bureaucratic minimal squawk behavior theory and evidence from regulatory agencies this paper develops a model in which a desire to avoid criticism prompts otherwise public spirited bureaucrats to behave inefficiently decisions are taken to keep interest groups quiet and to keep mistakes out of the public eye the policy implications of this minimal squawk behavior are at odds with the view that agencies should be structured to minimize the threat of capture an empirical test using data from us state public utility commissions rejects the capture hypothesis and is consistent with the squawk hypothesis longer puc terms of office are associated with a higher incidence of rate reviews and lower household electricity bills jel d73 l51 l97 l98

defence procurement theory and uk policy since the early 1980s competition as a means of obtaining best value for money has dominated uk defence procurement policy this paper describes the uk defense equipment market and the procurement problem there are sections on the economic theory of procurement contracting regulation and competition the conclusion evaluates uk defence procurement policy and assesses some of the policy issues for the 1990s copyright 1996 by oxford university press

fair trade standards corporate participation and social movement responses in the united states this article examines the development of and contestation over the standards for certified fair trade with particular attention to the u s context it charts fair trade s rapid growth in the united states since the 1999 advent of formal certification explores the controversies generated by the strategy of market mainstreaming in the sector and focuses on five key issues that have generated particularly heated contention within the u s fair trade movement it offers a theoretical framework based in the literatures on agrifood systems social movements and public choice economics for understanding the corporate response to alternative markets such as fair trade the article suggests a typology of responses by social movement actors to this increased corporate participation and assesses the relevance of the u s case for the future prospects of fair trade both in other national contexts and as an international movement

can multinational enterprises light up developing countries evidences from the access to electricity in sub saharan africa summary this paper examines the role that multinational enterprises mnes and foreign direct investments fdi can have in enhancing the access to electricity for local communities in developing countries based on the quality of home and host institutions access to electricity is a marker for development but it is far from being universal in developing countries the shortage of electricity is mainly the consequence of inability of governments in planning financing and developing necessary electricity infrastructure in this context investments from other actors can be essential particularly we focus on the role of fdi and mnes we claim that when mnes invest in developing countries they are incentivized to solve the lack of electricity infrastructure mainly for two reasons to guarantee their business activities and to gain legitimacy with their local stakeholders in addition we argue that mnes and fdi from institutionally underdeveloped countries will be more prone to develop infrastructure for the provision of electricity to local population as generally they suffer from a negative stereotype for this study we rely on 1 547 observations composed of pairs of 83 home countries and 15 host countries in sub saharan africa observed from 2005 to 2011 due to the nature of the database we adopt panel data techniques i e system gmm and corrected least square dummy variable estimators we find that fdi promotes access to electricity in developing countries with weak institutions and this is more likely true when fdi come from institutionally underdeveloped countries these results are far from obvious as they controvert common idea among institutional scholars that a regulatory authority is essential in the provision of infrastructure in conclusion with this paper we partially rehabilitate the image of mnes investing in developing countries by demonstrating that under certain conditions they could contribute to energy poverty alleviation of local population

procurement auctions under quality manipulation corruption abstract in procurement quality manipulation corruption arises when the agent tasked with quality evaluation exaggerates the quality of a corrupt firm if an inefficient firm is favored by the agent the buyer can adjust the procurement mechanism such that the corruption rent of the inefficient firm erodes the technological rent of the efficient firm however doing so may require procuring the project at an undesirable quality level to resolve this trade off between corruption deterrence and quality distortion unlike standard results in the literature the buyer may overstate her preference for quality and the dominance of scoring auctions over minimum quality auctions disappears

opportunism corruption and the multinational firm s mode of entry abstract the paper develops a theoretical approach to the boundaries of the multi national firm in the context of institutional constraints in host countries focusing especially on corruption the model incorporates two types of corruption petty bureaucratic corruption and high level political corruption the model predicts that in the absence of corruption multinational firms will prefer fdi internal expansion with strong control rights to debt arm s length expansion with loose control rights the weaker the host country s ability to commit however both types of corruption shift the trade off marginally toward debt cross country panel empirical evidence supports these conclusions corruption has a second order marginal effect and matters mostly through its interaction with political risk

