A Treatise on the Family. G. S. Becker. Cambridge, MA: Harvard University Press. 1981. Gary Becker is one of the most famous and influential economists of the second half of the 20th century, a fervent contributor to and expounder of the University of Chicago free-market philosophy, and winner of the 1992 Nobel Prize in economics. Although any book with the word "treatise" in its title is clearly intended to have an impact, one coming from someone as brilliant and controversial as Becker certainly had such a lofty goal. It has received many article-length reviews in several disciplines (Ben-Porath, 1982; Bergmann, 1995; Foster, 1993; Hannan, 1982), which is one measure of its scholarly importance, and yet its impact is, I think, less than it may have initially appeared, especially for scholars with substantive interests in the family. This book is, its title notwithstanding, more about economics and the economic approach to behavior than about the family. In the first sentence of the preface, Becker writes "In this book, I develop an economic or rational choice approach to the family." Lest anyone accuse him of focusing on traditional (i.e., material) economics topics, such as family income, poverty, and labor supply, he immediately emphasizes that those topics are not his focus. "My intent is more ambitious: to analyze marriage, births, divorce, division of labor in households, prestige, and other non-material behavior with the tools and framework developed for material behavior." Indeed, the book includes chapters on many of these issues. One chapter examines the principles of the efficient division of labor in households, three analyze marriage and divorce, three analyze various child-related issues (fertility and intergenerational mobility), and others focus on broader family issues, such as intrafamily resource allocation. His analysis is not, he believes, constrained by time or place. His intention is "to present a comprehensive analysis that is applicable, at least in part, to families in the past as well as the present, in primitive as well as modern societies, and in Eastern as well as Western cultures." His tone is profoundly conservative and utterly skeptical of any constructive role for government programs. There is a clear sense of how much better things were in the old days of a genderbased division of labor and low market-work rates for married women. Indeed, Becker is ready and able to show in Chapter 2 that such a state of affairs was efficient and induced not by market or societal discrimination (although he allows that it might exist) but by small underlying household productivity differences that arise primarily from what he refers to as "complementarities" between caring for young children while carrying another to term. Most family scholars would probably find that an unconvincingly simple explanation for a profound and complex phenomenon. What, then, is the salient contribution of Treatise on the Family? It is not literally the idea that economics could be applied to the nonmarket sector and to family life because Becker had already established that with considerable success and influence. At its core, microeconomics is simple, characterized by a belief in the importance of prices and markets, the role of self-interested or rational behavior, and, somewhat less centrally, the stability of preferences. It was Becker's singular and invaluable contribution to appreciate that the behaviors potentially amenable to the economic approach were not limited to phenomenon with explicit monetary prices and formal markets. Indeed, during the late 1950s and throughout the 1960s, he did undeniably important and pioneering work extending the domain of economics to such topics as labor market discrimination, fertility, crime, human capital, household production, and the allocation of time. Nor is Becker's contribution the detailed analyses themselves. Many of them are, frankly, odd, idiosyncratic, and off-putting. …

A Treatise on the Family

The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

This essay reviews the theoretical and empirical literature on quality disclosure and certification. After comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure, we address two sets of theoretical issues. First, why don't sellers voluntarily disclose through a process of "unraveling" and, given the lack of unraveling, is it desirable to mandate seller disclosure? Second, when we rely on certifiers to act as the intermediary of quality disclosure, do certifiers necessarily report unbiased and accurate information? We further review empirical evidence on these issues, with a particular focus on healthcare, education, and finance. The empirical review covers quality measurement, the effect of third-party disclosure on consumer choice and seller behavior, as well as the economics of certifiers. (JEL D18, K32, L15, M31)

https://www.nber.org/system/files/working_papers/w15644/w15644.pdf

Quality Disclosure and Certification: Theory and Practice

The purpose of this course is to acquaint students with the wide variety of regulatory processes, policies, and institutions in this country. Furthermore, students will develop a sophisticated and rigorous understanding of selected elements of regulatory politics, processes, and policies involving a regulatory agency of the U.S. government. To accomplish this, a variety of materials will be presented. These will involve reading, discussion and integration of the concepts of regulation, as well as understanding the processes by which regulatory policy is developed and implemented. Also, the impacts or results of such regulatory policies will be treated. In addition, students will gain a good deal of experience and develop techniques for conducting a diverse set of research and writing skills.

