optimal regulation with unknown demand and cost functions abstract this paper presents an analysis of optimal regulation of a firm that has private information about both its cost and demand functions an earlier paper on the same topic lewis and sappington rand j econ 19 1998 438 457 is reviewed a difficulty with their analysis is discussed and an alternative formulation of their model is proposed two broad classes of problem are considered i the case where social and private incentives are roughly aligned which implies optimal prices are weakly above marginal costs and ii the case where social and private incentives diverge which implies pricing below marginal cost may be optimal journal of economic literature classification numbers d42 d82 l51

comovement in international equity markets a sectoral view abstract we investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level we develop a novel bivariate garch model for equity returns with a smoothly time varying correlation and then derive a lagrange multiplier statistic to test the constant correlation hypothesis directly applying the test to weekly data from germany japan the uk and the us in the period 1980 2000 we find that correlations among the german uk and us stock markets have doubled whereas japanese correlations have remained the same both dates of change and speeds of adjustment vary widely across countries and sectors

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

evolution of international stock and bond market integration influence of the european monetary union abstract this paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter financial market integration we proceed to empirically investigate the influence of the european monetary union emu on time variations in inter stock bond market integration segmentation dynamics using a two step procedure first we document the downward trends in time varying conditional correlations between stock and bond market returns in european countries japan and the us second we investigate the causality and determinants of this interdependent relationship in particular whether the various macroeconomic convergence criteria associated with the emu have played a significant role we find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the emu thereby stimulating a flight to quality phenomenon

asymmetric increasing trends in dependence in international equity markets abstract this paper investigates asymmetric increasing trends in dependence in major international equity markets to this end we develop a multiple regime smooth transition copula garch model and address several important questions including the number of regimes and the existence of increasing asymmetric trends in dependence our results suggest that two or three regimes are sufficient for describing the dependence trends in international equity markets over the last 35 years with significant asymmetric increases in addition the implied time series of three dependence measures show a wide variety of dynamics demonstrating the usefulness of our framework to describe asymmetric increasing dependence trends finally we evaluate the economic significance of our empirical finding based on the 99 value at risk and expected shortfall our result indicates that both risk measures have increased approximately 20 over the last 35 years in major equity markets

incentive compatible pollution control policies under asymmetric information on both risk preferences and technology this article proposes a method to accommodate asymmetric information on farmers risk preferences in designing voluntary environmental policies by incorporating stochastic efficiency rules in a mechanism design problem the government can find incentive compatible policies by knowing only the general class of risk preferences among farmers the model also accounts for hidden information on technology types and input use the method is applied empirically to simulate a pollution control program in new york results suggest that participation incentives would be inadequate for many risk averse producers if the government does not account for the diversity in risk preferences

designing optimal disability insurance a case for asset testing we analyze an implementation of an optimal disability insurance system as a competitive equilibrium with taxes an optimum is implemented by an asset tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum the logic behind this result is that an agent who plans to falsely claim disability a finds doing so unattractive if he does not adjust his savings and b cannot collect disability insurance if he does adjust his savings in the desired direction upward for a calibrated economy we find that welfare gains from asset testing are significant

nonpoint pollution control inducing first best outcomes through the use of threats abstract this paper develops an economic model to analyze the use of a policy that combines a voluntary approach to controlling nonpoint source pollution with a background threat of an ambient tax if the voluntary approach is unsuccessful in meeting a pre specified environmental goal we show that such a policy can be designed to induce cost minimizing abatement without actually imposing the tax because the threat of imposition of the tax is sufficient to induce voluntary compliance thus the combined policy approach can not only be more effective in protecting environmental quality than a pure voluntary approach but can also be less costly than a pure ambient tax approach however whether the cost minimizing choices are a unique equilibrium or not depends on the design of the tax policy and whether or not it can be applied retroactively all results still hold if the background threat takes the form of a reducing in government subsidies

earmarked taxation welfare versus political support abstract compared with the traditional public finance approach of a monolithic fully informed planner earmarking of taxation is less likely to be optimal if a principal agent setting is considered where taxing and spending are performed by two separate agents which are monitored by the parliament we assume that the parliament either maximizes welfare or expected votes vote maximizers are more inclined to choose earmarking but at the price of inefficiently high costs

