dualism and reform in china according to the dual economy tradition of economic development models less developed economies at an early stage of development are marked by a dichotomy between a modern sector in which workers are hired at an institutional wage in numbers that rise with the growth of the industrial capital stock and a traditional sector in which workers subsist at an income level that is somewhat below the indus

legal protection corruption and private equity returns in asia this article examines how private equity returns in asia are related to levels of legal protection and corruption we utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in asia the data indicate that legal protections are an important determinant of private equity returns in asia but also that private equity managers are able to mitigate the potential for corruption the quality of legal system including legal protections is positively related to returns inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments we also find that private equity managers irrespective of the quality of legal system they are operating within can mitigate the potential impact of corruption private equity returns are higher in countries with higher levels of corruption controlling for legal systems this finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption our findings are robust to inclusion of controls for hofstede cultural variables economic conditions and transaction specific characteristics as well as consideration of econometric sample selection methods for unexited investments

when is foreign aid policy credible aid dependence and conditionality the author studies foreign aid policy within a principal agent framework he shows that one reason for foreign aid s poor overall record may be a moral hazard problem that shapes the aid recipient s incentive to undertake structural reform the model s basic prediction is a two way relationship disbursements of foreign aid are guided in part by the needs of the poor anticipating this recipients have little incentive to improve the welfare of the poor preliminary econometric work shows that the data support this hypothesis in principle conditionality could partly solve this problem but only if the donor can make a binding commitment to increase disbursements in good relative to bad states without such a commitment technology aid disbursements remain guided by the needs of the poor and recipient countries maintain a low effort to reduce poverty contrary to the conventional wisdom found in the aid literature the author shows that the welfare of all parties might be improved by using tied project aid or by delegating part of the aid budget to an international agency with less aversion to poverty

bargaining over reform abstract this paper models the delay in a macroeconomic stabilization as the outcome of a bargaining game between two parties who must reach an agreement over how the stabilization cost is to be shared the paper modifies alesina and drazen s 1991 american economic review 81 1170 1189 war of attrition model by endogenizing the distribution of the stabilization costs through a bargaining game using this bargaining framework the paper analyzes the role of crises and foreign assistance in bringing about a settlement to the distributional conflict in the bargaining game a crisis that increases the welfare loss from not stabilizing the economy will lower the probability of delay in contrast foreign aid that is used to reduce the stabilization costs will further increase the delay in reaching an agreement between the two parties

barriers to efficiency and the privatization of township village enterprises abstract qian 2000 and others suggest that post 1994 tax and banking reforms in china combined with the development of markets for allocating resources influenced the economic performance of township village enterprises tves and private enterprises pes this paper uses chinese provincial level data to search for evidence of advantages and or disadvantages offered to tves and pes before and after the 1994 reforms we define a sectoral net income based measure of overall efficiency and decompose the measure into components that highlight the existence of credit constraints output target constraints and labour hiring constraints the results offer empirical support for qian and others explanation of why private enterprises eventually emerged as the dominant institution for allocating resources in post 1994 rural china

insecure property rights and government ownership of firms we develop a theory of the ownership of firms in an environment without secure property rights against state encroachment private ownership leads to excessive revenue hiding and state ownership i e national government ownership fails to provide incentives for managers and local governments in a credible way because local government ownership integrates local government activities and business activities local government may better serve the interests of the national government and thus local government ownership may credibly limit state predation increase local public goods provision and reduce costly revenue hiding we use our theory to interpret the relative success of local government owned firms during china s transition to a market economy

insider privatization with a tail the screening contract and performance of privatized firms in rural china abstract this paper studies insider privatization in rural china and provides an explanation of why some firms have performed well after privatization but others have not we show theoretically that the underperformance of insider privatized firms could be due to the manager cum owner s lack of incentives after privatization a screening theory predicts that the buyout price is correlated with the postprivatization incentives and a firm s postprivatization performance increases with both the buyout price and postprivatization incentives drawing on data we collected in china we find evidence supporting the theory we also find that the buyout price decreases with the degree of information asymmetry

psychological contracts a nano level perspective on social contract theory social contract theory has been criticized as a theory in search of application we argue that incorporating the nano or individual level of analysis into social contract inquiry will yield more descriptive theory we draw upon the psychological contract perspective to address two critiques of social contract theory its rigid macro orientation and inattention to the process of contract formation we demonstrate how a psychological contract approach offers practical insight into the impact of social contracting on day to day human interaction we then articulate several potentially testable propositions that emerge from this nano level perspective