The politics of regulation

Identifying the security risks associated with governmental use of cloud computing

I. INTRODUCTION There is a large and growing interest in the structuring of compensation to deal with the moral hazard problem. Much of this literature treats various forms of income sharing, such as piece rates and sharecropping, as a means for a principal to provide incentives to an agent. This literature has been extended to the case of two-sided moral hazard where both parties to an exchange may shirk. Another mechanism to induce effort discussed in the literature is bonding, where workers post a bond that is forgone if effort is inadequate. Klein [1980] and Klein and Leffler [1981] treat the possibility of specific assets as constituting an implicit bond, where poor performance by a firm is penalized by bankruptcy and sale of assets at a loss. This paper studies a situation where these issues coalesce: the case of compensation arrangements in franchising. The typical franchise contract calls for the sharing of franchise income between franchisee and franchisor. Additionally, franchisees may be terminated for poor performance. If franchise assets have a degree of specificity, the ensuing sale of assets at a loss provides a penalty for poor performance. We examine the determinants of franchise royalty rates and fees in this setting. While there is a literature on two-sided moral hazard and some empirical work on franchising based on this idea, none incorporates the potential influence of asset specificity. We explicitly consider the role of implicit bonding and asset specificity in conjunction with moral hazard on the part of both trading parties. We go beyond previous work in franchising by estimating the effects of asset specificity and other influences on the royalty rate. Further, part of our empirical work utilizes improved micro data on actual franchise contracts. Our approach and its implications are discussed in section II. Consistent with previous work, we expect the royalty rate to decrease (increase) as the importance of the franchisee's (franchisor's) input increases. However, more specific capital, with the threat of termination, acts as an implicit bond and substitutes for a reduced royalty rate in inducing franchisee effort. Thus, we expect royalty rates to increase with asset specificity. Also, unlike other approaches, we do not necessarily expect an inverse relationship between the royalty rate and the franchise fee. For example, the greater the importance of franchisor effort the higher the royalty rate, but the franchise fee may also increase if franchise revenue rises by enough. Our hypotheses are tested using two different data sets. An original, firm-level data set is taken from Federal Trade Commission (FTC)-required Uniform Franchise Offering Circulars (UFOC).(1) In addition, data are obtained from Bond's 1989 The Source Book of Franchise Opportunities. The data are discussed and the results presented in section III. We find substantial support for our approach. For example, factors that increase the importance of the franchisee's effort, such as the number of employees supervised, lower the royalty rate and increase the franchise fee. Also, a reduction in the specificity of the franchisee's investment due to leasing lowers the royalty rate and raises the franchise fee.(2) Section IV summarizes our findings and concludes the paper. II. THE APPROACH AND THE HYPOTHESES The typical franchising contract consists of a two-part payment by the franchisee to the franchisor. The franchisee pays an up-front, nonrefundable franchisee fee and a continuing royalty payment, usually a percentage of sales. In return the franchisee receives the right to use the franchisor's brand-name capital and a method of operation. In addition, the franchisor provides on-going support to the franchisee. However, the franchisor maintains the right to unilaterally terminate the contract if the franchisor determines that the franchisee is not delivering a product consistent with the quality guaranteed by the brand name. …

Moral hazard, asset specificity, implicit bonding, and compensation: the case of franchising

