Showing papers in "Journal of Economic Behavior and Organization in 1995"
TL;DR: In this article, the authors suggest that the material norms on which judgments of well-being are based increase in the same proportion as the actual income of the society, and that raising the incomes of all does not increase the happiness of all.
Abstract: Today, as in the past, within a country at a given time those with higher incomes are, on average, happier. However, raising the incomes of all does not increase the happiness of all. This is because the material norms on which judgments of well-being are based increase in the same proportion as the actual income of the society. These conclusions are suggested by data on reported happiness, material norms, and income collected in surveys in a number of countries over the past half century.
2,883 citations
TL;DR: In this article, the authors explain why some firms voluntarily overcomply with environmental regulation by arguing that consumers value environmental quality but differ in their willingness to pay which depends on their income levels.
Abstract: We explain why some firms voluntarily overcomply with environmental regulation. In our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels. Publicly available information on environmental performance of firms enables consumers to identify clean firms. Firms participate in a two-stage duopoly game where they first choose their levels of cleaning technology and next engage in price competition. The market gets segmented by income levels. A minimum standard binding on the dirty firm has the effect of improving the performance of the cleaner firm. A subsidy obtains the same competitive outcome.
586 citations
TL;DR: In this article, a behavioral theory of ultimatum bargaining based on a dynamic reasoning process is presented, where the stages specify either an intention generator and its corresponding intention filter or, as the final step, an ex post-evaluation of the actual behaviour.
Abstract: This review of ultimatum bargaining experiments concentrates on studies in which the author was actively involved. The basic game situation is either the ultimatum game or multiperiod-ultimatum bargaining. We outline a behavioral theory of ultimatum bargaining based on a dynamic reasoning process. The stages of this process specify either an intention generator and its corresponding intention filter or, as the final step, an ex post-evaluation of the actual behaviour. In our concluding remarks the merits of behavioral theories versus rational choice-explanations are elaborated.
357 citations
TL;DR: The authors designed two laboratory experiments to test popular hypotheses explaining the failure of subgame-perfect equilibrium models to explain behavior in ultimatum games and found that people sometimes reject "free" money (i.e., offers with no strings attached).
Abstract: We designed two laboratory experiments to test popular hypotheses explaining the failure of subgame-perfect equilibrium models to explain behavior in ultimatum games. The first experiment varied information available to respondents. When respondents did not know the amount being divided, offerers offered (and respondents accepted) significantly lower offers than when the respondents knew the amount being divided. The second experiment replicated this result and also showed that people occasionally reject “free” money (i.e., offers with no strings attached). This evidence does not support earlier explanations for ultimatum anomalies and identifies conditions where subgame-perfect models apply.
270 citations
TL;DR: This model has been designed to study the collective learning process through which a group of interacting agents deals with environmental uncertainty, and it is shown that as soon as the hypothesis of sequentiality is dropped, a large variety of situations can be observed.
Abstract: Much recent work has been devoted to the analysis of herd behavior within sequential decision models. The present article generalizes their results to non-sequential contexts. We will show that, as soon as the hypothesis of sequentiality is dropped, a large variety of situations can be observed. Our model has been designed to study the collective learning process through which a group of interacting agents deals with environmental uncertainty. The crucial question revolves around the relative weight given by each individual to the different sources of information: his private information and his observation of the group opinion.
262 citations
TL;DR: In this article, a comparative analysis of market-oriented and network-oriented corporate systems is presented, showing that the typical disciplinary mechanisms employed in either system have a number of pros and cons, which suggests that the implied optimization of economic organization leaves room for multiple configurations.
Abstract: Corporate systems across the industrialized world differ markedly with respect to their historical origins, their methods of capital mobilization, and their structures of ownership and control. Those institutional differences seem to have an influence on economic behaviour, including the manner in which corporate restructurings take place. Whereas in the Anglo-Saxon world hostile takeovers are commonplace, they are virtually unknown in most countries of continental Europe and in Japan. In these latter countries other disciplinary mechanisms are at work, especially through the intense involvement of universal banks and financial holding companies in corporate decision-making and restructuring. These salient differences raise a number of interesting questions concerning the relationships between varying institutional settings and corporate behaviour, control and performance. This study provides a comparative analysis of market-oriented corporate systems on the one side and network-oriented corporate systems on the other. It indicates significant differences in the way the inherent agency conflicts are resolved. The typical disciplinary mechanisms employed in either system have a number of pros as well as cons, which suggests that the implied optimization of economic organization leaves room for multiple configurations.
238 citations
TL;DR: The authors argue that ambiguities in concepts as important as "institutions", "markets" and "organizations" undermine progress of research programs intending to take these components seriously into account.
Abstract: This paper argues that ambiguities in concepts as important as “institutions”, “markets”, and “organizations”, undermine progress of research programs intending to take these components seriously into account. After a short review of some current confusions (section I) section II discusses recent literature to arrive at definitions that encapsulate fundamental characteristics into “pure categories”. In section III, exceptions and qualifications are introduced so as to operationalize the concepts: in the “real” world 1. (i) organizations and markets are embedded in an institutional framework, and 2. (ii) they overlap, giving birth to “hybrid forms”. However, the conclusion contends that it is essential to maintain distinct concepts in order to understand these complex arrangements.
229 citations
TL;DR: In this paper, envy is incorporated into the standard economic choice framework, which is used to analyze how agents' innovating, retaliating, sabotaging, and sharing behavior are jointly determined by legal institutions and agents' propensities for envy.
Abstract: Equity theory in psychology, observed responses to reform in socialist countries, and studies in the field of organizational behaviour all suggests that envy can play an important role in economic behaviour. This paper incorporates envy into the standard economic choice framework. The model provides a natural extension of the theory of equity in psychology. It is used to analyze how agents' innovating, retaliating, sabotaging, and sharing behaviour are jointly determined by legal institutions and agents' propensities for envy. Implications for the economics of organization and the reform of socialist economies are discussed.
224 citations
TL;DR: In this article, a field study of primary-insurance underwriters in a random sample of commercial property-and-casualty insurance companies reveals that premiums are significantly higher for risks when there is either ambiguity regarding the probability of a particular event occurring and/or uncertainty about the magnitude of the resulting loss.
Abstract: This paper provides empirical evidence that risk and ambiguity affect underwriters' decisions on pricing insurance. A field study of primary-insurance underwriters in a random sample of commercial property-and-casualty insurance companies reveals that premiums are significantly higher for risks when there is either ambiguity regarding the probability of a particular event occurring and/or uncertainty about the magnitude of the resulting loss. The paper suggests economic and organizational rationales for this behaviour and offers several explanations as to why insurers in a competitive market can charge higher prices for ambiguous risks which promise to yield excess profits in the long run.
214 citations
192 citations
TL;DR: This article used data from the Survey of Consumer Finances (SOCF) to assess how well mean-variance efficiency describes the portfolio diversification of US households, finding that the median stockholder owns a single publicly traded stock, often in the company where he works.
Abstract: This paper uses data from the Survey of Consumer Finances to assess how well mean-variance efficiency describes the portfolio diversification of US households. It does not seem to work well. The median stockholder owns a single publicly traded stock, often in the company where he works. Looking at a sample of high income households who accounted for one third of all publicly traded stock, the median holding is only ten stocks. Indirect stock ownership through mutual funds, defined contribution pension plans, IRA's and trust funds is shown to have little power in explaining this poor diversification.
TL;DR: In this paper, the authors compare various organizational forms in their capacities to solve coordination problems created by technological interdependence between firms' divisions and contrast the organizational mechanisms used by two firms, IBM and General Motors, to address these problems.
Abstract: This paper studies how various organizational forms compare in their capacities to solve coordination problems created by technological interdependence between firms' divisions. I contrast the organizational mechanisms used by two firms, IBM and General Motors, to address these problems. While it is widely recognized that centralization distorts incentives facing division managers, this paper highlights its benefits when there are large potential gains from agreement on technological standards. The examples show how a centralized governance structure supported by lower-powered incentives facilitates interdivisional coordination. This suggests a refinement of the theory of organizational form based on how firms resolve the tensions between strategic planning and the measurement of organizational units' performances.