local public works and intergovernmental transfers under asymmetric information abstract this paper studies local public works decisions in a hierarchical setting under bidimensional asymmetric information a local authority plans to undertake a public work and delegates its construction to a firm the federal government decides whether to fund the project without being informed of either the project s benefit or the constructor s efficiency the local authority knows these values to deal with this informational gap the federal government designs a public work contract specifying transfers to the local authority and to the firm we show under which circumstances cost sharing and compensations emerge as incentive devices then we identify which projects are effectively constructed more works with low high benefits are undertaken shut down than under full information

index investment and the financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become increasingly correlated with oil prices this trend has been significantly more pronounced for commodities in two popular commodity indices this finding reflects the financialization of the commodity markets and helps explain the large increase in the price volatility of non energy commodities around 2008

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

the conservation reserve program as a least cost land retirement mechanism mechanism design theory is used to characterize the properties of a least cost crp if marginal land rents decrease with acres farmed then a least cost crp is a set of nonlinear price schedules if marginal land rents are independent of acres farmed then an offer system constitutes a least cost crp the least cost offer system gives a useful estimate of the upper bound of a least cost crp empirical results suggest that a 34 million acre crp should have cost no more than 1 billion per year

contracts with endogenous information abstract i study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition when posteriors satisfy two dimensional versions of the standard first order stochastic dominance and concavity convexity of the distribution function conditions a first order approach is justified under the same conditions informativeness and riskiness of reports are equivalent high powered contracts that make the agent s informational rents more risky are used to increase incentives for information acquisition insensitive contracts are used to reduce incentives for information gathering the value of information to the agent is always positive the value of information to the principal is ambiguous

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

conservation auctions should information about environmental benefits be made public most bid evaluation systems in conservation auctions consider both the proposed payment and the environmental attributes when auctioneers have a more comprehensive understanding of the conservation benefits than bidders do information becomes a central element of the auction design concealing information about conservation benefits may be the optimal strategy when entry decisions are not relevant however disclosing information may motivate landholders whose lands are associated with high environmental benefits to participate in an auction the present study demonstrates that revealing information about conservation benefits can be an optimal strategy if it enhances an auction s participation rate when bid acceptance rates are high copyright 2013 oxford university press

self selecting agri environmental policieswith an application to the don watershed we consider a model of regulation for nonpoint source water pollution through non linear taxation subsidization of agricultural production farmers are heterogenous along two dimensions their ability to transform inputs into final production and the available area they possess asymmetric information and participation of farmers to the regulation scheme put constraints on the optimal policy that we characterize we show that a positive relationship between size of land and ability may exacerbate adverse selection effects we calibrate the model using data on a french watershed and we simulate the optimal second best policy and characterize the allocation of the abatement effort among the producers

on the design of agricultural policy mechanisms the fact that different agricultural policy mechanisms have emerged for different commodities suggests that the choice of policy instrument may reflect the goals of agricultural policy makers this paper uses the principles of mechanism design under asymmetric information to examine the motivations underlying the choice of agricultural policy mechanisms it is found that supply control mechanisms favor high cost producers and the budget while mechanisms resulting in overproduction favor low cost producers

stop and go agricultural policies with a land market this article studies the design of farm policy in the presence of asymmetric information about farmers productivity a government objective to insure farmers a minimum parity income an endogenous land rent and diminishing returns on alternative nonprogram crop land uses in this setting acreage set asides are never part of an optimal farm policy although compensated acreage limits are when there are new farmer entrants who cannot be excluded from farm programs optimal policy takes the form of a pure voluntary acreage limitation or buyout program in which high cost producers participate and low cost producers do not copyright 2003 oxford university press

purchasing under asymmetric demand and cost information when is more private information better we study a supply chain consisting of one supplier and one oem original equipment manufacturer the oem faces stochastic demand for a final product that requires assembly of two major components one of which is procured exclusively from the supplier in the absence of competition the supplier is able to make a take it or leave it offer to the oem in the form of a menu of price quantity contracts the oem possesses private information across two dimensions 1 demand forecasts about the final product and 2 production cost of the in house component both pieces of information are relevant to the total supply chain profit thus affecting the supplier s optimal offer by initially assuming an exogenous information structure we characterize the supplier s optimal contract menu for a simple case and demonstrate that more dimensions of asymmetric information are not always preferable for the oem but could be beneficial for the supply chain we subsequently examine whether this preference for one less dimension of private information implies disclosure of private information to the supplier when the information structure is endogenized our results indicate that if oems that are indifferent between disclosing and keeping information private choose to disclose it disclosure of any verifiable information from all oems is always an equilibrium whereas nondisclosure might fail to be an equilibrium we also consider the possibility of the oem and the supplier contracting at the ex ante stage i e before the oem observes his private information when both dimensions of the oem s private information are verifiable and the cost of disclosing information is small enough an ex ante agreement on information disclosure is always possible otherwise its feasibility depends on the problem parameters

