combining valuable inventions exploring the impact of prior invention value on the performance of subsequent inventions innovation research widely acknowledges that most inventions are recombinations of existing ideas and technologies following this stream of research this study analyses how the values of prior inventions used to develop a subsequent invention influence the value of the new invention building on evolutionary theory and research on technological search and technological paradigms this article proposes a positive relationship between prior inventions value and subsequent invention value the analysis of a large scale patent data set of pharmaceutical and semiconductor firms largely confirms this notion however it also shows that the effect weakens when prior inventions are of higher value valuable prior inventions are also positively related to the likelihood that subsequent inventions are breakthroughs however while this effect also decreases when prior inventions hold higher values the decreasing effect occurs only at particularly high levels of prior invention value in contrast combining valuable inventions limits the likelihood of generating poor invention outcomes value in summary while the results lend support to theories of evolutionary and cumulative technological progress they also show that despite the recombination potential of technical knowledge there are practical limits to the benefits of valuable inputs

regulatory implications of credit risk modelling abstract this introduction places in context the papers on credit risk modelling contained in the special issue we explain why credit risk modelling has become such a focus of interest for practitioners and financial supervisors even though as we explain the current modelling technologies have significant weaknesses they offer the possibility of major changes in the ways banks are managed and regulated the main impediment to greater use of these models especially by regulators is the difficulty involved in back testing the risk measures they produce we suggest some thoughts on how back testing and other types of model assessment might be performed

wealth effects distribution and the theory of organization abstract we construct a general equilibrium model of firm formation in which organization is endogenous firms are coalitions of agents providing effort and investment capital effort is unobservable unless a fixed monitoring cost is paid and borrowing is subject to a costly state verification problem because incentives vary with an agent s wealth different types of agents become attractive firm members under different circumstances when borrowing is not costly firms essentially consist of one type of agent and are organized efficiently but when the costly state verification problem is sufficiently severe firm organization will depend on the distribution of wealth with enough inequality it will tend to be dictated by incentives of rich agents to earn high returns to wealth even if the chosen organizational form is not a technically efficient way to provide incentives journal of economic literatureclassification numbers d2 d31 j41 l2

a comparative analysis of current credit risk models the new bis 1998 capital requirements for market risks allows banks to use internal models to assess regulatory capital related to both general market risk and credit risk for their trading book this paper reviews the current proposed industry sponsored credit value at risk methodologies first the credit migration approach as proposed by jp morgan with creditmetrics is based on the probability of moving from one credit quality to another including default within a given time horizon second the option pricing or structural approach as initiated by kmv and which is based on the asset value model originally proposed by merton merton r 1974 journal of finance 28 449 470 in this model the default process is endogenous and relates to the capital structure of the firm default occurs when the value of the firm s assets falls below some critical level third the actuarial approach as proposed by credit suisse financial products csfp with creditrisk and which only focuses on default default for individual bonds or loans is assumed to follow an exogenous poisson process finally mckinsey proposes creditportfolioview which is a discrete time multi period model where default probabilities are conditional on the macro variables like unemployment the level of interest rates the growth rate in the economy which to a large extent drive the credit cycle in the economy 2000 elsevier science b v all rights reserved

theories of share tenancy a critical survey for the past 2 decades the problems of agricultural tenancy have attracted a great deal of attention not only from agricultural economists but also from economists in general as a typical example of agencyprincipal contract relations despite the prolific growth of literature both theoretical and empirical there has been little convergence in opinions on tenancy contracts the divergence has been especially great on the understanding of the causes and the effects of sharecropping tenancy much confusion underlying the widely divergent perspectives has stemmed from partial treatments of contractual choice which unduly limit the optimizing behavior of contracting parties and the options of contract forms this essay aims at clarifying the sources of the confusion by reviewing the past literature in light of the more general theory of agency principal relations the agency theory in order to examine the problems of various theoretical models in a unified framework in section ii we first develop the basic framework of a general model of tenancy contract in section iii we clarify in terms of the general model contradictions latent in the traditional marshallian theory which asserts that share tenancy is inefficient because of the disincentive effect of cropsharing on the tenant s work effort in section iv we attempt to show that recent efforts to reconstruct the theory based on the traditional assumption have not yet been quite successful section v draws implications and testable hypotheses from more general theories incorporating the aspects of risk and uncertainty section vi tests allocational and distributional implications of those alternative hypotheses based on the summary of evidence col