why is stabilization sometimes delayed reevaluating the regime type hypothesis existing work on the politics of stabilization has failed to find compelling evidence of a regime type effect this article reformulates and reevaluates the regime type hypothesis it is argued tha

institutional quality and capital inflows theory and evidence abstract this paper analyzes both theoretically and empirically the link between capital inflows and the quality of economic institutions to this purpose we construct a small open economy model of the soft budget constraint syndrome wherein persistently cheap funding from abroad i raises the prevalence of extractive projects and ii expands their support by the benevolent government ex post while the government may in principle limit the prevalence of extractive projects ex ante the incentives to do so is limited when foreign borrowing is cheap using a large sample of countries and controlling for reverse causality and omitted variable bias we confirm empirically that capital inflows are followed by a decline in the quality of domestic economic institutions our model and empirical analysis help explain the divergence between southern european countries spain portugal italy and greece and the rest of oecd countries since the mid 1990s

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

on insider privatization privatization is proceeding slowly in many eastern european countries this is largely because the insiders who currently have control but not property rights to the firms oppose outsider privatization privatization would proceed faster if governments decided to go the insider privatization route there would seem to be two strong efficiency arguments for doing so first insider privatization aligns control and property rights this gives the right incentives to insiders second if for some reason insiders cannot do the job themselves they will have the right incentives to sell the firms to those outsiders who can our paper focuses on this second argument we conclude that it is not as obvious as it seems there is a wedge between the value of the firm to insiders and the value of the firm to outsiders depending on the details of insider privatization and on the details of the resale process this wedge may prevent resale and thus prevent desirable restructuring

deductible contracts against fraudulent claims evidence from automobile insurance insurance fraud is now recognized as a significant resource allocation problem in many markets the object of this study is to verify how straight deductible contracts may affect the equilibrium level of falsification in automobile insurance this type of contract is observed in many markets even if it is not optimal under costly state falsification a higher deductible may create incentives to fraud or cheat particularly when the insured anticipates that the claim has a small probability of being audited to verify this proposition we estimate a loss equation for which one of the determinants is the amount of the deductible using a data set of claims filed for damages following an automobile accident with twenty insurance companies in quebec in 1992 because we have access only to reported losses a higher deductible also implies a lower probability of reporting small losses to isolate the fraud effect related to the presence of a deductible in the contract we jointly estimate a loss equation and a

empirical contract theory the case of insurance data abstract while contract theory has reached a high degree of sophistication econometric applications remain scarse one often invoked reason is that adequate data is hard to find we argue that insurance data fit especially well the requirements of econometric testing then we propose some insights on how insurance data can be used to test the predictions of contract theory as an illustration we present some preliminary empirical results relative to the existence of adverse selection of the rothschild and stiglitz type in automobile insurance

perceived ethicality of insurance claim fraud do higher deductibles lead to lower ethical standards insurance claim fraud costs insurance companies policymakers and taxpayers billions of dollars every year and has been described as the second largest white collar crime the most common insurance fraud activity and one that contributes a significant portion of dollar losses is the practice of padding claim amounts in the event of a loss one of the largest issues insurance companies face is that policyholders often do not perceive insurance claim padding as an unethical behavior however very little research has examined the factors that contribute to such perceptions considering how consumers often attempt to justify fraudulent behavior from a fairness perspective the present work examines how the amount of the deductible in an insurance claim situation can influence feelings of fairness and ethicality the results of an experimental study show that higher deductible amounts result in stronger perceptions that insurance claim padding is fair to the insurance company weaker perceptions that the behavior is unethical and higher proposed claim award amounts the study also shows however that the deductible amount effects are attenuated for consumers who display higher ethical standards as reflected by their scores on the consumer ethics scale implications are discussed with respect to the insurance industry deviant consumer behavior and general business ethics theory

on the past and future of china s township and village owned enterprises abstract this paper proposes an explanation of the historical success of industrial enterprises owned by township and village governments in china i argue that conditions peculiar to china s prereform economy fostered the growth of a skilled workforce and high savings created unusual market niches and encouraged entrepreneurial undertakings by local political elites especially in areas adjacent to certain cities i then discuss the allocative and technical efficiency of local public enterprises in china from a theoretical standpoint and review some relevant econometric findings finally i consider proposals for reform of town and village enterprise tve ownership and discuss the possible advantages of cooperative forms