payments for ecosystem services programs predicting landowner enrollment and opportunity cost using a beta binomial model this paper concerns predicting enrollment in payment for ecosystem services pes programs to promote habitat preservation on private lands we develop a beta binomial model to address both program participation and the amount of land enrolled by each potential enrollee we apply the estimation approach to stated preference data from non industrial private forest owners in finland as an alternative econometric model we also develop a multivariate censored regression model of enrollments using cross validation we find that the beta binomial model predicts at least as well as the multivariate censored model yet has fewer parameters using our estimation results we demonstrate policy predictions regarding program enrollment and landowner opportunity cost

incentivizing and tendering conservation contracts the trade off between participation and effort provision this paper uses lab experiments to investigate landholder responses to and the resulting outcome performance of programs that incentivize and tender conservation contracts assuming environmental outcome monitoring is costless we find that increasing the share of payment linked to uncertain environmental outcomes raises the level of individual stewardship effort but reduces participation thereby creating a trade off this leads to a second trade off environmental outcome is maximized at some intermediate level of contract incentivization but cost effectiveness at 100 tendering such contracts can yield additional benefits in terms of both environmental outcome and cost effectiveness however these benefits decline rapidly with rising incentivization

multi attribute procurement contracts abstract we consider the design of multi attribute procurement contracts when the supplier possesses multi dimensional private information specifically we consider a buyer who must design a contract to procure a single product whose value is a function of two attributes the potential supplier s cost structure is two dimensional including one component for each attribute and is unknown to the buyer in contrast to the existing one dimensional models we find that in some cases the buyer can extract all of the channel profits without distorting the specifications of the final product and we identify conditions under which that will be the case in other words with more dimensions to leverage the buyer may be able to discern the supplier s type without paying any information rents thus reducing her procurement costs it is also possible that the buyer can extract all the channel profits by distorting the product specifications downward finally we demonstrate how our results can be extended to a setting with multiple customer classes where the valuation for the product attributes varies across the classes we find that greater differentiation in customer valuation leads to a setting in which the buyer is less likely to extract all of the channel profit without distortion

tradable set aside requirements tsars conserving spatially dependent environmental amenities land conversion patterns can conflict with endangered species protection by fragmenting the landscape incentive mechanisms can help mitigate the threat of habitat fragmentation by aggregating landowner conservation decisions across the landscape the optimal conservation strategy for endangered species can target the most connected habitat cluster as an initial starting point and then expand the conservation patch to maximize connectivity herein we present an incentive mechanism the tradable set aside requirements tsars designed to target the low cost contiguous conservation landscape and share the burden of conservation among landowners in the lab we examine the performance of two land use conservation policies tsars and the tsars combined with an agglomeration bonus evaluated by economic and biological measures of efficiency we find that tsars relative to a command and control policy increases patch size and habitat connectivity within the landscape additionally combining tsars with the agglomeration bonus increases biological efficiency habitat connectivity and patch size within the landscape but at a price higher opportunity cost tsars with the agglomeration bonus can be more cost effective than a tsars only policy for species sensitive to large core habitat requirements and landscape connectivity

customized bundle pricing for information goods a nonlinear mixed integer programming approach this paper proposes using nonlinear mixed integer programming to solve the customized bundle pricing problem in which consumers are allowed to choose up to n goods out of a larger pool of j goods prior work has suggested that this mechanism has attractive features for the pricing of information and other low marginal cost goods although closed form solutions exist for this problem for certain cases of consumer preferences many interesting scenarios cannot be easily handled without a numerical solution procedure in this paper we investigate the efficiency gains created by customized bundling over the alternatives of pure bundling or individual sale under different assumptions about customer preferences and firm cost structure as well as the potential loss of efficiency caused by pricing with incomplete information about consumer reservation values our analysis suggests that customized bundling enhances sellers profits and enhances welfare when consumers do not place positive values on all goods and that this consumer characteristic is much more important than the shape of the valuation distribution in determining the optimal pricing scheme we also find that customized bundling outperforms both pure bundling and individual sale in the presence of incomplete information and that customized bundling still outperforms other simpler pricing schemes even when exact consumer valuations are not known ex ante

