Ottorino Chillemi

Team Human Capital and Worker Mobility

We discuss the concept of “team human capital” and study the renegotiation of labor compensation after team members privately observe their own reservation wage. As labor productivity can only be high if the number of quits does not exceed a threshold, decisions concerning acceptance of individual wage demands become interdependent. When a team is made up of salaried workers, a peculiar case of efficiency wage results. Moreover, inefficient team dissolution may occur. We then show that inefficiency is less likely to occur when team members form a partnership.

Uninformed customers and nonprofit organization : Modelling 'contract failure' theory

Abstract When product quality is unobservable before purchase, the equilibrium price may be inefficiently high in order to signal high quality. We present a reputation model where under reasonable assumption nonprofit organizations can credibly charge lower prices than for-profit organizations.

Cross-owned firms competing in auctions

Abstract The paper studies the effect of ownership links among bidders in auctions. Firstly, it is shown that in first-price, in second-price, and in all-pay auctions, ownership links damage both the seller and society; the bidders too may be impaired by the sellers strategic reaction. Secondly, the optimal selling procedure is characterized: in sharp contrast with standard auctions, both the seller and society gain from ownership links. In the last part of the paper the analysis is extended to the case of strategic entry.

Cost Overrun and Auction Format in Public Works

We study the effect on cost overruns of auction formats (average bid as opposed to first price rule) conditional on the entry mechanisms (open as opposed to restricted participation). The dataset is a panel of auctions held in the Italian Veneto region between 2004 and 2006. It includes small size public projects (with reserve price up to one million euros) in such sectors as road works and building maintenance. It is commonly believed that cost overruns are lower under average bid auctions relative to fi rst price auctions. We fi nd support to this belief only when participation to the auction is restricted.

On the performance of worker-managed firms: Does participation only exert "technical" effects?

Abstract We consider those studies of worker-managed firms that estimate production functions augmented to include indexes of worker participation. We argue that, when output is measured by value added, participation can affect output not only via technical effects, as usually interpreted, but also via distinct economic effects. We formalize a situation in which the choice of product type and the expected profitability of the firm depend on the amount of collective reserves and the proportion of workers that are members.

Community repeated interaction and strategic delegation

A large population of fixed-type agents engage in exclusive pairwise relationships in a decentralized setting. At the onset, agents randomly meet in pairs under private information of individual time-invariant types. They play a voluntary contribution game. At the end of the first period, members of each pair either stay together in the second period, in which case reported information is common knowledge, or quit and meet randomly new partners, under private information of individual types. Thus, either long-term or short-term relationships may arise. We show that there are values of the parameters such that information extracted in the first period has a positive effect on social efficiency. We give an interpretation of our results in terms of advantageous delegation of decisions to uninformed agents. Finally, we consider several extensions of the model in which our results still hold.

On the economic value of repeated interactions under adverse selection

The paper studies, in a repeated interaction setting, how the presence of cooperative agents in a heterogeneous community organized in groups affects efficiency and group stability. The paper expands on existing literature by assuming that each type can profitably mimic other types. It is shown that such enlargement of profitable options prevents group stabilization in the single group case. Stabilization can be obtained with many groups, but its driver is not the efficiency gain due to the presence of cooperative individuals. Rather, stabilization is the result of free riding opportunities.

Mutual Concern, Workplace Relationships and Pay Scales

A relatively novel area of research in economic theory is how the quality of human relationships in the workplace affects reward systems and labour productivity. Akerlof’s gift exchange model (1982) is a path-breaking contribution. In an attempt to explain a firm’s egalitarian wage policy towards a group of its employees in a context where the average productivity in the group was also well above the standard required, Akerlof introduces both preferences for income equality among co-workers and loyalty to group norms on the part of the workers and the firm. With these assumptions he succeeds in explaining conduct that appears irrational within the standard neoclassical framework. Another interesting paper is that by Kandel and Lazear (1992), which seeks to explain how profit-sharing plans can have beneficial incentive effects. The authors focus on the role of peer pressure in curbing the incentive to free-riding inherent in such plans, and emphasize that guilt can be the only effective form of pressure when individual effort is not observable; hence the importance of empathy in motivating co-workers not to cheat on each other. In a similar vein, Rotemberg (1994) investigates whether friendly relations in the workplace can induce altruistic feelings among co-workers, thus helping to solve the free-rider problem in team production. The author discusses at length the experimental study on the productivity effects of incentive pay and labour group practices, which Mayo carried out at Hawthorne Works (Mayo, 1933).

On Auctions with Interest Linkages among Bidders

The paper examines auctions in which some bidders may have interest linkages with other bidders. First, it is shown that interest linkages damage the seller in the first-price sealed-bid auction; moreover, bidders’ surplus may be impaired by the seller’s strategic reaction. Then, the revenue-maximizing procedure is characterized, under the assumption that the participation constraint requires a bidder’s total payoff to be non-negative. In sharp contrast to the above results, both the seller’s revenue and joint surplus increase according to the intensity of linkage among the bidders.

Efficiency and Stability of Relationships with Local Altruistic Commitment

Continuing interaction with the same partners may ensure greater joint surplus than switching to new partners. When this is so, one can say that past history has led to the accumulation of relation-specific assets, and economic analysis of the relationship boils down to studying the creation and exploitation of such assets. Indeed, bargaining costs may dissipate part of their potential returns, and correspondingly reduce the value of the assets themselves. Furthermore, in an ex ante perspective, investment costs are also to be accounted for, so surplus maximization is subject to even stricter individual incentive compatibility constraints.