insurance fraud and optimal claims settlement strategies abstract we examine the optimal claims settlement strategy for a liability insurer when claimants can permanently misrepresent their losses by engaging in costly claims falsification in this environment claims auditing is not a possible deterrent to fraud and the settlement strategy consists of an indemnification profile that relates the insurance payment to the claimed amount of loss the optimal indemnification profile is shown to involve systematic underpayment of claims at the margin as a means to deter loss exaggeration with the extent of underpayment limited by expected litigation costs and potential bad faith claims the key testable implication of the theory is that the extent of underpayment should be greater for classes of claims for which loss exaggeration is easier empirical analysis of insurance settlements for bodily injury liability in automobile accidents confirms this prediction this suggests that liability insurers optimally choose claims payment strategies to lessen a claimant s i

optimal auditing with scoring theory and application to insurance fraud this article makes a bridge between the theory of optimal auditing and the scoring methodology in an asymmetric information setting our application is meant for insurance claims fraud but it can be applied to many other activities that use the scoring approach fraud signals are classified based on the degree to which they reveal an increasing probability of fraud we show that the optimal auditing strategy takes the form of a red flags strategy which consists in referring claims to a special investigative unit siu when certain fraud indicators are observed the auditing policy acts as a deterrence device and we explain why it requires the commitment of the insurer and how it should affect the incentives of siu staffs the characterization of the optimal auditing strategy is robust to some degree of signal manipulation by defrauders as well as to the imperfect information of defrauders about the audit frequency the model is calibrated with data from a large european insurance company we show that it is possible to improve our results by separating different groups of insureds with different moral costs of fraud finally our results indicate how the deterrence effect of the audit scheme can be taken into account and how it affects the optimal auditing strategy

do you trust your insurer ambiguity about contract nonperformance and optimal insurance demand abstract we study optimal insurance demand for a risk and ambiguity averse consumer under ambiguity about contract nonperformance ambiguity aversion lowers optimal insurance demand and the consumer s degree of ambiguity aversion is negatively associated with the optimal level of coverage a more pessimistic belief and greater ambiguity may increase or decrease the optimal demand for insurance and we determine sufficient conditions for a negative effect we also discuss wealth effects and evaluate the robustness of our results by considering several alternative models of ambiguity aversion our findings show how ambiguity about contract nonperformance can undermine the functioning of insurance markets making it a concern for regulators caution is required though because demand reactions are only imperfectly informative about the welfare effects of ambiguity about contract nonperformance

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

understanding privacy online development of a social contract approach to privacy recent scholarship in philosophy law and information systems suggests that respecting privacy entails understanding the implicit privacy norms about what why and to whom information is shared within specific relationships these social contracts are important to understand if firms are to adequately manage the privacy expectations of stakeholders this paper explores a social contract approach to developing acknowledging and protecting privacy norms within specific contexts while privacy as a social contract a mutually beneficial agreement within a community about sharing and using information has been introduced theoretically and empirically the full impact on firms of an alternative framework to respecting the privacy expectations of stakeholders has not been examined the goal of this paper is to examine how privacy norms develop through social contract s narrative to redescribe privacy violations given the social contract approach and to critically examine the role of business as a contractor in developing privacy norms a social contract narrative dealing specifically with issues of privacy is an important next step in exploring a social contract approach to privacy here the narrative is used to explain to analyze the dynamic process of privacy norm generation within particular communities based on this narrative individuals within a given community discriminately share information with a particular set of obligations in mind as to who has access to the information and how it will be used rather than giving away privacy individuals discriminately share information within a particular community and with norms governing the use of their information similar to contractual business ethics impact on global commerce in explaining how and why norms vary across global contexts the social contract approach to privacy explains how and why norms vary across communities of actors focusing on agreements around privacy expectations shifts the responsibility of firms from adequate notification to the responsibility of firms as contractors to maintain a mutually beneficial and sustainable solution

consumer insurance fraud abuse as co creation and co responsibility a new paradigm insurance fraud and abuse international concerns are inherent in the proposition of insurance and prevalent in insurer insured interactions while the subject of considerable industry and regulatory attention this little researched area of consumer behavior and consumer ethics represents persistent social policy questions and problems at multiple levels this article addresses the issue by first defining insurance fraud and its origins in contract as well as consumer and insurer management the authors conclude by re envisioning the problem as one of co creation by the consumer insured and insurer personnel proposing a framework for its study and resolution

