Showing papers by "London School of Economics and Political Science published in 2010"
TL;DR: Improved scoring and weighting approach of MCDA increases the differentiation between the most and least harmful drugs, however, the findings correlate poorly with present UK drug classification, which is not based simply on considerations of harm.
1,298 citations
TL;DR: This paper found that only half of the difference in labor productivity between firms and countries could be explained by differential inputs, such as capital intensity, and that the productivity differences across firms and plants are temporary but persist over time.
Abstract: Economists have long puzzled over the astounding differences in productivity between firms and countries. For example, looking at disaggregated data on U.S. manufacturing industries, Syverson (2004a) found that plants at the 90th percentile produced four times as much as the plant in the 10th percentile on a per-employee basis. Only half of this difference in labor productivity could be accounted for by differential inputs, such as capital intensity. Syverson looked at industries defined at the four-digit level in the Standard Industrial Classification (SIC) system (now the North American Industry Classification System or NAICS) like 'Bakeries and Tortilla Manufacturing' or 'Plastics Product Manufacturing.' Foster, Haltiwanger, and Syverson (2008) show large differences in total factor productivity even within very homogeneous goods industries such as boxes and block ice. Some of these productivity differences across firms and plants are temporary, but in large part they persist over time. At the country level, Hall and Jones (1999) and Jones and Romer (2009) show how the stark differences in productivity across countries account for a substantial fraction of the differences in average per capita income. Both at the plant level and at the national level, differences in productivity are typically calculated as a residual-that is, productivity is inferred as the gap between output and inputs that cannot be accounted for by conventionally measured inputs.
1,169 citations
TL;DR: Three new directions for IS research are proposed: theories of the nature of digital infrastructure as a separate type of IT artifact, sui generis; digital infrastructures as relational constructs shaping all traditional IS research areas; and paradoxes of change and control as salient IS phenomena.
Abstract: Since the inauguration of information systems research (ISR) two decades ago, the information systems (IS) field's attention has moved beyond administrative systems and individual tools. Millions of users log onto Facebook, download iPhone applications, and use mobile services to create decentralized work organizations. Understanding these new dynamics will necessitate the field paying attention to digital infrastructures as a category of IT artifacts. A state-of-the-art review of the literature reveals a growing interest in digital infrastructures but also confirms that the field has yet to put infrastructure at the centre of its research endeavor. To assist this shift we propose three new directions for IS research: (1) theories of the nature of digital infrastructure as a separate type of IT artifact, sui generis; (2) digital infrastructures as relational constructs shaping all traditional IS research areas; (3) paradoxes of change and control as salient IS phenomena. We conclude with suggestions for how to study longitudinal, large-scale sociotechnical phenomena while striving to remain attentive to the limitations of the traditional categories that have guided IS research.
937 citations
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TL;DR: This article reviewed progress in empirical economics since Leamer's critique and pointed out that the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects.
Abstract: This essay reviews progress in empirical economics since Leamer's (1983) critique. Leamer highlighted the benefits of sensitivity analysis, a procedure in which researchers show how their results change with changes in specification or functional form. Sensitivity analysis has had a salutary but not a revolutionary effect on econometric practice. As we see it, the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate. Design-based studies are most often found in the microeconomic fields of Development, Education, Environment, Labor, Health, and Public Finance, but are still rare in Industrial Organization and Macroeconomics. We explain why IO and Macro would do well to embrace a design-based approach. Finally, we respond to the charge that the design-based revolution has overreached.
913 citations
TL;DR: The authors argue that the primary engine driving improvement has been a focus on the quality of empirical research designs, and that the advantages of a good research design are perhaps most easily apparent in research using random assignment.
