asset pricing implications of pareto optimality with private information we compare the empirical performance of a standard incomplete markets asset pricing model with that of a novel model with constrained pareto optimal allocations we represent the models stochastic discount factors in terms of the cross sectional distribution of consumption and use these representations to evaluate the models empirical implications the first model is inconsistent with the equity premium in the united states united kingdom and italy the second model is consistent with the equity premium and the risk free rate in all three countries if the coefficient of relative risk aversion is roughly 5 and the quarterly discount factor is less than 0 5

learning by doing vs learning from others in a principal agent model abstract we introduce learning in a principal agent model of output sharing under moral hazard we use social evolutionary learning to represent social learning and reinforcement experience weighted attraction ewa and individual evolutionary learning iel to represent individual learning learning in the principal agent model is difficult due to the stochastic environment the discontinuity in payoffs at the optimal contract and the incorrect evaluation of foregone payoffs for iel and ewa social learning is much more successful in adapting to the optimal contract than standard individual learning algorithms a modified iel using realized payoffs evaluation performs better but still falls short of social learning

stochastic production and heterogeneous risk preferences commercial fishers gear choices we present a model of fishers gear choice which allows for heterogeneity both in production technology and risk preferences and apply it on a panel of swedish trawlers stochastic revenue functions are estimated and used to predict the mean and standard deviation of revenue for each trip in a random parameters logit model we test if these predicted values explain gear choice a majority of fishers respond positively to increased mean and negatively to increased variability of expected landing values indicating risk aversion but also show a strong tendency to choose the same gear used on the previous trip

cost function estimation under risk aversion standard definitions of the cost function do not admit risk standard ex post approaches to cost function estimation yield biased and inconsistent estimates when production is stochastic recently an ex ante approach to cost function estimation with stochastic production has been developed by imbedding the distance function in the cost function estimation problem we generalize the approach to consider risk aversion in decision making only two empirical studies have considered stochastic production in cost function estimation both have required constant returns to scale we demonstrate a methodology sufficiently general to consider nonconstant returns to scale

enterprise diversification in us dairy impact of risk preferences on scale and scope economies enterprise diversification has recently become a prominent feature of us dairy farms scope economies and risk aversion are two forces that simultaneously determine diversification we jointly estimate scope economies and determine risk preferences under price uncertainty we reject risk neutrality in favour of increasing absolute risk aversion iara and increasing relative risk aversion irra scope economies are significant but diminish with farm size increasing returns to scale exist in the production of multiple enterprises and diminish with size large farms operate under decreasing returns to scale ignoring risk preferences a common practice in empirical work results in an underestimate of the effect of scope economies for large farms

computing multi period information constrained optima this paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multi period including infinite period continuum agent unobservedeffort economy actual solutions are displayed illustrating cross sectional variability in consumption and labour effort in the population at a point in time and variability for a typical individual over time the optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full information economy and various restricted contracting regimes

dynamic financial constraints distinguishing mechanism design from exogenously incomplete regimes we formulate and solve a range of dynamic models of constrained credit insurance that allow for moral hazard and limited commitment we compare them to full insurance and exogenously incomplete financial regimes autarky saving only borrowing and lending in a single asset we develop computational methods based on mechanism design linear programming and maximum likelihood to estimate compare and statistically test these alternative dynamic models with financial information constraints our methods can use both cross sectional and panel data and allow for measurement error and unobserved heterogeneity we estimate the models using data on thai households running small businesses from two separate samples we find that in the rural sample the exogenously incomplete saving only and borrowing regimes provide the best fit using data on consumption business assets investment and income family and other networks help consumption smoothing there as in a moral hazard constrained regime in contrast in urban areas we find mechanism design financial information regimes that are decidedly less constrained with the moral hazard model fitting best combined business and consumption data we perform numerous robustness checks in both the thai data and in monte carlo simulations and compare our maximum likelihood criterion with results from other metrics and data not used in the estimation a prototypical counterfactual policy evaluation exercise using the estimation results is also featured