taking sides in wars of attrition third parties often have a stake in the outcome of a conflict and can affect that outcome by taking sides this article studies the factors that affect a third party s decision to take sides in a civil or interstate war by adding a third actor to a standard continuous time war of attrition with two sided asymmetric information the third actor has preferences over which of the other two actors wins and for being on the winning side conditional on having taken sides the third party also gets a flow payoff during the fighting which can be positive when fighting is profitable or negative when fighting is costly the article makes four main contributions first it provides a formal framework for analyzing the effects of endogenous intervention on the duration and outcome of the conflict second it identifies a boomerang effect that tends to make alignment decisions unpredictable and coalitions dynamically unstable third it yields several clear comparative static results finally the formal analysis has implications for empirical efforts to estimate the effects of intervention showing that there may be significant selection and identification issues

insurance for the poor microinsurance is the provision of insurance services to the poor usually in developing countries one of the key criteria of poverty is vulnerability even to minor events in such cases even micro coverage can make a major difference yet still be funded by an affordable contribution by the insured like any kind of insurance microinsurance can cover different risks to life health farming property among other things our paper sketches how one could address and develop microinsurance business ethics first we introduce microinsurance to the business ethics community and business ethics to the microinsurance community our draft of microinsurance ethics is then developed from two angles as a holistic understanding of ideals and possible ethical conflicts in key stakeholder relationships and by distinguishing eight challenges when targeting the poor and when marketing microinsurance as an open ending the article suggests a three stage action research design focusing on how microinsurance could and should internalize ethics respecting rather than neglecting national and local cultural conditions

the decline of township and village enterprises in china s economic transition summary a paradoxical phenomenon in china s transitional economy is that markets developed under predominant public ownership which nevertheless has declined with the development of markets previous studies reveal that initial political and economic conditions of reform and fiscal decentralization gave rise to local public enterprises leading role in early marketization this paper explains the subsequent fall of such a role building and expanding on recent studies of privatization we argue that market development and competition have constrained the abilities of local public enterprises to address revenue and employment imperatives whereas local governments sales oriented growth strategies have exacerbated governance problems panel data are analyzed to provide provisional test of pertinent hypotheses

federalism as a commitment to reserving market incentives the authors advance a new perspective in the study of federalism their approach views federalism as a governance solution of the state to credibly preserving market incentives market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures the salient features of federalism decentralization of information and authority and interjurisdictional competition help provide credible commitment or these purposes in addition the authors suggest that some federalism are self sustaining

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

hardball and the soft touch the economics of optimal insurance contracts with costly state verification and endogenous monitoring costs abstract we examine an environment of costly state verification in which insureds possess private information about the magnitude of an insurable loss insurers can verify the actual loss suffered only by incurring a positive resource cost and insureds may verification and may lead to more generous settlements optimal insurance contracts are shown to mitigate the incentives to evade by a combination of incentives which include the overpayment of easily monitored losses and undercompensation for claims exhibiting higher verification costs

can foreign aid accelerate stabilization this paper studies the effect of foreign aid on economic stabilization following alesina and drazen 1991 we model the delay in stabilizing as the result of a distributional struggle reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies since the delay is used to signal each faction s strength the effect of the transfer depends on the role it plays in the release of information we show that this role depends on the timing of the transfer foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization but aid decided or transferred too late is destabilizing and encourages further postponement of reforms

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

when does privatization work the impact of private ownership on corporate performance in the transition economies this paper compares the performance of privatized and state firms in the transition economies of central europe while controlling for various forms of selection bias it argues that privatization has different effects depending on the types of owners to whom it gives control in particular privatization to outsider but not insider owners has significant performance effects where privatization is effective the effect on revenue performance is very pronounced but there is no comparable effect on cost reduction overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement of potential employment losses from postprivatization restructuring

evidence on adverse selection equilibrium signaling and cross subsidization in the insurance market the configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium deductible menu and the demand function as a standard hedonic system using contractual data from a representative insurer we estimate a reduced form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage the data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks

moral hazard insurance claims and repeated insurance contracts the paper develops a simple model of repeated automobile insurance contracts providing a framework for analyzing changes in aggregate insurance data in periods of changes that affect driver incentives experience rating of premiums gives drivers an incentive to exert effort to avoid accidents ex ante moral hazard and an incentive to hide accidents ex post moral hazard the empirical analysis using data from the competitive insurance markets in ontario and alberta over a period of major legislative changes in ontario suggests that much of the recent decline in accidents in ontario was due to an increased incentive to hide accidents jel classification d 12 d82 hasard moral reclamations d assurance et contrats d assurance renouveles le texte developpe un modele simple de contrats d assurance automobile renouveles fournissant un cadre d analyse des donnees d assurance agregees dans des periodes de changement qui affectent les incitations des chauffeurs un regime de primes cotees selon l experience donne aux chauffeurs une incitation a faire des efforts pour eviter les accidents hasard moral ex ante et une incitation a cacher qu il y a eu accident hasard moral ex post l analyse empirique utilisant les donnees recueillies dans les marches d assurance con currentiels de l ontario et de l alberta pour une periode au cours de laquelle il y a eu des changements legislatifs majeurs en ontario suggere qu une bonne partie du declin des accidents enregistre en ontario a ete attribuable a une incitation accrue a cacher les accidents

fraudulent claims and nitpicky insurers insurance fraud is a major source of inefficiency in insurance markets a self justification of fraudulent behavior is that insurers are bad payers who start nitpicking if an opportunity arises even in circum stances where the good faith of policyholders is not in dispute we relate this nitpicking activity to the inability of insurers to commit to their auditing strategy reducing the indemnity payments acts as an incentive device for the insurer since auditing is profitable even if the claim is not fraudulent we show that optimal indemnity cuts are bounded above and that nitpicking remains optimal even if it induces adverse effects on policyholders moral standards

costly risk verification without commitment in competitive insurance markets abstract this paper analyzes the equilibrium of an insurance market where applicants for insurance have a duty of good faith when they reveal private information about their risk type insurers can at some cost verify the type of insureds who file a claim and they are allowed to retroactively void the insurance contract if it is established that the policyholder has misrepresented his risk when the contract was taken out however insurers cannot precommit to their risk verification strategy the paper analyzes the relationship between second best pareto optimality and the insurance market equilibrium in a game theoretic framework it characterizes the contracts offered at equilibrium the individuals contract choice as well as the conditions under which an equilibrium exists

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

a dynamic model of privatization with endogenous post privatization performance this paper presents a dynamic model of privatization driven by improved institutional protection of private property rights and constrained by the buyer s financial constraints government ownership is more efficient than private ownership when private property rights are insecure improved institutional protection of property rights over time creates the need to privatize the buyer s financial constraints affect the timing of privatization causing the firm s post privatization performance either to improve or to deteriorate in the short run financial constraints also have the possibility of inducing an underpricing phenomenon during privatization where the firm is priced below both what the buyer is willing to pay and the buyer s ability to pay faster institutional development calls for earlier privatization but it also has the potential to either create or exacerbate deadweight losses associated with inefficient privatization a host of empirically testable implications are derived copyright wiley blackwell

striking for a bargain between two completely informed agents this paper models the wage contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union must decide in each period whether or not to strike for the duration of that period we show that there exist subgame perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement although both parties are completely rational and fully informed this has implications for other inefficient phenomena such as tariff wars debt negotiations and wars in general we characterize the set of equilibria show that strikes can occur in real time and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities copyright 1991 by american economic association

the impact of regional and institutional factors on labor productive performance evidence from the township and village enterprise sector in china this paper investigates the determinants of township and village enterprise tve labour productivity in china examining behaviour at both the national and regional levels the results suggest that human capital the real wage level foreign intensity export intensity capital investment and firm size are the most important factors affecting labour productivity at the national level but their relative importance varies significantly between the regions the results also indicate that government privatization reforms had a major impact on labour productivity in the tve sector across the regions

donor policy rules and aid effectiveness abstract the present paper examines the macroeconomic impact of aid by introducing endogenous aid allocations into a neoclassical growth framework on this basis it is shown that donor policies can have important implications for the trajectory of recipients gdp per capita depending on specific donor policy choices aid disbursements may lead to faster transitional growth stagnation or cyclical growth moreover the analysis also suggests that donor policies may be part of the reason why foreign aid is not found to be uniformly effective in raising long run productivity across recipients

when are stabilizations delayed alesina drazen revisited abstract in an influential article alesina and drazen 1991 why are stabilizations delayed american economic review 81 1170 1188 model delay of stabilization as the result of a struggle between political groups supporting reform plans with different distributional implications in this paper we show that ex ante asymmetries in the costs of delay for the groups will reduce the probability of conflict and will lead to a shorter expected delay accurate common information about the cost of delay may lead to no delay at all in an asymmetric conflict a wider divergence in the distributional implications of reform will reduce the probability of conflict but will lead to a longer expected delay we motivate the asymmetric model of delay by reference to latin american episodes of the 1980s

