Discussion by Cameron Weber New School – U Mass (Amherst) Workshop 2009

1. Park, Oh and Bowles (2009 draft). “Veblen effects, political representation, and work hours: theory and estimates” Discussion by Cameron Weber New School – U Mass (Amherst) Workshop 2009

2. Park et al (2009) Discussion • Paper in context and preliminary critique • Comments and questions on method • Recommendations for further research

3. Park etal (2009) Discussion • Firms exist in market economy because they reduce transaction costs by reducing uncertainty of contracting in advance for a market with Knightian uncertainty (Coase 1937) • Employees are hired at will of employer for a wage to perform tasks as assigned (Simon 1951)

4. Park etal (2009) Discussion • Becker and Stigler (1974) and Akerlof and Katz (1989) model the labor market as wages determined exogenously • Others use monopolistic competition to show labor markets don’t clear with full employment • Park etal build upon literature where hours are determined by employers, resulting in Pareto suboptimality

8. Park etal (2009) Discussion • Is General Equilibrium Theory economics a Progressive Research Program? • Do markets clear instantaneously with perfect information? • Can “workers” and “capital” be aggregated? • Do workers really not save? • Do people really optimize absent social-constructed preferences and norms? • Is work really a disutility? • How is Knightian uncertainty (“unknown unknowns”) captured in a GET model?

9. Park etal (2009) Discussion • Assuming that welfare economics-based labor market modeling is a PRP then Park etal add something to the literature in modeling fixed costs to employment as can help model costs of collective bargaining • More discussion of these costs in application needed in paper (no doubt to come later as paper is only in Draft and as of yet without empirics and policy recommendations)

10. Park etal (2009) Discussion • However, • Shouldn’t firm reputation, and thus onward hiring costs for worker mistreatment, be a focus of the modeling? • Doesn’t worker have an incentive to ‘signal’ high utility of work through effort and productivity? Shouldn’t this signaling be taken account of in model?

11. Park etal (2009) Discussion • Again, assuming that welfare economics-based labor market modeling is a PRP then does the “Veblen effects” effective utility concept add anything to literature beyond a sociological or theoretical curiosum? • How would you measure the Veblen effects in the market?

12. Park etal (2009) Discussion • Recommendations for further research in labor markets based on contract asymmetry: Agent based modeling would allow heterogeneous agents with varying degrees of utility-disutility of work and signaling capabilities; differing degrees of firm reputation – hiring/firing flexibility trade-offs; incentive effects of employee incentive plans such as stock ownership, training and other benefits, and; analysis of varying firm-size-dependent fixed employment costs and diseconomies of scale. However, ABM too does not take into consideration Knightian uncertainty