TL;DR: In this article, the authors developed empirical tests of three hypotheses arising from transaction cost theory, as developed by Oliver Williamson, and provided evidence from a new dataset on 178 inputs gathered from UK engineering firms.
Abstract: This paper develops empirical tests of three hypotheses arising from transaction cost theory, as developed by Oliver Williamson. Evidence is provided from a new dataset on 178 inputs gathered from UK engineering firms. The probability of buying-in specialised inputs is higher if the production technology is non-specific, but only if there are economies of scale or scope. Furthermore, the economies of scale/scope effect is much reduced in the presence of specific assets. This interactive hypothesis has not been formally tested before. We also believe this to be the first cross-section empirical test of transaction cost make-or-buy theory using European data.
TL;DR: The authors generalizes the jury theorem to certain general models of correlated voting, viz., normal, hypergeometric and polya distributions, and proves that the effectiveness of majority-rule voting decreases as the correlation between votes increases.
Abstract: Does majority-rule voting steer an imperfectly informed assembly of people towards the full-information outcome? Condorcet's jury theorem provides an affirmative answer under certain conditions. A key condition is that the votes be statistically independent; however, it is unrealistic, and hence, unacceptable. This paper generalizes the jury theorem to certain general models of correlated voting, viz., normal, hypergeometric and Polya distributions. The paper proves that the effectiveness of majority-rule voting decreases as the correlation between votes increases. Potential applications are indicated.
TL;DR: In this article, the authors present a capitalist-spirit model of savings by including wealth in the intertemporal utility function, which sheds light on why wealth holding has tended to increase with age, why decumulation of wealth after retirement has not happened, and households with and without children have not shown significant differences in their savings behavior.
Abstract: This paper presents a capitalist-spirit model of savings by including wealth in the intertemporal utility function. While this model includes the life-cycle model and bequest model as two special cases, it sheds light on why wealth holding has tended to increase with age, why decumulation of wealth after retirement has not happened, and why households with and without children have not shown significant differences in their savings behavior. The capitalist-spirit approach is especially useful for understanding savings by the rich and savings across countries and over time (JEL E21, B10).
TL;DR: In this paper, the authors investigated the effect of safety supervision on the wages of contract maintenance workers in the petrochemical industry and found that high levels of supervision are associated with lower wage levels.
Abstract: The logic of efficiency wage theory suggests a trade-off between wages and supervision. This paper reports evidence that high levels of supervision are indeed associated with lower wage levels. The empirical investigation centers on the effect that safety supervision by host employers has on the wages of contract maintenance workers in the petrochemical industry. This narrow focus is important. Special institutional features of the contract employment relationship in petrochemicals make it possible to ameliorate econometric problems that may have influenced earlier studies.
TL;DR: Robustness of inferences in this area of research seems to be low and may account for the controversies surrounding empirical claims of nonlinearity and chaos in economics.
Abstract: Interest has been growing in testing for nonlinearity and chaos in economic data, but much controversy has arisen about the available results. This paper explores the reasons for these empirical difficulties. We apply five tests for nonlinearity or chaos to various monetary aggregate data series. We find that the inferences vary across tests for the same data, and within tests for varying sample sizes and various methods of aggregation of the data. Robustness of inferences in this area of research seems to be low and may account for the controversies surrounding empirical claims of nonlinearity and chaos in economics.
TL;DR: In this article, the authors investigated the effect of reputation in a model where two parties make non-contractable contributions to an economic undertaking, and they showed that the optimal allocation of ownership between the parties is more similar in a repeated than in a one shot version of the model.
