This paper offers a new way to estimate the relation between pay and performance. In particular, unlike previous analyses, we account for the heterogeneity that theory tells us should exist across the compensation packages of different firms. Accounting for heterogeneity allows for more efficient estimates of the pay-for-performance relation and provides a means of testing the secondary hypotheses of agency theory. Among our findings are strong evidence of inter-firm heterogeneity in compensation, even within the same industry, the existence of trade-offs in using different performance measures, and insights about the factors that influence compensation packages.

This paper documents changing inequality in employer-provided fringe benefits in the United States using much more comprehensive data than previously available. Inequality growth in broader measures of compensation slightly exceeds wage inequality growth over the 1981–1997 period. Employer costs due to paid leave, pensions, and health insurance fell for low wage labor and rose for high wage labor over this period. The findings suggest income effects as a contributory factor in the relative decline of fringe benefits among low wage workers.

General equilibrium models that predict a reduction in asset prices when baby boomers retire typically assume that people consume all of their wealth before they die. However, many people hold substantial wealth when they die. I develop a rational expectations, general equilibrium model with a bequest motive. In this model, a baby boom increases stock prices, and stock prices are rationally anticipated to fall when the baby boomers retire, even though consumers continue to hold assets throughout retirement. The continued high demand for assets by retired baby boomers does not attenuate the fall in the price of capital.

This paper summarizes and tries to reconcile evidence from the microeconometric and empirical macro growth literatures on the effect of schooling on income and GDP growth. Much microeconometric evidence suggests that education is an important causal determinant of income for individuals within countries. At a national level, however, recent studies have found that increases in educational attainment are unrelated to economic growth. This discrepancy appears to be a result of the high rate of measurement error in first-differenced cross-country education data. After accounting for measurement error, the effect of changes in educational attainment on income growth in cross-country data is at least as great as microeconometric estimates of the rate of return to years of schooling. Another finding of the macro growth literature—that economic growth depends positively on the initial stock of human capital—is not robust when the assumption of a constant-coefficient model is relaxed.

This paper examines the role of secondary data-sets in empirical economic research, taking the field of income distribution as a case study. We illustrate problems faced by users of “secondary” statistics, showing how both cross-country comparisons and time-series analysis can depend sensitively on the choice of data. After describing the genealogy of secondary data-sets on income inequality, we consider the main methodological issues and discuss their implications for comparisons of income inequality across OECD countries and over time. The lessons to be drawn for the construction and use of secondary data-sets are summarized at the end of the paper.

We study the proposal of manager-sponsored compensation plans linking pay to performance by S&P 500 firms in the 1990s. We examine the market perception of these proposals and the characteristics of the firms that propose them. Shareholders gain at the announcement of the plans, especially when the plans are directed toward the firm's top executives. Proposing firms are those that can most benefit from the plans, given their asset type and agency considerations. Firms with more potential agency costs have the highest vote-for percentages for the plans. However, shareholders are less approving of plans with negative features such as high dilution levels. Our work suggests that stock-based compensation plans are helpful in improving managerial efforts to increase shareholder wealth.

We study the relation between market returns and aggregate flow into U.S. equity funds, using daily flow data. The concurrent daily relation is positive. Our tests show that this concurrent relation reflects flow and institutional trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a stock. Aggregate flow also follows market returns with a one-day lag. The lagged response of flow suggests either a common response of both returns and flow to new information, or positive feedback trading.

Theoretical models predict that overconfident investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as finance, men are more overconfident than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. We document that men trade 45 percent more than women. Trading reduces men's net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women.

With fixed costs of participating in the stock market, consumers with high income will participate in the stock market, but consumers with lower income will not participate. If a fully funded defined-contribution Social Security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save but do not participate in the stock market will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general-equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita. (JEL H55)