A common view of golden parachutes and shark repellents is that they are designed by management to insulate itself from the discipline imposed by the market for corporate control and so are harmful to shareholders. This paper offers an alternative view that these devicesare beneficial to shareholders because they allow better contracting between manager and shareholders. Evidence on the incidence of goldenparachutes and on the compensation-tenure relationship for managers of golden parachute firms supports the alternative view

This paper studies implicitly colluding oligopolists facing fluctuatingdemand. The credible threat of future punishments provides the discipline that facilitates collusion. However, the authors find that the temptation to unilaterally deviate from the collusive outcome is often greater when demand is high. To moderate this temptation, the optimizing oligopoly reduces its profitability at such times, resultingin lower prices. The behavior of the railroads in the 1880s, the automobile industry in the 1950s, the cyclical behavior of cement prices, and of price-cost margins are consistent with this theory. Thereduction of price by the oligopolistic sectors may have macro consequences

In his Nobel Lecture, Milton Friedman (1977) argued that the greater uncertainty associated with higher inflation leads to a misallocation of resources because of shorter duration of contracts and reduced efficiency of the price system. The result is reduced economic growth and, possibly, more unemployment (i.e., a positively sloped Phillips curve) over the fairly long term. In a subsequent article, Maurice Levi and John Makin (1980) found a significant negative impact of inflation uncertainty on employment growth. Evidence of a similar nature was reported by Yakov Amihud (1981), Makin (1982), and Ronald Ratti (1985), while Donald Mullineaux (1980) found a significant positive effect of inflation uncertainty on the rate of unemployment and a negative effect on industrial production. Given the substantial body of empirical literature linking higher inflation to greater inflation uncertainty, this provides support for Friedman's hypothesis.' Friedman also noted, however, that in the very long run, institutions should adapt to an inflationary economy in a way that offsets much of the real effect of higher inflation. An example of such adaptation is more widespread indexation of wages. Levi and Makin recognized the potential impact of indexing but did not attempt to estimate it: To the extent that inflation uncertainty persists and causes lower employment, our results tend to support the case for a wider use of indexing of nominal contracts, which should reduce the impact of uncertainty felt on the real (p. 1026). The purpose of this article is to estimate the impact of inflation uncertainty on employment, while also considering the second-round effects of labor market adjustments designed to reduce the risk associated with inflation uncertainty. Despite the limited scope of the data, an increase in the prevalence of wage indexation in major collective bargaining contracts is taken to indicate a general increase in the responsiveness of nominal wages to inflation surprises.2 In other words, as the percentage of contracts with indexation clauses increases, the degree to which already indexed wages adjust to price level changes is assumed to increase. Furthermore, the effect is assumed to extend beyond the sector of the labor market covered by major collective bargaining agreements to smaller union contracts and even to nonunionized labor. This article proceeds as follows. Section I discusses the measurement of inflation uncertainty and the level of wage indexation and estimates the impact of inflation uncertainty on indexation in the United States for the period 1961-83. Section II examines the impact of inflation uncertainty, indexation, and unanticipated inflation on employment. Section III presents the results of simulations designed to illustrate how increased wage indexation offsets at least part of the adverse *Department of Economics, University of Kentucky, Lexington, KY 40506. Helpful comments from R. W. Hafer, Ronald Ratti, Richard Sheehan, Daniel Thornton, two referees, and the participants in seminars at the Board of Governors of the Federal Reserve System, Claremont College, Georgia State University, and the University of Kentucky are gratefully acknowledged. This research was conducted at the Federal Reserve Bank of St. Louis with assistance from Jude Naes. The views expressed do not necessarily reflect those of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 'My 1984 article provides a review of the literature linking higher inflation to greater inflation uncertainty. 2Formal indexing typically applies only to contracts in the unionized sector-less than 25 percent of the U.S. labor market. This measure should serve the purpose at hand, however, since the behavior of union wages influences the wages of other workers, and since adjustments to greater inflation uncertainty in the unionized sector can be expected to occur at roughly the same time as adjustments in other sectors of the labor market.

This paper presents an empirical test of two contrasting models of contracting in marital relationships. The major distinction between the two models concerns the role of information. The first model assumes that ex post information about the value of opportunities outside the relationship is symmetric. The second model assumes that information is asymmetric. Each assumption leads to different implications about the effects of rules allowing unilateral versus mutual divorce decisions on the probability of initiating and terminating the marriage and on the distribution of marital resources at divorce

Panel data are used to estimate the effect of marital separation on labor supply. Female labor supply increases substantially and male labor supply declines marginally, lending support to the theory of specialization within the household. The most interesting finding is that women began to increase their labor supply well before the actualsplit occurs, suggesting either that shocks to labor supply change divorce probabilities or that women with a higher likelihood of divorcework more. This argument is pursued by constructing and estimating a simultaneous model of labor supply and divorce risk.

The Heckscher-Ohlin-Vanek model predicts relationships among industry input requirements, country resource supplies, and international trade in commodities. These relationships are tested using data on twelve resources, and the trade of twenty-seven countries in 1967. The Heckscher-Ohlin propositions that trade reveals gross and relative factor abundance are not supported by these data. The Heckscher-Ohlin-Vanek equations among input requirements, resource supplies, and trade are also rejected in favor of weaker models that allow technological differences and measurement errors.

The equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market, mobile capital, no uncertainty, and varying tax rates on different sources of income in each country. The paper then characterizes optimal tax rates for a small country in this setting, focusing on the peculiar incentives created when the before-tax rate of return differs among securities due to differences in their typical tax treatment

Many Keynesian macroeconomic models are based on the assumption that firms change prices at different times. This paper presents an explanation for this "staggered" price setting. The authors develop a model in which firms have imperfect knowledge of the current state of the economy and gain information by observing the prices set by others. This gives each firm an incentive to set its price shortly after other firms set theirs. Staggering can be the equilibrium outcome. In addition, the information gains can make staggering socially optimal even though it increases aggregate fluctuations