Suggested Papers for Class Presentations

As I mentioned in class today, I believe we should start on student presentations when get to chapter 7 in M&R and then have one presentation for each of the chapters - 7, 8, 9.  As I hope you can already tell, we are taking a zooming in and then zooming out approach.  When we zoom in, we  focus on a specific topic in some section of the chapter.  When we zoom out we do a more broad brush approach that tries to connect those topics.

The zoom in requires doing reading (or viewing) beyond the textbook.  Below are the particular papers I suggest we do along with a little context.

Chapter 7 - Spence and Zeckhauser, Insurance, Information, and Individual Action.   This is an early paper on insurance when there might be moral hazard.  It is good for delineating the issues and seeing how the results change depending on what can be verified and when.  A note here is why this is relevant to the firm.  In an employment relationship there is productivity risk and revenue risk.  So there is a question of who bears that, employer or employee.  The employment relationship is different from the insurance situation in that in the former there is team production.  That's not discussed here.  We'll get to it later.  So here were think of the employment contract like insurance.

Chapter 8 - Shapiro and Stiglitz, Equilibrium Unemployment as a Worker Discipline Device.  If there is such a thing as involuntary unemployment, that means the workers must strictly prefer having their current job to getting laid off and then looking for another job.  They can't be indifferent between the two.  If that is true, then economists would say the workers earn a job rent.  There is a puzzle about job rents - why doesn't the employer reduce the wage?  This paper says it is counter productive to reduce wages.  There is something called an efficiency wage, paying the worker more than the opportunity cost, because the worker will be more productive then, sufficiently so to justify the wage differential.  But if there are efficiency wages like this, the worker must suffer some duration of unemployment if laid off.

Chapter 9 - Alchian and Demsetz, Production, Information Costs, and Economic Organization.  (You need the Campus VPN to access this paper.)  This paper argues that the firm exists because of team production rather than reduce transaction costs.  It then elaborates on the team production point of view.

Students may find each of these papers challenging, but I believe with some persistence and a little help you can make good meaning from them.  Have a look when you can and discuss with your teammates.  Next week we'll try to assign teams to presentations.

I'll do something similar in a few weeks with regard to chapters in B&D.