[When changing jobs is costly, efficient employment contracts usually fail to compensate workers for the effects of posthiring events and decisions. Then, when there are executives and managers with authority to make discretionary decisions, affected employees will be led to waste valuable time trying to influence their decisions. Efficient organization design counters this tendency by limiting the discretion of decisions makers, especially for those decisions that have large distributional consequences but that are otherwise of little consequence to the organization.]

Most rational expectations market equilibrium models are not models of price formation, and naive mechanisms leading to such equilibria can be severely manipulable. In this paper, a bidding model is developed which has the market-like features that bidders act as price takers and that prices convey information. Higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices. Bidders can benefit from trading only if they have a transactions motive or if they have access to inside information. Apart from exceptional cases, prices are not fully revealing. A two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing, resolving a well-known paradox.

[This paper investigates the behavior of the winning bid in a sealed bid tender auction where each bidder has private information. With an appropriate concept of value, the winning bid will converge in probability to the value of the object auction (as the number of bidders grow large) if and only if a certain information condition is satisfied. In particular, it is not necessary for any bidder to know the value at the time the bids are submitted. These results bear on the relationship between price and value and on the aggregation of private information by the auction mechanism.]

IN THIS PAPER we investigate the properties of the winning bid in a sealed bid tender auction where each player has private information. We find that it is possible for the winning bid to converge in probability to the true value of the object at auction, even though no bidder knows the true value. Necessary and sufficient conditions for this phenomenon are derived, extending and generalizing certain of Wilson's results [3]. We study an auction in which a seller offers to sell at the highest bid an item of unknown value V. The kth bidder receives a private signal Sk (for k = 1, 2,.. .) and submits a bid without knowledge of the other signals. A finitely additive probability measure P reflects the bidders' unanimous beliefs about V and the signals. Conditional on V, the signals are independent and identically distributed. The signals take their values in some space &'. With n bidders, a bidding strategy for k is a function Pnk: 9' -> R. k's strategy specifies that upon receiving the signal Sk, he shall bid Pnk(Sk).2 Thus the winning

Efficient employment contracts usually fail to compensate workers for the effects of posthir ing events and decisions when changing jobs is costly. Then, when the re are executives and managers with authority to make discretionary decisions, affected employees will be led to waste valuable time tryi ng to influence their decisions. Efficient organization design coun-t ers this tendency by limiting the discretion of decision makers, espe cially for those decisions that have large distributional consequence s but that are otherwise of little consequence to the organization.

The presence of traders with superior information leads to a positive bid-ask spread even when the specialist is risk-neutral and makes zero expected profits. The resulting transaction prices convey information, and the expectation of the average spread squared times volume is bounded by a number that is independent of insider activity. The serial correlation of transaction price differences is a function of the proportion of the spread due to adverse selection. A bid-ask spread implies a divergence between observed returns and realizable returns. Observed returns are approximately realizable returns plus what the uninformed anticipate losing to the insiders.

In Section 2, we review some important results of the received auction theory, introduce a new general auction model, and summarize the results of our analysis. Section 3 contains a formal statement of our model, and develops the properties of affiliated random variables. The various theorems are presented in Sections 4-8. In Section 9, we offer our views on the current state of auction theory. Following Section 9 is a technical appendix dealing with affiliated random variables.

When a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence. The job-seeker's only credible threat during bargaining is to hold out for a better deal. The employer's threat is to delay bargaining. Consequently, the outcome of the bargain depends on the relative costs of delays to the parties, rather than on the payoffs that result from exiting negotiations. Modeling bargaining in this way makes wages less responsive to unemployment. A stochastic model of the labor market with credible bargaining and reasonable parameter values yields larger employment fluctuations than does the standard Mortensen-Pissarides model.

We develop a model of matching with contracts which incorporates, as special cases, the college admissions problem, the Kelso-Crawford labor market matching model, and ascending package auctions. We introduce a new “law of aggregate demand” for the case of discrete heterogeneous workers and show that, when workers are substitutes, this law is satisfied by profit-maximizing firms. When workers are substitutes and the law is satisfied, truthful reporting is a dominant strategy for workers in a worker-offering auction/matching algorithm. We also parameterize a large class of preferences satisfying the two conditions.