John S. Heywood

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• PhD University of Michigan
• Distinguished Professor at University of Wisconsin–Milwaukee

This study is the first to systematically examine the association between performance pay and marital instability. Using German survey data on married couples and including an extensive set of controls, we show that performance pay is associated with an increased probability of subsequent separation or divorce. Yet, the results are entirely gender...

We uniquely model an upstream mixed duopoly engaging in either uniform pricing or spatial price discrimination when facing a continuum of downstream firms. Uniform pricing generates higher welfare with a fully public firm. Uniform pricing generates greater optimal partial privatization except when the cost disadvantage of the public firm is large a...

We show that the presence of a public firm can deter private firms from relocating to foreign countries in response to high domestic taxation. We also examine partially privatized public firms showing that the higher the exogenous domestic profit tax, the larger the public ownership share needs to be to deter private firm mobility. We illustrate th...

Using US survey data, we show that those on performance pay work substantially longer hours. This remains in worker fixed-effect estimates and in worker with employer fixed-effect estimates. The magnitudes confirm increased hours as a dimension of the anticipated effort response and long hours as a potential intermediary between performance pay and...

We examine the myopic price changes based on the inverse elasticity pricing rule for a multiproduct firm. By myopic, we mean ignoring that elasticity likely changes with price and that marginal cost likely changes with quantity. Unlike with a single product firm, constant demand elasticities and marginal cost do not cause the inverse elasticity rul...

A large body of research links performance pay to poorer worker health. The mechanism generating this link remains in doubt. We examine a common suspect, that performance pay causes employees to work longer hours in pursuit of higher pay. Using UK data, we demonstrate that performance pay is associated with more work hours and a higher probability...

We analyze equilibrium locations of downstream retailers assuming transport cost from a monopoly input supplier. When the upstream transport costs equal those of retailers, a downstream monopoly may locate efficiently and two downstream firms never locate inefficiently. Even with discriminatory pricing upstream, two downstream firms locate efficien...

We examine the relationship between firm‐sponsored training and product quality competition within a model of worker–firm bargaining. We develop a quality‐adjusted monopolistically competitive setting in which firms invest in training to an extent that reflects: (i) the costs of training, (ii) the extent to which training increases product quality,...

We show that the presence of a welfare maximizing public firm in an oligopoly guarantees that no firm has an incentive to raise the costs of domestic private rivals. There remains an incentive to raise the costs of the public firm and of a foreign private rival.

While performance pay can benefit firms and workers by increasing productivity and wages, it has also been associated with a deterioration of worker health. The transmission mechanisms for this deterioration remain in doubt. We examine the hypothesis that increased stress is one transmission mechanism. Using unique survey data from the German Socio...

Dragone and Lambertini (Reg Sci Urban Econ 84:103568, 2020) show that in a Hotelling duopoly with linear transport cost, sufficiently convex production cost generates an elevated price equilibrium with collocation at the middle. We examine the consequences of a mixed duopoly under these cost assumptions. No equilibrium exists in a mixed duopoly wit...

We uniquely show that the returns to drinking in social jobs exceed those in non-social jobs. The higher returns remain when controlling for worker personality, when including individual fixed effects and in a series of robustness exercises. This showing fits the hypothesis that drinking assists the formation of social capital, capital that has gre...

We examine the hypothesis that flexible work organization involves greater skill requirements and, hence, an increased likelihood of receiving employer provided training. The analysis is based on unique linked employer‐employee data from Germany for the years 2012, 2014 and 2016 (12,924 pooled observations from 9,440 employees in 1,903 establishmen...

A classic R&D rivalry is compared to R&D cooperation while embedded in a model of endogenous network compatibility. We show that complete incompatibility is more likely to occur with cooperative R&D. Complete incompatibility increases the advantage in R&D and profitability of the incumbent over the entrant. In our initial illustration, cooperation...

Previous studies show that performance pay can benefit firms and workers by increasing productivity and wages. Yet, performance pay can also have unintended consequences for worker health. Using data from the German Socio-Economic Panel, we examine the hypothesis that alcohol use as “self-medication” is a natural response to the stress and uncertai...