breakthroughs deadlines and self reported progress contracting for multistage projects we study the optimal incentive schemes for multistage projects staged financing pervasive in both venture capital and research grants arises as a feature of the optimal contract the nature of progress plays an important role when progress is tangible incentives are provided through a series of deadlines and a reward scheme that decreases over time early progress in one stage gives the agent more time and funding to complete the next one when progress is intangible unverifiable progress reports are used despite the fact that the information in the report has no social value the optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date if the agent reports progress at that date then the principal gives him a relatively short deadline to complete the project if not then a probationary phase begins in which the project is terminated at a constant rate until progress is reported we explore the implications for welfare and optimal project design

repeated games with frequent signals we study repeated games with frequent actions and frequent imperfect public signals where the signals are the aggregate of many discrete events such as sales or tasks the high frequency limit of the equilibrium set depends on both the probability law governing the discrete events and on how many events are aggregated into a single signal when the underlying events have a binomial distribution the limit equilibria correspond to the equilibria of the associated continuous time game with diffusion signals but other event processes that aggregate to a diffusion limit can have a different set of limit equilibria thus the continuous time game need not be a good approximation of the high frequency limit whenever the underlying events have three or more possible values

time consistent taxation by a government with redistributive goals abstract in a dynamic economy whose government is interested in both equity and efficiency time consistency problems arise even if the government has access to nondistortionary tax instruments moral hazard in production leads to a nondegenerate distribution of income which the government would like to flatten ex post self enforcing social agreements can mitigate the tendency toward excessive redistribution we investigate the nature of the distortions caused by the time consistency problem and show that in the constrained optimal equilibrium usually a linear tax schedule is imposed this remains true if renegotiation of the social agreement is possible journal of economic literature classification numbers c7 c73 e6 h21

the monetary compensation mechanism an alternative to the clean development mechanism abstract one of the key challenges in resolving global warming problem is how to induce developing countries to reduce emissions the cdm was proposed in the kyoto protocol as a means of obtaining the cooperation of developing countries in controlling greenhouse gases but it has some intrinsic problems and has generated considerable controversy this paper presents an alternative mechanism the monetary compensation mechanism mcm i study the characteristics of this mechanism with a dynamic principal agent model by solving the model numerically i obtain the optimal solution for a scenario based on 1990 data the monetary compensation rate under the mcm is comparable to the price of cers in the cdm but the mcm has several advantages over the cdm

payments for ecosystem services rife with problems and potential for transformation towards sustainability abstract payments for ecosystem services pes programs are one prominent strategy to address economic externalities of resource extraction and commodity production improving both social and ecological outcomes but do pes and related incentive programs achieve that lofty goal along with considerable enthusiasm pes has faced a wide range of substantial critiques in this paper we characterize seven major classes of concerns associated with common pes designs and use these as inspiration to consider potential avenues for improvements in pes outcomes and uptake the problems include 1 new externalities 2 misplacement of rights and responsibilities 3 crowding out existing motivations 4 efficiency equity tradeoffs 5 monitoring costs 6 limited applicability and 7 top down prescription alienating agency as currently practiced many pes programs are thus of limited benefit and even potentially detrimental to sustainability from this dire conclusion we highlight several innovations that might be combined and extended in a novel approach to pes that may address all seven problems recognizing that pes necessarily articulate and even normalize values our proposed approach entails designing these institutions intentionally to articulate rights and responsibilities conducive to sustainability those we might collectively seek to entrench problems remain and new ones may arise but the proposed approach may offer a way to reimagine pes as a major social and economic tool for enabling sustainable relationships with nature conserving and restoring ecosystems and their benefits for people now and in the future

markov perfect risk sharing moral hazard and limited commitment abstract we define characterize and compute markov perfect risk sharing contracts in a dynamic stochastic economy with endogenous asset accumulation and simultaneous limited commitment and moral hazard frictions we prove that markov perfect insurance contracts preserve standard properties of optimal insurance with private information and are not more restrictive than a long term contract with one sided commitment markov perfect contracts imply a determinate asset time path and a non degenerate long run stationary wealth distribution quantitatively we show that markov perfect risk sharing contracts provide sizably more consumption smoothing relative to self insurance and that the welfare gains from resolving the commitment friction are larger than the gains from resolving the moral hazard friction at low asset levels while the opposite holds for high asset levels