the organization and scope of agents regulating multiproduct industries abstract a mechanism design problem with two dimensional uncertainty is solved to derive the optimal policy for regulating a monopolist with private information about the marginal cost of producing two different goods the paper establishes that informational economies of scope or incentive complementarities arise when one firm produces both goods the regulator should weigh these economies against the benefits of relative performance incentives when choosing between integrated and decentralized organizations unless the marginal costs of the two products are sufficiently positively correlated the optimal ex ante policy gives control of both markets to a single firm journal of economic literature classification number s d82 l22 l51

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

multi dimensional price discrimination we examine the profitability and welfare implications of price discrimination in a multi dimensional model first when firms price discriminate on one and the same dimension uniform price lies in between discriminatory prices and price discrimination raises profits relative to uniform pricing this is in contrast to common findings in existing one dimensional models featuring best response asymmetry suggesting that price discrimination can have qualitatively different implications in one and multi dimensional models second price discrimination on one and the same dimension is the likely outcome when price discrimination decisions are endogenized using a two stage discrimination then pricing game correspondingly an observation of one dimensional price discrimination in practice does not necessarily indicate that the underlying model should be one dimensional

the value of information and optimal organization the paper addresses the issue of optimal organization of production i compare three organizational forms centralization one agent produces difierent inputs decentralization each of the two agents produces a difierent input and contracts directly with the principal and delegation two agents produce difierent inputs the principal contracts with one of them only the optimal organizational form depends on the degree of complementarity substitutability between the inputs in the flnal use the degree of complementarity substitutability also determines whether delegation is payofi equivalent to the two agent mechanism from the point of view of the principal in the context of delegation i consider which of the two agents should serve as the primary contractor i also address the issue of collusion between the agents in a decentralized organization and characterize the conditions under which a stake of collusion exists jel fields d2 d82 l23

procurement when price and quality matter a buyer seeks to procure a good characterized by its price and its quality from suppliers who have private information about their cost structure xed cost and marginal cost of providing quality we characterize the buyer s optimal buying mechanism we then use the optimal mechanism as a theoretical and numerical benchmark to study simpler buying procedures such as scoring auctions and bargaining scoring auctions can extract a signifi cant proportion of the buyer s strategic surplus the difference between the expected utility from the optimal mechanism and the e cient auction bargaining does less well and often does worse than the e cient auction

new evidence on the economic determinants of postsecondary schooling choices the effects of tuition costs financial aid and individual attributes on college choice are analyzed using a conditional logit model the results confirm that financial aid can be an important determinant of postsecondary school attendance and that individual academic ability relative to the academic standards of a college is an important determinant of which of available college alternatives is chosen

green payments and dual policy goals abstract we use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms each farm is characterized by two dimensions of attributes farms size and conservation efficiency the policymaker may not be able to use the attributes as an explicit criterion for payments we characterize optimal policy when conservation efficiency is unobservable to policymakers and when farm size is also unobservable an income support goal is shown to reduce the conservation distortion caused by asymmetric information the cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency

the optimal income taxation of couples this paper analyzes the general nonlinear optimal income tax for couples a multidimensional screening problem each couple consists of a primary earner who always participates in the labor market but makes an hours of work choice and a secondary earner who chooses whether or not to work if second earner participation is a signal of the couple being better worse off we prove that optimal tax schemes display a positive tax subsidy on secondary earnings and that the tax subsidy on secondary earnings decreases with primary earnings and converges to zero asymptotically we present calibrated microsimulations for the united kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs

price discrimination and majority voting the theory of second degree price discrimination for group behavior mixes the difficulties of incentive theory with those of social choice theory we present a special environment where all these difficulties can be solved easily

optimal conservation programs asymmetric information and the role of fixed costs an increasing number of environmental protection programs offers financial compensation to farmers in exchange for conservation services incentive compatible contracts can be designed to mitigate excess compensation but the extant literature suggests that outcomes are always second best so that other instruments such as conservation auctions may be preferred we argue that the claim regarding the first best solution never being incentive compatible is correct if all conservation costs are variable in nature if there are fixed costs too the first best compensation scheme may be incentive compatible after all given the relevance of fixed costs in conservation issues we conclude that incentive compatible contracts should be given a second chance as a policy measure to induce conservation