halving poverty by doubling aid is there reason for optimism this paper criticises the world bank as overly optimistic with respect to its ability to fine tune development aid and to focus it on countries with good policies rather than on countries with poor policies in order to raise its effectiveness it is shown that recipient regions showed very different patterns of aid inflows and economic growth in the past and that aid flows yielded the highest correlation to growth when their magnitudes shrank it is furthermore argued that categorising countries by quality of domestic policies is not only questionable at a given point of time especially in countries with failing governmental institutions and open borders as in many african countries it suffers also from incentive problems so that countries receiving more aid can become victims of changes in their domestic policies which are more permissive and etatist to the disadvantage of private agents the paper instead pleads for a shift to aid policies decoupled from country specifics and more oriented to fundamental beyond border problems of the well being of the poor an international endowment fund under supranational law should finance research and implementation of research findings related to common international goods as it was suggested by sachs concerning aids and tropical disease research

optimal contracts under costly state falsification we examine an exchange economy with two agents one risk neutral with a certain endowment and a second risk averse with a random endowment the realization of the endowment is public but can be falsified by the second agent at a cost for a broad class of falsification cost functions the optimal no falsification contract is noncontingent on a left hand interval and strictly increasing with a slope strictly less than one on a right hand interval under a mild further restriction optimal no falsification contracts are in addition piece wise linear optimal contracts may in general require falsifying the state but for a set of the highest endowment realizations there is no falsification we find simple conditions under which the optimal contract is a no falsification contract the model has applications that include financial insurance and employment contracts and tax policy

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

optimal contracts when enforcement is a decision variable this paper analyzes choice theoretic costly enforcement in an intertemporal contracting model with a differentially informed investor and entrepreneur an intertemporal contract is modeled as a mechanism in which there is limited commitment to payment and enforcement decisions the goal of the analysis is to characterize the effect of choice theoretic costly enforcement on the structure of optimal contracts the paper shows that simple debt is the optimal contract when commitment is limited and costly enforcement is a decision variable theorem 1 in contrast stochastic contracts are optimal when agents can commit to the ex ante optimal decisions theorem 2 the paper also shows that the costly state verification model can be viewed as a reduced form of an enforcement model in which agents choose payments and strategies as part of a perfect bayesian nash equilibrium

rural industry and labor market integration in eastern china abstract this paper tests the competitiveness of the labor market in a semi industrialized county located in eastern china labor market segmentation is linked to the degree of government interventions and the management structures of the local enterprises and two forms of rationing labeled entrance and time rationing are identified a test based on income maximizing behavior is developed to find the form of rationing that is consistent with the data the results show that the labor market is not competitive and time rationing prevails in the county in addition industrial wages are not responsive to experience and education but strongly biased against women and varying to government interventions

fiscal incentives and policy choices of local governments evidence from china abstract this paper examines how fiscal incentives affect the policy choices of local governments in the context of china based on exogenous changes in the intergovernmental revenue sharing scheme we construct a simulated instrumental variable to resolve the endogeneity problem we find evidence that local governments shifted their efforts from fostering industrial growth to urbanizing china i e to developing the real estate and construction sectors when their retention rate of enterprise tax revenue was reduced the increase from the new revenue source compensated for half of the losses in revenue that resulted from the reassignment of fiscal rights the reassignment had also the effect of retarding the industrial growth of domestically owned firms in particular

local governments as industrial firms an organizational analysis of china s transitional economy despite widespread skepticism about government ownership in transitional economies china s rapid industrial growth has been led by public enterprises kornai s theory of soft budbet constraints born of the failure of earlier hungarian reforms fosters such skepticism but it assumes as fixed organizational characteristics that in fact vary widely across government jurisdictions local governments with smaller industrial bases have clearer financial incentives and constraints fewer nonfinancial interests in enterprises and a greater capacity to monitor them in china s vast public sector the fastest growth in output and productivity has occurred where government ownership rights are clearest and most easily enforced which enables officials to manage public industry as a diversified market oriented firm