Abstract: Since Edward Leamer's memorable 1983 paper, "Let's Take the Con out of Econometrics," empirical microeconomics has experienced a credibility revolution. While Leamer's suggested remedy, sensitivity analysis, has played a role in this, we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs. The advantages of a good research design are perhaps most easily apparent in research using random assignment. We begin with an overview of Leamer's 1983 critique and his proposed remedies. We then turn to the key factors we see contributing to improved empirical work, including the availability of more and better data, along with advances in theoretical econometric understanding, but especially the fact that research design has moved front and center in much of empirical micro. We offer a brief digression into macroeconomics and industrial organization, where progress -- by our lights -- is less dramatic, although there is work in both fields that we find encouraging. Finally, we discuss the view that the design pendulum has swung too far. Critics of design-driven studies argue that in pursuit of clean and credible research designs, researchers seek good answers instead of good questions. We briefly respond to this concern, which worries us little.
876 citations
TL;DR: This article examined the frequency, pervasiveness, and determinants of product switching by US manufacturing firms and found that one-half of firms alter their mix of five-digit SIC products every five years, and that product switching is correlated with both firm-and firm-product attributes.
Abstract: This paper examines the frequency, pervasiveness, and determinants of prod uct switching by US manufacturing firms. We find that one-half of firms alter their mix of five-digit SIC products every five years, that product switching is correlated with both firm- and firm -product attributes, and that product adding and dropping induce large changes in firm scope. The behavior we observe is consistent with a natural generalization of existing theories of industry dynam ics that incorporates endogenous product selection within firms. Our findings suggest that product switching contributes to a reallocation of resources within firms toward their most efficient use. (JEL LI 1, L21, L25, L60) The extent to which resources are allocated to their best use is a core issue of economics. Until now, research into industry dynamics has addressed this issue by focusing almost exclusively on the contribution of firm entry and exit to resource reallocation, that is, whether newly created firms or plants are more productive than the dying firms and plants they replace.1 This paper examines a new, "extensive" margin of firm adjustment, the reassignment of resources that takes place within surviving firms as they add and drop (i.e., "switch") products. Our analysis of product switching makes use of a unique longitudinal dataset that tracks US firms' product-level manufacturing output across quinquennial US Manufacturing Censuses
820 citations
TL;DR: This article developed a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms.
Abstract: This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality.
668 citations
TL;DR: Feminist theories of technology have come a long way over the last quarter of a century as discussed by the authors, and the expanding engagement at the intersection of feminist scholarship and science and technology studies has enriched both fields immeasurably.
Abstract: Feminist theories of technology have come a long way over the last quarter of a century. The expanding engagement at the intersection of feminist scholarship and science and technology studies (STS) has enriched both fields immeasurably, and I will largely focus my reflections on the literature associated with these sites. I begin by highlighting the continuities as well as the differences between contemporary and earlier feminist debates on technology. Current approaches focus on the mutual shaping of gender and technology, in which technology is conceptualised as both a source and consequence of gender relations. In avoiding both technological determinism and gender essentialism, such theories emphasise that the gender-technology relationship is fluid and situated. These deliberations highlight how processes of technical change can influence gender power relations. A feminist politics of technology is thus key to achieving gender equality.
601 citations
01 Jan 2010
TL;DR: This summary makes the case for performance measurement as key tool for policy-makers endeavouring to improve health systems in the European Region, demonstrating that if governments invest in health they can expect those resources to be used well.
Abstract: This summary makes the case for performance measurement as key tool for policy-makers endeavouring to improve health systems in the European Region. It highlights the various elements required of a comprehensive health system performance measurement framework; pinpoints how performance measurement can be used in practice; and stresses the role of government stewardship in securing improved performance. It reviews existing evidence and provides examples of the empirical application of performance measures, demonstrating that if governments invest in health they can expect those resources to be used well.
497 citations
TL;DR: In this paper, the authors present evidence on social incentives in the workplace, namely on whether workers' behavior is affected by the presence of those they are socially tied to, even in settings where there are no externalities among workers due to either the production technology or the compensation scheme in place.