cost effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality this paper quantitatively analyses the cost effectiveness of alternative green payment policies designed to achieve a targeted level of pollution control by heterogeneous microunits these green payment policies include cost share subsidies that share the fixed costs of adoption of a conservation technology and or input reduction subsidies to reduce the use of a polluting input the paper shows that unlike a pollution tax that achieves abatement through three mechanisms a negative extensive margin effect a negative intensive margin effect and a technology switching effect a cost share subsidy and an input reduction subsidy are much more restricted in the types of incentives they provide for conservation of polluting inputs and adoption of a conservation technology to control pollution moreover they may lead to varying levels of expansion of land under production costs of abatement with alternative policies and implications for production and government payments are compared using a simulation model for controlling drainage from irrigated cotton production in california with drip irrigation as a conservation technology

the organization of regulated production complementarities correlation and collusion we analyze the choice between vertical separation vs and vertical integration vi when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break even constraints first in the absence of collusion the regulator prefers vi vs for negative and weak positive respectively strong positive correlation second if the firms can collude under vs and know all costs then vs is equivalent to vi however if firms collude under asymmetric information then collusion does not affect the choice between vs and vi since the regulator takes advantage of the transaction costs created by asymmetric information

the goals of u s agricultural policy a mechanism design approach this article examines motivations underlying the government s choice of alternative policy mechanisms for subsidizing agriculture optimal policies are analyzed for three government objectives one where the government wishes to ensure a minimum level of net income for all farmers a second where the government s only concern is to transfer income from consumers and taxpayers to the farm sector and a final augmented income transfer objective the analysis offers an explanation for agricultural policy mechanisms that involve overproduction by high cost producers relative to a free market equilibrium such a distortion might arise from the existence of nonmarket values for the production of relatively high cost farmers in the government s objective

adverse selection in reverse auctions for ecosystem services this paper examines how auctions for ecosystem services introduce adverse selection limiting cost effectiveness induced value experiments test theory and examine the extent of adverse selection in these markets in comparison to the baseline of either doing nothing or the optimality of an externality correcting tax a discriminatory reverse auction and two screening contracts are tested in limited budget situations the auction achieved the lowest social surplus while screening contracts that rely upon the government observing the development value yield the highest relative social surplus these results are important because recent environmental policy trends are focused on expanding fiscally costly reverse auctions jel q57 q58

milestone payments or royalties contract design for r d licensing we study how innovators can optimally design licensing contracts when there is incomplete information on the licensee s valuation of the innovation and limited control over the licensee s development efforts a licensing contract typically contains an up front payment milestone payments at successful completion of a project phase and royalties on sales we use principal agent models to formulate the licensor s contracting problem and we find that under adverse selection the optimal contract structure changes with the licensee s valuation of the innovation as the licensee s valuation increases the licensor s optimal level of involvement in the development directly or through royalties should decrease only a risk averse licensor should include both up front and milestone payments moral hazard alone is not detrimental to the licensor s value but may create an additional value loss when combined with adverse selection our results inform managerial practice about the advantages and disadvantages of the different terms included in licensing contracts and recommend the optimal composition of the contract

monopolistic screening under learning by doing this article investigates the design of incentives in a dynamic adverse selection framework where agents production technologies display learning effects and agents learning rates are private knowledge in a simple two period model with full commitment available to the principal we show that whether learning effects are over or underexploited crucially depends on whether more effcient agents also learn faster so costs diverge through learning effects or whether it is the less effcient agents who learn faster so costs converge we further show that an overexploitation of learning effects can occur also if the full commitment assumption is relaxed

step by step the benefits of stage based r d licensing contracts we examine how a licensor can optimally design licensing contracts for multi phase r d projects when he does not know the licensee s project valuation leading to adverse selection and cannot enforce the licensee s effort level resulting in moral hazard we focus on the effect of the phased nature typical of such projects and compare single phase and multi phase contracts we determine the optimal values for the upfront payment milestone payments and royalties and the optimal timing for outlicensing including multiple milestones and accompanying payments can be an effective way of discriminating between licensees holding different valuations without having to manipulate the royalty rate which induces licensees to invest less resulting in lower project values and socially suboptimal solutions interestingly we also find that multiple milestone payments are beneficial even when the licensor is risk averse contrary to standard contract theory results which recommend that only an upfront payment should be used in terms of licensing timing we show that the optimal time depends on the licensor s risk aversion the characteristics of the licensee and the project value

