Beta, Market Power and Wage Rate Uncertainty

Paul S Peyser

Journal of Industrial Economics, 1994, vol. 42, issue 2, 217-26

Abstract: This paper derives the formal relationship between a firm's beta and Tobin's q ratio with both price and wage uncertainty present. Wage uncertainty is shown to affect the sign and magnitude of the relationship with q interpreted as an index of the market power. While previous models suggest that systematic risk and market power are negatively related, this result depends either on excluding wage uncertainty or on introducing it with unrealistic restrictions. By deriving a more ambiguous relationship than other authors, a plausible explanation of why empirical research has produced conflicting evidence of the sign of this relationship is provided. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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