Abstract: We present evidence on social incentives in the workplace, namely on whether workers' behaviour is affected by the presence of those they are socially tied to, even in settings where there are no externalities among workers due to either the production technology or the compensation scheme in place. To do so, we combine data on individual worker productivity from a firm's personnel records with information on each worker's social network of friends in the firm. We find that compared to when she has no social ties with her co-workers, a given worker's productivity is significantly higher when she works alongside friends who are more able than her, and significantly lower when she works with friends who are less able than her. As workers are paid piece rates based on individual productivity, social incentives can be quantified in monetary terms and are such that (i) workers who are more able than their friends are willing to exert less effort and forgo 10% of their earnings; (ii) workers who have at least one friend who is more able than themselves are willing to increase their effort and hence productivity by 10%. The distribution of worker ability is such that the net effect of social incentives on the firm's aggregate performance is positive. The results suggest that firms can exploit social incentives as an alternative to monetary incentives to motivate workers.
489 citations
TL;DR: This intervention could be used with or as a potential alternative to health-worker-led interventions, and presents new opportunities for policy makers to improve maternal and newborn health outcomes in poor populations.
TL;DR: This article provided a comparative study of a number of outcomes (education, earnings and employment) of both first and second-generation immigrants of different origins in the three largest European economies: France, Germany and the UK.
Abstract: A central concern about immigration is the integration into the labour market, not only of the first generation but also of subsequent generations. Little comparative work exists for Europe’s largest economies. France, Germany and the UK have all become, perhaps unwittingly, countries with large immigrant populations albeit with very different ethnic compositions. Today, the descendants of these immigrants live and work in their parents destination countries. This article presents and discusses comparative evidence on the performance of first and second-generation immigrants in these countries in terms of education, earnings and employment. It is widely believed that many European countries have a serious problem with the integration of immigrants and their children (LEED, 2006). Many Northern European countries have accumulated sizeable populations of immigrants but the lack of longterm strategies and policies to integrate these into societal structures and the labour market is often cited as one reason for social and economic exclusion of the children of these immigrants. In the past decade, Southern European countries such as Spain and Italy have experienced similar, if not larger, immigrations than the large Northern European economies France, Germany and the UK in the late 1950s to early 1970s. Again, it seems that there is little thought devoted to long-term strategies for immigrants and their descendants. The experience of those countries that had large-scale immigration in the last half of the twentieth century should be of importance for devising future immigration and integration policies. However, there is rather little hard evidence in the literature about the relative position of immigrants and their descendants in these countries, in a manner that allows comparisons to be made. In this article, we aim to provide a comparative study of a number of outcomes (education, earnings and employment) of both first and second-generation immigrants of different origins in the three largest European economies: France, Germany and the UK.
TL;DR: The review finds that the academic literature on IT outsourcing has very much honored both rigor and relevance in the ways in which research has been conducted, and overall, ITO researchers have a broad and deep understanding of ITO.
Abstract: An enormous amount of information has been produced about the IT outsourcing phenomenon over the last 20 years, but one has to look to the academic literature for consistent, objective, and reliable research approaches and analyses. Our review finds that, in practice, the academic literature on IT outsourcing has very much honored both rigor and relevance in the ways in which research has been conducted. Our central purpose in the review was to answer two research questions: What has the empirical academic literature found about information technology outsourcing (ITO) decisions and outcomes? What are the gaps in knowledge to consider in future ITO research? To answer these questions, we examined 164 empirical ITO articles published between 1992 and 2010 in 50 journals. Adapting a method used by Jeyaraj et al. (2006), we encapsulated this vast empirical literature on ITO in a way that was concise, meaningful, and helpful to researchers. We coded 36 dependent variables, 138 independent variables, and 741 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of outsourcing: one model addressed ITO decisions and one model addressed ITO outcomes. The model of ITO decisions includes independent variables associated with motives to outsource, transaction attributes, client firm characteristics, and influence sources. The model of ITO outcomes includes independent variables associated with client and supplier capabilities, relationship characteristics, contractual governance, decision characteristics, and transaction attributes. We also examined the interactions among broad categories of variables and the learning curve effects resulting from feedback loops. Overall, ITO researchers have a broad and deep understanding of ITO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We reviewed recent studies that have identified gaps in current knowledge and proposed future paths of research pertaining to strategic motivations, environmental influences, dynamic interactions, configurational and portfolio approaches, global destinations, emerging models, reference theory extension, and grounded theory development.