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

informing consumers about their own preferences we analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences e g about their future demand for a utility such as electricity or telecommunication when more consumers become informed we show that this benefits also those consumers who remain uninformed as it reduces the firm s incentives to extract information rent by reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage policy can further improve welfare as contracts become more efficient the last observation stands in contrast to earlier findings by cremer and khalil american economic review 1992 where all consumers are uninformed

should we pay for ecosystem service outputs inputs or both payments for ecosystem service outputs have recently become a popular policy prescription for a range of agri environmental schemes the focus of this paper is on the choice of contract instruments to incentivise the provision of ecosystem service outputs from farms the farmer is better informed than the regulator in terms of hidden information about costs and hidden actions relating to effort the results show that with perfect information the regulator can contract equivalently on inputs or outputs with hidden information input based contracts are more cost effective at reducing the informational rent related to adverse selection than output based contracts mixed contracts are also cost effective especially where one input is not observable such contracts allow the regulator to target variables that are costly to fake as opposed to those prone to moral hazard such as effort further results are given for fixed price contracts and input based contracts with moral hazard the model is extended to include a discussion of repeated contracting and the scope that exists for the regulator to benefit from information revealed by the initial choice of contract the models are applied to a case study of contracting with farmers to protect high biodiversity native vegetation that also provides socially valuable ecosystem services

trends in stock bond correlations abstractprevious studies document the existence of long run trends in comovements in the stock and bond markets following these findings this article examines possible trends in stock bond return correlations to this end we introduce a trend component into a smooth transition regression str model including the multiple transition variables of aslanidis and christiansen 2012 the results indicate the existence of significant decreasing trends in stock bond correlations for many advanced safer countries in addition although stock market volatility continues to be an important factor in stock bond correlations the short rate and yield spread become only marginally significant once we introduce the trend component our out of sample analysis also demonstrates that the str model including the volatility index and time trend as the transition variables dominates other models furthermore we find a significant increase in stock bond correlations for riskier euro countries around the beginning of th

regulating nitrogen pollution with risk averse farmers under hidden information and moral hazard we consider a model of pollution regulation for a risk averse farmer involving hidden information moral hazard and risk sharing the representative farmer faces a production risk originating from nitrogen leaching and privately observes the soil capacity in retaining nitrogen only after the regulation contract is signed the latter specifies a transfer and a nitrogen quota whose decomposition by the farmer among different production stages is unknown to the regulator we first characterize the optimal solution to the regulator s problem the sequential decision model is estimated on french crop production data and the results are used to calibrate and simulate the optimal contract

on reducing the windfall profits in environmental subsidy programs investment subsidies are widely used to induce adoption of new technologies that can lower the marginal cost of reducing emissions to economize on these subsidies governments would like to distinguish between firms that need to receive a subsidy to adopt a new technology and firms that would adopt that technology even without subsidies we show that policies consisting of a menu of emission taxes and investment subsidies can potentially induce firms to self select

dynamics of international integration of government securities markets abstract this paper investigates the dynamics of international government bond market integration in six of the g7 economies over two decades leading up to the global crisis it examines whether such integration had been significant the extent to which integration at the short and long end of the yield curve differed the nature of such integration and the extent of the decoupling of the long rates from short rates these issues are investigated using the rigorous smooth transition copula garch model framework the results show that integration at the long end of the yield curve had been increasing had become pronounced and was significantly greater than at the short end decoupling between the short and long end of the yield curve was notable with important implications for the efficacy of monetary policy in the period before the crisis

bundling and optimal auctions of multiple products we study the optimal i e revenue maximizing auction of multiple products we make three major points first we extend the relationship between price discrimination and optimal auctions from the single product case to the multiple product case a monopolist setting prices for multiple products may offer discounts on purchases of bundles of products similarly the optimal auction of multiple products facilitates price discrimination by allocating products inefficiently to customers who are willing to purchase both products second we demonstrate that optimal auctions are qualitatively distinct from monopoly sales of multiple products because of uncertainty about the values of other consumers two products are bundled probabilistically in an optimal auction for a customer who is willing to buy both of them a customer may then receive a discount on a lower valued product without receiving a higher valued product third we show that in an optimal auction of two products the allocation of one product may vary with the amount of competition for the other product

