The paper's main contribution is to provide a rational for advocacy. After observing that many organizations (corporations, judiciary, and the executive and legislative branches of government) use competition among enfranchised advocates of special interests to improve policy making, it argues that advocacy has two major benefits. First, the advocates' rewards closely track their pursuing several conflicting causes at one time. Second, advocacy enhances the integrity of decision making by creating strong incentives to appeal in case of an abusive decision. The paper also analyzes the costs of advocacy in terms of manipulation and garbling of information. It further shows that it may be costly for both the organization and interested parties themselves to let these parties plead their own causes instead of being represented. The paper concludes with two applications to comparative legal systems and to the organization of Congress and with suggestions for future research.

The tendency for the members of a corporation or government to be resistant to change is explored in a model that encompasses two endemic features of such systems. First, the social system is modeled as a hierarchy, and implicit within it is a selection process that determines who advances to higher levels. Second, an agent's behavior is partially determined by imitating those who have risen in the ranks. A behavioral norm of being rigid is found to be more prevalent and robust than one of being flexible. A more volatile environment may also induce agents to be more resistant to change. admirandi sed imitandi (to be admired but not imitated) [St. Augustine]

The principal‐agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance, yet the exiting empirical evidence supporting it is quite weak. The key prediction of the model is that the executive's pay‐performance. We demonstrate strong empirical confirmation of this prediction using a comprehensive sample of executives at large corporations. In general, the pay‐performance sensitivity for executives at firms with the least volatile stock prices is an order of magnitude greater than the pay‐performance sensitivity for executives at firms with the least volatile stock prices. This result holds for both chief executive officers and other highly compensated executives. We further show that estimates of the pay‐performance sensitivity that do not explicity account for the effect of the variance of firm performance are baised toward zero. We also test for relative performance evaluation of executives against the performance evaluation model. Our findings suggest that executive compensation contracts incorporate the benefits of risk sharing but do not incorporate the potential informational advantages of relative performance evaluation.

Do employers and workers underbid prevailing wages if there si unemployment? Do employers take advantage of workers' underbidding by lowering wages? Do employers take advantage of workers underbidding by lowering wages? We hypothesize that under conditions of incomplete labor contracts, wage levels may positively affect workers' propensity to cooperate. This, in turn, may prevent firms from underbidding or accepting the underbidding of workers. Experimental double auctions conducted for the purpose of examinating these hypotheses yield the following results: (i) Workers' underbidding is very frequent, but employers refuse to accept workers' low wage offers in markets with complete labor contracts, employes accept and actively enforce wages close to the competitive level. (ii) Workers' effort is positively related to the wage level. Therefore over their effort level. This holds true even in the presence of explicit performance incentives.

We Construct a general equilibrium model in which a pay‐as‐you‐go social security system can be adopted and sustained as a political and economic equilibrium. We alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness.

Because the tax savings of having a child are a realized only if the birth takes place before midnight, January 1, the incentives for the “marginal” birth are substantial. Using a sample of children from the National Longitudinal Survey of Youth, we find that the probability that a child is born in the last week of December, rather than the first week of January, is positively correlated with tax benefits. We estimate that increasing the tax benefit of having a child by $500 raises the probability of having the child in the last week of December by 26.9 percent.

This article reviews The Defining Moment, edited by Michael D. Bordo, Claudia Goldin, and Eugene N. White. The volume studies how the Great Depression changed government policies, including changes in monetary policy, fiscal policy, banking policy, agricultural policy, social insurance, and international economic policy. I argue that a theory of policy evolution is required to answer how the Great Depression affected these policies. In the absence of this theory, the contributors provide insight into the question by showing how policies changed sharply in the 1930s with little or no historical precedent or by showing how policies were tied to political or other considerations unique to the period. While this volume does not always provide answers to the questions posed, it does raise a fundamental issue in the analysis of government policy: Why during some crisis periods are bad policies adopted, whereas during other periods they are not ?

In a recent article in this Journal, Cummings al. (1997) offer experimental evidence rejecting the hypothesis that a hypothetical referendum is an incentive‐compatible mechanism for obtaining the social value of, or willingness to pay for, changes in the allocation of environmental goods and services. While cautions in offering a blanket rejection of hypothetical referenda as a means of measuring economic values on the basis of their findings, the authors do suggest that at least in experimental settings respondents appear to behave differently when real money is changing hands. Wheather hypothetical situations adequately mimic real‐market situations has been debated in the contigent valuation literature since its inception (see Cummings, Brookshire, and Schulze 1986). Cummings et al.'s finding of incentive incompatibility appears to offer strong evidence for the critics of hypothetical referenda.