This paper examines production by two unequal partners and asks if there exist agreed upon ownership shares that generate the joint payoff maximizing efforts. Given the inherent complementarity, we show that for given shares, joint payoff is greater in a sequential rather than a simultaneous effort game. Also, joint payoff is typically higher when...

We derive equilibrium delegation contracts in an international mixed duopoly with a private firm in one country and a public firm in another. We compare contracts weighting sales to those weighting relative sales. The endogenous equilibrium emerges with relative contracts chosen for both firms when the public firm's country market share is small. W...

We consider a mixed duopoly selling to downstream retailers that are engaged in spatial price discrimination. We show that the optimal degree of privatization falls below—often far below—the level that is implied in the absence of the vertical chain. The size of this reduction in privatization reflects the extent to which increasing transport cost...

Using US panel data on young workers, we demonstrate that those who receive performance pay are more likely to consume alcohol and illicit drugs. Recognizing that this likely reflects worker sorting, we first control for risk, ability, and personality proxies. We further mitigate sorting concerns by introducing worker fixed effects, worker-employer...

We present the first demonstration of the influence of a quality rivalry on location choices under spatial price discrimination. The rivalry is shown to generate the socially efficient quality but to push locations inefficiently close together, a result not found under Hotelling pricing. We apply this new equilibrium to the anti-trust policy issue...

We argue that employer size wage effects reflect the role of hierarchy. Using matched employer–employee data and individual longitudinal data, we show that the employer size wage effects for supervisors are approximately twice those for non‐supervisors. We confirm sorting on supervisor ability, and present evidence of additional match‐specific wage...

The stability of collusion is compared assuming quadratic transport costs under two spatial pricing schemes, uniform mill pricing and spatial price discrimination. This comparison uniquely allows fully endogenous location choice and examines when two firms collude, when two of three firms collude and when three firms collude. Spatial price discrimi...

This paper uniquely demonstrates the scope for profitable collusion on transport costs under delivered pricing. In addition to being profitable, such collusion is shown to be more stable than price collusion and harder to detect as it presents to authorities as continued Bertrand price competition. Such collusion generates endogenous duopoly locati...

This paper compares the stability of collusion under delivered spatial price discrimination and under uniform pricing. Uniquely using a model of elastic demand, we show that collusion under price discrimination can be more stable thus facilitating collusion and making it more likely. This result holds only when the entire market is competitive. Whe...

The chapter considers the introduction of a mixed ownership firm into a classic model in which downstream firms locate strategically so as to achieve accommodating upstream price reductions. These reductions happen endogenously but the strategic locations harm welfare. It shows that a mixed ownership firm downstream can limit such inefficiency but...

Recent vehicle charging schemes aim to reduce pollution and other congestion externalities. We reexamine the London congestion charge introduced in 2003 and demonstrate significant reductions in several pollutants relative to controls. We even find evidence of reductions per mile driven suggesting amelioration of a congestion externality. Yet, we f...

This article demonstrates for the first time that owners will delegate the location decision under delivered pricing using a relative performance contract rather than a market share contract. It goes on to evaluate the welfare consequences of this demonstration. With linear production costs and simultaneous location, both incentive contracts reduce...

Using German establishment data, this article examines the relationship between product market competition and the extent of employer provided training. We demonstrate that high product market competition is associated with increased training except when the competition is so severe as to threaten liquidation to a firm. We take this as evidence of...

This paper reconsiders the classic issue of whether provision of a public good should be undertaken directly by the government or through private contracting (Hart, Andrei, & Robert, 1997). We consider a third alternative of provision by a mixed ownership firm. We assume that this mixed ownership firm provides the government principal with a combin...

We show that couples sort on performance pay with dual receipt couples much more likely than predicted by random. In addition, we show that the return to performance pay appears largely invariant to whether one's spouse earns performance pay. The major exception is that among the college educated, the return to performance pay is larger for women w...