leaders managers and the organization of township and village enterprises in china abstract the managerial contractual form in china s township and village enterprise tve sector has evolved rapidly during the past 10 years our paper uses descriptive data and a theoretical model to demonstrate that these changes may be occurring in response to the rapid development of markets in transitional rural china we econometrically test the model s main hypotheses showing that the driving force behind the movement from a leader run fixed wage contract to a fixed payment contract with better incentives for the manager is the relative value of non marketed inputs owned by local leaders and firm managers firm technical structure and local market setting also plays a role in the determination of firm contractual form

regional institutions ownership transformation and migration of industrial leadership in china the case of the chinese synthetic dye industry 1978 2008 scholars have emphasized the gradual ownership transformation of enterprises as a key driver of the chinese economy s unprecedented growth however little work has been done on the issue of whether this transformation process takes place evenly across the various regions in china this article describes the important role of regional institutions in shaping the ownership based competitiveness of local enterprises and the migration of industries across regions in the case of the chinese synthetic dye industry the passing of leadership from state owned enterprises soes to collectively owned enterprises coes and then to private enterprises pes was accompanied by a concurrent leadership migration from one region to another the article contends that this simultaneous occurrence was not accidental four institutional constraints the degree of central supervision the local labor arrangements the local social welfare provision and the degree of ambiguity in property rights retarded the rise of new ownership forms in the previously dominant regions this gave other regions the opening to take over leadership positions by providing a more favorable institutional context for new ownership forms these findings are likely to apply to all of the chinese manufacturing industries that existed prior to 1978 and that subsequently did not experience significant technological changes and were not highly protected by the government

information constrained insurance the revelation principle extended abstract private information induced incentive constraints can cause allocations to diverge from full information optimal allocations often in the direction of limited insurance but can bring unanticipated anomalies related plausible contract exclusion restrictions can be damaging in welfare terms more generally private information optimal allocations can be sensitive to the information structure suggesting that the latter be specified with an eye toward realism as well as tractability in an effort to make tractability less of a constraint the paper shows how two apparently difficult information structures a costly state verification environment and a multiperiod multilateral private information environment can be handled theoretically by revelation principle methods the paper also shows how solutions can be generated numerically

auditing claims in the insurance market with fraud the credibility issue abstract this paper characterizes the equilibrium of an insurance market where opportunist policyholders may file fraudulent claims we assume that insurance policies are traded in a competitive market where insurers cannot distinguish honest policyholders from opportunists the insurer policyholder relationship is modelled as an incomplete information game in which the insurer decides to audit or not the market equilibrium depends on whether insurers can credibly commit or not to their audit strategies we show that a no commitment equilibrium results in a welfare loss for honest individuals which may even be so large that the insurance market completely shuts down we also show that transferring monitoring costs to a budget balanced common agency would mitigate the commitment problem

clientelism and aid abstract using a model of probabilistic voting we analyze the impact of aid on the political equilibrium in the recipient country or region we consider politicians with mixed motives they are interested in promoting social welfare but also value the benefit of holding office we label as clientelistic the politician who most values the benefit of being in power we find that the impact of aid on the political equilibrium and therefore on the quality of policy in the recipient country using utilitarian social welfare as a benchmark ultimately depends on the value of the elasticity of the marginal utility of consumption when elasticity is low the expected policy outcome gets further away from the socially desirable policy set this substitution of policy quality for aid can help to explain the poor performance of aid in improving policy perhaps more surprising is the opposite case which arises for high values of elasticity of marginal utility an increase in aid tilts the equilibrium policy towards the welfare maximizing policy set

workers compensation and moral hazard two types of moral hazard have been determined the first type is related to self prevention activities affecting probabilities of accidents the second type relates to the agent s activities whenever the accident occurs the authors objective consists of presenting an empirical measure of the significance of this second type of moral hazard in the workers compensation market the main challenge in isolating moral hazard consists of dividing into two parts the total variation in recovery time with respect to changes in insurance coverage 1 the variation of consumption corresponding to a given level of information and 2 the variation of consumption due to greater asymmetrical information the methodology used in this study separates these two variations copyright 1991 by mit press