policy implications of the federal reserve study of credit risk models at major us banking institutions abstract the current regulatory capital standard for banks the basle accord is a lose lose proposition regulators cannot conclude that a bank with a nominally high regulatory capital ratio has a correspondingly low probability of insolvency on the other hand because the accord often levies a capital charge out of proportion to the true economic risk of a position banks must engage in regulatory capital arbitrage or exit their low risk business lines since such arbitrage is costly the capital regulations keep banks from maximizing the value of the financial firm regulators need to answer three questions 1 what are the goals of prudential regulation and supervision 2 how should bank soundness be defined and quantified 3 at what level should a minimum soundness standard be set in order to meet the perhaps conflicting goals of prudential regulation and supervision possible answers to these questions are attempted then the paper analyzes the two leading proposals for rationalizing the accord a modified basle or ratings based approach and a full models approach

what does she see in him the effect of sharing on the choice of spouse all husbands and wives share in the spoils of marriage sharing makes each partner a residual claimant and encourages spouses to provide marital inputs however because each spouse is only a partial residual claimant each may be inclined to provide a suboptimal level of marital inputs the choice of spouse influences the level of distortion and under some circumstances the eficient mating is between individuals of equal value people tend to end up choosing partners of approximately their own social worth romantic choices appear to be a delicate compromise between one s desire to capture an ideal partner and one s realization that he must eventually settle for what he deserves

matching to share risk without commitment this paper studies the effect of limited commitment on sorting when two sides of a frictionless market form pairs to share risk on each side agents are identical except for their risk preferences first we provide analytical results when transfers do not condition on the history of shocks more risk averse agents can commit to larger transfers as long as their consumption is less risky than their endowment with sufficiently large idiosyncratic risk and sufficient discounting of the future matching is positive assortative unlike under full commitment second we find positive assortative stable matchings when transfers are history dependent using a numerical algorithm

land reforms poverty reduction and economic growth evidence from india recognition of the importance of institutions that provide security of property rights and relatively equal access to economic resources to a broad cross section of society has renewed interest in the potential of asset redistribution including land reforms empirical analysis of the impact of such policies is however scant and often contradictory this paper uses panel household data from india together with state level variation in the implementation of land reform to address some of the deficiencies of earlier studies the results suggest that land reform had a significant and positive impact on income growth and accumulation of human and physical capital the paper draws policy implications especially from the fact that the observed impact of land reform seems to have declined over time

motion picture profit the stable paretian hypothesis and the curse of the superstar abstract this paper investigates the stable distribution as a model of profit in motion pictures the skew of this distribution and its paretian tails capture with great fidelity the statistics of the movies features of the business such as the nobody knows principle the curse of the superstar the angel s nightmare the instability of profit and the form of artist contracts follow from the properties of the stable distribution

the innovative performance of in house and contracted r d in terms of patents and utility models abstract the standard empirical framework for analysing the r d patents relationship is widened both by examining the different role of in house and contracted r d in the innovative performance of firms and by considering patents and utility models counts as measures of innovation output patents and utility models are considered to approximate for significant and incremental innovations respectively applying count data econometrics to a panel data set of spanish manufacturing firms surveyed in the period 1990 1996 a transcendental production function is estimated which allows for non constant elasticities of the r d inputs the results indicate that significant innovations are mainly gestated in house whereas contracted r d seems more orientated towards innovations of incremental nature