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TL;DR: In this paper, the authors argue that identification problems bedevil most applied spatial research and advocate an alternative approach based on the "experimental paradigm" which puts issues of identification and causality at centre stage.
Abstract: We argue that identification problems bedevil most applied spatial research. Spatial econometrics solves these problems by deriving estimators assuming that functional forms are known and by using model comparison techniques to let the data choose between competing specifications. We argue that in most situations of interest this, at best, achieves only very weak identification. Worse, in most cases, such an approach will simply be uninformative about the economic processes at work rendering much applied spatial econometric research 'pointless', unless the main aim is simply description of the data. We advocate an alternative approach based on the 'experimental paradigm' which puts issues of identification and causality at centre stage.
TL;DR: In this paper, the authors provide a simple characterization of the dynamically optimal mean-variance portfolios within a general incomplete-market economy and identify a probability measure that incorporates intertemporal hedging demands and facilitates tractability.
Abstract: We solve the dynamic mean-variance portfolio problem and derive its time-consistent solution using dynamic programming. Previous literature, in contrast, only determines either myopic or precommitment (committing to follow the initially optimal policy) solutions. We provide a fully analytical simple characterization of the dynamically optimal mean-variance portfolios within a general incomplete-market economy. We also identify a probability measure that incorporates intertemporal hedging demands and facilitates tractability. We illustrate this by easily computing portfolios explicitly under various stochastic investment opportunities. A calibration exercise shows that the mean variance hedging demands are economically significant.
TL;DR: An unexpected positive relationship between online opportunities and risks was found, with implications for policy interventions aimed at reducing the risks of internet use.
Abstract: Many hopes exist regarding the opportunities that the internet can offer to young people as well as fears about the risks it may bring. Informed by research on media literacy, this article examines the role of selected measures of internet literacy in relation to teenagers’ online experiences. Data from a national survey of teenagers in the UK (N = 789) are analyzed to examine: first, the demographic factors that influence skills in using the internet; and, second (the main focus of the study), to ask whether these skills make a difference to online opportunities and online risks. Consistent with research on the digital divide, path analysis showed the direct influence of age and socioeconomic status on young people’s access, the direct influence of age and access on their use of online opportunities, and the direct influence of gender on online risks. The importance of online skills was evident insofar as online access, use and skills were found to mediate relations between demographic variables and youn...
TL;DR: In this article, an investment-flow based explanation for return predictability was proposed and tested, which can explain the persistence of mutual fund performance, the smart money effect, and stock price momentum.
Abstract: This paper proposes and tests an investment-flow based explanation for three empirical findings about return predictability -- the persistence of mutual fund performance, the "smart money" effect, and stock price momentum. Motivated by prior studies, I construct a measure of demand shocks to individual stocks by projecting mutual fund flows onto the stocks they hold, and document a significant flow-induced price pressure effect in individual stock returns. Moreover, building upon prior results that capital flows to mutual funds are highly predictable, I further show that the flow-based mechanism can lead to significant stock return and mutual fund performance predictability. The main findings of the paper are that such flow-based return predictability can fully account for mutual fund performance persistence and the "smart money" effect, and can partially explain stock price momentum.
TL;DR: In this article, a simple analytical structure in which state capacities are modeled as forward looking investments by government is presented, and the authors link these state capacity investments to patterns of development and growth.
Abstract: The absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states. This paper reports on an ongoing project to investigate the incentive to invest in such capacities. The paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government. The approach highlights some determinants of state building including the risk of external or internal conflict, the degree of political instability, and dependence on natural resources. Throughout, we link these state capacity investments to patterns of development and growth.
TL;DR: This paper reviewed recent findings regarding children and teenagers' social networking practices in order to identify implications for future research and public policy, focusing on the interdependencies between opportunities and risks, the need for digital or media literacy education, the importance of building safety considerations into the design and management of social networking sites, the imperative for greater attention to ‘at risk’ children in particular, and importance of a children's rights framework in developing evidence-based policy in this area.