https://siepr.stanford.edu/sites/default/files/publications/99-18_0.pdf

The ‘state’ of universal service

I. INTRODUCTION Researchers have long understood that a variety of mechanisms may be used to overcome problems of adverse selection. Stigler (1961, 224) notes that "[s]ome forms of economic organization may be explicable chiefly as devices for eliminating uncertainties in quality," and Akerlof (1970) cites independent groups, such as the Consumers Union and United Laboratories, that test and certify the quality of goods. There is, however, little empirical evidence that illustrates the effectiveness of such mechanisms. In this article we examine the effect certification has on a market characterized by adverse selection. Using data from the market for young thoroughbreds, we compare the performance of sales where auction houses provide certification services with sales where certification is absent. The thoroughbred racehorse market consists of two distinct types of public auctions: certified and noncertified sales. In a certified sale, auction houses physically inspect the horses nominated to their sales, selling only the horses they conclude are from the upper end of the quality distribution. In noncertified sales, auction houses sell all horses nominated to a sale. Our empirical strategy is to perform tests that indicate whether adverse selection affects market outcomes in either certified or noncertified sales. A finding that adverse selection is present in noncertified sales but absent in certified sales is consistent with the hypothesis that certification alleviates problems of adverse selection. We adopt three approaches to test for the presence of adverse selection. (1) The first approach is in the spirit of Chiappori and Salanie (2000), who examine the relationship between unobservable factors from participation and performance equations. We model adverse selection as a case of sample-selection bias and examine the correlation between errors in participation and price equations. (2) To accomplish this we use a unique data set that allows us to estimate how breeder decisions to sell or retain horses affect market prices. The data set consists of a 10% random sample of all thoroughbreds born in 1993 and includes both horses retained by their breeders, who own a horse at the time of its birth, and horses that breeders chose to sell. Our second test follows Genesove (1993) and Chezum and Wimmer (1997) by examining the relationship between seller characteristics and price. Theoretically, when observable seller characteristics are correlated with seller incentives to select goods adversely, prices should reflect these differences. Chezum and Wimmer observe that some breeders sell all of their horses, whereas others retain a portion to race. They find that market prices are inversely related to the extent of a breeder's involvement in racing, concluding that adverse selection affects market outcomes. We extend this work in two respects. First, we isolate the effect seller characteristics have on price through the decision to sell or retain a horse. Second, we compare the effect seller characteristics have on observed prices in certified and noncertified sales. Our last test follows Bond (1982) who attempts to identify adverse selection in the market for used trucks by comparing the repair records of trucks that were sold with the records of trucks retained by their original owners. Because the horses in our sample had not begun their racing careers at the time they were sold, we use data on racetrack earnings as an ex-post measure of quality and compare the quality of horses sold in noncertified sales with certified horses and horses retained by their breeders. The results from each approach are consistent with certification alleviating problems of adverse selection. We find that holding observable attributes constant, horses that would receive unusually high market prices in noncertified sales are even more valuable in other options and are less likely to be sold in a noncertified sale. …

An Empirical Examination of Quality Certification in a “Lemons Market”

This study evaluates the effect of the "Lifeline" and "Linkup" subsidy programs on telephone penetration rates of low-income households. It is the first to estimate low-income telephone demand across demographic groups using location-specific Lifeline and Linkup prices. The demand specifications use a discrete choice model aggregated across demographic groups. GMM estimators correct for the possible endogeneity of subsidized prices. A simulation predicts low-income telephone penetration would be 4.1 percentage points lower without Lifeline and Linkup. Results suggest that Linkup is more cost-effective than Lifeline, and that automatic enrollment in the programs increases penetration.

http://www.econ.ucla.edu/ackerber/ARRWsubmit2_allfinal.pdf

Low-Income Demand for Local Telephone Service: Effects of Lifeline and Linkup

The evolution in the role of middlemen has many important implications at the macro-economic level as well. In many markets, the negative employment effects of labor-saving technologies are offset by increases in the demand for labor as transaction costs fall and additional labor is needed to produce more goods and services. As discussed above, middlemen operate successfully in markets when private transactions are costly and inefficiencies exist. Many traditional aspects of this role are being replaced by information technologies. Generally, information technologies are a close substitute for match-making services, but are less suited for reducing privately held asymmetric information. The reduction in transaction costs and improved efficiencies in match mak-ing provided by information technologies increases the demand for expert services which further increases the returns to education and widens the earnings gap. The widening should be greatest in industries that concentrate on match-making services such as real estate, however a widening is likely to be present in most sectors. Middle-men with expertise beyond match making will remain viable, while those lacking value-adding expertise will be rapidly marginalized.

Bradley S. Wimmer

Papers

Moral hazard, asset specificity, implicit bonding, and compensation: the case of franchising

The ‘state’ of universal service

An Empirical Examination of Quality Certification in a “Lemons Market”

Low-Income Demand for Local Telephone Service: Effects of Lifeline and Linkup

Information technologies and the