contractual structure in agriculture with endogenous matching we analyze optimal contractual forms and equilibrium matching in a double sided moral hazard model of sharecropping similar to eswaran and kotwal 1985 we show that with endogenous matching the presence of moral hazard can reverse the matching pattern relative to the first best and that even if sharecropping is optimal for an exogenously given pair of agent types it may not be observed in equilibrium with endogenous matching the economy with endogenous matching features less sharecropping compared to an economy with agent types drawn at random from the same distribution this suggests that studies of agency costs in sharecropping may underestimate their extent if focusing only on the intensive margin and ignoring the extensive margin

endogenous matching and the empirical determinants of contract form empirical work on contracts typically regresses contract choice on observed principal and agent characteristics if i some of these characteristics are unobserved or partially observed and ii there are incentives whereby particular types of agents end up contracting with particular types of principals estimated coefficients on the observed characteristics may be misleading we address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early renaissance tuscany controlling for endogenous matching has an impact on parameters of interest and tenants risk aversion appears to have influenced contract choice

risk sharing vs incentives contract design under two sided heterogeneity we study the matching patterns between heterogeneous principals and agents in a principal agent model the resulting equilibrium relationship between risk and incentives could be negative positive or u shaped these results may provide an explanation for the absence of systematic empirical support for the standard risk model d 2005 elsevier b v all rights reserved

land acquisition for industrialization and compensation of displaced farmers this paper addresses the question of how farmers displaced by acquisition of agricultural land for the purpose of industrialization ought to be compensated prior to acquisition the farmers are leasing in land from a private owner or local government with a legally mandated sharecropping contract compensation rules affect the decision of the landlord to sell the land ex post to an industrial developer and ex ante incentives of tenants and landlord to make specific investments in agricultural productivity efficiency considerations are shown to require farmers be over compensated in the event of conversion

emerging problems with the basel capital accord regulatory capital arbitrage and related issues in recent years securitization and other financial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks a process termed regulatory capital arbitrage these methods are used routinely to lower the eaective risk based capital requirements against certain portfolios to levels well below the basel capital accord s nominal 8 total risk based capital standard this paper discusses the principal techniques used to undertake capital arbitrage and the diaculties faced by bank supervisors in attempting to deal with these activities under the current capital framework 2000 elsevier science b v all rights reserved

does hollywood make too many r rated movies risk stochastic dominance and the illusion of expectation we estimate the probability distributions of budgets revenues returns and profits to g pg pg13 and r rated movies the distributions are non gaussian and show a self similar stable paretian form with nonfinite variance and nonstationary mean the profit distributions have asymmetric tails which means that hollywood could trim its downside risk while increasing its upside possibilities by shifting production dollars out of r rated movies into g pg and pg13 rated movies stars who are willing to appear in edgy counterculture r rated movies for their prestige value may induce an illusion of expectation leading studios to green light movies that have biased expectations

innovation and firm growth does firm age play a role this paper explores the relationship between innovation and firm growth for firms of different ages we hypothesize that young firms undertake riskier innovation activities which may have greater performance benefits if successful or greater losses if unsuccessful using an extensive spanish community innovation survey sample for the period 2004 2012 we apply panel quantile regressions to study the effect of r d activities on firm growth i e sales growth productivity growth and employment growth our results show that young firms face larger performance benefits from r d at the upper quantiles of the growth rate distribution but face larger decline at the lower quantiles r d investment by young firms therefore appears to significantly riskier than r d investment by more mature firms which suggests some policy implications

the dynamics of learning alliances competition cooperation and relative scope we show how the tension between cooperation and competition affects the dynamics of learning alliances private benefits and common benefits differ in the incentives that they create for investment in learning the competitive aspects of alliances are most severe when a firm s ratio of private to common benefits is high we introduce a measure relative scope of a firm in an alliance to show that the opportunity set of each firm outside an alliance crucially impacts its behavior within the alliance finally we suggest why firms might deviate from the theoretically optimal behavior patterns 1998 john wiley sons ltd

technology policy for a world of skew distributed outcomes abstract this paper draws implications for technology policy from evidence on the size distribution of returns from eight sets of data on inventions and innovations attributable to private sector firms and universities the distributions are all highly skew the top 10 of sample members captured from 48 to 93 percent of total sample returns it follows that programs seeking to advance technology should not be judged negatively if they lead to numerous economic failures rather emphasis should be placed on the relatively few big successes to achieve noteworthy success with appreciable confidence a sizeable array of projects must often be supported the outcome distributions are sufficiently skewed that even with large numbers of projects it is not possible to diversify away substantial residual variability through portfolio strategies