collusion and renegotiation in a principal supervisor agent relationship this paper describes a principal agent relationship with a supervisor who has information about the agent the agent and the supervisor have the possibility to collude and misinform the principal from the literature we know that there exists an optimal contract which excludes collusion in equilibrium the optimal contract however is ex post inefficient and creates scope for renegotiation if renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion the paper thus shows that the principal s behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

flexing muscle corporate political expenditures as signals to the bureaucracy when corporations and their employees spend money in the political arena to what extent are they purchasing special treatment complaints about the deleterious effects of corporate money in politics are ubiquitous in american political discourse however in order to pinpoint the place of these expenditures in american democracy and to appreciate fully the consequences of various reform proposals itiscriticaltoidentifytheprecisemechanism through which any preferential treatment might occur in this spirit scholars have suggested that corporations make political expenditures because they hope to influence government behavior through either explicit quid pro quos with legislators for constituency service or favorable votes baron 1989 grossman and helpman 1994 2001 improved access to legislators hall and wayman 1990 langbein 1986 or enhancement of the electoral prospects of sympathetic incumbents pooleandromer1985 empiricalevidenceverifying a definitive relationship between expenditures and specific policy change unfortunately has proven elusive in a recent review essay ansolabehere de figueiredo and snyder 2003 116 conclude contributions explain a miniscule fraction of the variation in voting behavior in the u s congress they suggest thatcontributionsarebetterthoughtofasconsumption goods that fulfill a desire to participate in politics than as investment in a political marketplace

environmental policies and innovation a knowledge based perspective on cooperative approaches the purpose of this article is to analyse to growing interest in the field of the environment for new cooperative approcahes that make use of negotiated instruments such as voluntary agreements using an interpretation framework that puts the emphasis on collective learning and monitoring devices we highlight the value of this type of approach in situations of great uncertainty where a coordinated process of innovation is required to achieve ambitious environmental targets the implementation of this theoretical approach in the end of life vehicles elv case which has been the subject of several voluntary agreements in europe offers a fuller understanding of the characteristics and driving forces of the collective innovation process in action as well as the obstacles that have still to be overcome in particular we explain why monitoring of innovation by the authorities focusing on coordination mechanisms is a crucial issue on which further research should be carried out

delegation of monitoring in a principal agent relationship this paper studies a principal agent relationship with moral hazard in which the principal or the supervisor can monitor the agent s hidden action by using identical monitoring technologies the paper shows that delegation of monitoring to the supervisor is profitable because of two effects with delegation the principal can better regulate the incentives incentive effect and can commit to wage structures to which she could not commit without delegation commitment effect as a logical step collusion is introduced and it is shown that even with the possibility of collusion delegation is an optimal strategy

industrial policy and politics abstract recognizing the uncontrollable nature of the political system in a fine tuning way we derive simple constitutional rules for industrial policies which take into account simultaneously the inefficiencies of the political system and informational asymmetries of regulators we apply this methodology to the regulation of natural monopolies we consider a two type political system with the majority rule we study how the chosen cost reimbursement rules and pricing rules which characterize regulation are affected by constitutional choices such as public ownership or privatization creation of incentives for regulators or not price discrimination or not

dynamic consistency in incentive planning with a material input abstract an incentive model of a planner and two firm types is presented in which the planner assigns material input to the firms as part of the organization s production plan the optimal incentive compatible one period plan is described this static plan is then shown to be not incentive compatible in a dynamic two period setting if the firm s discount factor is not too low and if it can hoard the material input between periods the incentive compatible dynamic problem is presented and analyzed this incentive problem is related to hoarding and dysfunction in the soviet planning system

optimal regulation of network expansion we model the optimal regulation of continuous irreversible capacity expansion where a regulated firm has private information about capacity costs investments are financed from the firm s cash flows and demand is stochastic the optimal mechanism can be implemented as a revenue tax that increases with the level of the price cap if the asymmetric information has large support then the optimal mechanism consists of a laissez faire regime for low cost firms that is the firm s price cap corresponds to that of an unregulated monopolist and it is not taxed this maximal distortion at the top is necessary to provide information rents as direct subsidies are not feasible

