. I then offer econometric and case-study evidence suggesting that this classic model ignores several crucial issues and sketch new models that begin to analyze these issues. In the discussion of careers in organizations, I begin by summarizing evidence on wages and positions using panel data within firms. This evidence is sparse and far-flung (drawn from industrial relations, organizational behavior, and sociology, as well as from labor economics); I identify ten basic questions that merit more systematic investigation. Turning to theory, I describe building-block models that address one or a few pieces of evidence, but focus on more recent models that address broad patterns of evidence.

Enriching a Theory of Wage and Promotion Dynamics Inside Firms

In previous work we showed that a model that integrates job assignment, human-capital acquisition, and learning can explain several empirical findings concerning wage and promotion dynamics inside firms. In this paper we extend that model in two ways. First, we incorporate schooling into the model and derive a number of testable implications that we then compare with the available empirical evidence. Second, and more important, we show that introducing task-specific' human capital allows us to produce cohort effects (i.e., the finding that a cohort that enters a firm at a low wage will continue to earn below-average wages years later). We argue that task-specific human capital is a realistic concept and may have many important implications. We also discuss limitations of our (extended) approach.

Layoffs and Lemons

In this paper we provide theoretical and empirical analyses of an asymmetric-information model of layoffs in which the current employer is better informed about its workers' abilities than prospective employers are. The key feature of the model is that when firms have discretion with respect to whom to lay off, the market infers that laid-off workers are of low ability. Since no such negative inference should be attached o workers displaced in a plant closing, our model predicts that the postdisplacement wages of otherwise observationally equivalent workers will be higher for those displaced by plant closings than for those displaced by layoffs. An extension of our model predicts that the average postdisplacement unemployment spell of otherwise observationally equivalent workers will be shorter for those displaced by plant closings than for those displaced by layoffs. In our empirical work, we use data from the Displaced Workers Supplements in the January 1984 and 1986 Current Population Surveys. We find that the evidence (with respect to both re-employment wages and postdisplacement unemployment duration) is consistent with the idea that laid off workers are viewed less favorably by the market than are those losing jobs in plant closings. Our findings are much stronger for workers laid off from jobs where employers have discretion over whom to lay off.

Tunelling with a Negative Cosmological Constant

The point of this paper is see what light new results in hyperbolic geometry may throw on gravitational entropy and whether gravitational entropy is relevant for the quantum origin of the univeres. We introduce some new gravitational instantons which mediate the birth from nothing of closed universes containing wormholes and suggest that they may contribute to the density matrix of the universe. We also discuss the connection between their gravitational action and the topological and volumetric entropies introduced in hyperbolic geometry. These coincide for hyperbolic 4-manifolds, and increase with increasing topological complexity of the four manifold. We raise the questions of whether the action also increases with the topological complexity of the initial 3-geometry, measured either by its three volume or its Matveev complexity. We point out, in distinction to the non-supergravity case, that universes with domains of negative cosmological constant separated by supergravity domain walls cannot be born from nothing. Finally we point out that our wormholes provide examples of the type of Perpetual Motion machines envisaged by Frolov and Novikov.Comment: 36 pages, plain TE

Recursive strategy for decomposing Betti tables of complete intersections

We introduce a recursive decomposition algorithm for the Betti diagram of a complete intersection using the diagram of a complete intersection defined by a subset of the original generators. This alternative algorithm is the main tool that we use to investigate stability and compatibility of the Boij-Soederberg decompositions of related diagrams; indeed, when the biggest generating degree is sufficiently large, the alternative algorithm produces the Boij-Soederberg decomposition. We also provide a detailed analysis of the Boij-Soederberg decomposition for Betti diagrams of codimension four complete intersections where the largest generating degree satisfies the size condition

Dissolving a Partnership Efficiently

Several partners jointly own an asset that may be traded among them. Each partner has a valuation for the asset; the valuations are known privately and drawn independently from a common probability distribution. We characterize the set of all incentive-compatible and interim- individually- rational trading mechanisms, and give a simple necessary and sufficient condition for such mechanisms to dissolve the partnership ex post efficiently. A bidding game is constructed that achieves such dissolution whenever it is possible. Despite incomplete information about the valuation of the asset, a partnership can be dissolved ex post efficiently provided no single partner owns too large a share; this contrasts with Myerson and Satterthwaite's result that ex post efficiency cannot be achieved when the asset is owned by a single party.Auctions; Trading Machanisms; Efficiency; Public Goods

Subjective Performance Measures in Optimal Incentive Contracts

Objective measures of performance are seldom perfect. In response, incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures. This paper explores the combined use of subjective and objective performance measures in (respectively) implicit and explicit incentive contracts. Naturally, objective and subjective measures often are substitutes, sometimes strikingly so: we show that if objective measures are sufficiently close to perfect then no implicit contracts are feasible (because the firm's fallback position after reneging on an implicit contact is too attractive). We also show, however, that objective and subjective measures can reinforce each other: if objective measures become more accurate then in some circumstances the optimal contract puts more weight on subjective measures (because the improved objective measures increase the value of the ongoing relationship, and so reduce the firm's incentive to renege). We also analyze the use of subjective weights on objective performance measures, and provide case-study evidence consistent with our analyses.