ABSTRACT Compensation planning within firms creates important corporate financial problems. Theoretical models and empirical tests of hypotheses in this area should play a much larger role than currently in the modern theory of corporate finance. Employees fund a large proportion of their firm's activities through deferred compensation arrangements tied to the performance of their company. These arrangements are generally put in place for incentive reasons, to align the interests of employees more closely with those of shareholders. Moreover, tax rules encourage or discourage these arrangements at various times. Currently, both tax rules and incentive considerations encourage stock buyback programs to fund deferred compensation arrangements. Prior to the 1980s, however, tax rules favored funding in other than company stock, implying that employees likely held company stock for incentive and not for tax reasons during this time period.

Transactions prices of S&P 500 futures options over 1985-87 are examined for evidence of expectations prior to October 1987 of an impending stock market crash. First, it is shown that out-of-the-money puts became unusually expensive during the year preceding the crash. Second, a model is derived for pricing American options on jump-diffusion processes with systematic jump risk. The jump-diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during October 1986 to August 1987. Both approaches indicate no strong crash fears during the 2 months immediately preceding the crash.

This note tries to explain why many successful restaurants, plays, sporting events, and other activities do not raise prices even with persistent excess demand. My approach assumes that demand by a typical consumer is positively related to quantities demanded by other consumers. This can explain not only the puzzle about prices but also why consumer demand is often fickle, why it is much easier to go from being "in" to being "out" than from "out" to "in," and why supply does not increase to reduce the excess demand.

This paper develops a dynamic general equilibrium model of economic growth. The model has a steady-state equilibrium in which some firms devote resources to discovering qualitatively improved products and other firms devote resources to copying these products. Rates of both innovation and imitation are endogenously determined on the basis of the outcomes of $R & D$ races between firms. Innovation subsidies are shown to unambiguously promote economic growth. Welfare is enhanced, however, only if the steady-state intensity of innovative effort exceeds a critical level.

The positive correlation between schooling and good health is well documented. One explanation is that schooling helps people choose healthier life-styles by improving their knowledge of the relationships between health behaviors and health outcomes. That is, schooling improves the household's allocative efficiency in producing health. This empirical study uses direct measures of health knowledge to test this explanation. Part of the relationship between schooling and the consumption of cigarettes, alcohol, and exercise is explained by differences in health knowledge. However, most of schooling's effects on health behavior remain after differences in knowledge are controlled for. Copyright 1991 by University of Chicago Press.

The positive correlation between schooling and good health is well documented. One explanation is that schooling helps people choose healthier life-styles by improving their knowledge of the relationship between health behaviors and health outcomes. That is, schooling improves the household's allocative efficiency in producing health. This empirical study uses direct measures of health knowledge to test this explanation. Part of the relationship between schooling and the consumption of cigarettes, alcohol, and exercise is explained by differences in health knowledge. However, most of schooling's effects on health behavior remain after differences in knowledge are controlled for.

This note tries to explain why many successful restaurants, plays, sporting events, and other activities do not raise prices even with persistent excess demand. The authors approach assumes that demand by a typical consumer is positively related to quantities demanded by other consumers. This can explain not only the puzzle about prices, but also why consumer demand is often fickle, why it is much easier to go from being "in" to being "out" than from "out" to "in," and why supply does not increase to reduce the excess demand. Copyright 1991 by University of Chicago Press.

The theory applying to dynamic programming has furnished a useful set of techniques for the analysis of many types of sequential models. This theory, however, has not yielded heretofore much information about the differentiability properties of optimal solutions. This aspect is of particular interest as regards the qualitative analysis of optimal paths, where differentiable methods are often called into play. This paper shows roughly that if the objective is twice continuously differentiable and strongly concave, then any interior optimal path is continuously differentiable with respect to the initial state. Copyright 1991 by The Econometric Society.

This paper reports an estimate of the frictional unemployment rate in U.S. manufacturing that is derived from a parametric, statistical method for estimating stochastic frontiers. The steady-state, perfect-foresight solution to an estimated employment growth frontier provides a locus of technically efficient (frictional) rates of unemployment. The mean frictional unemployment rate during the sample period is estimated to be 3.7 percent of the manufacturing labor force. This estimate conforms closely to an estimate of 3.5 percent that is derived from manufacturing-sector data presented by David M. Lilien (1980) for roughly the same time period. Copyright 1991 by MIT Press.