Knowledge that Transforms

Central-bank independence, economic behavior, and optimal term lengths

This paper suggests that management's role in enterprise restructuring and market failures in the managerial labor market help explain important features of the German privatization program. A model of adverse selection based on information advantages for private owners demonstrates how privatization can improve the quality and number of western managers in eastern enterprises. These benefits can increase with the size of the transition. Evidence of management replacement and significant differences between state-owned and privatized firms from a survey of eastern German firms supports model assumptions and predictions. These results suggest the importance of management replacement to successful privatization.

This paper shows that, in several U.S. manufacturing industries, the seasonal variability of production and inventories varied with the state of the business cycle. The authors present a simple model which implies that, if firms reduce the seasonal variability of their production as the economy strengthens and they either hold constant or increase the stock of inventories they bring into the high-production seasons of the year, then they must be facing upward-sloping and convex marginal cost curves. The authors conclude that firms in a number of industries face upward-sloping and convex marginal-production-cost curves.