This paper uniquely examines the influence of a new university bus service on urban crime. It concentrates on the interaction between the new bus service and a long-standing safe ride program. The new bus service is associated with a decline in safe rides, and such substitution raises the well-known concern that a fixed transit route may concentrat...

This paper uniquely considers the optimal two‐part fee of a public firm innovator licensing to a more efficient foreign rival. This is both theoretically interesting and empirically relevant. While previous research emphasises the importance of fixed fees for public firms, we show that, in this case, ad valorem fees typically dominate both fixed fe...

This paper examines partial acquisition in the face of an outside public firm. We show that when the acquiring firm is domestic, partial acquisition takes place for any institutional threshold for pricing control. Yet, when the acquiring firm is foreign, partial acquisition can be forestalled by a sufficiently high threshold requirement. This thres...

We uniquely examine the relationship between firm-organized training and the sensitivity of consumer demand to product quality. Cross section, panel fixed effect and instrumental variable estimates confirm that British workplaces provide more intensive training when their product demand is more sensitive to product quality. Robustness checks includ...

Objective We test whether increasing gender earning differences are associated with the surprising decline in the share of women working in information science (IS). Methods We use representative data to estimate the gender earnings differential from 1995 to 2015 for full‐time, private‐sector IS workers in the United States. We decompose the diffe...

In this article, we examine resale price maintenance (RPM) in a classic model of downstream retailers engaging in spatial price discrimination. We show that a resale price floor increases the total profit of the upstream monopoly when transport cost (product differentiation) is relatively low. Importantly, this profitable RPM floor can also enhance...

We uniquely introduce convex production costs into a cartel model involving spatial price discrimination. We demonstrate that greater convexity improves cartel stability and that for sufficient convexity first best locations will be adopted. We show that allowing locations to vary over the game reduces cartel stability but that greater convexity co...

Using the original data source of Clark, we show that over the last two decades the female satisfaction gap he documented has vanished. This reflects a strong secular decline in female job satisfaction. This decline happened both because younger women became less satisfied as they aged, and because new female workers entered with lower job satisfac...

We show that the large gender earnings gap at the top of the distribution (the glass ceiling) and the motherhood penalty are associated with each other and that both are uniquely associated with performance pay. These patterns appear consistent with specialization by gender. We show that among married couples with children, the hours worked by wive...

We model a principal-firm offering training to its agent-worker under two alternative organizational structures: integration, where the principal retains authority to overrule the investment project recommended by the worker; and delegation, where the principal cannot overrule the worker's preferred investment project. We assume that training reduc...

We study a mixed duopoly in which firms compete in advertising and quantity. The sum of informative advertising undertaken often exceeds that in a private duopoly, and whenever this happens the presence of the public (i.e., government) firm decreases social welfare. Surprisingly, the public firm may increase its advertising as the cost of advertisi...

We study a mixed duopoly in which only the private firm directly knows product demand and examine a pooling equilibrium in which a welfare-maximizing government may partially privatize the public firm. We show that the optimal extent of privatization differs, often dramatically, from that without asymmetric information. Indeed, we identify circumst...

We show that West German workers with an internal locus of control sort into jobs with performance appraisals. Appraisals provide workers who believe they control their environment a tool to demonstrate their value and achieve their goals. We confirm that workers who are risk tolerant also sort into jobs with performance appraisals but explain why...

Using the U.S. National Study of the Changing Workforce survey, we show that claims of racial and gender discrimination emerge less frequently in workplaces with established worker voice mechanisms. This result accords with the hypothesis that participation enhances perceptions of workplace fairness. We show that while having a supervisor of the sa...

This paper uniquely examines an R&D rivalry under spatial price discrimination and compares two alternative timings. When firms invest first, they locate efficiently but overinvest in cost-reducing R&D if spillover is modest. When firms locate first, they locate inefficiently and always underinvest in cost-reducing R&D. Although the R&D investment...