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

stop and go agricultural policies the optimal design of farm policy and public investment in agriculture in the presence of asymmetric information between the government and farmers is studied it is shown that a mix of capped deficiency payments and voluntary paid land diversion can implement the optimal policy outcome optimal program design requires large farmers to farm all their land and small farmers may or may not divert acreage decoupled policies are never optimal

agri environmental policies for biodiversity when the spatial pattern of the reserve matters the aim of this paper is to compare different environmental policies for cost effective habitat conservation on agricultural lands when the desired spatial pattern of reserves is a random mosaic we use a spatially explicit mathematical programming model which studies the farmers behavior as profit maximizers under technical and administrative constraints facing different policy measures each farmer chooses the land use on each field which determines the landscape at the regional level a spatial pattern index ripley l function is then associated to the obtained landscape indicating on the degree of dispersion of the reserve we compare a subsidy per hectare of reserve with an auction scheme and an agglomeration malus we find that the auction is superior to the uniform subsidy for cost efficiency the agglomeration malus does better than the auction for the spatial pattern but is more costly

targeting green payments under a budget constraint this paper examines the impact of regulatory budget constraints on subsidy rates intended to reduce farm emissions this paper focuses on the impact that subsidy rates developed under a limited budget may be optimally differentiated to target in addition to marginal damages features such as abatement costs income transfer and producers participation in the policy the degree to which subsidy rates optimally target these other features depends on how the subsidy is implemented or on how benchmarks for pollution abatement are defined eight hypothetical farms were subjected to five budget levels under three policy scenarios 1 optimally set benchmarks 2 historical benchmarks and 3 uniform benchmarks setting subsidy rates equal to the imputed marginal benefits of abatement is not necessarily optimal under budget constraints and when the regulatory authority is restricted in setting the subsidy benchmark when the benchmark is restricted optimal subsidy rates target marginal costs and income transfer to producers in addition to marginal benefits the optimal subsidy rates in the context of a uniform benchmark were essentially uncorrelated with benefits given a budget large enough to optimally fund a large diverse group of producers

regulatory policy design for agroecosystem management on public rangelands this paper analyzes regulatory design for agroecosystem management on public rangelands we present an informational and institutional environment where three of the most prominent regulatory instruments on public rangelands input regulation cost sharing taxation and performance regulation can be de ned and compared the paper examines how the optimal regulation is shaped by the informational and institutional constraints faced by federal land management agencies flmas such as the bureau of land management and the u s forest service these constraints include informational asymmetries between ranchers and flmas limitations on flmas ability to monitor ranch level ecological conditions and constraints on flmas actions due to budget limitations and restrictions on the level of penalties they can assess the theoretical model extends the previous work of baker 1992 prendergast 2002 and hueth and melkonyan 2009 by considering optimal regulation by a budget constrained regulator in an environment of asymmetric information and moral hazard

bundling with customer self selection a simple approach to bundling low marginal cost goods with declining costs of distributing digital products comes renewed interest in strategies for pricing goods with low marginal costs in this paper we evaluate customized bundling a pricing strategy that gives consumers the right to choose up to a quantity m of goods drawn from a larger pool of n different goods for a fixed price we show that the complex mixed bundle problem can be reduced to the customized bundle problem under some commonly used assumptions we also show that for a monopoly seller of low marginal cost goods this strategy outperforms individual selling m 1 and pure bundling m n when goods have a positive marginal cost or when customers have heterogeneous preferences over goods comparative statics results also show that the optimal bundle size for customized bundling decreases in both heterogeneity of consumer preferences over different goods and marginal costs of production we further explore how the customized bundle solution is affected by factors such as the nature of distribution functions in which valuations are drawn the correlations of values across goods and the complementarity or substitutability among products altogether our results suggest that customized bundling has a number of advantages both in theory and practice over other bundling strategies in many relevant settings

optimal tax and transfer programs for couples with extensive labor supply responses this paper analyzes the optimal design of general nonlinear tax transfer schedules for couples under unitary and collective approaches to family decision making we consider a double extensive model of labor supply where each spouse makes a labor force participation choice for given hours of work we present simple and intuitive optimal tax rules that generalize existing findings on the optimal taxation of single person households with extensive responses saez 2002 to the case of two person households with double extensive responses without income effects on labor supply optimal tax rules as a function of sufficient statistics are the same under the unitary and collective approaches with income effects on labor supply optimal tax rules under the two approaches continue to depend on the same sufficient statistics but the collective model features an additional pigouvian term arising from a within family participation externality finally we present microsimulations of tax reform for 15 european countries suggesting that a reduction of tax rates on secondary earners relative to primary earners is associated with strong welfare gains in all countries

