Illoong Kwon

• PhD in Economics
• Professor (Full) at Seoul National University

Female quotas for high‐ranking positions in corporations and governments should (i) increase the hiring of women and (ii) inspire more women to apply for these positions. The goal will be that eventually, (iii) even without the quota, more women will apply to and succeed in high‐ranked positions. This paper exploits the variations of female quotas...

This paper empirically analyzes whether earned income tax credit (EITC) has induced the welfare trap and/or the adverse selection problem. In contrast, previous studies have focused on the effects of EITC on labor income/hours or the labor market participation. With the introduction of EITC, some households may strategically maintain their income b...

Using the unique grant level data, this paper shows that government R&D grants to private firms lead to more innovation when independent monitoring (e.g. outside directors) in the grant receiving firms is stronger, but to less innovation when chaebol influence (e.g. affiliated ownership) is stronger. However, the direct effect of independent monito...

Trust and entrepreneurship are important determinants of economic development. The two, however, have been discussed separately and crudely defined. This paper distinguishes between trust and distrust and constructs a theoretical framework to understand their relations with (innovative) entrepreneurship and (routine) self-employment. The framework...

This paper empirically investigates whether the productivity of a public (government-funded) R&D project improves when the aggregate R&D investment in the same technology field increases. Based on the unique project level data that cover almost entire public R&D projects in Korea, this paper shows that aggregate investment in other public R&D proje...

If overstatements were a symptom of the agency conflict, pay-for-performance sensitivities should have increased in response to the additional penalties for misreporting imposed by SOX. Our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002. To corroborate our in...

In developed countries, the self-employed have been found to be more satisfied with their jobs than paid employees. We found the exact opposite for a developing country after analyzing 8732 respondents in the Indonesian Family Life Survey. The job dissatisfaction of the self-employed was not fully explained by earnings, personal traits, job charact...

This article examines the effects of performance budgeting on government debt and economic growth rates. The results show that countries with a higher share of ministries using performance targets in budget negotiation tend to have lower government debt and higher GDP growth rates. A simple fixed-effect model shows similar results. The evidence sug...

This paper analyses public–private mixed delivery of essential public services under price regulation. A private firm may have lower production costs and can potentially provide a performance benchmark for a public firm. A public firm may offer higher-quality service and can reveal the production cost of the private firm to the regulator. However,...

Despite growing reliance on indirect market-based policy instruments under the New Public Management reforms, bureaucrats often prefer direct regulatory instruments. Thus, for successful implementation of indirect policy instruments, it is important to understand the underlying motives for bureaucrats’ preferences. This article shows that based on...

This paper provides a simple theoretical framework for analyzing how welfare polices can affect the incentive to work and compares the recent welfare policy reforms of Sweden and Korea. Sweden has systematically reformed its welfare policies in response to slowing population and economic growth and an aging population. This paper shows that recent...

Trust was found to promote entrepreneurship in the US. We investigated whether this was true in a developing country, Indonesia. We failed to replicate this; this failure was true whether trust was estimated at the individual or community level or whether ordinary least squares (OLS) or two stage least squares (2SLS) was employed. We reconciled the...

Mandatory information disclosure may allow sellers to observe and respond to other sellers' attributes (seller peer effects) as well as informing consumers of the sellers' attributes (consumer learning effect). Using the data from mandatory information disclosure of antibiotic prescription rates for the common cold in Korea, this paper shows that w...

This paper analyzes firms’ hiring and promotion patterns, and infers the relative significance of the firm- and occupation-specific human capital required for each job rank. The results suggest that firm-specific skills are just as valuable as occupation-specific skills, and that the value of these specific skills increases in job rank. However, th...

This article considers a promotion tournament where the winner is decided by the principal's posterior belief about the agents’ abilities, called a subjective promotion tournament. If the agents can choose the risk of their performance as well as their effort, this article shows that such a subjective tournament can be better than an objective tour...

Firms do not always patent their innovations. Instead, they often rely on secrecy to appropriate the returns of innovations. This paper endogenizes firms’ patent propensity, and shows that when the equilibrium patent propensity is small, strengthening patent protection can decrease firms’ incentive to innovate. Paradoxically, this result holds prec...

Increased monitoring, higher wages, and less discretion are some of the generic remedies for corruption. However, these remedies can be expensive, and may reduce bureaucrats’ public service effort and increase corruption. A theoretical model shows that extrinsic motivation for public service (e.g., performance pay) can reduce corruption without som...

This paper considers a patent portfolio race where firms compete for complementary patents, called a patent thicket. When firms have an option to keep their innovation secret, this paper shows that there exists an equilibrium where firms' patent propensity is strictly between zero and one. In such an equilibrium, stronger patent protection reduces...

This paper considers both incentive and sorting effects of a promotion tournament, and analyzes the optimal degree of uncertainty in the agents' performance measure. In a subjective promotion tournament where the winner is determined by the principal's belief about the agents' ability, this paper shows that a noisy performance measure can have a po...

This paper tests the existence and the direction of causality between fiscal decentralization and economic growth. The previous literature has implicitly assumed that decentralization causes economic growth, and has largely ignored the possibility that economic growth can cause fiscal decentralization as well. This paper applies the Granger-causali...

This paper analyzes the internal labor market and its effect on workers' wages using an extensive Swedish dataset that includes employee and occupation characteristics and information about wages and work hours. Contrary to the conventional assumption, we find that there are no firm-based "ports of entry" in low level jobs. On the contrary, firms p...