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

contractual structure in agriculture abstract this paper develops a generalized double sided moral hazard model of contract choice in agricultural production with mutual monitoring of each other by the landlord and the tiller who generally have different levels of farming efficiency and are risk averse using this model we formally prove that the optimal contract maximizes the output net of the risk bearing and agency costs of both the parties and carry out a simulation exercise which helps explain many of the tenancy related issues the difference in the farming efficiency of the two sides often ignored in previous analysis turns out to be the principal determinant of the contract offered to a tiller

evaluating credit risk models over the past decade commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital these eaorts have been recognized and encouraged by bank regulators recently banks have extended these eaorts into the field of credit risk modeling however an important question for both banks and their regulators is evaluating the accuracy of a model s forecasts of credit losses especially given the small number of available forecasts due to their typically long planning horizons using a panel data approach we propose evaluation methods for credit risk models based on cross sectional simulation specifically models are evaluated not only on their forecasts over time but also on their forecasts at a given point in time for simulated credit portfolios once the forecasts corresponding to these portfolios are generated they can be evaluated using various statistical methods 2000 elsevier science b v all rights reserved

is informal risk sharing less effective for the poor risk externalities and moral hazard in mutual insurance abstract poor farm households are less keen to adopt high risk high return technologies than rich households yet the poor are more vulnerable to income shocks we develop a model of endogenous risk taking to explain these facts in autarky poor households adopt less risky production plans and obtain lower expected returns but face higher relative risk than the rich the introduction of risk sharing generates negative risk externalities between agents at the first best the social planner imposes a homogeneous level of risk taking in the group at the second best risk taking is not enforceable and increases with insurance generating moral hazard interestingly the poor s risk taking behavior is more sensitive to insurance the social planner thus mitigates risk taking by applying a lower insurance coverage in poor groups the introduction of risk sharing therefore reinforces the gap between rich and poor in terms of expected income and absolute risk while the effect on relative risk is ambiguous

tenancy and family resources a model and some empirical analysis abstract in this paper we discuss with the help of a simple model the role of family resource endowments in determining the extent of land leased in or leased out by a household this becomes important when the market for some of these resources is either not functioning at all or is functioning imperfectly we focus on three such resources which have some relevance in indian agriculture these are 1 the family s managerial skill 2 its endowment of human labour and 3 its endowment of draft animal labour household level data from six villages of maharashtra and andhra pradesh are also utilized to test some of the hypotheses

learning and protection of proprietary assets in strategic alliances building relational capital one of the main reasons that firms participate in alliances is to learn know how and capabilities from their alliance partners at the same time firms want to protect themselves from the opportunistic behavior of their partner to retain their own core proprietary assets most research has generally viewed the achievement of these objectives as mutually exclusive in contrast we provide empirical evidence using large sample survey data to show that when firms build relational capital in conjunction with an integrative approach to managing conflict they are able to achieve both objectives simultaneously relational capital based on mutual trust and interaction at the individual level between alliance partners creates a basis for learning and know how transfer across the exchange interface at the same time it curbs opportunistic behavior of alliance partners thus preventing the leakage of critical know how between them copyright 2000 john wiley sons ltd