contract design for the purchase of environmental goods from agriculture an environmental stewardship program whereby farmers are paid directly for the environmental goods they provide is developed by combining the microparameter distribution model with mechanism design principles the program overcomes the information asymmetry between farmers and governments and accounts for the deadweight losses from distortionary taxes the characteristics of optimal input and payment schedules of the program are derived these optimal schedules are determined by the tradeoffs between farming profits environmental benefits and deadweight losses from taxes and are second best except under restrictive conditions on deadweight losses from taxes and on the marginal product of inputs and marginal pollution costs

incentives for wetland creation abstract when information about soil quality is complete wetland creation with a take it or leave it contract which specifies wetland size and transfer yields higher social benefits than if a uniform contract which offers a payment proportional to the wetland size had been used this result points to a paradox because uniform contracts have been used a lot in practice this article concentrates on the presence of asymmetric information about soil quality as a possible explanation for this paradox it shows that the choice of instrument for wetland creation has welfare implications different contracts typically yield quite different social welfare surpluses and distribution between interest groups it is not obvious which of four contracts studied dominates when a farm characteristic affecting costs is unknown to the social planner the probability distribution of the characteristic the size of the excess burden the elasticity of costs and benefits to wetland size and the cost of acquiring missing information influence the outcome

optimal multi object auctions this paper analyses optimal auctions of several objects in the first model bidders have a binary distribution over their valuations for each object in which case the optimal auction is efficient the optimal auction takes one of two formats either objects are sold in independent auctions or a degree of bundling is introduced in the sense that the probability a bidder wins one object is increasing in her value for the other the format of the optimal auction may depend upon the number of bidders in the second model the restriction to binary distributions is relaxed and the optimal auction is then inefficient

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

transaction costs in payment for environmental service contracts citation jeffrey m peterson craig m smith john c leatherman nathan p hendricks john a fox transaction costs in payment for environmental service contracts american journal of agricultural economics volume 97 issue 1 1 january 2015 pages 219 238 https doi org 10 1093 ajae aau071

reversing property rights practice based approaches for controlling agricultural nonpoint source water pollution when emissions aggregate nonlinearly nonpoint source water pollution remains a major issue despite decades of research and sizable conservation programs we suggest that by taking advantage of contemporary modeling and optimization approaches good approximations to physical relationships can be constructed so that even in the presence of unobservable field emissions and nonlinear fate and transport relationships standard economic tools of command and control requirements performance standards and trading can be implemented the boone river watershed in the u s state of iowa is used for empirical demonstration although the approach can be used to construct voluntary conservation policies the described policies involve imposing requirements on agricultural polluters rather than relying on voluntary actions alone

additionality when redd contracts must be self enforcing this paper examines self enforcing contracts as a financial mechanism for reducing carbon emissions from deforestation and forest degradation when the opportunity cost of the land i e landholder type is private information and is imperfectly correlated over time i e partially persistent types because self enforcement limits the feasible incentives the conservation levels are constrained by the surplus created regardless of the degree of persistence of such opportunity costs across contracting periods a first best self enforcing contract can deliver additional carbon sequestration beyond the business as usual scenario only if the value of forest conservation is sufficiently high otherwise self enforcing contracts can induce some suboptimal level of carbon sequestration the degree of persistence of opportunity costs across periods does not affect the amount of total payments provided in the optimal menu of contracts but greater persistence of opportunity cost types leads to contracts that feature more of the total payment as a bonus in contracts for landholders with a high opportunity cost for their land and more of the total payment as an upfront fixed payment for landholders with a low opportunity cost

public expenditures on higher education and their impact on enrolment patterns the purpose of this paper is to estimate the declines in enrolment that can be expected if government provided scholarship aid is reduced and basic student charges are increased a model of the scholarship aid process is interacted with a traditional human capital approach to enrolment behaviour these models are then estimated using a large microdata set of young persons and the fitted values utilized to simulate enrolment probabilities for white and nonwhite males and females given alternative fiscal scenarios

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds