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on Human Capital and Human Resource Management |
| By: | Grochulski, Borys; Zhang, Yuzhe |
| Abstract: | We study optimal incentives in a principal-agent problem in which the agent's outside option is determined endogenously in a competitive labor market. In equilibrium, strong performance increases the agent's market value. When this value becomes sufficiently high, the threat of the agent's quitting forces the principal to give the agent a raise. The prospect of obtaining this raise gives the agent an incentive to exert effort, which reduces the need for standard incentives, like bonuses. In fact, whenever the agent's option to quit is close to being ``in the money,'' the market-induced incentive completely eliminates the need for standard incentives. |
| Keywords: | Market-based incentive, Career Concerns, Endogenous outside option, Limited commitment, Private information, Wage contract |
| JEL: | D82 D86 J31 J33 M12 M52 |
| Date: | 2013–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45576&r=hrm |
| By: | Vera Angelova (Technical University Berlin); Olivier Armantier (Federal Reserve Bank of New York); Giuseppe Attanasi (University of Strasbourg and Toulouse School of Economics); Yolande Hiriart (CRESE, Université de Franche-comté) |
| Abstract: | We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm's investment is unobservable to authorities. The presence of externalities and asymmetric information call for public intervention in order to define rules aimed at increasing prevention. We determine the investments in safety under No Liability, Strict Liability and Negligence rules, and compare these to the first best. Additionally, we investigate how the (dis)ability of the firm to fully cover potential damage affects the firm's behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, prevention rates absent liability are much higher, and liability is much less effective, than predicted. |
| Keywords: | Risk Regulation, Liability Rules, Incentives, Insolvency, Experiment |
| JEL: | D82 K13 K32 Q58 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2013-03&r=hrm |
| By: | Jongha Lim; Berk A. Sensoy; Michael S. Weisbach |
| Abstract: | Indirect incentives exist in the money management industry when good current performance increases future inflows of new capital, leading to higher future fees. We quantify the magnitude of indirect performance incentives for hedge fund managers. Flows respond quickly and strongly to performance; lagged performance has a monotonically decreasing impact on flows as lags increase up to two years. Conservative estimates indicate that indirect incentives for the average fund are four times as large as direct incentives from incentive fees and returns to managers’ own investment in the fund. For new funds, indirect incentives are seven times as large as direct incentives. Combining direct and indirect incentives, for each dollar generated for their investors in a given year, managers receive close to another dollar in direct performance fees plus the present value of future fees over the expected life of the fund. Older and capacity constrained funds have considerably weaker relations between future flows and performance, leading to weaker indirect incentives. There is no evidence that direct contractual incentives are stronger when market-based indirect incentives are weaker. |
| JEL: | G23 G3 J3 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18903&r=hrm |
| By: | Newman, John L.; Azevedo, Joao Pedro |
| Abstract: | Reaching agreement on a reasonable performance target is a challenge, with costs associated with getting it wrong. Attention in the literature has focused on the potential negative effects of gaming or of creaming. However, even if there is no gaming or creaming taking place, there can still be costs associated with setting a level of the performance target that is either too low or too high. On the one hand, if the negotiated performance target is too low, there is a strong risk that the target would be met without any change in behavior or performance from what would have been realized without a performance management system. In that case, there would be no benefit -- only the cost of covering the administrative costs associated with developing the monitoring and management systems. On the other hand, if the negotiated performance target is too high, there could also be significant costs. The exact nature of the costs depends on which one of two unattractive options the principal chooses to follow once it becomes apparent that the performance targets were set unrealistically high. If the principal chooses simply to waive any possible repercussions for the agents for not meeting the performance targets, this can undermine the credibility of the system. If the principal insists on holding agents to meeting the performance targets -- no matter how unrealistic they were -- this can breed resentment and adversely affect future productivity. This paper considers some approaches to target setting that have been used in the literature and proposes an approach based on the use of quantile regressions to construct a Characteristic Adjusted Performance distribution of performance to guide the selection of targets. The paper then presents two concrete examples of applications of this approach related to the setting of targets on School Test Scores and Improvement in Homicide rates in Police Districts in the State of Minas Gerais, Brazil. |
| Keywords: | E-Business,Tertiary Education,Teaching and Learning,Educational Sciences,Education For All |
| Date: | 2013–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:6385&r=hrm |
| By: | Gopi Shah Goda; Damon Jones; Colleen Flaherty Manchester |