double sided moral hazard and the nature of share contracts contractual arrangements involving revenue profit sharing are often based on fairly simple often linear rules in addition in many contexts these contracts are not finely adjusted to the particular circumstances of individual agents or markets nor do they vary over time to the extent current theories based on optimal contracting suggest they should we develop a simple model of such revenue or profit sharing arrangements based on double sided moral hazard and show that this model can account for many of these stylized facts more specifically the model shows that linear contracts can be optimal and that benefits from customizing terms can in some cases be quite limited if not zero

tenure systems in traditional china i a general equilibrium model of tenure preference classical marginalists at least after john clark provide an unequivocal solution for the conventional factor market where people sell the productive services of their resources to producers the productexhaustion theorem says that if factors are priced according to their marginal products incomes of all resource owners will exactly exhaust the value of total products in the long run competitive equilibrium this holds true regardless of which factor is variable and which is fixed and regardless of which group of resource owners perform as producers who buy productive services of other resources in the market and claim residuals for themselves in an agrarian economy with land and labor as the inputs a land owner may cultivate his land and purchase the labor input from outside paying a wage rate in accordance with labor s marginal product the land owner is then the residual claimant alternatively he may lease out his land and receive a fixed rental rate per unit of area equal to the marginal product of land in this case the tenant is the producer and claims the residual income distribution between the two parties remains the same under each land arrangement wage and rent are therefore identical conceptually the classical marginal analysis has not presented a satisfactory theory of share tenancy which instead of being a seller buyer transaction in a conventional factor market is essentially a partnership arrangement between two persons who own complementary factors hence the term land renting will hereafter denote the fixed rent system exclusively in fact the direct application of marginal analysis to share tenancy has created considerable confusion in early economic literature only recently some general equilibrium models of land tenure systems have been developed for better understanding of the

contract choice in modern agriculture cash rent versus cropshare e conomists have expended enormous effort examining the rationale for various contractual arrangements in agriculture particularly sharecropping while economists have made considerable theoretical efforts to understand agricultural contracts few empirical studies have been undertaken the dearth of empirical analyses of agricultural contracts is particularly striking for modern western agriculture this is an important omission not only because the existing empirical work tends to focus on the question of efficiency but also because the theoretical models tend to examine contracts that bear little resemblance to those found in the united states today

credit layering in informal financial markets abstract informal lenders with access to markets or capital often find it attractive to delegate loan provision to downstream lenders who have an information or enforcement advantage in dealing with particular borrowers in this paper we examine the conditions under which such an arrangement is preferred by two informal lenders a landlord and a merchant who compete in loan provision to tenant farmers differentiated by wealth we show that credit layering is preferred only when tenants are sufficiently poor in this case the trader lends to tenant farmers via a contract with their landlord otherwise only the trader lends as a consequence a pattern of borrowing emerges in which relatively wealthy tenants borrow from merchants while poor tenants borrow mainly from their landlords interlinkage between land and credit thus arises only for a subset of tenants and purely as a consequence of credit layering this pattern is shown to be supported empirically

the return to independent invention evidence of unrealistic optimism risk seeking or skewness loving examining a sample of 1 091 inventions i investigate the magnitude and distribution of the pre tax internal rate of return irr to inventive activity the average irr on a portfolio investment in these inventions is 11 4 this is higher than the risk free rate but lower than the long run return on high risk securities and the long run return on early stage venture capital funds the portfolio irr is significantly higher for some ex ante identifiable classes of inventions the distribution of return is skew only between 7 9 reach the market of the 75 inventions that did six realised returns above 1400 60 obtained negative returns and the median was negative

