Affirmative action may be broadly conceived of as pursuing either the goal of reducing discrimination or that of redistributing jobs and earnings. I attempt to infer the ends of affirmative action policy by analyzing the historical record of enforcement. Optimal enforcement strategies are developed for both the antidiscrimination and the earnings redistribution models and then compared with new data on the actual targeting of affirmative action compliance reviews during the late 1970s. I find that establishments with very low proportions of minority or female workers are not significantly more likely to be reviewed, but that white-collar-intensive establishments are more likely to be reviewed. This indicates the shortcomings of the antidiscrimination model in explaining the OFCCP's behavior and suggests the potential usefulness of the earnings redistribution model.

Increasing returns from specialized human capital is a powerful force creating a division of labor in the allocation of time and investments in human capital between married men and married women. Moreover, since child care and housework are more effort intensive than leisure and other household activities, married women spend less effort on each hour of market work than married men working the same number of hours. Hence, married women have lower hourly earnings than married men with the same market human capital, and they economize on the effort expended on market work by seeking less demanding jobs. The responsibility of married women for child care and housework has major implications for earnings and occupational differences between men and women.

It is a well-known fact that the extent of unionization is less in states with right-to-work (RTW) laws. A framework is developed for determining whether RTW laws actually cause a decrease in the extent of unionization or whether they simply mirror preexisting tastes of workers against unions. A set of empirical tests is proposed that can distinguish between these explanations based on differences between RTW and non-RTW states in the demand for union representation, the supply of union jobs relative to that demand, and the observed union/nonunion wage differential. These tests are implemented using disaggregated data from the Quality of Employment Survey and the Current Population Survey, and a pattern is found that is consistent with the hypothesis that RTW laws simply mirror preexisting preferences against union representation.

Affirmative action under Executive Order 11246 ranks among the most controversial of domestic federal policies. This study asks whether affirmative action has been successful in promoting the employment of minorities and females. It compares the change in demographics between 1974 and 1980 at more than sixty-eight thousand establishments, and finds that both minority and female employment have increased faster at establishments subject to affirmative action. Compliance reviews, while not well targeted are also found to have been effective.

The effects on consumption and retirement of the length of the horizon are examined. At any given age people will work more and consume less if they expect to live longer. The Terman sample of gifted individuals in 1972 and 1977 is used to relate work status to the length of the horizon, as proxied by parents' longevity. The results suggest the expected positive effect on effort, but its magnitude is quite small. The panel from the Retirement History Survey is used, and effects of the horizon on consumption and retirement jointly are estimated for 1973 and 1975. There is a small positive effect of a more distant horizon (proxied by the number of living parents) on work effort and a stronger but still fairly small negative effect on consumption. Goods and leisure are consumed jointly, suggesting their complementarity in household production, and spending propensities out of social security wealth are far below those out of pension wealth.

Abstract We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition. (JEL D43, G21, M42, M49)

Dealers enter nonbinding expressions of interest during the Nasdaq preopening to promote price discovery and ease stock inventory management when the market opens. But does this practice of “indicating ahead” constitute best execution for an individual customer? Arguments in favor of the practice rely on the notion that best execution is a general condition as opposed to a concept applicable on a trade-by-trade basis. Some customers must sacrifice in individual instances to improve the functioning of the overall market. But the practice of indicating ahead violates the dealer agent's duty of loyalty to her individual customer. Moreover, the dealer's financial self-interest is best served by indicating ahead. Journal of Economic Literature Classification Numbers: G10, G18, K22.

The standard Principal–Agent (PA) model assumes that the principal can control the agent's consumption profile. In an intertemporal setting, however, Rogerson (1985, Econometrica53, 69–76) shows that given the optimal PA contract, the agent has an unmet precautionary demand for savings. Thus the standard PA model is invalid if the agent has access to credit markets. In this paper we generalize the standard PA model to allow for saving and borrowing by the agent. We show that the impact of such access critically depends upon the treatment of default. If default is not permitted, efficiency is strictly reduced by the introduction of credit markets, and the equilibrium level of borrowing or saving is indeterminate in the model. If default is allowed, however, the optimal contract depends upon the level of bankruptcy protection in the economy, which is described by a minimum level of wage income. We show that there is an optimal intermediate range of bankruptcy protection. Within this range, allowing default increases efficiency in the economy relative to the case of no default. Also, the model predicts specific levels of consumer debt, interest rates, and default rates as functions of the level of bankruptcy protection level. Journal of Economic Literature Classification Numbers: D80, G21, G28, J30.

This paper analyzes the role of financial intermediaries as marketmakers in the market for interest rate swaps. We argue that intermediaries which hold large nontraded portfolios of swaps are efficient alternatives to direct hedging by counterparties in publicly traded cash and futures instruments. The efficiency afforded by the swap marketmaker derives from reduction in transactions costs, diversification of basis risk, and reduced agency costs of debt. The analysis provides an explanation for the existence and success of the swaps market as a means for spreading risk and for its dominance by large financial institutions.

We analyze an experiment conducted by a large U.S. bank that offered consumers achoice between two credit card contracts, one with an annual fee but a lowerinterest rate and one with no annual fee but a higher interest rate. We findthat on average consumers chose the credit contract that minimized their costs.A substantial fraction of consumers (about 40%) still chose the suboptimalcontract. Nonetheless, the probability of choosing the suboptimal contractdeclines with the dollar magnitude of the potential error, and consumers withlarger errors are more likely to subsequently switch to the optimalcontract.