Knowledge that Transforms

We investigate how changes in the commitment power of a principal affect cooperation among agents who work in a team. When the principal and her agents are symmetrically uncertain about the agents’ innate abilities, workers have career concerns. Then, unless the principal can commit herself to long‐term wage contracts, an implicit sabotage incentive emerges. Agents become reluctant to help their teammates. Anticipating this risk, and in order to induce the desired level of cooperation, the principal offers more collectively oriented incentive schemes. Temporary workers, though, are not affected by the sabotage effect, and their incentives are more individually oriented.

Empirical work testing for a trade‐off between risk and incentives has had, at best, mixed success. This article provides two simple reasons, associated with subjectivity of performance appraisals, why we might not expect to see any negative relationship. Both reasons relate to empirically observed problems associated with monitoring: (i) supervisors sometimes bias their evaluations based on their personal feelings toward their subordinates, and (ii) supervisors will sometimes offer evaluations that reduce their costs. These aspects of monitoring are ignored in the standard model and can reverse the usual negative trade‐off between risk and incentives.

The focus of tournament models has been rank‐order compensation schemes whereby participants receive higher payments for higher relative performance, either incrementally or winner‐takes‐all. Our research focuses on a unique tournament that offers rewards for both winning and losing, specifically the National Basketball Association’s regularly scheduled season of games. We examine three NBA seasons to determine whether team performance responded to changes in the underlying tournament incentives provided by the NBA’s introduction and restructuring of the lottery system to determine draft order. Our results yield strong evidence that NBA teams are more likely to lose when incentives to lose are present.

Compensating wage theory predicts that workers receiving more generous fringe benefits are paid a lower wage than comparable workers who prefer fewer fringe benefits. This study tests this prediction for employer‐provided health insurance by modeling the wages of married women employed full‐time in the labor market. Husband's union status, husband's firm size, and husband's health coverage through his job are used as instruments for his wife's own employer health insurance benefits. The estimates suggest wives with own employer health insurance accept a wage about 20% lower than what they would have received working in a job without benefits.

This article examines the long‐run effects of the Restart unemployment program in the United Kingdom. The program, aimed at the long‐term unemployed, involved a combination of tighter monitoring of benefit eligibility rules and increased job search assistance. We compare the employment behavior of a treatment group who participated in the scheme with that of a randomly chosen control group for whom participation was delayed. While there is little evidence of a long‐term benefit for women, the unemployment rate among males in the treatment group was six percentage points lower than that of the control group 5 years after the initial experiment.

This article identifies a new type of cost associated with centralization. If workers are liquidity constrained, it may be less costly to motivate a worker who is allowed to work on his own idea than a worker who is forced to follow the manager’s idea. Thus, it may be optimal to let workers decide on the method for doing their job even if managers have better information. This conclusion holds even if more general contracts are considered that are based on communication of information between the worker and the manager, as long as these general contracts are not entirely costless.

This article investigates the relationship between employment and the use of marijuana and cocaine for males in National Longitudinal Survey of Youth data from 1984 and 1988. Previous studies yielding mixed evidence may have inadequately accounted for the simultaneity between drug consumption and employment. I implement an instrumental variable procedure that identifies drug use with variables that are empirically unrelated to employment, including the regional cocaine price and a state marijuana decriminalization indicator. Results indicate that the use of each drug substantially reduces the likelihood of employment. Exogeneity tests reveal that standard probit estimates are severely biased toward zero.

The gender wage gap in East Germany has narrowed by 10 percentage points in transition, but women have experienced much more severe employment difficulties than men. Using the German Socio‐Economic Panel for 1990–94, I show that on balance women have lost relative to men. Almost half the relative wage gain is due to exits from employment of the low skilled, who are disproportionately women. The female employment decline is not primarily voluntary: more than half the gender gap in the hazard rate from employment reflects a general fall in demand for low‐skilled workers. Reduced child care plays no role.

Breakthroughs with natural excludability are transferred to industry by top academic scientists (stars) working in or with firms. Movement to firms depends on scientists' quality, moving costs, and reservation wage. Scientists' quality, moving costs, trial frequency, interfering academic offers, and productivity of stars already in firms determine reservation wage. In group‐duration analysis for biotechnology, stars move to firms faster as their quality, human focus, and outside coauthorships increase; local firms and productivity of local stars in firms increase; and top local universities decrease. Stars move to firms full or part time similarly, but significance drops for rarer full‐time moves.

We examine how child maltreatment—including neglect, physical and sexual abuse, and other forms of maltreatment—is affected by parental economic circumstances. Using state‐level panel data on cases of maltreatment and numbers of children in foster care, we find that increases in the fractions of children with absent fathers and working mothers in a state are related to increases in many measures of maltreatment, as are increases in the share of families with two nonworking parents and those with incomes below 75% of the poverty line. Decreases in state welfare benefit levels are associated with increases in foster care placement.