Abstract: Social networking sites have been rapidly adopted by children and, especially, teenagers and young people worldwide, enabling new opportunities for the presentation of the self, learning, construction of a wide circle of relationships, and the management of privacy and intimacy. On the other hand, there are also concerns that social networking increases the likelihood of new risks to the self, these centring on loss of privacy, bullying, harmful contacts and more. This article reviews recent findings regarding children and teenagers’ social networking practices in order to identify implications for future research and public policy. These focus on the interdependencies between opportunities and risks, the need for digital or media literacy education, the importance of building safety considerations into the design and management of social networking sites, the imperative for greater attention to ‘at risk’ children in particular, and the importance of a children’s rights framework in developing evidence-based policy in this area.
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TL;DR: In this article, the role of selected measures of internet literacy in relation to teenagers' online experiences was examined, and an unexpected positive relationship between online opportunities and risks was found, with implications for policy interventions aimed at reducing the risks of internet use.
Abstract: Many hopes exist regarding the opportunities that the internet can offer to young people as well as fears about the risks it may bring. Informed by research on media literacy, this article examines the role of selected measures of internet literacy in relation to teenagers’ online experiences. Data from a national survey of teenagers in the UK (N = 789) are analyzed to examine: first, the demographic factors that influence skills in using the internet; and, second (the main focus of the study), to ask whether these skills make a difference to online opportunities and online risks. Consistent with research on the digital divide, path analysis showed the direct influence of age and socioeconomic status on young people’s access, the direct influence of age and access on their use of online opportunities, and the direct influence of gender on online risks. The importance of online skills was evident insofar as online access, use and skills were found to mediate relations between demographic variables and young people’s experience of online opportunities and risks. Further, an unexpected positive relationship between online opportunities and risks was found, with implications for policy interventions aimed at reducing the risks of internet use.
Abstract: This paper uses a rich panel dataset of Spanish manufacturing firms (1990-2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that jointly explains the observed selection process and the innovation decisions. Further, we show in the data that innovation on acquisition is associated with the increased market scale provided by the parent firm.
TL;DR: In this article, a simple model was developed to analyse how a lack of political competition may lead to policies that hinder economic growth, such as higher taxes, lower capital spending and a reduced likelihood of using right-to-work laws.
Abstract: This paper develops a simple model to analyse how a lack of political competition may lead to policies that hinder economic growth. We test the predictions of the model on panel data for the US states. In these data, we find robust evidence that lack of political competition in a state is associated with anti-growth policies: higher taxes, lower capital spending, and a reduced likelihood of using right-to-work laws. We also document a strong link between low political competition and low income growth.
Journal Article•
TL;DR: In this article, the authors review the multidisciplinary literature on ICT and development and identify two perspectives regarding the nature of the ICT innovation process in developing countries, as transfer and diffusion and as socially embedded action.
Abstract: Research on ICT and development (ICTD) involves assumptions concerning the nature of ICT innovation and the way such innovation contributes to development. In this article, I review the multidisciplinary literature on ICTD and identify two perspectives regarding the nature of the ICT innovation process in developing countries–as transfer and diffusion and as socially embedded action–and two perspectives on the development transformation toward which ICT is understood to contribute–progressive transformation and disruptive transformation. I then discuss the four discourses formed by combining the perspectives on the nature of IS innovation and on the development transformation. My review suggests that ICTD research, despite its remarkable theoretical capabilities to study technology innovation in relation to socioeconomic context, remains weak in forming convincing arguments about IT-enabled socioeconomic development.
TL;DR: This article reviewed the theoretical and empirical literature on regionalism and found that neither widespread trade diversion nor stalled external trade liberalization has materialized, while the undermining of multilateralism has not been properly tested.
Abstract: This paper reviews the theoretical and empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all of these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, while the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences.
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TL;DR: It is found that after the reforms were implemented, mortality fell and hospital quality improved for patients living in more competitive markets, suggesting that hospital competition can lead to improvements in hospital quality.