This paper studies the long-term effect of business cycle, employment rate and employment growth rate on later wages and promotions. Using Swedish employer-employee match data, we find that workers who enter the labor market during a recovery phase of a business cycle (when the employment rate is still low but employment growth is high) receive hig...

This paper studies the long-term effects of the business cycle on workers’ future promotions and wages. Using the Swedish employer-employee matched data, we find that a cohort of workers entering the labor market during a boom gets promoted faster and reaches higher ranks. This procyclical promotion cohort effect persists even after controlling for...

We study workers’ reactions to changes in the gender composition of top management during a merger or acquisition, finding that an increase in the number of female top managers within their occupation makes male workers more likely to quit, and female workers less likely to quit. These effects vary across occupations, depending on the female share,...

Numerous studies have linked CEO incentives to earnings overstatements. This paper investigates whether such overstatements are an intended or unintended consequence of pay-for-performance. The evidence indicates that incentives are higher when current shareholders stand to benefit from overstatements, namely in the presence of capital constraints...

This article analyses how firms allocate their resources when they compete for multiple patents in heterogeneous research projects simultaneously. A simple model shows that firms' resource allocation is biased away from risky and basic research, even when imitation is not possible and firms are fully rational. Therefore a market may lack major inno...

When an agent overstates his/her true performance, a rational market can still correctly guess the true performance. This paper shows, however, that such rational market expectation and a profit-maximizing principal can exacerbate the lack of productive effort by the agent.

This paper provides both theoretical and empirical analyses of the relationship between firms' performance and auditor change. The theoretical analysis focuses on the auditor's role as a commitment device not to overstate firms' earnings. We show that even when the investors are fully rational and firms cannot gain from overstatement, firms are mor...

This paper analyzes firms’ hiring and promotion patterns in each job rank within firms, and infers the relative significance of firm- and occupation-specific human capital. The results suggest that firm- and occupation-specific skills are equally valuable for tasks in each job rank, and that the significance of each increases with job rank, but tha...

This paper endogenizes the strategic relationship between a principal (a player with authority) and an agent (a player without authority), and shows that a submissive relationship is the unique equilibrium outcome. That is, the agent voluntarily chooses a task that will increase the principal's payoffs, but the principal does not help the agent in...

We develop a principal-agent model linking CEO incentive pay to overstatements that allows us to differentiate between boards that prevent and boards that encourage overstatements. Using the Sarbanes-Oxley Act of 2002 as an exogenous increase in the cost of overstatements, we infer from the observed decrease in CEO incentives that boards must benef...

We develop a principal-agent model linking CEO incentive pay to overstate-ments that allows us to differentiate between boards that prevent and boards that encourage overstatements. Using the Sarbanes-Oxley Act of 2002 as an exogenous increase in the cost of overstatements, we infer from the observed decrease in CEO incentives that boards must bene...

We use evidence from worker turnover following M&A events to show that workers’ choices to leave the firm depend on changes in workers’ relative standing, or status, in terms of wage and rank. Our results show that social, rather than pecuniary, preference drives these choices. We also show that social preference varies with reference group. When w...

When firms can protect their innovations by secrecy or lead-time, the additional effect of patent protection is not obvious. This paper shows that when firms compete for a single innovation, patent protection still increases R&D investment but decreases social welfare due to over-investment. However, when firms compete for multiple complementary pa...

Business cycles in different regions of the United States tend to synchronize. This study investigates the reasons behind this synchronization of business cycles and the consequent formation of a national business cycle. Trade between regions may not be strong enough for one region to "drive" business cycle fluctuations in another region. This stud...

This paper studies the long-term effect of the business cycle at the time workers enter the labor market on workers?future promotions and wages. Using the Swedish employer-employee matched data, we find that a cohort of workers entering the labor market during a boom gets promoted faster and reaches higher ranks. This pro-cyclical promotion cohort...

This paper analyzes how the number of female managers at top positions affects other male or female workers in the workplace. We use mergers and acquisitions as a natural experiment. When a firm with few top female managers acquires another firm with many top female managers, workers in the acquiring firm suddenly face more top female managers. In...

Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effect...

"This paper studies a simple agency model where an agent's decision can affect his or her own future payoffs as well as the principal's. The threat of dismissal becomes an important part of an incentive scheme even if the principal can use the performance-based wage contract. However, if the agent's future payoffs depend on the past realized perfor...

I study an incentive problem that has been largely ignored in the agency literature: incentives for repeated (human capital) investment. The optimal contract is very simple but still provides rich implications for incentive and wage structures in large organizations. The empirical evidence is presented using personnel records of health insurance cl...

This paper shows that favoritism can arise endogenously as an optimal decision rule in a symmetric model with an ex-ante impartial principal. Furthermore, favoritism dominates fairness specifically when the favorite promotes his own idea and ignores the other's idea so that the non-favorite loses motivation. Our model also provides new insights on...

Many people are fired from their jobs for poor performance. However, it is difficult to distinguish whether they are fired because they are not well suited for their job (sorting explanation) or because the firms are trying to provide incentives for effort (incentive explanation). This article develops a dynamic incentive model of dismissal and pro...

When firms can protect their innovations by secrecy or lead-time, the additional effect of patent protection is not obvious. This paper shows that whenfirms compete for a single innovation, patent protection still increases R&D investment but decreases social welfare due toover-investment. However,whenfirmscompeteformultiplecomplementarypatents(cal...

Firms do not always patent their innovations. Instead, they often rely on secrecy to appropriate the returns of innovations. This paper shows that when the equilibrium patent propensity is small, strengthening patent protection can decrease firms' incentive to innovate. Paradoxically, this result holds precisely when a stronger patent policy induce...