Knowledge that Transforms

From the standpoint of economic theory, the difficulty in regulating workers' performance distinguishes labor markets from commodity markets. Commodities do not respond to incentives. Workers, in contrast, can quit, steal, be hung over, refuse to cooperate with other workers, or generally work at low effort levels. Since direct monitoring is often costly and unreliable, it may not be the profit-maximizing solution to this problem. Economists have discussed various schemes to make productive behavior incentive-compatible for workers. The most frequently discussed schemes fall into two broad categories: efficiency wages and deferred compensation or bonding schemes.! These schemes have been suggested as explanations for a wide variety of labormarket features that appear anomalous from the conventional supply-and-demand perspective. Efficiency-wage models can generate equilibria in which there is involuntary unemployment and in which identical workers are paid different wages in jobs that are otherwise equally attractive. George A. Akerlof and Janet L. Yellen (1985) have argued that they can provide an important component of a model of business cycles. Deferred-compensation schemes have been proposed as explanations for upward-sloping age-earnings profiles, mandatory retirement, pensions, and hierarchical (tournament) promotion structures.2 Because bonding is costless to firms, efficiency-wage and bonding strategies are often viewed as mutually incompatible; profit-maximizing firms should offer efficiency wages only in situations where bonding is impossible. One widely held view argues that in labor markets where agency issues arise, these problems are effectively solved by various bonding arrangements (and moreover, that this observation helps to explain otherwise peculiar features of some labor markets, as mentioned above). It follows that efficiency wages do not generally exist. Proponents of efficiency-wage theory argue that there is considerable evidence of widespread agency problems (e.g., large expenditures by many firms on monitoring) and that there are barriers to the use of bonds, notably moral hazard on the part of firms or legal constraints. Efficiency wages cannot therefore be ruled out a priori as an equilibrium solution to these agency problems.3 In this paper we study these issues surrounding efficient worker compensation in a framework that allows heterogeneity among firms and integrates the financial and

Imagine two models of rural poverty distribution. One (which might be called the model) pictures the poor as confined to poverty regions of great natural adversity, separate and apart from regions. In the normal areas, on the other hand, there might be growing inequality, but there is little or no absolute poverty. The second model (the socioeconomic model) sees poor, rich, and middle class physically interspersed or living in proximity to one another. Which of these models more closely approximates reality is an important question. It affects the visibility of extremes of wealth and poverty, which is a politically sensitive matter. Also, characteristics of antipoverty policy will be very different according to whether it is necessary to identify and treat individual households and neighborhoods widely scattered among the nonpoor population or whether it is possible to target entire poor regions. In China, the ecological model is official

Research joint ventures (RJV's) between private firms and government bureaus play a central position in the Clinton Administration's R&D strategy to promote productivity and of American firms. The government's role in the programs varies from subsidizing private projects to providing the expertise and facilities of the federal research laboratories. A substantial literature now exists that investigates the economic efficiency of private RJV's. The purpose of this paper is to expand the debate to consider the conditions under which the government will choose to subsidize RJV's and whether these conditions are likely to yield desirable economic results. It is useful to characterize the government as a consortium member who differs from the private venturers in several critical ways. First, these programs are based on the presumption that private firms are far better than government at choosing projects with commercial merit. Even in those programs where the government contributes scientists and facilities, industry partners usually have primary responsibility for initiating projects. Second, the objective function of the government differs from industry members. Indeed, it is in part because government actors have goals other than competitiveness that these programs are intended to keep government bureaucrats at arm's length from technical choices. Finally, the financial contribution of the government is usually a set share of the total bill. Introducing this form of subsidy changes the research investment strategies employed by a joint venture, and the incentives facing firms either to participate in a consortium or to oppose its establishment. The basic premise of this analysis is that a subsidized joint venture will persist only when all members, including the government, are satisfied. A viable policy depends on economic consequences to member firms, and to the extent that they have access to policy-making, to nonmember firms and consumers. Furthermore, some of the relevant consequences follow predictably from market and technology characteristics.