the economics of privacy the concept of privacy has received a good deal of attention from lawyers political scientists sociologists philosophers and psychologists but until recently very little from economists this neglect is on the mend see for example my 1978 1979a articles and forthcoming book chs 9 11 george stigler and in this paper i will report on the economic research on privacy in which i and others have been engaged some definitional clarification is necessary at the outset privacy is used today in at least three senses first it is used to mean the concealment of information indeed this is its most common meaning today second it is used to mean peace and quiet as when someone complains that telephone solicitations are an invasion of his privacy third it is used as a synonym for freedom and autonomy it is in this sense that the supreme court has used the word in subsuming the right to have an abortion under the right of privacy see my 1979b article pp 190 200 the third meaning of privacy need detain us only briefly to affix the term privacy to human freedom and autonomy as in jack hirshleifer is simply to relabel an old subject not to identify a new area for economic research the second meaning of the word privacy set out above invites a slightly novel application of economics it suggests an economic reason why certain cerebral workers have private offices and other manual workers do not why aversion to noise is associated with rising education and why certain low level invasions of a person s private space for example shoving a person roughly but without hurting him are tortious see my forthcoming book ch 10 but the range of economic applications in this area seems limited the first meaning of privacy set out above privacy as concealment of informationseems the most interesting from an economic standpoint there is a rich and growing literature on the economics of information it would seem that the same economic factors that determine search behavior by workers and consumers might also determine investments in obtaining and in shielding private information this insight emphasized in my 1978 article provides the starting point for the economic analysis of privacy to relate the economics of privacy to the economics of information in as clear a fashion as possible consider the example of the employer searching across employees and the employee searching across employers the employer is looking for certain traits in an employee that may not be obvious things like honesty diligence loyalty and good physical and mental health to the extent that the employee is deficient in one or more of these characteristics he has an incentivestrictly analogous to the incentive of a seller of goods to conceal product defectsto conceal these deficiencies that is he has an incentive to invoke a right of privacy if the employer tries to pry into his private life the concealment of personal characteristics in the employment contest retards rather than promotes the efficient sorting of employees to employers by reducing the amount of information available to the buyer in the labor market the employer it reduces the efficiency of that market the analysis can easily be generalized moreover to other markets some of them noneconomic in which private information is concealed an example is the marriage market the efficient sorting of females to males in that market is impeded if either spouse conceals material personal information the extended courtship that remains typical of the marriage market may be due in part to the efforts of prospective spouses to conceal their deficiencies from each other university of chicago law school

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

is honesty the best policy curtailing insurance fraud through optimal incentive contracts an incentive contracting approach is used to characterize optimal contracts when insured individuals possess private information about their losses and are able to misrepresent permanently their loss magnitudes by engaging in the falsification of claims we demonstrate that efficient agreements necessarily induce some falsification but that the extent of such claims inflation is mitigated partially by an indemnification schedule that overcompensates small losses while overpaying larger ones the differential costs of generating insurance claims through falsification provide an avenue by which the heterogencous insureds can credibly signal their underlying losses and are exploited in an optimal contract to implement loss contingent insurance payments

do corrupt governments receive less foreign aid critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies supporters argue that foreign aid can be used to reward good governments this paper documents that there is no evidence that less corrupt governments receive more foreign aid on the contrary according to some measures of corruption more corrupt governments receive more aid also we could not find any evidence that an increase in foreign aid reduces corruption in summary the answer to the question posed in the title is no

delegation as commitment the case of income tax audits in this article we study the value of delegating authority over income tax audit policy arising from the incompleteness of contracts consider a utilitarian government whose ability to commit is limited to aggregate dimensions of its audit policy as publicly verifiable information about detailed allocations of audit budgets is not available we show that the welfare level associated with the full commitment solution can be attained by delegating authority over audit policy to a manager the latter is offered a simple incentive scheme based only on the aggregate variables which are publicly observable in contrast if the government retains authority direct commitment to these same variables does not allow the full commitment welfare level to be achieved thus despite sharing a common informational basis delegation may perform better than centralized arrangements in the presence of incomplete contracts

debt stabilization with a deadline abstract this paper presents an extension of the alesina and drazen 1991 american economic review 81 1170 1188 war of attrition model extended by including an exogenous deadline beyond which a punishment namely a penalty is exacted from all players in case of no agreement i solve for this game and establish that the higher the penalty is the higher the probability of stabilizing the debt on time will be i also show that there is a period of complete inertia right before the deadline no group of agents wants to concede just before this date the length of this period of total inertia is increasing in the penalty

strategic delay in bargaining this paper analyses a bargaining model with incomplete information in which the time between offers is an endogenous strategic variable we find equilibria involving a delay to agreement that is due to the use of strategic time delay by bargainers to signal their relative strength under some specifications of the parameters delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction this delay does not vanish as the minimal time between offers becomes small