can financial incentives change farmers motivations an agrarian system approach to development pathways at the nicaraguan agricultural frontier abstract this article offers a conceptual methodological approach to assess how new institutional frameworks such as pes payments for ecosystem services interact with motivations for land use change at the individual and collective level increasing empirical evidence suggests that the effects of payments on inducing long term behavioural change can vary substantially depending on how they are integrated in territorial dynamics we show how individual motivation is the result of collective societal pathways that generate particular opportunities and constraints as well as guiding ideas and habits that work within these pathways through an illustrative case study at the agricultural frontier in nicaragua we show how an agrarian system approach offers a more nuanced understanding of the dynamic interactions on the ground and allows us to better connect farmers individual motivations to collective development pathways in that territory our case study also demonstrates how a local pes intervention is unlikely to lastingly alter the production system logic of farmers or stimulate long term pro environmental behaviour unless accompanied by other types of policies

repeated moral hazard with effort persistence abstract i study a problem of repeated moral hazard where the effect of effort is persistent over time each period s outcome distribution is a function of a geometrically distributed lag of past efforts i show that when the utility of the agent is linear in effort a simple rearrangement of terms in his lifetime utility translates this problem into a related standard repeated moral hazard the solutions for consumption in the two problems are observationally equivalent implying that the main properties of the optimal contract remain unchanged with persistence for illustration i present the computed solution of an example

endogenous groups and dynamic selection in mechanism design abstract we create a dynamic theory of endogenous risk sharing groups with good internal information and their coexistence with relative performance individualistic regimes which are informationally more opaque inequality and organizational form are determined simultaneously numerical techniques and succinct reformulations of mechanism design problems with suitable choice of promised utilities allow the computation of a stochastic steady state and its transitions regions of low inequality and moderate to high wealth utility promises produce the relative performance regime while regions of high inequality and low wealth produce the risk sharing group regime if there is a cost to prevent coalitions risk sharing groups emerge at high wealth levels also transitions from the relative performance regime to the group regime tend to occur when rewards to observed outputs exacerbate inequality while transitions from the group regime to the relative performance regime tend to come with a decrease in utility promises some regions of inequality and wealth deliver long term persistence of organization form and inequality while other regions deliver high levels of volatility

agency models with frequent actions the paper analyzes dynamic principal agent models with short period lengths the two main contributions are i an analytic characterization of the values of optimal contracts in the limit as the period length goes to 0 and ii the construction of relatively simple almost optimal contracts for fixed period lengths our setting is flexible and includes the pure hidden action or pure hidden information models as special cases we show how such details of the underlying information structure affect the optimal provision of incentives and the value of the contracts the dependence is very tractable and we obtain sharp comparative statics results the results are derived with a novel method that uses a quadratic approximation of the pareto boundary of the equilibrium value set

repeated insurance relationships in a costly state verification model with an application to deposit insurance abstract we consider the problem of an insurer who enters into a repeated relationship with a set of risk averse agents in the presence of ex post verification costs the insurer wishes to minimize the expected cost of providing these agents a certain expected utility level we characterize the optimal contract between the insurer and the insured agents we then apply the analysis to the provision of deposit insurance our results suggest in a deposit insurance context that it may be optimal to utilize the discount window early on and to make deposit insurance payments only later or not at all

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

stochastic house appreciation and optimal mortgage lending w e characterize the optimal mortgage contract in a continuous time setting with stochastic growth in house price and income costly foreclosure and a risky borrower who requires incentives to repay his debt we show that many features of subprime loans can be consistent with properties of the optimal contract and that when house prices decline mortgage modification can create value for borrowers and lenders our model provides a number of empirical predictions that relate the features of mortgage contracts originated in a housing boom and the extent of their modification in a slump to location and borrowers characteristics jel g20 g21 g33

