Christopher Ferrall

Incentives and Transactions Costs Within the Firm: Estimating an Agency Model Using Payroll Records

We estimate an agency model using the payroll records of a copper mine that paid a production bonus to teams of workers. We estimate the cost of incomplete information due to insurance and incentives considerations and the inefficiency caused by the simple form of the incentive contract itself. At the estimated parameters the cost of worker risk aversion (insurance) is of similar magnitude to moral hazard (incentives). Overall, incomplete information accounted for one-half of the bonus systems inefficiency relative to potential full information profits. The other half is attributed to the bonus systems inefficient generation of incentives and insurance relative to the optimal incentive contract.

A Sequential Game Model of Sports Championship Series: Theory and Estimation

Using data from professional baseball, basketball, and hockey, we estimate the parameters of a sequential game model of best-of-n championship series controlling for measured and unmeasured differences in team strength and bootstrapping the maximum-likelihood estimates to improve their small sample properties. We find negligible strategic effects in all three sports: teams play as well as possible in each game regardless of the games importance in the series. We also estimate negligible unobserved heterogeneity after controlling for regular season records and past appearance in the championship series: Teams are estimated to be exactly as strong as they appear on paper.

Wage and test score dispersion: some international evidence

This paper includes fifty observations on wage distributions across eleven countries and two age cohorts defined by international mathematics tests given to thirteen-year-olds in 1962 and 1982. It is found that wage dispersion later in life is never greater than test score dispersion. In particular, Lorenz curves for a cohorts wages always lie above or on top of the cohorts test score Lorenz curve. Wage dispersion, as summarized by Gini coefficients, is significantly related to test score dispersion and union density in the country. A general fall in test score dispersion between 1962 and 1982 appears to be reflected in reduced wage dispersion. For three countries with available data (the U.S., the U. K., and Japan), evidence of skill-based changes in wage dispersion between the early 1970s and the late 1980s is found.

Endogenous work hours and practice patterns of Canadian physicians

Using an extensive survey of Canadian physicians, the authors study how physician practice patterns are shaped by demographic characteristics, physician specialty, and government policy. They model the simultaneous determination of group size, primary source of professional income (fee-for-service or salaried position), weekly hours of direct patient care, and total weekly hours of work. Employing a method of maximum simulated likelihood, the coefficients are precisely identified. With all else constant in the model, physicians who work under fee-for-service see patients 5.9 more hours each week than physicians who are primarily salaried, yet fee-for-service physicians work 5.5 hours less per week in total.

Promotions and incentives in partnerships: evidence from major U.S. law firms

This paper develops a model of promotions in partnerships and estimates the model using cross-sectional data on major U.S. law firms. Promotions to partner screen associates for firm-specific skills and they generate tournament incentives among associates competing for promotions. The key parameters of the model are estimated by imposing the equilibrium restriction that firms offer equal utility to incoming associates. The incentive component of compensation is found to be statistically significant and a nested model without promotion incentives is rejected by the data.

Empirical Analysis of Occupational Hierarchies

Using data on U.S. engineers and the position of engineering jobs within firms, this paper estimates a model of hierarchies within firms. The model extends Rosens (1982) model of recursive production to two skills and multiple hierarchy levels. The model generates an empirical model that is nested within a general Roy (1951) model of self-selection. Maximum likelihood estimates of the parameters of the production technology and the skill-experience profiles are estimated. The results suggest that approximately two-thirds of changes in employment shares across hierarchy levels across time are explained by demographic shifts in the stock of engineering skills. Most of the returns to experience and to assignment to higher hierarchy levels within firms are caused by skill accumulation and self-selection rather than technological differences across hierarchy levels.

Unemployment Insurance Eligibility and the School-to-Work Transition in Canada and the United States

To study how the design of unemployment insurance affects people leaving school to find jobs, a model of job search in the presence of UI is developed and estimated for the US and Canada. The level of UI benefits depends upon previous earnings, a fact which creates opposing incentives for unemployed people not receiving benefits. Which of these opposing incentives dominates differs across demographic groups within each country. The major differences in the transition from school to work between Canada and the U.S. are a lower rate of job offer arrivals and a lower rate of offer rejections in Canada. Within each country, offer arrival rates differ across individuals much more than offer rejection rates.

Modeling the value of strategic actions in the superior colliculus

In learning models of strategic game play, an agent constructs a valuation (action value) over possible future choices as a function of past actions and rewards. Choices are then stochastic functions of these action values. Our goal is to uncover a neural signal that correlates with the action value posited by behavioral learning models. We measured activity from neurons in the superior colliculus (SC), a midbrain region involved in planning saccadic eye movements, while monkeys performed two saccade tasks. In the strategic task, monkeys competed against a computer in a saccade version of the mixed-strategy game ”matching-pennies”. In the instructed task, saccades were elicited through explicit instruction rather than free choices. In both tasks neuronal activity and behavior were shaped by past actions and rewards with more recent events exerting a larger influence. Further, SC activity predicted upcoming choices during the strategic task and upcoming reaction times during the instructed task. Finally, we found that neuronal activity in both tasks correlated with an established learning model, the Experience Weighted Attraction model of action valuation (Camerer and Ho, 1999). Collectively, our results provide evidence that action values hypothesized by learning models are represented in the motor planning regions of the brain in a manner that could be used to select strategic actions.

Levels of Responsibility in Jobs and the Distribution of Earnings among U.S. Engineers, 1961–1986

This study, using data from the Professional, Administrative, Technical, and Clerical Pay Survey and the Current Population Survey, examines how the assignment of responsibility within firms affected the structure of wages of U.S. engineers between 1961 and 1986. Patterns of wage dispersion in this sample mirrored patterns found in broader segments of the labor market during the same period. In engineering, wage dispersion within levels of responsibility fell steadily between 1976 and 1986, while wage dispersion between levels rose. At the same time, engineering jobs began to migrate to lower levels within firms. The author explains the trends in wages and job assignments as responses to changes in the supply of and demand for engineers, within the framework of hierarchy models of responsibility.

Interactive Statistics Tutorials in Stata

This paper discusses a set of programs written in the statistical package Stata that is designed to support interactive student tutorials. The tutorial package has several desirable features, inclu...