| Abstract: | Employer-provided pension plans may affect employee mobility both through an “incentive effect,” where the bundle of benefit characteristics such as vesting rules, pension wealth accrual, risk, and liquidity affect turnover directly, and a “selection effect,” where employees with different underlying mobility tendencies select across plans or across firms with different types of plans. In this paper, we quantify the role of selection by exploiting a natural experiment at a single employer in which an employee’s probability of transitioning from a defined benefit (DB) to a defined contribution (DC) pension plan was exogenously affected by default rules. Using regression discontinuity as well as differences-in-regression-discontinuities (DRD) methods, we find evidence that employees with higher mobility tendencies self-select into the DC plan. Our results suggest that selection likely contributes to the observed positive relationship between the transition from DB to DC plans and employee mobility in settings where employees sort into plans or employers. Counter to conventional wisdom, we find a negative direct effect of the DC plan on turnover relative to the DB plan, which underscores the multi-dimensional difference between these plans. |
| JEL: | H0 J26 J32 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18902&r=hrm |
| By: | Mareike Kleine |
| Abstract: | According to Principal-Agent theory, states (the principal) delegate the implementation of a legalized agreement to an international organization (the agent). The conventional wisdom about states’ capacity to control international organizations is that differences among the member states impede control and consequently enhance the agent’s autonomy, whereas agreement allows for effective control and limited autonomy. Contrary to this conventional wisdom, this article argues that conflicts among states need not impede effective control. On the contrary: it harbors gains from the exchange of informal control over an organization’s divisions. As a result, international organizations exhibit informal spheres of influence, or national chiefdoms. The article demonstrated the theory’s plausibility using the example of the EU. It has implications for the literature on delegation and informal governance. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:59&r=hrm |
| By: | Awel, Ahmed Mohammed |
| Abstract: | The relationship between education and economic growth has been one of the fundamental themes of economic analysis. Despite the growing interest in the relationship between growth and education, and despite the strong theoretical foundations for a key role of education/human capital in economic growth, the empirical evidences, particularly those using causality analyses, are fragile at best. By utilizing the recently developed series of human capital, this paper examined the causal relationship between human capital and economic growth for Sweden over the period 1870-2000. The result from the Granger causality test shows that there is bidirectional causality running from human capital to output per worker and vice versa. Moreover, using vector error correction model, the paper shows that human capital has a significant positive impact on economic growth in Sweden. |
| Keywords: | education, human capital, economic growth |
| JEL: | I21 I25 O15 O41 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45183&r=hrm |
| By: | Tony Champion; Mike Coombes; Ian Gordon |
| Abstract: | In the urban resurgence accompanying the growth of the knowledge economy, second-order cities appear to be losing out to the principal city, especially where the latter is much larger and benefits from substantially greater agglomeration economies. The view that any city can make itself attractive to creative talent seems at odds with the idea of a country having just one 'escalator region' where the rate of career progression is much faster, especially for in-migrants. This paper takes the case of England, with its highly primate city-size distribution, and tests how its second- order cities (in size order, Birmingham, Manchester, Leeds, Newcastle, Bristol, Sheffield, Liverpool, Nottingham and Leicester) compare with London as human- capital escalators. The analysis is based on the ONS Longitudinal Study of linked census records, primarily for 1991-2001, and uses one key indicator of upward social mobility, the transition from White Collar Non-core to White Collar Core. For non- migrants, the transition rates for all the second-order cities are found to fall well short of London's. In only one case - Manchester - is the rate significantly higher than the average for other areas outside the Greater South East (GSE) and its performance is matched by the non-London part of the GSE. Those moving to the second-order cities during the decade experienced much stronger upward social mobility than their non-migrants. This 'migrant premium' was generally similar to that for London, suggesting that it results from people moving only after they have secured a better job. If so, second-order cities cannot rely on the speculative migration of talented people but need suitable jobs ready for them to access. |
| Keywords: | human-capital escalator, second-order cities, England, ONS Longitudinal Study, career progression, city region |
| JEL: | J24 J61 J62 R23 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:sercdp:0132&r=hrm |
| By: | Jeffrey V. Butler (EIEF) |
| Abstract: | In this study I present experimental evidence of a novel channel yielding inequality persistence. In an initial experiment, results suggest that individuals respond to salient inequality by adjusting their performance beliefs to justify the inequality. Subsequent experiments reveal: i) that it is beliefs about relative ability, an ostensibly stable trait, rather than effort provision that respond to inequality; and that ii) unequal pay in an initial task affects willingness to compete on a subsequent task for male participants. Taken together, these patterns may cause inequality to become self-perpetuating. I conclude by discussing some implications of these findings. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1305&r=hrm |
| By: | Paul Beaudry; David A. Green; Benjamin M. Sand |
| Abstract: | What explains the current low rate of employment in the US? While there has been substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labor market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we offer a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the trends in the data that we present, and offers a novel interpretation of the current employment situation in the US. |
| JEL: | J2 J31 O33 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18901&r=hrm |