a laboratory study of auctions for reducing non point source pollution abstract non point source pollution such as nutrient runoff to waterways from agricultural production is an environmental problem that typically involves asymmetric information land use changes to reduce pollution incur opportunity costs that are privately known to landholders but these changes provide environmental benefits that may be more accurately estimated by regulators this paper reports a testbed laboratory experiment in which landholder sellers in sealed offer auctions compete to obtain part of a fixed budget allocated by the regulator to subsidize abatement in one treatment the regulator reveals to landholders the environmental benefits estimated for their projects and in another treatment the regulator conceals the potential projects environmental quality the results show that sellers offers misrepresent their costs more for high quality projects when quality is revealed so total abatement is lower and seller profits are higher when landholders know their projects environmental benefits this suggests that concealing this information may improve regulatory efficiency

growth and risk sharing with private information abstract we examine the impact of incomplete risk sharing on growth and welfare the source of market incompleteness in our economy is private information a household s idiosyncratic productivity shock is not observable by others risk sharing between households occurs through long term contracts with intermediaries we find that incomplete risk sharing tends to reduce the rate of growth relative to the complete risk sharing benchmark numerical examples indicate that the welfare cost and the growth effect of private information are small

optimal mortgage design this article studies optimal mortgage design in a continuous time setting with volatile and privately observable income costly foreclosure and a stochastic market interest rate we show that the features of the optimal mortgage are consistent with an option adjustable rate mortgage option arm under the optimal contract the borrower is given discretion of how much to repay until his balance reaches a certain limit the default rates and interest rate payment on the mortgage correlate positively with the market interest rate gains from using the optimal contract relative to simpler mortgages are the biggest for those who face more income variability buy pricey houses given their income level or make little or no down payment our model thus may help to explain a high concentration of option arms among riskier borrowers jel g20 g21 g33

public benefits private benefits and policy mechanism choice for land use change for environmental benefits the choice of policy mechanisms for encouraging environmentally beneficial land use change should depend on the relative levels of private or internal net benefits and public or external net benefits a map of recommended policy mechanisms is developed depending on the relative levels of these variables positive incentives negative incentives and extension need to be targeted carefully to appropriate projects where private net benefits are closer to zero and or public net benefits are more extremely positive or negative technology development is suggested where private net costs outweigh public net benefits no action is recommended for many potential projects

opportunity and social mobility the fact that the children of rich parents have better economic prospects than the children of poor parents unequal opportunity is generally thought to be one of the weak points of modem capitalist societies the ability of the descendants of poor families to eventually become rich and the descendants of rich families to eventually become poor social mobility is commonly considered to be one of the strong points of these societies here i argue that both of these characteristics are in fact necessary implications of an efficient societal arrangement when incentives to work hard must be provided i argue this point using a generational version of the model of phelan and townsend 1991 an infinitely repeated general equilibrium economy with incentive constraints in my model each household s stochastic output is a function of its level of effort since effort is assumed to be costly and privately observed households can shirk higher than minimal effort levels must be induced by making a household s present or future consumption dependent on the household s observed output history a large literature considers models similar to this including green 1987 atkeson and lucas 1992 phelan 1994 1995 wang 1995 hopenhayn and nicolini 1997 khan and ravikumar 2002 the main difference between the economies in that literature and here is that here instead of a household consisting of a single infinitely lived individual a household consists of a sequence of altruistically linked individuals a familial dynasty each of whom lives for one period this difference affects the appropriate societal ranking of allocations when households consist of a single infinitely lived individual allocations can be ranked according to their implied distributions of ex ante lifetime utilities if one allocation delivers a distribution of ex ante utilities dominated by another allocation then the first allocation is inefficient however if a household consists of a sequence of altruistically linked individuals then the appropriate ranking of allocations is no longer obvious how those in the first generation rank allocations will in general differ from how their descendants rank allocations this paper addresses this conflict between generations by ranking allocations according to a rawlsian veil of ignorance criterion rawls 1971 that is here society seeks to maximize the expected dynastic utility utility including altruism toward descendants of an individual who does not know into which generation he will be born and the identity or output levels of his ancestors 1 i argue that this corresponds to a societal ranking which does

a laboratory comparison of uniform and discriminative price auctions for reducing non point source pollution auctions allow regulators to identify land management changes with substantial environmental benefit and low opportunity cost this paper reports an experiment in which seller subjects compete in sealed offer auctions to obtain part of a fixed budget allocated by the experimenter regulator to subsidize pollution abatement one treatment employs uniform price auction rules whereas another treatment employs discriminative price auction rules we find that most offers in the uniform price auction are within 2 of cost whereas most offers in the discriminative price auction are at least 8 greater than cost nevertheless the discriminativeprice auction has superior overall market performance