the intersection of market and credit risk abstract economic theory tells us that market and credit risks are intrinsically related to each other and not separable we describe the two main approaches to pricing credit risky instruments the structural approach and the reduced form approach it is argued that the standard approaches to credit risk management creditmetrics creditrisk and kmv are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with treasury bond index returns than do low yield bonds also macro economic variables appear to influence the aggregate rate of business failures the creditmetrics creditrisk and kmv methodologies cannot reproduce these empirical observations given their constant interest rate assumption however we can incorporate these empirical observations into the reduced form of jarrow and turnbull 1995b drawing the analogy risk 5 63 70 model here default probabilities are correlated due to their dependence on common economic factors default risk and recovery rate uncertainty may not be the sole determinants of the credit spread we show how to incorporate a convenience yield as one of the determinants of the credit spread for credit risk management the time horizon is typically one year or longer this has two important implications since the standard approximations do not apply over a one year horizon first we must use pricing models for risk management some practitioners have taken a different approach than academics in the pricing of credit risky bonds in the event of default a bond holder is legally entitled to accrued interest plus principal we discuss the implications of this fact for pricing second it is necessary to keep track of two probability measures the martingale probability for pricing and the natural probability for value at risk we discuss the benefits of keeping track of these two measures

the long reach of cotton in the us south tenant farming mechanization and low skill manufacturing abstract this paper examines the long run impact of cotton agriculture on local development in the us south focusing on a novel aspect of structural change exploiting climate based variation in cotton production i show that cotton specialization in the late 19th century had a negative impact on local development that lasts through 2010 this negative relationship however only became evident in the second half of the 20th century i argue that the change was caused by the mechanization of cotton production which began in the 1950s after the mechanization local manufacturing absorbed displaced cotton tenants with low human capital in response to the inflow of cotton tenants labor productivity in manufacturing began to decline and the effects persisted in the long run the persistent decline in manufacturing productivity is explained by directed technical change that reduced demand for skills in manufacturing these results indicate that depending on the agricultural background structural change can negatively affect the evolution of technology and productivity in the industrial sector

risky innovation the impact of internal and external r d strategies upon the distribution of returns a b s t r a c t external innovation increases the profits of the median firm but also increases dispersion and the kur tosis of the distribution of profits this means that external strategies are risky and may require a very large number of attempts before average returns are obtained this puts smaller firms into a position of disproportionately high risk despite the earlier evidence that the rewards from innovation are positively skewed we find no effect of innovation strategies upon the skewness of the distribution of firms profits

profit sharing and the role of professional partnerships when it is hard to assess service quality firms will suboptimally hire low ability workers we show that organizing as a profit sharing partnership can alleviate these problems our theory explains the relative scarcity of partnerships outside of professional service industries such as law accounting medicine investment banking architecture advertising and consulting it also sheds light on features of partnerships such as up or out promotion systems the use of noncompete clauses and recent trends in professional service industries

monotone matching in perfect and imperfect worlds we study frictionless matching in large economies with and without market imperfections providing sufficient conditions for monotone matching that are weaker than those previously known necessary conditions which depend on a key analytical object we call the surplus function are also offered changes in the surplus yield valuable information about the comparative statics of matching patterns across environments we apply our framework to some examples adapted from the literature accounting for and extending several comparative static and welfare results we also explore the dependence of the matching pattern on the type distribution

allocation of human capital and innovation at the frontier firm level evidence on germany and the netherlands this paper examines how productivity eects of human capital and innovation vary at dierent points of the conditional productivity distribution our analysis draws upon two large unbalanced panels of 6 634 enterprises in germany and 14 586 enterprises in the netherlands over the period 2000 2008 considering 5 manufacturing and services industries that dier in the level of technological intensity industries in the netherlands are characterized by a larger average proportion of high skilled employees and indus tries in germany by a more unequal distribution of human capital intensity except for low technology manufacturing average innovation performance is higher in all industries in germany and the innova tion performance distributions are more dispersed in the netherlands in both countries we observe non linearities in the productivity eects of investing in product innovation in the majority of indus tries frontier rms enjoy the highest returns to product innovation whereas the most negative returns to process innovation are observed in the best performing enterprises of most industries in both countries we nd that the returns to human capital increase with proximity to the technological frontier in industries with a low level of technological intensity strikingly a negative complementarity eect between human capital and proximity to the technological frontier is observed in knowledge intensive services which is most pronounced for the netherlands suggestive evidence for the latter points to a winner takes all interpretation of this nding

