Knowledge that Transforms

Optimal monetary policy rules are derived in a rational expectations cum contracting framework. Monetary policy is redundant if wage setters exploit the incomplete current information embodied in today's nominal interest rate. However, the monetary authorities can save wage setters the costs of “indexing†to the interest rate. A contemporaneous money supply feedback rule is as effective as wage indexation. A lagged rule, relevant under a regime of money supply targeting, is also as effective if investors use the interest rate. Both rules have the same implications for the real interest rate as Poole's combination policy. However, the two rules have strikingly different implications for the nominal interest rate.

This paper studies the efficient agreements about the dependence of workers' earnings on employment, when the employment level is controlled by firms.The firms' .superiorinformation about profitability conditions is responsible for this form of contract governance.Under plausible assumptions, such aj^reements will cause employment to diverge from efficiency as a byproduct of their attempt to mitigate risk.ll is shown that, if leisure is a normal good and firms are risk-neutral, employment is always ahoue the efficient level.Such a one-period implicit contracting model cannot, therefore, be used to "explain" unemployment as a rational byproduct of risk sharing between workers and a risk-neutral firm under conditions of asymmetric information.

In this paper we show how tied labor, contrary to its common characterization as a feudal relic and as a symptom of economic stagnation, may actually be strengthened by capitalist agricultural development. We construct a simple two-period theoretical model of a two-tiered labor market to show how the proportional importance of voluntary labor-tying contracts may increase with yield-increasing improvements and with a tightening of the labor market. We then provide in support of these hypotheses some general historical as well as more detailed econometric evidence from a variety of cross-sectional data in rural India.

Jonathan Eaton, Gene M. Grossman, William H. Kaempfer, Edward Tower; The Impact of Monopoly Pricing on the Lerner Symmetry Theorem: A Comment*, The Quarter

In an economy without informational and other distortions, entrepreneurs and workers can write labor contracts that support a Pareto optimal allocation of resources. This paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers. Asymmetric information generally results in a suboptimal allocation of both risk and worker effort; in particular, if consumption and leisure are perfect substitutes, employment will be less than fully Pareto optimal in all but the most favorable states of nature.

This introductory essay offers a brief guided tour of the main developments in the theory of implicit contracts, from its inception to the present. It is not intended as a survey but, rather, as an appraisal of the progress that has been made, the difficulties that remain, and as an outline of the microeconomic and macroeconomic issues that seem to invite additional work.

Journal Article Estimating the Economic Model of Crime: Employment Versus Punishment Effects Get access Samuel L. Myers, Jr. Samuel L. Myers, Jr. Federal Trade Commission Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 98, Issue 1, February 1983, Pages 157–166, https://doi.org/10.2307/1885572 Published: 01 February 1983

The model of the black market for dollars focuses on the interaction of portfolio decisions relevant to the holding of asset stocks and the determinants of net flows of dollars associated with tourism and smuggling. A partial-equilibrium model of the black market shows that the level of the premium is determined by the official real exchange rate and the official, depreciation-adjusted interest differential, as well as seasonal factors associated with tourism. Expectations of future exchange rate changes, under rational expectations, are shown to affect the current level of the black market premium. The empirical evidence provides ample support for the role of the key determinants of the premium as well as for an important seasonal pattern. The magnitude of the seasonal variation is evidence of the imperfect substitutability between black dollars and cruzeiro assets in portfolios.

This paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion, emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium. Under certain conditions on the securities available in the market, which also are necessary for shareholders to be unanimous in supporting firm value maximization, investors will be segmented by tax rate into two groups, one specialized in equity and the other in debt. Though the relative wealths of the two groups determine the aggregate debt-equity ratio, each firm will be indifferent to its financial policy.

Attempts have recently been made to assign inequality contributions to various components of income. This paper discusses the issues involved in such assignments and highlights the problems that follow from having a number of possible decomposition rules. U. S. data on the distribution of family incomes are used to examine the relative influence of these income components and to evaluate empirically the performance of different decomposition rules. A wide range of inequality contributions can be obtained, even when restricted to only “naturally†derived decomposition rules. Some of the results are plainly absurd and serve to warn against the indiscriminate use of decomposition formulae without first investigating their properties.