This paper examines a unique data set based on surveys of 139 compensation executives. Respondents read scenarios describing a hypothetical company and its labor market, and recommended wage changes for several positions. Contrary to some popular theories, differences in unemployment, quit rates, and a company's return of assets led to almost no change in respondents' recommended wage increases. When market wages for closely related occupations diverged, most respondents did not recommend adjusting relative wages within the company; but when the occupations were not closely related (blue vs. white collar), most respondents recommended adjusting relative wages to reflect market forces.

We examine the following paradox: in a dynamic setting, equilibria can be radically different in a model with a finite number of agents than in a model with a continuum of agents. We present a simple strategic setting in which this paradox is a general phenomenon. However, the paradox disappears when there is noisy observation of the players' actions, and the aggregate level of noise does not disappear too rapidly as the number of players increases. We give several economic examples in which this paradox has recently received attention: durable-goods monopoly, corporate takeovers, and time consistency of optimal government policy.

The durability of a good has two implications. First, it can be stored in inventories by producers. Second, if it provides a stream of services to consumers, consumers may wish to defer purchases to take advantage of price fluctuations. The most significant conclusion is that the stockpiling of demand that results when consumers defer purchases explains why the variance of output exceeds the variance of sales even if demand shocks are serially independent.

Few want to do business with a partner who has a bad reputation. Consequently, once a bad reputation is established, it can be difficult to get rid of. This leads on the one hand to the intuitive idea that a good reputation is easy to lose and hard to gain. On the other hand, it can lead to a strong form of history dependence in which a single beneficial or adverse event can cast a shadow over a very long period of time. It gives rise to a reputational trap where an agent rationally chooses not to invest in a good reputation because the chances others will find out is too low. Nevertheless, the same agent with a good reputation will make every effort to maintain it. Here, a simple reputational model is constructed and the conditions for there to be a unique equilibrium that constitutes a reputation trap are characterized.

At a time when standards of living have improved more than any time in history, this book makes a proposal for radical change. It is based—loosely—on market design principles. The plan for attacking overlapping ownership is reasonably well thought out. Most of the book, however, proposes to use mechanisms designed for a narrow purpose; to attack real or imagined problems that they are ill—suited to solve. I conclude that while market design has a lot to offer when properly applied, the proposals here are not sufficiently well thought out to constitute a serious plan of action.(JEL D44, D47, D72, D82, P14)

This paper examines a unique data set based on surveys of 139 compensation executives. Respondents read scenarios describing a hypothetical company and its labor market, and recommended wage changes for several positions. Contrary to some popular theories, differences in unemployment, quit rates, and a company's return on assets led to almost no change in respondents' recommended wage increases. When market wages for closely related occupations diverged, most respondents did not recommend adjusting relative wages within the company; but when the occupations were not closely related (blue versus white collar), most respondents recommended adjusting relative wages to reflect market forces. Copyright 1993 by American Economic Association.

This article utilizes a rich data set on workers and their employers in the United States and Japan to test several predictions of human capital theory. The data set incorporates both prospective and retrospective measures of turnover, includes multiple measures of training, and provides a basis for calculating plant-specific returns to tenure. Contrary to human capital theory, there is no evidence that establishments with high levels of training have either high returns to tenure or low levels of turnover. Surprisingly, establishments with high returns to tenure do not have low levels of turnover.

The free market may not lead to the efficient level of just-cause employment protection if workers are heterogeneous. Any firm that switches to just cause will attract a disproportionate share of workers that provide low effort yet are difficult to dismiss with cause. Thus, there is an externality concerning each firm's just-cause policy. If all firms had just-cause policies, then the efficiency gains of just cause might outweigh the burden of the undesirable workers. Nevertheless, no single firm may find it in its interest to switch to just cause. It is possible for laws that require just cause to increase efficiency.