in search of complementarity in innovation strategy internal r d and external knowledge acquisition empirical research on complementarity between organizational design decisions has traditionally focused on the question of existence of complementarity in this paper we take a broader approach to the issue combining a productivity and an adoption approach while including a search for contextual variables in the firms strategy that affects complementarity analysis of contextual variables is not only interesting per se but also improves the productivity test for the existence of complementarity we use our empirical methodology to analyze complementarity between innovation activities internal research and development r d and external knowledge acquisition our results suggest that internal r d and external knowledge acquisition are complementary innovation activities but that the degree of complementarity is sensitive to other elements of the firms strategic environment we identify reliance on basic r dthe importance of universities and research centers as an information source for the innovation processas an important contextual variable affecting complementarity between internal and external innovation activities

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

the effects of estimation error on measures of portfolio credit risk abstract this paper uses monte carlo simulations to assess the impact of noisy input parameters on the accuracy of estimated portfolio credit risk assumptions about input quality are derived from the distribution of historical sample statistics commonly used in default risk modelling the resulting estimation error in the distribution of portfolio losses is considerable losses that are judged to occur with a probability of 0 3 may actually occur with a probability of 1 the paper also shows that estimation error leads to biases in value at risk estimates and significance levels of backtests the biases can be corrected by analysing predictive distributions which average over the unknown parameter values

revenue sharing in movie exhibition and the arrival of sound i introduction at least since adam smith economists have been intrigued by share contracts there has been a proliferation of models most of which tend to explain the share contract as resulting from some mix of optimal risk bearing and optimal effort motivation 1 a large number of researchers have attempted to test these models empirically sharecropping contracts not surprisingly are the most intensively examined the bibliography in knoeber 2000 but similar studies have been conducted in many other areas for example martin 1988 and lafontaine 1992 examine franchise arrangements hallagan 1978 investigates contracts used to lease gold claims leffler and rucker 1991 analyze a sample of private timber sale contracts goldberg and erickson 1987 study long term contracts for the sale of petroleum coke aggarwal and samwick 1999 investigate incentive contracts between firms and their executives and chisholm 1997 goldberg 1997 and weinstein 1998 all examine profit sharing contracts between fi lm companies and the talent this article differs in an important respect from most previous studies which analyze a cross section of contracts in an attempt to determine how or whether they vary according to the attributes of the contracting parties or the products being contracted for instead it investigates an area where a sudden technology shock led to the rapid and widespread replacement of one form of contracting by another the industry is the motion picture business and the shock was the arrival of sound during the silent film era the vast majority of first run feature films were rented to cinemas for flat daily or weekly payments within two years of the release of the first sound picture revenue sharing contracts were the norm and they remain the norm to this day 2 my goal is to investigate the degree to which the standard economic concerns moral hazard risk sharing and measurement problems can explain this change because the contracting parties remained the same the question becomes what was altered in the nature of the product or in its provision so as to have altered correspondingly the incentives faced i conclude the following first the advent of sound fundamentally changed the inputs live music and other acts supplied by the exhibitor and central to the show were replaced by a soundtrack and short sound films supplied by the film company the benefit of deterring exhibitor shirking through the use of flat rental fees which made the exhibitor full residual claimant declined accordingly the party whose effort makes the largest contribution to marginal product generally receives the largest proportion of the residual claims and in the decades following the arrival of sound the proportion of residual claims collected by film companies rose steadily in addition average revenue per film increased with sound whereas the cost of ensuring that exhibitors reported attendance revenue honestly done by locating a film company s representative in the theater remained the same the ex post division of revenue necessary for revenue sharing thus became cheaper on a per film basis finally uncertainty ab out the value in terms of expected attendance revenue of the early sound films appears to have raised the cost of negotiating lump sum rental fees and thus promoted experiments with revenue sharing however although this may have contributed initially it cannot explain the practice s persistence uncertainty about film values declined as talking films became better known ii the nature of the problem a film company contracts with an exhibitor so that they may jointly produce the final good a movie presentation 3 to that end each supplies essential inputs the film company provides the movie itself assembled from a variety of inputs and some sort of national advertising support the exhibitor provides the theater which consists of seating projection equipment a refreshment stand and other support activities and some form of local advertising

