Wing Suen

Decomposing Wage Residuals: Unmeasured Skill or Statistical Artifact?

The decomposition of wage residuals into standard deviation and percentile ranks can be misleading because the two measures are not necessarily independent. With rising wage inequality, the mean percentile rank of low‐wage groups will rise simply because more dispersed distributions have thicker tails. This interpretation is consistent with the observed stability of gender and racial wage gaps. In contrast, the unmeasured skill interpretation of wage residuals would predict widening wage gaps in the face of rising wage inequality, unless one posits an increase in the level of unobserved skill for women and blacks.

Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals

This paper discusses the implications of rationing by waiting when consumers have different time costs and personal valuations. The joint distribution function of time costs and personal valuations is used to characterize market equilibrium. It is argued that, under certain conditions, an increase in the variance of time costs will reduce the dissipation of rent. Furthermore, it is shown that introducing a secondary market for a rationed good does not necessarily improve welfare because total surplus under rationing by waiting depends more on the variance than on the level of time costs and personal valuations. The model is also used to discuss other institutions that involve rent-seeking activities, such as the patent system and import quotas.

A Signaling Theory of Grade Inflation

When employers cannot tell whether a school truly has many good students or just gives easy grades, a school has incentives to inflate grades to help its mediocre students, despite concerns about preserving the value of good grades for its good students. We construct a signaling model where grades are inflated in equilibrium. The inability to commit to an honest grading policy reduces the efficiency of job assignment and hurts a school. Grade inflation by one school makes it easier for another school to do likewise, thus providing a channel to make grade exaggeration contagious.

Delegating Decisions to Experts

We present a model of delegation with self‐interested and privately informed experts. A team of experts with extreme but opposite biases is acceptable to a wide range of decision makers with diverse preferences, but the value of expertise from such a team is low. A decision maker wants to appoint experts who are less partisan than he is in order to facilitate information pooling by the expert team. Selective delegation, either by controlling the decision‐making process or by conditioning the delegation decision on his own information, is an effective way for the decision maker to safeguard own interests while making use of expert information.

MEN, MONEY, AND MEDALS: AN ECONOMETRIC ANALYSIS OF THE OLYMPIC GAMES

Population size and the level of income per capita are major determinants of the number of medals won by a country in the 1952-2004 Olympic Games. A parsimonious count (Poisson) model fits the data very well: the squared correlation between the predicted value of the number of medals won and the observed value is about 56%. There exist strong country-specific effects in Olympic medals results. While the USA and China tend to outperform other countries relative to their size and income, the Asian dragons tend to under-perform in the Games. Copyright 2008 The Authors Journal compilation 2008 Blackwell Publishing Ltd

Unravelling of dynamic sorting

We consider a two-sided, finite-horizon search and matching model with heterogeneous types and complementarity between types. The quality of the pool of potential partners deteriorates as agents who have found mutually agreeable matches exit the market. When search is costless and all agents participate in each matching round, the market performs a sorting function in that high types of agents have multiple chances to match with their peers. However, this sorting function is lost if agents incur an arbitrarily small cost in order to participate in each round. With a sufficiently rich type space, the market unravels as almost all agents rush to participate in the first round and match and exit with anyone they meet. Copyright 2005, Wiley-Blackwell.

Viewpoint: Decision-making in committees

This article reviews recent developments in the theory of committee decision-making. A committee consists of self-interested members who make a public decision by aggregating imperfect information dispersed among them according to a pre-specified decision rule. We focus on costly information acquisition, strategic information aggregation, and rules and processes that enhance the quality of the committee decision. Seeming inefficiencies of the committee decision-making process such as over-cautiousness, voting, and delay emerge as partial remedies to these incentive problems.

Sectoral shifts Impact on Hong Kong workers

This paper documents the accelerating rate of economic transformation in Hong Kong during the 1980s and its impact on the labour market. Earnings in expanding sectors have risen faster than earnings in declining sectors. The magnitude of the effect, however, is small and variable. Sectoral shifts have also had negligible effects on aggregate unemployment and unemployment in declining sectors. It is found that the degree of earnings inequality has increased contemporaneously with the rising rate of economic transformation. The earnings of less well-educated workers have fallen relative to other workers. The earnings of elderly workers, however, have not fallen relative to other workers. The reallocation of labour from low-wage sectors to high-wage sectors has resulted in a substantial growth in earnings for most workers involved.

Marital transfer and intra-household allocation: a Nash-bargaining analysis

This paper explores the implications of inter-generational marital transfers on the allocation of resources within a conjugal household. Adopting a Nash-bargaining framework with alternative models of the threat points, it is argued that parents have greater incentive to make transfers to a married child than to a single child because of the efficiency gains from joint consumption and production of family public goods and because of the increase in bargaining power of the child in the allocation of private consumption. Such transfers also enhance marital stability by increasing the efficiency gains from marriage.

Market-procured housework: The demand for domestic servants and female labor supply

Abstract Domestic servants and a womans own time are substitutes in the household production process. The demand for servants increases with the womans market wage, her non-wage income, and the presence of young children in the family. A bivariate probit model using data from Hong Kong suggests that women who participate in the labor force have a 0.008 higher probability of having servants than women who are not in the labor force. Conversely, women who have servants have a 0.22 higher probability of labor force participation than women with no servants. In households that use market-procured domestic help, the presence of young children is found to have no negative effect on female labor force participation.