the politics of m a antitrust antitrust regulators play a critical role in protecting market competition we examine whether the political process affects antitrust reviews of merger transactions we find that acquirers and targets located in the political districts of powerful u s congressional members who serve on committees with antitrust regulatory oversight receive relatively favorable antitrust review outcomes to establish causality we use plausibly exogenous shocks to firm politician links and a falsification test additional findings suggest congressional members incentives to influence antitrust reviews are affected by three channels special interests voter and constituent interests and ideology in aggregate our findings suggest that the political process adversely interferes with the ability of antitrust regulators to provide independent recommendations about anticompetitive mergers

competition in bureaucracy and corruption abstract this paper studies the consequences of introducing competition between bureaucrats firms are supposed to invest into eliminating negative externalities of production while bureaucrats administer the process by issuing licences some bureaucrats are corrupt that is they issue a licence to any firm in exchange for a bribe the competition regime is found to create more ex ante incentives for firms to invest while the monopoly regime is better at implementing ex post allocation that is distributing the licences given the firms investment decisions additional results on the effect of punishments and bureaucrats rotation are provided

when two wrongs make a right second best point nonpoint trading ratios most research on point nonpoint trading focuses on the choice of trading ratio the rate point source controls trade for nonpoint controls although the first best ratio is jointly determined with the optimal number of permits in practice program managers often do not have control over the number of permits only the trading ratio the trading ratio in this case can only be second best we derive the second best trading ratio and using a numerical example of trading in the susquehanna river basin we find the values are in line with current ratios but for different reasons than those that are normally provided

captured by technology how material agency sustains interaction between regulators and industry actors this paper examines how environmental regulation is made operational when it legislates for modifications rather than the banning of products or substances the continued circulation of such products draws attention to the heterogeneous conditions of their use and allows industry actors to accumulate evidence of the products polluting effects over time we find that this agentic quality of materials including products and sites of application is a vital and so far largely ignored dimension in the relationship between environmental regulation and innovation this is captured in a process we term interactive stabilization which describes how material agency becomes a focus for interactions between regulatory and industry actors we develop our argument through an in depth case study of the environmental regulation of production chemistry and identify three interactive processes formulating regulatory principles operationalizing these principles through technical documentation and calculation and incremental innovation as used by chemists to address clients varied material problems in production we trace stabilizing and destabilizing effects across these three processes and draw particular attention to the role of uncertainty in the operationalization of precaution as a regulatory principle we argue that this uncertainty may lead to a form of regulatory capture that we frame as technological capture this refers to how industry actors are able to test the limits of regulatory principles and calculations and on occasion contest these through their applied science capabilities

institutions and government controls abstract this paper develops a model of government policy toward industrial control and regulation that sheds light on the determinants of differential country experiences in terms of organizational arrangement and enterprise performance in contrast to the model developed by shleifer and vishny shleifer a vishny r w 1994 politicians and firms quarterly journal of economics 109 995 1025 shleifer a vishny r w 1998 the grabbing hand government pathologies and their cures harvard univ press cambridge ma which suggests that government controls over firms come about when politicians can use public funds to buyoff the managers and solicit their cooperation in politically motivated redistribution of rents the present shows that it may be the ability to use the government s regulatory powers at discretion that encourages politicians to impose controls on firms and redistribute their rents the model implies that the politicians appetite for intervention tends to be greater when the cost of collecting and using public funds is higher which is the opposite of what the shleifer vishny model predicts the present model helps explain the puzzling observation that countries with poor institutions are more likely to impose extensive controls on production and maintain large and inefficient public sectors the model also sheds light on a variety of other stylized facts and puzzles and offers new hypotheses to be tested

regulatory responses to large format transnational retail in south east asian cities aggressive internationalisation by transnational chains is changing the face of the urban environment in much of emerging asia in south east asia the period following the asian financial crisis o

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

essential facility financing and market structure abstract the paper analyzes the funding of an infrastructure project when an incumbent operator has private information about market profitability and the regulator does not have access to taxpayers money an open access policy raises welfare but may make the project non viable since funding must be provided by operators capital contributions we characterize the optimal market structure the regulator can ask the incumbent to bear a higher share of investment cost if the latter insists on an exclusive use yet the incumbent is willing to pay more for exclusivity the higher the demand that is precisely when competition yields the highest benefits at the optimum the incumbent s information is not used to determine market structure we further investigate the implications of this basic result in a dynamic context we show that the monopoly franchise policy is time consistent while an open access policy is not we also demonstrate that a threat of regulatory capture creates an open access presumption last we show that when the decision involves multiple projects monopoly segments should cross subsidize open access ones

