Workers' Trust Funds and the Logic of Wage Profiles

This paper defines a concept, a worker's trust fund, which is useful in analyzing optimal age-earnings profiles. The trust fund represents what a worker loses if dismissed from a job for shirking. In considering whether to work or shirk, a worker weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort. This concept is used to show that the implicit bonding in upward sloping age-earnings profiles is not a perfect substitute for an explicit upfront performance bond (or employment fee). It is also shown that the second-best optimal earnings profile in the absence of an upfront employment fee pays total compensation in excess of market clearing in a variety of stylized cases.

Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?

In the most widely analyzed type of efficiency wage model of involuntary unemployment, firms pay wages in excess of market clearing to give workers an incentive not to shirk. Such payments in excess of market clearing and the resultant equilibrium unemployment act as a worker discipline device. This paper concerns what is usually considered the most important theoretical criticism of such models: the so-called bonding argument. The essence of the bonding critique is that contracts whereby workers pay a bond to the firm upon taking a job (or pay an employment fee to gain employment) can eliminate involuntary unemployment. Explicit upfront bonds are only quite rarely observed. A more subtle form of the bonding critique argues that implicit bonding through upward sloping wage profiles and other deferred payment schemes can perfectly substitute for upfront bonds in providing incentives not to shirk and thereby allow the labor market to clear. This paper shows that upward sloping wage profiles do not act as a perfect substitute for explicit bonds in a natural extension of the shirking model in which workers are finite lived, the monitoring of worker behaviors on the job is costly, and firms have reputations for honesty as employers. In the absence of direct upfront bonding, optimal payment schedules will be in excess of market clearing. The reason why upward sloping wage profiles that are market clearing will not generally be the optimal labor contract is simple: delayed payment may provide sufficient incentive to prevent shirking late in the life of the contract, but in the beginning of the contract it does not prevent shirking. And it turns out in a variety of stylized cases, it is cheaper for the firm to pay a wage premium rather than to accept worker shirking early in the contract. The implications of potential worker malfeasance in the absence of explicit bonds for compensation schedules, job assignments, and firm monitoring strategies over the course of a worker's career are also analyzed.

Behavioral Macroeconomics and Macroeconomic Behavior

Nobel Prize lecture.Behavioral economics;

Correlative studies of astrophysical sources of very high and ultra high energy gamma-rays

During the period of this contract, June 1, 1991 to November 14, 1992, the major results of our research effort have come from the Whipple air shower experiment in Tucson, AZ. The most notable development has been the discovery of TeV photons from the BL Lac object, Markarian 421. This result depended critically on the identification of Mrk 421 by the EGRET team as a source of GeV gamma rays

“We thinking” and its consequences

Increasingly, economists are drawing on concepts from outside economics--such as "norms," "esteem," and "identity"--to model agents' social natures. A key reason for studying such social motivation is to shed light on the conditions that facilitate--or deter--collective action. It has been widely observed, for instance, that groups are more able to engage in collective action when they have a common, group identity. This paper gives one explanation for such a link. The paper develops a new concept, "we thinking"; and it also provides a deeper understanding of the concepts of norms, identity, and esteem

The importance of legitimacy

Within organizations, there are typically limits to leaders' legitimacy. This article explores how organizations are structured in the face of such constraints. The concept of legitimacy is formalized in the context of a single-agent moral hazard model. The principal can give the agent monetary incentives; in addition, he can give the agent an order. The agent finds it costly to disobey orders provided they are legitimate. We find that it may be optimal for the principal to take costly actions to bolster legitimacy. We argue that many organizational phenomena can be understood as attempts to bolster legitimacy. Examples include: rejection of overqualified workers, bureaucracy, merger decisions, and above-market-clearing wages

GRB 110709A, 111117A and 120107A: Faint high-energy gamma-ray photon emission from Fermi/LAT observations and demographic implications

Launched on June 11, 2008, the LAT instrument onboard the $Fermi$ Gamma-ray Space Telescope has provided a rare opportunity to study high energy photon emission from gamma-ray bursts. Although the majority of such events (27) have been iden tified by the Fermi LAT Collaboration, four were uncovered by using more sensiti ve statistical techniques (Akerlof et al 2010, Akerlof et al 2011, Zheng et al 2 012). In this paper, we continue our earlier work by finding three more GRBs ass ociated with high energy photon emission, GRB 110709A, 111117A and 120107A. To s ystematize our matched filter approach, a pipeline has been developed to identif y these objects in near real time. GRB 120107A is the first product of this anal ysis procedure. Despite the reduced threshold for identification, the number of GRB events has not increased significantly. This relative dearth of events with low photon number prompted a study of the apparent photon number distribution. W e find an extremely good fit to a simple power-law with an exponent of -1.8 $\pm$ 0.3 for the differential distribution. As might be expected, there is a substa ntial correlation between the number of lower energy photons detected by the GBM and the number observed by the LAT. Thus, high energy photon emission is associ ated with some but not all of the brighter GBM events. Deeper studies of the pro perties of the small population of high energy emitting bursts may eventually yi eld a better understanding of these entire phenomena.Comment: accepted to Ap