Consider a firm in which labor and management bargain over division of the firm's organizational rent and negotiate the firm's policy. I emphasize the relationship between the bargainer's contract curve and the firm's Slutsky equations. I can describe a bargaining firm as a hybrid of a neoclassical profit-maximizing firm and a pure labor-managed firm. I apply the methodology to models of employment contracts and identify three separate circumstances in which labor's bargaining power affects the firm's comparative static behavior. First, there is inefficiency in contractual bargaining. Second, income effects in the worker's utility function interact with the firm's capital-cost burden. Third, labor's interest in long-term utility maximization need not coincide with management's interest in profit maximization. This last case arises from the incompleteness of the market for property rights in the firm.
The hypothesis that crop production is more variable under socialism than under capitalism because of systemic differences between incentives and the structure of property rights in private and socialized farms is tested in two ways. The first test compares the variability of output for seven crops in five eastern European countries for a period when agriculture was private with a period when it was socialized. The second test compares the variability of output in state, collective, and private farms within each country. These tests confirm that socialization of agriculture increases the variability of crop output and that the source of this increased variability is not greater fluctuations in yields but rather in the acreage devoted to individual crops.
The debate between Ricardo and Thornton and Malthus about the causes of balance of trade deficits is reexamined. It is argued that, given the state of real trade theory in the period, the debate could not have been resolved. With the discovery of the principle of comparative advantage Ricardo changed the views he had expressed during the controversy and implicitly repudiated the arguments he had used against Thornton and Malthus.
Gresham's law often takes two forms: the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies. Yet history contradicts both of these forms. In fact, the exchange rate has never been fixed, and we doubt it ever could be. We propose a new version of the law that is more feasible and more consistent with the evidence. It requires a fixed transaction cost of using currencies at nonparprices for the rule to apply. Then denomination determines the fate of good money.
In a closed economy with interest taxes at rate τ and with a constant real et rate of interest, the nominal rate of interest should rise by 1/(1 - τ) points for every point rise in the expected rate of inflation. However, a large body of empirical work examines the determinants of nominal interest rates and generally finds that the coefficient of expected inflation is close to or less than one. We model the determination of interest rates in an open economy with taxes. Under plausible conditions, increases in inflation cause the nominal interest rate to rise roughly point for point. This suggests that open-capital-market considerations are central for understanding aggregate economic behavior. The analysis also suggests that inflation is not neutral with respect to the real net interest rate earned by domestic savers or paid by domestic borrowers.
We analyze technology adoption in industries where network externalities are significant. The pattern of adoption depends on whether technologies are sponsored. A sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it. Key findings include the following: (1) compatibility tends to be undersupplied by the market, but excessive standardization can occur; (2) in the absence of sponsors, the technology superior today has a strategic advantage and is likely to dominate the market; (3) when one of two rival technologies is sponsored, that technology has a strategic advantage and may be adopted even if it is inferior; (4) when two competing technologies both are sponsored, the technology that will be superior tomorrow has a strategic advantage.
Two models of wage and employment determination in unionized markets are routinely exposited. According to one, wage and employment outcomes are on the firm's labor demand curve; according to the other, wages and employment are on the partie' contract curve. This paper spells out an empirical procedure that discriminates between these two models and applies this procedure to the particular case of the newspaper industry and the International Typographical Union. The labor demand curve model is inconsistent with our data, while the contract curve model comes closer to describing our observations.
Compared with the work of his contemporaries, Keynes's General Theory represented a radical change in theoretical method--from sequence analysis to the method of equilibrium. The nature of this change is discussed, together with its implications for the substance of Keynes's message and for the subsequent development of macroeconomics.