optimal unemployment insurance with human capital depreciation and duration dependence this paper studies the effect of human capital depreciation and duration dependence on the design of an optimal unemployment insurance ui scheme our results partially confirm those obtained in most previous studies benefits should decrease with unemployment duration the optimal program also generates two main novel features which are not present in stationary models first if human capital depreciates rapidly enough during unemployment ui transfers are bounded below by a minimal assistance level that arises endogenously in the efficient program second we study the optimality of imposing a history contingent wage tax after reemployment our numerical simulations based on the spanish and us economies show that the wage tax should decrease with the length of worker s previous unemployment spell and become a wage subsidy for long term unemployed workers as a by product of our study we develop a systematic approach suitable for studying recursively a wide range of dynamic moral hazard problems and other models with similar characteristics

on ramsey s conjecture efficient allocations in the neoclassical growth model with private information abstract in his seminal paper of 1928 ramsey conjectured that if agents discounted the future differently in the long run all agents except the most patient would live at the subsistence level the validity of this conjecture was investigated in different environments in particular it has been confirmed in the neoclassical growth model with dynamically complete markets this paper studies this conjecture in a version of this model that includes private information and heterogeneous agents a version of bayesian implementation is introduced and a recursive formulation of the original allocation problem is established efficient allocations are renegotiation proof and the expected utility of any agent cannot go to zero with positive probability if the economy does not collapse if the economy collapses all agents will get zero consumption forever thus including any degree of private information in the neoclassical growth model will deny ramsey s conjecture if efficient allocations are considered

payments systems design in deterministic and private information environments abstract the first setup we study is a deterministic model with spatial separation where we consider alternative payments systems institutions and their implications for allocation and welfare a payments system with period by period settlement in outside money improves on decentralized exchange an efficient allocation is supported by a payments system where settlement is not imposed in the second model there is random matching and unobserved productivity shocks and preference shocks we explore how risk should be shared optimally in this economy and interpret the results in terms of how actual payments systems should operate journal of economic literature classification numbers e4 e5

yuliy sannikov winner of the 2016 clark medal yuliy sannikov is an extraordinary theorist who has developed methods that offer new insights in analyzing problems that had seemed well studied and familiar for example decisions that might bring about cooperation and or defection in a repeated play prisoner s dilemma game or that affect the balance of incentives and opportunism in a principal agent relationship his work has broken new ground in methodology often through the application of stochastic calculus methods the stochastic element means that his work naturally captures situations in which there is a random chance that monitoring communication or signaling between players is imperfect using calculus in the context of continuous time games allows him to overcome tractability problems that had long hindered research in a number of areas he has substantially altered the toolbox available for studying dynamic games this essay offers an overview of sannikov s research in several areas

implications of endogenous group formation for efficient risk sharing the existing literature on sub game perfect risk sharing suffers from a basic inconsistency while a group of size n is able to coordinate on a risk sharing outcome it is assumed that deviating subgroups cannot i relax this assumption and characterise the optimal contract among all coalition proof history dependent contracts this alters the predictions of the standard dynamic limited commitment model i show that the consumption of constrained agents depends on both the history of shocks and its interaction with the current income of other constrained agents from this i derive a formal test for the presence of endogenous group formation under limited commitment

scale economies and inefficiency of u s dairy farms this study employs data drawn from the 2000 agricultural resource management survey a u s department of agriculture sponsored farmers survey the article estimates returns to scale relationships across dairy farms of different sizes and across different regions incorporating variables hypothesized to influence farm performance results point to significant scale economies in u s dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies contrary to previous research the preferred cost function specification does not show a region of decreasing returns to scale this finding helps explain why the average size of dairy farms has been increasing