This paper demonstrates that a cost disadvantaged innovator increasingly relies on licensing with a fixed fee as its public ownership share grows. Moreover, when the innovation is drastic, a cost disadvantaged innovator frequently licenses by fixed fee when it has a public share even as a fully private firm will never use a fixed fee. As the fixed...

Using a panel data set of scientists in the US, we examine the hypothesis that workers in jobs poorly matched to their education are more likely to retire. In pooled estimates, we confirm that the mismatched are more likely to retire and that among retirees, the mismatched retire at younger ages. Hazard function estimates also support the hypothesi...

Using panel data from 2004 and 2011, the authors find an elevated incidence of work-related ailments (associated with bones, muscles, and joints) in U.K. establishments that use individual performance pay, even after accounting for establishment fixed effects. Fixed-effect estimates also confirm a positive relationship between absence due to illnes...

With sufficient downstream cost asymmetry a horizontal merger will be chosen over a vertical merger. This results because the technology transfer is large and the incentive to vertically merge shrinks as the horizontal merger eliminates a cost asymmetry induced “bottleneck.”

The press often depicts bonuses as extra payments to the already well compensated and calls for reform. Yet, these calls typically ignore the efficiency argument that bonuses are potentially risky performance pay that substitute for salary compensation. This paper uses representative UK data to estimate that bonuses appear not to substitute for sal...

A canonical Cournot competition model shows that the profitability of training can increase as the number of competitors decreases. British establishment evidence from 1998, 2004, and 2011 confirms that firms in less competitive markets provide more formal training. This persists within three separate cross-sections and in two separate panel estima...

This paper focuses on the German labor market for older workers. It does so in comparison with other countries and with a unique focus on the role of employer incentives for retaining and hiring older workers. It argues that while employment of older German workers has improved due to changes in government policy, the labor market for older workers...

This paper identifies the optimal method to license an innovation that reduces transport cost in a duopoly model of spatial price discrimination. An inside innovator finds licensing by a distance fee more profitable than by a fixed fee, an ad valorem royalty or a per unit royalty. Moreover, the social welfare associated with distance fee licensing...

In a rare effort to internalize congestion costs, London recently instituted charges for traveling by car to the central city during peak hours. Although the theoretical influence on the number and severity of traffic accidents is ambiguous, we show that the policy generated a substantial reduction in both the number of accidents and in the acciden...

Using panel survey data, we show cross-sectional evidence of an elevated risk of workplace injury for those paid piece rates and bonuses. While consistent with Adam Smith's behavioural conjecture, this could simply reflect sorting across workers or firms. In response we successively control for a risk proxy, for worker fixed effects and for worker...

This paper is the first to model consistent location conjectures under spatial price discrimination. With linear production cost, the well-known association of spatial price discrimination with efficiency vanishes as duopolists with consistent conjectures collocate at the center. With convex production cost, the duopolists do not collocate but cont...

We study an inside patent holder’s optimal licensing policy when it has imperfect information about the value of the patent to its rival. The patent holder can choose any two-part licensing fee with either per unit or ad valorem royalties. We demonstrate that the equilibrium will be either a fully separating contract with different per unit royalty...

A substantial literature argues that the reported job dissatisfaction of union members is spurious. It reflects either the sorting of dissatisfied workers into union membership or the sorting of union recognition into worse jobs. We contribute by presenting the first panel data estimates that hold constant first worker fixed effects and then worker...

In the first British study, we show that the ethnic earnings gap amongst performance pay jobs is smaller than that amongst time rate jobs. This partially reflects sorting but persists with diminished magnitude in fixed effect estimates. Although varying somewhat with specification, quantile decompositions show that the smaller ethnic earnings gap i...

Using establishment data, we show a strong association between flexible schedules and reduced absence rates even after controlling for other family friendly policies also thought to reduce absence. The evidence suggests that the other polices, financial support for caregivers and family leave for caregivers, play a weaker role in explaining absence...

This paper explores a relatively new class of lawsuits claiming “caregiver discrimination.” Using the National Study of the Changing Workforce, it shows that claims of gender discrimination in general and caregiver discrimination in particular are more likely among women facing greater work-family conflict. Critically, firm policies that allow work...

