This paper derives two main results. First, in a world where inheritance is sexual as opposed to asexual "second-best" adaptations can be evolutionarily stable. That is, the adaptation selected need not be the optimal solution to the evolutionary problem at hand. Second, I apply this result to show that natural selection provides a potential explanation for why in many settings humans commit errors that are systematic in nature.

A firm will typically gather information concerning its own workers that is not available to other potential employers, while other firms will attempt to reduce this information asymmetry by observing the actions of the initial employer. I argue that this process can be important in environments characterized by up-or-out contracts in that the retention decision can serve as a signal of productivity. The article investigates this argument in an environment where up-or-out contracts are employed because they provide workers with an incentive to accumulate general human capital and where learning takes place in a diffuse fashion.

Previous authors who have considered the issue of noncooperative entry deterrence have not found the free rider problem to be a significant factor. These authors, however, have only considered models in which the exact investment needed to deter entry is known with certainty. In this paper I add uncertainty to the models investigated by these previous authors, and demonstrate that the free rider problem can be significant, but is not so in all cases. That is, for certain types of entry deterring investments the introduction of uncertainty causes the oligopoly to underinvest in entry deterrence; however, for other types no underinvestment result arises.

Economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage. This paper investigates hierarchical production models which display an absence of comparative advantage, in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role. Two results are found. First, the allocation of workers among jobs tends to match high ability workers with positions which value ability highly. Second, despite the fact that the models display an absence of comparative advantage, i.e. the standard theoretical explanation for why wage distributions might be skewed, the models' wage distributions are skewed to the right relative to the underlying ability distributions.

We consider how adverse selection affects the efficiency of turnover and postturnover job assignments. In the model, when a high-ability worker is not promoted at the worker’s current employer because of a lack of available managerial openings, it is efficient for the worker to move to a firm seeking a high-ability worker to promote. But this type of turnover does not occur given asymmetric information and adverse selection. We show that up-or-out contracts can be an efficient response to this inefficiency, where our analysis matches several observations concerning real-world promotion decisions and practices related to up-or-out.

An extensive theoretical literature investigates the role of promotions as a signal of worker ability. We extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal-labor-market history of a medium-sized firm in the financial services industry. Our results support signaling being important for understanding the differences between promotion practices concerning bachelor’s and master’s degree holders, while the evidence concerning the importance of signaling for high school graduates and PhDs is mixed.

Previous authors who have considered partially nonexcludable goods have claimed that an increase in copyright protection will have the following two effects on social welfare. First, it will decrease the social welfare loss due to underproduction. Second, it will increase the social welfare loss due to underutilization. In this paper we investigate these claims in a formal setting by analyzing a model in which consumers vary only in terms of their costs of obtaining a reproduction. Our analysis provides partial support to the first claim of these previous authors while giving little or no support to the second claim.

This paper derives two main results. First, in a world where inheritance is sexual as opposed to asexual, second-best adaptations can be evolutionarily stable. That is, the adaptation selected need not be the optimal solution to the evolutionary problem at hand. Second, the author applies this result to show that natural selection provides a potential explanation for why, in many settings, humans commit errors that are systematic in nature.