large risks limited liability and dynamic moral hazard we study a continuous time principal agent model in which a risk neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses firm size can be decreased at no cost or increased subject to adjustment costs in the optimal contract investment takes place only if a long enough period of time elapses with no losses occurring then if good performance continues the agent is paid as soon as a loss occurs payments to the agent are suspended and so is investment if further losses occur accumulated bad performance leads to downsizing we derive explicit formulae for the dynamics of firm size and its asymptotic growth rate and we provide conditions under which firm size eventually goes to zero or grows without bounds

optimal risk sharing with effort and project choice we consider first best risk sharing problems in which the agent can control both the drift effort choice and the volatility of the underlying process project selection in a model of delegated portfolio management it is optimal to compensate the manager with an option type payoff where the functional form of the option is obtained as a solution to an ordinary differential equation in the general case the optimal contract is a fixed point of a functional that connects the agent s and the principal s maximization problems we apply martingale duality methods familiar from optimal consumption investment problems

moral hazard optimal unemployment insurance and experience rating abstract this paper is concerned with evaluating alternative unemployment insurance ui schemes in a dynamic economy with moral hazard we consider changes in the size and duration of ui benefits and the effects of experience rating and use a dynamic contracting approach to determine a benchmark optimal allocation radical changes in the current ui system increase welfare but not by much a move to full experience rating has distributional effects but the aggregate effects are negligible

socio ecological explanations for crowding out effects from economic field experiments in southern africa abstract economic and psychological literature mentions three conditions under which the crowding out effect of pro social behaviour is likely to occur and to crowd out citizens moral obligations to behave co operatively i use a framed field experiment on joint extraction from a common pool resource cpr where the crowding out effect has already been reported before in combination with the trust game carried out in farming communities of namibia and south africa to replicate these conditions the research design and the cross cultural setting enable to explicitly control for these effects the results of the experiments support that the crowding out effect depends on the nature of the external intervention controlling vs supportive external intervention the degree of participants self determination high vs low self determination in the group a society s norms of trust and reciprocity high vs low trust within the society the results imply that outside regulations aiming to conserve natural resources risk worsening the situation when neglecting democratic legitimization as well as local community norms

risk aversion and price risk in duality models of production a linear mean variance approach a duality model of production is developed that permits risk aversion and price uncertainty the linear mean variance framework employed is tractable for empirical research in contrast to duality models of risk based on a generalized expected utility function the framework is more general than in standard price certainty models while retaining the simplicity needed for empirical research

risk aversion and yield uncertainty in duality models of production a mean variance approach a duality model of production is developed that endogenizes stochastic output decisions under risk aversion the model incorporates both yield and price uncertainty and nonlinear mean variance risk preferences this permits modeling of the firm s expected output supply and input demand decisions under risk and also in principle the firm s output variance decisions the duality model is tractable for empirical research

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

estimating economies of scope and scale under price risk and risk aversion this study uses duality to examine the effects of excluding output price risk and risk aversion on cost structures using data for kansas wheat and beef cow operations a dual risk model was used to determine multi product and product specific scale economies and economies of scope estimates for these measures were compared with those obtained from a deterministic model the results show that product specific scale economies are over estimated and economies of scope and multi product scale economies are under estimated for the deterministic model compared to the risk model

off farm labour and the structure of us agriculture the case of corn soybean farms while the growing importance of off farm earnings suggests large benefits accrue to farmers from efforts to expand off farm income opportunities economic well being also depends on greater efficiency to comprehensively gauge the economic health of farm operator households off farm income is interpreted as an output along with corn soybeans livestock and other crops to accomplish this task two related methodologies were used first using 2000 data a multi activity cost function was set up to analyse labour allocation decisions within the farm operator household and also to estimate returns to scale and scope second using 1996 2000 data an input distance function approach was followed to estimate returns to scale cost economies and technical efficiency and the relative performance of farm operator households with and without off farm wages and salaries compared the cost function and input distance function results both suggest that off farm outputs and inputs can be modelled in a multi activi

off farm work and technical efficiency on u s dairies in this study we investigate the impact of an increase in farm households off farm work on technical efficiency te of u s dairies we present a theoretical framework that implies that an increase in farm household off farm work decreases te we use two nationally representative samples of u s dairies 2010 and 2005 agricultural resource management surveys and a parametric approach stochastic frontier analysis to empirically test the hypothesis results are generally consistent with the hypothesis and show that an increase in off farm work by the farm household is associated with a significant decrease in te in addition results show that there is a statistically significant difference in te between small medium and large farms small farms are associated with significantly higher off farm work and have lower te than large farms which implies that less off farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the u s dairy industry