Abstract: This paper investigates the effect of reputation in a model where two parties make noncontractable contributions to an economic undertaking. It is shown that the optimal allocation of ownership between the parties is more similar in a repeated than in a one shot version of the model. This implies that unified ownership and reputation are substitutes . Low discount rates and repeated investment decisions thus favor subcontracting and joint venture arrangements of the type commonly observed in Japanese industry, while full integration is more likely to be optimal when reputational forces are weak.
TL;DR: In this article, simple models of individual and group incentives under uncertainty are compared, and comparative performance is shown to depend upon various exogenous parameters, such as organizational and other characteristics that may be difficult to observe, and attempts to quantify productivity effects that neglect selection bias are likely to be misspecified.
Abstract: Simple models of individual and group incentives under uncertainty are compared, and comparative performance is shown to depend upon various exogenous parameters. The incentive effects of profit sharing will thus vary with organizational and other characteristics that may be difficult to observe, and attempts to quantify productivity effects that neglect selection bias are likely to be misspecified. Significant selection effects are found in previously used firm-level data, and productivity effects of existing profit sharing are found to be much larger than potential effects in firms without sharing arrangements. This throws doubt on policies to encourage sharing in isolation.
TL;DR: In this paper, the authors consider whether the discrepancy between empirical results and the Nash prediction is due to a lack of anonymity and report a sequence of public goods experiments in which participants do not know the identity of other group members and the experimenter cannot associate any participant's decisions with that person's identity.
Abstract: Experimental research investigating the voluntary provision of a pure public good has shown that participants consistently allocate a portion of their resources to this good when the full-information noncooperative game theoretic (Nash) prediction is to allocate zero resources to this good. This paper considers whether the discrepancy between empirical results and the Nash prediction is due to a lack of anonymity. We report a sequence of public goods experiments in which participants do not know the identity of other group members and the experimenter cannot associate any participant's decisions with that person's identity. The results indicate that these procedures do not alter the tendency for token allocations to differ from the Nash prediction.
TL;DR: In this article, the authors view the agricultural firm as a constitution instead of as a nexus of contracts, which facilitates an agency explanation of alternative organizational forms and their amenability to specialization.
Abstract: Models explaining the choice between rent, wage, and share contracts in agriculture abstract from the large variations within the classes of rent, share, and owner-managed forms of organization regarding the extent to which a specific form accommodates specialization between labor and management. As a result, modern explanations of agricultural organizations are misleadingly dependent on risk aversion or the assumption that landowners have an absolute advantage in production decisions. Viewing the agricultural firm as a constitution instead of as a nexus of contracts facilitates an agency explanation of alternative organizational forms and their amenability to specialization.
TL;DR: This paper analyzed the causes and the welfare consequences of international differences in labor turnover and human capital investment and found that a high turnover equilibrium is superior in the Pareto sense to a low turnover equilibrium if matching uncertainty is large.
Abstract: We analyze the causes and the welfare consequences of international differences in labor turnover and human capital investment. The framework incorporates different views as special cases. Conditions are identified under which multiple equilibria or differences in deep economic parameters explain the observed differences in labor practices. We show that when there is an informational problem regarding job-changing workers' quality, general human capital, like firm-specific human capital, can also affect labor turnover, and that better job matching is obtained at the expense of lower human capital investment. Given multiple equilibria, a high turnover equilibrium is found superior in the Pareto sense to a low turnover equilibrium if matching uncertainty is large. The reverse is true when matching uncertainty is small.
TL;DR: In the last two decades the largest single change in career plans of college students is the more than doubling from 1972 to 1987 of the proportion opting for business as mentioned in this paper, which suggests that a shift in preferences, a marked upsurge among the young in money-making as a life goal, was responsible for this, as well as movements in ‘prices,’ the relative returns from different occupations.
Abstract: In the last two decades the largest single change in career plans of college students is the more than doubling from 1972 to 1987 of the proportion opting for business. The evidence suggests that a shift in preferences, a marked upsurge among the young in money-making as a life goal, was responsible for this, as well as movements in ‘prices,’ the relative returns from different occupations. The rise in interest in money-making is not due to greater insecurity among the young about their economic future, or worsened job expectations. Rather, it reflects greater concern about money among older adults, which influenced the young with a lag by re-shaping their life goals as they grew up. Empirical study of occupational choice would benefit from more attention to such non-market influences.
