Abstract ABSTRACT: This paper provides empirical evidence on a truth-inducing pay scheme widely discussed and analyzed in the Incentive contracting literature. An experiment was conducted in which subjects acted as subordinates who performed e production task. Budgets were participatively set under either a truth-inducing or slack-inducing pay scheme and either the presence or absence of a superior-subordinate Information asymmetry about subordinate performance capability. Slack was defined as expected performance minus the participatively set budget. The results showed that, when the information asymmetry was absent, slack did not differ significantly between the pay schemes. However, when the Information asymmetry was present, slack was significantly lower under the truth-inducing scheme. Similarly, the pay scheme and information asymmetry variables Interacted to affect performance.

Evidence on cost savings from reorganizing township low-volume, rural-road systems into larger units is presented in the study of technical efficiencies in producing local government services. Data are from a sample of midwestern townships. Heterogeneity of surface types is accounted for by specifying a multiple output translog cost function. Examination of economies of size suggest that cost savings could be realized by reorganizing townships into larger units. The presence of economies of scope suggest that jurisdictions should not specialize in maintenance responsibilities due to the joint use of inputs. Copyright 1988 by MIT Press.

ABSTRACT In an intertemporal economy where both risk (stock beta) and expected return are time varying, the authors derive a linear relation between the unconditional beta and the unconditional return under certain stationarity assumptions about the stochastic process of size‐portfolio betas. The model suggests the use of long time periods to estimate the unconditional portfolio betas. The authors find that, after controlling for the betas thus estimated, a firm‐size proxy, such as the logarithm of the firm size, does not have explanatory power for the averaged returns across the size‐ranked portfolios.

A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by traditional economic theory—including egalitarian pay systems in which compensation is largely independent of performance, the overwhelming use of promotion-based incentive systems, the absence of up-front fees for jobs and effective bonding contracts, and the general reluctance of employers to fire, penalize, or give poor performance evaluations to employees. Typical explanations for these practices offered by behaviorists and practitioners are distinctly uneconomic—focusing on notions such as fairness, equity, morale, trust, social responsibility, and culture. The challenge to economists is to provide viable economic explanations for these practices or to integrate these alternative notions into the traditional economic model.

ABSTRACT A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by traditional economic theory—including egalitarian pay systems in which compensation is largely independent of performance, the overwhelming use of promotion‐based incentive systems, the absence of up‐front fees for jobs and effective bonding contracts, and the general reluctance of employers to fire, penalize, or give poor performance evaluations to employees. Typical explanations for these practices offered by behaviorists and practitioners are distinctly uneconomic—focusing on notions such as fairness, equity, morale, trust, social responsibility, and culture. The challenge to economists is to provide viable economic explanations for these practices or to integrate these alternative notions into the traditional economic model.

Was the Depression forecastable? After the crash, how long should it have taken contempo rary forecasters to realize how severe the downturn was going to be? These questions are addressed by studying the predictions of the Harv ard Economic Service and Yale's Irving Fisher during 1929 and the ear ly 1930s. The data assembled by the Harvard and Yale forecasters, tog ether with modern historical data, are subjected to statistical analy sis to learn whether their verbal pronouncements were consistent with the data. Both the Harvard and Yale forecasters were systematically too optimistic. Yet, nothing in the data suggests that the optimism w as unwarranted. Copyright 1988 by American Economic Association.