a fourier analysis of the us dairy industry measurement of economies of scale and scope is particularly important for predicting growth and product diversification however estimates are useful only to the extent the underlying production technology is modelled accurately this study measures economies of scale and scope in the rapidly changing us dairy industry with a fourier flexible cost function which provides a global approximation of the unknown function we use the high quality national agricultural and resource management survey arms survey data we find economies of scale at most firm sizes and persistent economies of scope across firm sizes in this industry which is counter to estimates from two diewert flexible functional forms

can the small dairy farm remain competitive in us agriculture smaller dairy farms in the us are observed to have higher costs than larger farms and whether those higher costs are due to technology or inefficiency has implications for policy to address the small farm if high cost of production on smaller farms is due to a higher cost frontier then to make small farms competitive would require research to devise and design technology that is suitable for small farms if instead high cost is due to inefficiency then educational approaches are needed to ensure small dairy farms use technology efficiently to determine the cause of higher costs on small farms the cost of milk production by farm size was decomposed into frontier and efficiency components with a stochastic cost curve using data on usa dairy farms although the frontier cost of production decreases with farm size that cost reduction is not as pronounced as a cost curve that includes inefficiency the higher cost of production on many smaller farms is caused by inefficiency rather than technology

do farmers value the environment evidence from a conservation reserve program auction the paper uses data from one conservation reserve program crp auction to elicit farmers attitudes toward the environment by analyzing their bids the crp pays farmers to remove chosen plots of land from agricultural production and put them to a conservation use an interesting aspect of this auction is that winners are determined by a combination of low bids and environmental scores of individual plots using decision theoretic approach to model this auction we show that farmers condition their bids on the strength of their environmental scores and that they value environmental benefits especially those that increase future soil productivity of their land

consumption commitment and cycles abstract this paper examines the properties of efficient allocations of risk in an economic environment in which the outside enforcement of risk sharing arrangements is infinitely costly in these allocations unanticipated relative productivity movements have effects on both the current and future distribution of consumption across individuals if preferences over consumption and leisure are nonhomothetic these changes in the allocation of consumption will generate persistent cycles in aggregate output that do not occur in efficient allocations when enforcement is costless

optimal long term financial contracting we develop an agency model of financial contracting we derive long term debt a line of credit and equity as optimal securities capturing the debt coupon and maturity the interest rate and limits on the credit line inside versus outside equity dividend policy and capital structure dynamics the optimal debt equity ratio is history dependent but debt and credit line terms are independent of the amount financed and in some cases the severity of the agency problem in our model the agent can divert cash flows we also consider settings in which the agent undertakes hidden effort or can control cash flow risk

the value of environment across efficiency quantiles a conditional regression quantiles analysis of rangelands beef production in north eastern australia in agricultural systems the value of environmental inputs can be measured using the production function approach whereby the marginal contributions of factors are associated with a shadow value under perfect competition and rationality assumptions however empirical studies show that inefficiency in production is common indicating that the rationality assumption is not met furthermore substantial evidence exists to suggest that the contributions of environmental inputs in particular may be differentiated across the efficiency distribution this means that the frontier technology may not be an appropriate reflection of the technology in use by inefficient enterprises this article presents the use of conditional regression quantiles to consider how the value of environmental inputs measured by their contributions to production vary across efficiency quantiles we employed a case study of rangelands beef production in australia to consider how environmental health differentially contributes to production values across efficiency quantiles our approach generates detailed insights into the nature of environmentally sourced technical inefficiency and suggests that conditional quantile regression approaches are ideal for consideration of issues wherein substantial heterogeneity exists limiting the information content of conditional mean based analyses

differential uncertainties and risk attitudes between conventional and organic producers the case of spanish arable crop farmers the growing importance of economic factors in farmers decision to go organic has raised interest in characterizing the economic behavior of organic versus conventional farms published analyses so far have not considered differential uncertainties and farmers risk preferences between conventional and organic practices when comparing these techniques our article attempts to assess this issue we use a model of farmer decision under risk to analyze the differential values between spanish cop organic and conventional farms and to assess the incentives for adoption of organic practices results show that organic and conventional farms do have different abilities to control production risk as well as different risk preferences organic price premiums and subsidies are found to be powerful instruments to motivate adoption of organic techniques