TL;DR: In this paper, a general equilibrium model with consumer-producers, economies of specialization, and transaction costs is developed to investigate the emergence of firms from the division of labor and the function of a structure of residual rights.
Abstract: This paper develops a general equilibrium model with consumer-producers, economies of specialization, and transaction costs to investigate the emergence of firms from the division of labor and the function of a structure of residual rights. It is shown that the institution of the firm can be used to get intangible intellectual property involved in the division of labor while avoiding its direct pricing and marketing, so that the division of labor can be promoted by saving on transaction costs.
TL;DR: In this article, two sets of performance measures are computed for local operating companies, using data envelopment analysis, for the years 1973, 1978, 1981, 1984 and 1987, showing that firms have benefited from incumbency positions in early exploitation of opening markets, but increasing pressures have induced firms to continuously strive towards frugality in resource consumption.
Abstract: Whether or not the progressive introduction of competition in the U.S. telecommunications industry has induced firm-level efficiencies is studied in this paper. Two sets of performance measures are computed for local operating companies, using data envelopment analysis, for the years 1973, 1978, 1981, 1984 and 1987. The first set measures whether firms are able to augment output values; the second set measures whether firms conserve resources or inputs. Both sets of measures improve between 1973 and 1987. The output value augmentation measures initially rise steeply and then plateau, while the input conservation measures rise more steadily. These indicate that firms have benefited from incumbency positions in early exploitation of opening markets, but increasing pressures have induced firms to continuously strive towards frugality in resource consumption.
TL;DR: In this paper, a formalization of managerial herd behavior based on the principle of safety in numbers is presented. But their approach is completely independent of the information signalling approach to herd behavior and fully captures popular explanations of the phenomenon.
Abstract: This paper provides a formalization of managerial herd behavior that is based on the principle of safety in numbers. The explanation is completely independent of the information signalling approach to herd behavior (Scharfstein and Stein, 1990, Banerjee, 1992), and fully captures popular explanations of the phenomenon. The key assumptions are that managers are individually risk averse, and that their remuneration be partly based on relative performance.
TL;DR: In this article, the authors provide theoretical support for the statistical evidence by showing that churches encourage appropriate behavior (thus providing property rights enforcement) because doing so benefits churches and their members.
Abstract: Statistical evidence in a recent excellent paper by Lipford, McCormick, and Tollison shows a negative relationship between church membership and social misbehavior. This paper replicates that relationship using more comprehensive data by U.S. county. We provide theoretical support for the statistical evidence by showing that churches encourage appropriate behavior (thus providing property rights enforcement) because doing so benefits churches and their members. Aa church membership increases, property rights enforcement increases, although at a diminishing rate.
TL;DR: The authors examined the organizational structure of Christian churches, and in doing so treated churches as firms constrained by their theology, and found that the particular organizational structures of a given church are the result of transaction cost problems that arise in the production of its spiritual good.
Abstract: This paper examines the organizational structure of Christian churches, and in doing treats churches as firms constrained by their theology. Like all firms, churches must manage opportunistic behaviour. The hypothesis of the paper is that the particular organizational structure of a given church is the result of transaction cost problems that arise in the production of its spiritual good. An effort to test the theory is made by examining the history of the church and examining cases of church failures and successes.
TL;DR: In this article, the effect of an executive incentive compensation plan, comprised of bonus and equity holdings, on the reporting strategy of the manager under different degrees of market efficiency was examined.
Abstract: This study examines in a multi-period setting how trading of equity securities by managers and the awarding of such securities to managers affects earnings manipulation The study explores the effect of an executive incentive compensation plan, comprised of bonus and equity holdings, on the reporting strategy of the manager under different degrees of market efficiency The findings indicate that insider trading provides an informative signal about the direction of earnings manipulation Furthermore, the results confirm that the choice of compensation scheme by owners tends to affect earnings manipulation