Free-riding potentially limits the effectiveness of profit sharing in motivating workers. While reciprocity can mitigate this problem, it need not be uniformly productive. We show that the probability of receiving profit sharing takes an inverse U-shape as detailed individual survey measures of reciprocity increase. This is consistent with moderate...

This paper introduces strategic delegation into the traditional model of spatial price discrimination. We examine cases of both simultaneous and sequential location and find that delegating location choices to managers causes firms to move towards each other. This movement typically reduces social welfare. While exceptions exist for high cost conve...

Legal bar closing times in England and Wales have historically been early and uniform. Recent legislation liberalised closing times with the object of reducing social problems thought associated with drinking to "beat the clock." Indeed, using both difference in difference and synthetic control approaches we show that one consequence of this libera...

We use a representative sample of German establishments to show that those with foreign ownership are more likely to use performance appraisal, profit-sharing and employee share ownership than those with domestic ownership. Moreover, we show that works councils are associated with an increased probability of using each of the three practices when u...

We compare a merger between an inefficient public leader and an efficient follower with unilateral privatization of the public leader (both eliminate the inefficiency of the leader). We identify the circumstances in which the merger increases both welfare and private profit and, for the first time, show that partial privatization by merger often do...

We provide the first experimental test of the consequences of delegation in a mixed duopoly. Such delegation allows a profit maximizing private owner and a welfare maximizing public owner to weight sales in managerial contracts. Theory predicts that such contracts improve welfare. Our evidence indicates that both public and private subject owners d...

We examine duopolists that have convex production costs and locate under spatial price discrimination in anticipation of a merger. We show that the merger frequently results in locations that reduce social cost. This contrasts with the well-known result that with linear production costs the merger distorts locations to increase social cost. While m...

This paper models the behavior of team members in a consistent conjectures equilibrium. When subject to scale economies, team members produce more than Nash and when subject to scale diseconomies, they produce less than Nash. Moreover, even when effort levels of team members are perfect substitutes in production, they can be strategic complements i...

This paper newly introduces sequential entry into previous models of spatial price discrimination that examine location choices made in anticipation of a potential merger. While merger with simultaneous entry routinely reduces social welfare, we show that mergers frequently improve welfare. The extent of welfare improving mergers varies inversely w...

We show that the reported tendency for performance pay to be associated with greater wage inequality at the top of the earnings distribution applies only to white workers. This results in the white-black wage differential among those in performance pay jobs growing over the earnings distribution even as the same differential shrinks over the distri...

Using panel data, we demonstrate a 50% increase in research productivity following a dramatic increase in the piece rate paid for articles by a major Chinese University. The increased productivity comes exclusively from those who were already research active.

This research uses German establishment data to examine the relationship between back loading compensation, the hiring of older workers and their part time status. We confirm that establishments that defer compensation are less likely to hire older workers. We demonstrate for the first time that establishments that defer compensation are more likel...

This paper demonstrates that it can be optimal for innovators that also produce to license via a fixed fee rather than a royalty in a model of spatial price discrimination. This reversal of the typical result emerges when reduced willingness to pay by consumers limits the competitive location advantage associated with differential production costs....

Theory suggests that when workers choose between permanent and flexible contracts, their utility should tend to equalize across contract types. New estimates of job satisfaction show the critical role played by unmeasured worker heterogeneity. They reveal that flexible contracts are a strong negative determinant of satisfaction with job security bu...

Previous research confirms that many employees work in jobs not well matched to their skills and education, resulting in lower pay and job satisfaction. While this literature typically uses cross-sectional data, we examine the evolution of mismatch and its consequences over a career, by using a panel data set of scientists in the USA. The results s...

This paper uses establishment data to estimate the determinants of using agency workers. It contends that there is a class of family-friendly practices including workplace nurseries, flexitime, home working, and job sharing that promote the norm of the “ideal worker” who concentrates on work. Because such practices increase the ability of employers...