Glenn M. MacDonald '79

Glenn M. MacDonaldGlenn MacDonald was born in Halifax, Nova Scotia, on August 27, 1952. After obtaining his Honors BA degree in economics and mathematics from York University in 1975, MacDonald entered the University of Rochester's PhD program in economics. He joined the faculty of the University of Western Ontario in 1978, and graduated from Rochester in 1979.

In 1992 he returned to Rochester, where he is professor of economics and management in the Simon School. He is also a senior research associate at the Rochester Center for Economic Research and a research associate in the Economics Research Center/NORC at the University of Chicago. In 2001 MacDonald became the John M. Olin Distinguished Professor of Business, Law Economics at the Olin School of Business at Washington University in St. Louis.

Beginning with publications based on his doctoral thesis, Glenn MacDonald has made several influential contributions:

"Person-Specific Information in the Labor Market", The Journal of Political Economy, Jun., 1980.

This paper studies the problem of investment in information about individual productive characteristics. The paper presents a model of assortative matching in the presence of heterogeneity on both sides of the labor market. Investment in information is induced by the opportunity to improve the job-worker match, and has beneficial allocative effects in contrast with the signaling-screening models.

"The Impact of Schooling on Wages", Econometrica, Sep., 1981.

This model proposed in the paper deals with investment in human capital both in school and on the job. The model provides a theoretical framework for organizing and explaining empirical "stylized facts" about the effect of schooling and experience on the lifetime wage profile.

"Information in Production", Econometrica, Sep.,1982.

This paper examines the manner in which person-specific information on productive capabilities is put to use in the firm. The optimal assignment of workers to tasks is determined, and used to explore the impact of information quality on the equilibrium level of output, wages, and degree of specialization.

"A Market Equilibrium Theory of Job Assignment and Sequential Accumulation of Information", The American Economic Review, Dec., 1982.

The theory presented in this paper studies sequential accumulation of information about workers' skills. The model has implications for steady state life cycle growth and the size distribution of labor income.

"The Economics of Rising Stars", The American Economic Review, Mar., 1988.

This paper provides analysis of an occupation in which there is substantial uncertainty about individual performance, and past performance is correlated with future outcomes. In equilibrium, only the young enter the occupation and only the successful stay on. Success is rare and rewarded highly. The implied distribution of earnings must have positive skewness.

"Competitive Diffusion", The Journal of Political Economy, Feb., 1994; with Boyan Jovanovic.

This paper studies a competitive industry in which technology improves by both innovation and imitation. The model identifies firms that rely on innovation as technological leaders, and those relying on imitation, as laggards. Both innovation and imitation cause the industry output to expand and price to fall. However, the equilibrium involves too little innovative and imitative effort as compared to the socially optimal level.

"The Life Cycle of a Competitive Industry", The Journal of Political Economy, Apr., 1994; with Boyan Jovanovic.

This paper asserts that innovation opportunities along the life cycle of a competitive industry are a major factor underlying a number of "stylized facts". In particular, the model explains why firm numbers tend to rise first, and fall later as the industry grows older. Data from the U.S. automobile industry is used to test the model.

"When is Advertising a Signal of Product Quality?", Journal of Economics and Management Strategy, Fall 1994; with Ignatius Horstmann.

This paper develops a model of firm advertising and pricing behavior incorporating the Nelson hypothesis that advertising signals quality in equilibrium. In contrast with its predecessors, the model does not assume that consumption perfectly reveals quality. As a result, the model delivers more realistic predictions, while keeping the positive correlation between advertising and quality. In particular, it explains the high persistence of advertising campaigns.

"Adverse Specialization" Journal of Political Economy, (August, 2001), 864-899; with Leslie Marx.

This paper analyzea a multiple-activity principal-agent model in which the activities are naturally substitutable for the agent and complementary for the principal. A basic result is that the optimal compensation must cause the agent to view the activities as complements. This complementarity is achieved by employing a compensation scheme that is typically nonmonotone and makes success on multiple dimensions the sole source of large rewards. A number of empirical implications follow, along with explanations for some existing empirical findings. We also discuss applications to compensation in specific occupations.

Glenn MacDonald's current work focuses on optimal contracting, the structure of the core, and formal models of "similarity" among games.

Glenn MacDonald is an editor of the Journal of Labor Economics. He has also held editorial positions at the Canadian Journal of Economics and Abstracts of Working Papers in Economics.

Apart from his professional activities Glenn MacDonald is a foil fencer, competing in National competitions. He also enjoys playing guitars from his collection.

Igor Kopylov (September 2000 - revised October 2001)