In this paper we examine the factors affecting the structure
of executives‘ compensation packages. We focus particularly on the role of
various types of delayed compensation as means of "bonding" executives to
The basic problem is to design a compensation package that rewards
actions that are in the 1ong—run interest of the stockholders. Firms must
take into account (1) their ability to discern unfortunate circumstances
from mismanagement; (2) the extent to which a compensation package forces
the executive to face risks beyond his control; and (3) the willingness of a given executive to bear this risk. we use our theory to interpret some executive compensation data from the early 1970's.
In this paper we examine the factors affecting the structure
We study the effects of a change in financial aid policy introduced by a Northeastern
university in 1998. Prior to that time, the university s financial aid packages for lowincome
students consisted of grants, loans, and campus jobs. After the change, the entire
loan portion of the package for low-income students was replaced with grants. We find
the program increased the likelihood of matriculation by low-income students by about 3
percentage points, although the effect is not statistically significant. The effect among
low-income minority students was about twice that size and statistically significant at the
10 percent level.
The paper specifies a disequilibrium model for the aggregate
labor market consisting of demand and supply functions for labor,
an adjustment equation for wages as well as for prices, a
transactions equation and, finally, an equation that relates
measured unemployment to vacancies and to excess demand. The
model has a more sophisticated treatment of dynamics than earlier
disequilibrium models, and uses measured unemployment as an
endogenous variable. Two of the error terms are assumed to be
serially correlated and the coefficients are estimated by maximum
likelihood. The parameter estimates and the goodness—of—fit are
satisfactory and the model's implications for the behavior of
several important variables are sensible. Excess demand
estimates computed in various ways are reasonable. The model is
used to estimate the natural rate of unemployment as well as a
short run Phillips curve. Finally, the stability properties of
the model are analyzed by considering the eigenvalues of the
system; they are found to have moduli less than one.
This paper examines tax return-generated data on the labor force behavior of people
before and after they receive inheritances. The results are consistent with Andrew Camegie’s
century-old assertion that large inheritances decrease a person's labor force participation. For
example, a single person who receives an inheritance of about $150,000 is roughly four times
more likely to leave the labor force than a person with an inheritance below $25,000.
Additional, albeit weaker, evidence suggests that large inheritances depress labor supply, even
when participation is unaltered.
This paper analyzes the effect of wage and interest taxation on investment
in human capital. It is shown that results derived under the assumption that
human.capital is a riskless asset fail to obtain when the return on human capi-
tal is uncertain. The interaction of the human capital investment decision
with savings, consumption and 1abor—leisure choices are taken into account.
An implication of the analysis is that, when the rate of return on human capi-
tal is stochastic, efficient taxation requires positive taxation of wage income
even when lump—sum taxation is feasible.
This paper analyzes the role of liquidity constraints in the formation of new
entrepreneurial enterprises. The basic empirical strategy is to determine whether an
individual's wealth affects the probability of becoming an entrepreneur, and the conditional
amounts of depreciable assets and interest deductions, ceteris paribus. If so, liquidity
constraints are likely to be present. To be successful, such a research strategy requires a
measure of asset variation that is both precisely measured and exogenous to the
entrepreneurial decision. Our data are uniquely well-suited for this purpose. The sample
consists of the 1981 and l985 federal tax returns of a group of people who received
inheritances in 1982 and l983, along with information on the size of those inheritances from
a matched set of estate tax returns. Hence, we can examine how the exogenous receipt of
capital affects the decision to become an entrepreneur and important ﬁnancial characteristics.
of new enterprises.
Our results suggest that the size of the inheritance has little effect on the probability of
becoming an entrepreneur, but that conditional on becoming an entrepreneur, the size of the
inheritance has a statistically signiﬁcant and quantitatively important effect on the amount of
capital employed. The conditional elasticity is 0.45. Thus, liquidity constraints matter, but
not in the fashion suggested in some earlier investigations.
A common feature to most aggregative studies of the labor market is a marginal productivity expression in which the quantity of labor appears on
the left hand side of the equation, and the right hand side includes the real
wage and output. A number of researchers have cautioned that if the output
variable is treated as exogenous, serious econometric difficulties may
result. However, the assumption that output is exogenous has not been
tested. In this paper, we estimate an equilibrium model of the labor market,
and use it to test the assumption of output exogeneity. We find that the
assumption that output is exogenous cannot be rejected by the data.
We examine why some individuals survive as entrepreneurs and others do not. In
addition. we analyze the growth of entrepreneurial enterprises, conditional on surviving. Our
focus is on the role of access to capital--to what extent do liquidity constraints increase the
likelihood of entrepreneurial failure?
The empirical strategy is based on the following logic: If entrepreneurs cannot borrow
to attain their proﬁt-maximizing levels of capital, then those entrepreneurs who have substantial
personal ﬁnancial resources will be more successful than those who do not. The data consist of
the 1981 and 1985 federal individual income tax returns of a group of people who received
inheritances. These data allow us to identify those individuals who were sole proprietors in
1981, and to determine the extent to which the decision to remain a sole proprietor was
inﬂuenced by the magnitude of the inheritance-induced increase in liquidity.
The results are consistent with the notion that liquidity constraints exert a noticeable
inﬂuence on the viability of entrepreneurial enterprises. For example, a $150,000 inheritance
increases the probability that an individual will continue as a sole proprietor by 1.3 percentage
points, and conditional on surviving, the receipts of the enterprise increase by almost 20
It is frequently asserted that a college's female undergraduate enrollment in the sciences and engineering can be increased by raising female representation on the faculties in these areas. Despite the widespread acceptance of this proposition, it does not appear to have been subjected to any kind of serious statistical analysis. In this paper, we assemble panel data from three rather different educational institutions, and use them to examine the relationship between the gender composition of the students in an academic department and the gender composition of its faculty at the time the students were choosing their majors. We find no evidence for the conventional view that an increase in the share of females on a department's faculty leads to an increase in its share of female majors.