empowerment and efficiency tenancy reform in west bengal the paper analyzes the effect of agricultural tenancy laws offering security of tenure to tenants and regulating the share of output that is paid as rent on farm productivity theoretically the net impact of tenancy reform is shown to be a combination of two effects a bargaining power effect and a security of tenure effect analysis of evidence on how contracts and productivity changed after a tenancy reform program was implemented in the indian state of west bengal in the late 1970s suggests that tenancy reform had a positive effect on agricultural productivity there

determination of the adequate capital for default protection under the one factor gaussian term structure model abstract in practice credit risk is measured by one of the two different methodologies one measures the prices and sensitivities of the credit linked instruments another measures the required collateral or capital needed to cover a potential default loss this paper introduces a pricing methodology which also determines the required capital conventionally the value at risk method is used to determine collateral requirements artzner et al demonstrated that the resulting adequate capital measures may fail to capture the credit diversification effect which is critical in credit risk management cf artzner p delbaen f eber j m heath d 1997 definition of coherent measures of risk paper presented at the symposium on risk management european finance association vienna august 27 30 in order to overcome this problem this paper introduces a new approach which combines closed form solutions and the hull white trinomial tree this combined approach is computationally faster than a naively implemented monte carlo based var methodology the pricing model is based on the rating based gaussian term structure model developed by nakazato this approach is applicable to a wide variety of credit derivatives and their portfolios in a coherent fashion in this paper however attention is concentrated on determining the collateral requirement for the counter party risk when there is the risk of credit rating change on an issue and also risk of default on that issue or on any protection already written on the issue

collective agricultural production a solution for transition economies abstract the paper examines theoretical reasons and provides examples for productivity differences between agricultural service cooperatives and collectives service cooperatives can utilize economies of scale enhance competitiveness and provide technical information advantages that often outweighed problems of free riding low investment and excessive political intervention agricultural collectives while not adding substantial advantages are in addition associated with problems of supervision and effort supply tendencies to substitute casual workers or mechanization for regular members and low investment incentives while collective forms of organization in transition economies respond to high risk and market imperfections they do so inefficiently policies that create conditions for service cooperatives to compete may lead to large productivity gains

default risk in a market model abstract this paper presents a theoretical model of default risk in the context of the market model approach to interest rate dynamics we propose a model for finite interval interest rates such as libor which explicitly takes into account the possibility of default through the influence of a point process with deterministic intensity we relate the defaultable interest rate to the non defaultable interest rate and to the credit risk characteristics default intensity and recovery rate we find that the spread between defaultable and non defaultable rate depends on the non defaultable rate even when the default intensity is deterministic prices of a cap on the defaultable rate and of a credit spread option are derived we consider swaps with unilateral and bilateral default risk and derive the fair fixed swap rate in both cases under the condition that both counterparties are of the same risk class we show that for a monotonously increasing term structure the swap rate for a defaultable swap will lie below the swap rate for a swap without default risk

off farm work technical efficiency and rice production risk in taiwan this article investigates the differences in yield production production efficiency and yield risk for farmers both with and without off farm work using a nationwide survey of rice farmers in taiwan we estimate two stochastic production frontier models that accommodate technical inefficiency and production risk simultaneously for farmers both with and without off farm work the stochastic dominance criterion is then applied to compare the differences in the distributions of the estimated technical efficiency and yield risk between groups the empirical results indicate that these two groups of farmers use resources in different ways and off farm work is not necessarily associated with lower technical efficiency for farmers in the lower percentiles of the efficiency distribution those with off farm work are more efficient than their counterparts without off farm work in addition farmers with off farm work face higher production risk and this result is robust for the entire distribution