nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2005‒02‒06
three papers chosen by
Maximo Rossi
Universidad de la República

  1. Yes, Managers Should Be Paid Like Bureaucrats By Bruno S. Frey; Margit Osterloh
  2. Skill Policies for Scotland By James J. Heckman; Dimitriy V. Masterov
  3. The Impact of Simple Institutions in Experimental Economies with Poverty Traps By C. Mónica Capra; Tomomi Tanaka; Colin Camerer; Lauren Munyan; Veronica Sovero; Lisa Wang; Charles Noussair

  1. By: Bruno S. Frey; Margit Osterloh
    Abstract: Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause considerable damage. Agency theory’s insistence on linking the compensation of managers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome by improving variable pay for performance, as selfish extrinsic motivation is reinforced. Based on the common pool approach to the firm, institutions are proposed which serve to raise intrinsically motivated corporate virtue. More importance is to be attributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior.
    Keywords: agency theory, intrinsic motivation, crowding theory, management compensation, pay for performance, organizational citizenship
    JEL: D21 D23 J33 L20
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1379&r=ltv
  2. By: James J. Heckman; Dimitriy V. Masterov
    Abstract: This paper argues that skill formation is a life-cycle process and develops the implications of this insight for Scottish social policy. Families are major producers of skills, and a successful policy needs to promote effective families and to supplement failing ones. Targeted early interventions have proven to be very effective in compensating for the effect of neglect. Improvements in traditional measures of school quality, tuition subsidies, company-sponsored and public job training are unlikely to be as effective. We review the evidence and present several policy recommendations.
    JEL: I21 I22 I28 J31
    Date: 2005
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1390&r=ltv
  3. By: C. Mónica Capra; Tomomi Tanaka; Colin Camerer; Lauren Munyan; Veronica Sovero; Lisa Wang; Charles Noussair
    Abstract: The existence of multiple equilibria is one explanation for why some countries are rich while others are poor. This explanation also allows the possibility that changes in political and economic institutions might help poor countries "jump" from a bad economic equilibrium into a better one, permanently increasing their output and income. Experiments can be used to study complex processes like the effect of institutions on economic growth. The control that experiments afford allows structural parameters to be changed, policies to be added and subtracted, and economic outcomes to be precisely measured. In this paper, we study a simple experimental economy in which agents produce output in each period, and can allocate the output between consumption and investment (the experiment builds on the design of Lei and Noussair, 2002, 2003). Capital productivity is higher if total investment is above a threshold. Because of the threshold externality, there are two equilibria—a suboptimal “poverty trap” and an optimal “rich country” equilibrium—which differ by a factor of approximately three in the agent income they create. In baseline sessions, in which agents make independent decisions in a decentralized economy, the economies typically sink into the poverty trap and the optimal equilibrium is never reached. However, the ability to communicate before investing, or to vote on binding “industrial policy” proposals, improves average earnings. Combining both of these simple institutions enables all of the economies to escape the poverty trap. This experimental environment constitutes a platform onto which many more complex features can be added.
    Date: 2005–02
    URL: http://d.repec.org/n?u=RePEc:emo:wp2003:0508&r=ltv

This nep-ltv issue is ©2005 by Maximo Rossi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.