Abstract: This paper examines whether or not hospital competition in a market with fixed reimbursement prices can prompt improvements in clinical quality. In January 2006, the British Government introduced a major extension of their market-based reforms to the English National Health Service. From January 2006 onwards, every patient in England could choose their hospital for secondary care and hospitals had to compete with each other to attract patients to secure their revenue. One of the central aims of this policy was to create financial incentives for providers to improve their clinical performance. This paper assesses whether this aim has been achieved and competition led to improvements in quality. For our estimation, we exploit the fact that choice-based reforms will create sharper financial incentives for hospitals in markets where choice is geographically feasible and that prior to 2006, in the absence of patient choice, hospitals had no direct financial incentive to improve performance in order to attract more patients. We use a modified difference-in-difference estimator to analyze whether quality improved more quickly in more competitive markets after the government introduced its new wave of market-based reforms. Using AMI mortality as a quality indicator, we find that mortality fell more quickly (i.e. quality improved) for patients living in more competitive markets after the introduction of hospital competition in January 2006. Our results suggest that hospital competition in markets with fixed prices can lead to improvements in clinical quality.
TL;DR: In this paper, the authors consider the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004, and find that health care is a necessity rather than a luxury.
Abstract: This paper reconsiders the long-run economic relationship between health care expenditure and income using a panel of 20 OECD countries observed over the period 1971-2004. In particular, the paper studies the non-stationarity and cointegration properties between health care spending and income. This is done in a panel data context controlling for both cross-section dependence and unobserved heterogeneity. Cross-section dependence is modelled through a common factor model and through spatial dependence. Heterogeneity is handled through fixed effects in a panel homogeneous model and through a panel heterogeneous model. Our findings suggest that health care is a necessity rather than a luxury, with an elasticity much smaller than that estimated in previous studies.
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TL;DR: The authors survey theoretical developments in the literature on the limits of arbitrage, and nest within a simple model, the following costs faced by arbitrageurs: (a) risk, both fundamental and non-fundamental; (b) short selling costs; (c) leverage and margin constraints; and (d) constraints on equity capital.
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TL;DR: In this paper, the authors explain how the latest international handbook on environmental accounting, the System of Integrated Environmental and Economic Accounting or SEEA ( United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development and World Bank), can be used to measure weak and strong sustainability.
Abstract: In this paper, we explain how the latest international handbook on environmental accounting, the System of Integrated Environmental and Economic Accounting or SEEA (United Nations, European Commission, International Monetary Fund, Organisation for Economic Co-operation and Development and World Bank (2003). Handbook of National Accounting, Studies in Methods. New York, United Nations.), can be used to measure weak and strong sustainability. We emphasise the importance of understanding the conceptual differences between weak and strong sustainability. We then outline what we consider to be current best practice in measurement, all the time flagging the relationship between our discussion and that of the SEEA-2003. This is an important task in our view, because, despite covering a very wide range of relevant conceptual and empirical issues, the handbook is by design not meant to provide clear guidelines for the purpose of measuring sustainability in either its weak or strong version.
TL;DR: This article explored the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovered a large cross-country as well as cross-industry variation in the wage differentials between jobs found through informal and formal methods.
Abstract: Informal contacts are extensively used by both firms and workers to find jobs and fill vacancies. The common wisdom in the economic literature is that jobs created through this channel are of better quality and pay higher wages than jobs created through formal methods. This paper explores the empirical evidence for European countries using the European Community Household Panel (ECHP) and discovers a large cross-country as well as cross-industry variation in the wage differentials between jobs found through informal and formal methods. Across countries and industries wage premiums and wage penalties to finding jobs through personal contacts are equally frequent. This paper argues that such variation can be explained by looking at firms' recruitment strategies. In labour markets where employers invest largely in formal recruitment activities, matches created through this channel are likely to be of average better quality than those created through informal networks. A simple theoretical model is used to show that employers invest more in recruitment for high productivity jobs and for positions that require considerable training. The empirical predictions of the theory are successfully tested using industry-level data on recruitment costs.
TL;DR: Drawing on research scattered across a range of publications and domains, the review presented here provides a formal definition of facilitated modelling, together with a general framework that allows the conceptualisation of a wide variety of facilitated modeling approaches to organisational intervention.