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

optimal taxation in a habit formation economy abstract this paper studies habit formation in consumption preferences in a dynamic mirrlees economy we derive optimal labor and savings wedges based on a recursive approach we show that habit formation creates a motive for subsidizing labor supply and savings in particular habit formation invalidates the well known no distortion at the top result we demonstrate that the theoretical findings are quantitatively important in a parametrized life cycle model average labor and savings wedges fall by more than one third compared with the case of time separable preferences

do conservation auctions crowd out voluntary environmentally friendly activities research has shown that introducing external incentives to encourage pro social behavior such as monetary rewards or regulation may crowd out voluntary pro social activity this has implications for the appropriate design and use of such incentive based programs this study investigates motivational crowding out in the case of conservation auctions a relatively new tool that provides monetary incentives to encourage landowners to adopt environmentally friendly management practices our experimental evidence shows that the introduction and subsequent removal of a conservation auction significantly reduces voluntary provision of environmental quality via monetary donations to an environmental charity compared to a control group that does not experience an auction we also attempt to examine some economic theories of behavior that explain this effect according to either individual motivations or social interactions and our initial exploration finds that crowding out occurs regardless of whether or not participants have opportunities to interact with one another during the experiment

on optimal unemployment compensation abstract the design of an optimal unemployment compensation scheme is analyzed using a dynamic principal agent relationship between a risk neutral planner the principal and risk averse workers the agents where the planner s inability to observe workers job search efforts creates a moral hazard problem to design an implementable scheme we require that each agent is guaranteed a minimum level of expected discounted utility regardless of his past history in contrast with previous studies we find that the optimal contract is quite close to actual unemployment compensation schemes both qualitatively and quantitatively

political economy of mechanisms we study the optimal mirrlees taxation problem in a dynamic economy in contrast to the standard approach where the taxation mechanism is operated by a benevolent planner with full commitment power we focus on economies in which policy decisions are made by self interested politicians who cannot commit to policies the society controls politicians using elections we show that the provision of incentives to politicians can be partly separated from redistribution across agents and that political economy constraints can be modeled as introducing additional aggregate distortions in the dynamic mirrlees problem we provide conditions under which the political economy distortions persist or disappear in the long run if the politicians are as patient as the agents the best sustainable mechanism leads to an asymptotic allocation where the aggregate distortions arising from political economy disappear in contrast when politicians are less patient than the citizens positive aggregate labor and capital taxes remain even asymptotically we conclude by providing a brief comparison of centralized

the political economy of indirect control this paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority we develop a dynamic principal agent model in which a principal a government delegates the prevention of a disturbance such as riots protests terrorism crime or tax evasion to an agent who has an advantage in accomplishing this task our setting is a standard dynamic principal agent model with two additional features first the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players second the principal suffers from limited commitment using recursive methods we derive a fully analytical characterization of the likelihood intensity and duration of intervention the first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium this is because they serve as a punishment to induce the agent into desired behavior the second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal s inability to commit finally we derive sharp predictions regarding the impact of various factors on likelihood intensity and duration of intervention we discuss these results in the context of some historical episodes

getting it done dynamic incentives to complete a project a principal wants an agent to complete a project the agent undertakes unobservable effort which affects in each period the probability that the project is completed we characterize the contracts that the principal sets with and without commitment with full commitment the contract involves the agent s value and wage declining over time in order to give the agent incentives to exert effort the best sequentially rational equilibrium for the principal also involves the agent s wage declining over time while the worst sequentially rational equilibrium for the principal has a constant wage and is in fact the unique stationary equilibrium the best weakly renegotiation proof equilibrium for the principal is achieved by a constant wage that maximizes the principal s payoff conditional on wages being constant we compare these solutions to the efficient outcome