Job Market Candidate
Stanford Institute for Economic Policy Research
366 Galvez St
Stanford, CA 94305
Cell: 949- 413-4625
Competing for Labor through Contracts:
Selection, Matching, Firm Organization and Investments
Orie Shelef and Amy Nguyen-Chyung (Job Market Paper)
Does firm competition for workers lead the best workers to the most productive firms? In a model of of imperfect competition for workers through incentive contracts, we highlight that while higher-powered incentives attract better workers, higher-powered incentives can reduce incentives for firm investment in productive resources. Driven by this mechanism, firms may endogenously differentiate and sort higher-ability workers into firms with fewer productive resources. Bringing this idea to a novel matched employer-employee panel with more than 10,000 firms in residential real estate brokerage where we observe both worker-specific output and incentive contracts, we first decompose productivity into worker productivity and firm productivity. We find, across all firms and workers, that the best workers do not work at the most productive firms despite complementarity between firm and worker types: firms that are 15% more productive have workers that are 5% less productive. However, within firms that offer the same contracts, better workers do work at more productive firms. We confirm additional predictions of the model on the equilibrium decisions of firms and of workers. Consistent with our modelling assumptions, worker heterogeneity and preferences limit the effect of incentives on worker sorting. Counterfactuals show that contractual competition meaningfully reduces aggregate productivity by driving better workers to less productive firms. Our work links managerial decisions on incentive contracts and firm investments with labor market competition to explain persistent productivity differences across firms.
Bad Bets: Excessive Risk-Taking, Convex Incentives, and Performance
with Rui J. P. de Figueiredo and Evan Rawley. (Submitted)
We study how exogenous variation in convex incentives influences performance and risk-taking. When hedge fund managers fall below a threshold beyond which they earn performance fees, we demonstrate that risk-taking increases while performance drops, and both display important non-monotonicities. These results are puzzling as one may expect risk-taking to be positively correlated with performance in expectation. We rationalize these results with a simple model that combines effort and risk-taking . Using the model, we disentangle shirking and risk-taking effects and find that excessive risk-taking, not shirking, causes much of the performance declines. Our findings suggest convex incentive induced risk-taking is inefficient -- managers inappropriately choose from the risk-return frontier -- and excessive -- managers take dominated risks leading to absolute performance declines.
Relational Influence Buying
Existing empirical evidence that finds very high actual or potential return to some campaign contributions and wonders, if contributions buy influence, why more exchange does not occur. Other empirical work has found consistent long-term relationships of contributions from interest groups to politicians. Yet, models of influence buying have treated the exchange as a simple spot transaction. This paper develops a formal model of relational influence buying between a firm and a politician where campaign contributions are exchanged for policy favors in a self-enforcing contract. The feasible contracts can be described in incentive contract or gift-exchange formats. The structures of the contracts provide several insights. First, not all favors that have positive joint surplus to the firm and politician are contractible. This can explain why more, apparently valuable, trade does not occur. Second, the model predicts that horizons of politicians will reduce the ability to raise funds. I find evidence consistent with such horizon effects from US Congress people's age and term limits in US state legislatures. Third, the model provides empirical predictions for when firms should lobby themselves or outsource and on the structure of legislation. Fourth, under plausible, and emperically observable sufficient conditions, campaign contributions are prefered over direct transfers. The last two results speak both to potential regulatory implications and implications for managers’ influence activities. Finally, the insights from the model suggest empirical tools to detect influence buying without directly observing the favors.
The Demand for Energy-Using Assets among the World's Rising Middle Classes
Paul Gertler, Orie Shelef, Catherine Wolfram, and Alan Fuchs, Forthcoming.
American Economic Review.
We study household decisions to acquire energy-using assets in the presence of rising incomes. We develop a theoretical framework to characterize the effect of income growth on asset purchases when consumers face credit constraints. We use large and plausibly exogenous shocks to household income generated by the conditional-cash-transfer program in Mexico, Oportunidades, to show that asset acquisition is nonlinear, depends, as predicted in the presence of credit constraints, on the pace of income growth, and both effects are economically large among beneficiaries. Our results may help explain important worldwide trends in the relationship between energy use and income growth.
Democratic Inclusion and Religious Nationalists in Israel
with Nadav G. Shelef, 2013.
Political Science Quarterly, Summer 128(2): 289-316.
Democratic inclusion has been linked to the moderation of religious parties in a wide variety of contexts, ranging from Christian parties
in nineteenth-century Europe and Islamist parties in Turkey and
Indonesia, to the Bharatiya Janata Party (BJP) in India, among others.
At the same time, political inclusion does not necessarily lead to
moderation. Unlike the moderating effects generally seen elsewhere in
Europe, radical religious parties in Greece, Poland, and Bosnia have
not substantively moderated despite their participation in electoral
politics. In authoritarian contexts, for example, despite analogous political
openings in Yemen and Jordan, Islamist parties moderated only in the
latter. Why does including radical religious movements in the democratic
game sometimes lead to their moderation and sometimes not?
How Will Energy Demand Develop in the Developing World?
Catherine Wolfram, Orie Shelef, and Paul Gertler, 2012.
Journal of Economic Perspectives, 26(1): 119–-38.
Over the next 25 to 30 years, nearly all of the growth in energy demand, fossil fuel use, associated local pollution, and greenhouse gas emissions is forecast to come from the developing world. This paper argues that the world's poor and near-poor will play a major role in driving medium-run growth in energy consumption. As the world economy expands and poor households' incomes rise, they are likely to get connected to the electricity grid, gain access to good roads, and purchase energy-using assets like appliances and vehicles for the first time. We argue that the current forecasts for energy demand in the developing world may be understated because they do not accurately capture growth in demand along the extensive margin, as low-income households buy their first durable appliances and vehicles. Within a country, the adoption of energy-using assets typically follows an S-shaped pattern: among the very poor, we see little increase in the number of households owning refrigerators, vehicles, air conditioners, and other assets as incomes go up; above a first threshold income level, we see rapid increases of ownership with income; and above a second threshold, increases in ownership level off. A large share of the world's population has yet to go through the first transition, suggesting there is likely to be a large increase in the demand for energy in the coming years.
Works in Progress
Agent Driven Matching Surplus – Client Loyalty and Finding the Right Match
with Amy Nguyen-Chyung
The vast majority of assets are transacted through intermediaries. Yet, research studying the value of intermediaries has traditionally held assets fixed and evaluated intermediaries conditional on the asset transacted. Using client loyalty - repeated engagement of the same intermediary - we are able to study the value created by intermediaries in finding the matching asset. Preliminary results find large surplus creation by intermediaries through matching heterogeneous assets.
Not the Superstar: Heterogeneous Spillovers within Firms
with Amy Nguyen-Chyung (Preliminary draft subject to diclosure restrictions.)
A growing literature has investigated peer effects in work environments, finding that better peers at work can affect performance. However, this literature generally relies on a small number of individuals and peer sets and can only estimate specific functional forms of peer effects, e.g. average peers, super-star peers, near peers. Using a large set of workers and firms, we estimate non-parametric peer effects. Preliminary results indicate that extreme peers have small impacts and improvements in below average peers has the biggest impact on firm performance.
Multi-tasking Through the Firm: Internal Divisions?
Multi-product firms routinely face tensions between different product lines. Internal organization of multi-product firms traditionally trades-off aligning the firm by product line for clear incentives and authority and the potential loss of coordination across product lines. In this paper, we use a unique dataset of internal organization of firms and exogenous shocks to specific product lines to examine the consequences of internal organization on coordinated responses.