beneficial collusion in corruption control the case of nonmonetary penalties abstract we analyze a corruption model where a principal seeks to control an agent s corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor the principal s objective is to minimize the overall costs made up of enforcement costs and social costs of corruption if the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side transfers the principal may stand to benefit by allowing supervisor agent collusion this benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor

industrial policy in an imperfect world theoretical analyses of industrial policy normally restrict the range of possible outcomes by abstracting from either market or government failures this paper thus studies industrial policy and its effectiveness in a model that includes both market and government imperfections we introduce a public agency responsible for industrial policy into the model of hausmann and rodrik 2003 and assume that this agency has limited information and is partly politically motivated we further extend the model to allow the public agency to communicate with entrepreneurs and the entrepreneurs to engage in rent seeking we find that industrial policies are ineffective if the public agency is poorly informed but that they are not necessarily ineffective if the public agency is highly politically motivated given a highly politically motivated public agency industrial policies are effective if and only if the institutional setting ensures that such policies are modest e g by restricting the public agency s budget moreover our model helps us to understand why the same industrial policies that have failed elsewhere have been relatively successful in south korea and taiwan

agricultural runoff as a nonpoint externality a theoretical development the purpose of this paper is to develop and explore a theory dealing with an important facet of agricultural runoff problems agricultural runoff is a nonpoint externality with notable implications for both research and policy a nonpoint externality exists whenever the externality contributions of individual economic agents cannot be practically measured by direct monitoring without monitoring regulations on emissions cannot be enforced and charges or subsidies cannot be assessed thus policies which are usually suggested for pollution abatement are not available there is great need for a theoretical base that can adequately capture these facts such a theory yields some important implications even before specific empirical applications the economic problem of agricultural runoff can be separated into three distinct categories first the sediment nutrients and chemicals removed by runoff represent a loss of resources to the individual farmer these costs are borne privately by farmers second if the discount rate of the individual farmer is greater than the social discount rate or if the farmer has a planning horizon which is shorter than society s the farmer will mine the soil resource at a rate which is more depletive than is socially optimal this is a temporal externality a third category involves the conservation of mass physical resources lost by the individual farm must appear elsewhere in the environment in sufficient quantities these resources are pollutants since water is the primary transport media for these resources it is water that is polluted by soil nutrients and agricultural chemicals this spatial externality has been the focus of much research here we intend to develop a theory for these issues to employ it to suggest a revised research methodology and to provide some important conclusions about alternative runoff policies only two of the three categories of agricultural runoff problems involve externalities and only the spatial externality is considered here

is the international convergence of capital adequacy regulation desirable the merit of international convergence of bank capital requirements in the presence of divergent closure policies of diierent central banks is examined the lack of a complementary variation between minimum bank capital requirements and regulatory forbearance leads to a spillover from more forbearing to less forbearing economies and reduces the competitive advantage of banks in less forbearing economies linking the central bank s forbearance to its alignment with domestic bank owners it is shown that in equilibrium a regression toward the worst closure policy may result the central banks of initially less forbearing economies also adopt greater forbearance i analyze the joint design of two bank regulatory mechanisms minimum capital requirements which are an ex ante mechanism to prevent bank failures and closure policy which is an ex post mechanism to manage the cost of bank failures at the heart of the paper is a simple but fundamental point ex post policies affect ex ante incentives and hence the design of an ex ante mechanism must take into account any feedback from the ex post policies the optimal design of capital requirements is thus tied to the extent of forbearance exercised by the central bank s closure policy this warrants a closer scrutiny of the merits of creating a level playing eld in capital requirements across countries as proposed and

competition and corruption in an agency relationship abstract the paper reconsiders the relationship between competition and corruption in a model where corruption has solid informational foundations and where the regulatory response to the possibility of corruption is taken into account it is shown that the effect of greater competition on corruption depends on the complementarity or substitutability of the two instruments available to decrease information rents namely low powered incentives and greater competition the paper concludes with a brief empirical exploration of the relationship between competitiveness and corruption on african data

the regulation of multiproduct firms part i theory abstract this paper develops a normative model of the regulation of a multiproduct firm with private information about its technology and cost reducing activity it first characterizes the optimal regulatory scheme and illustrates it through examples it then derives necessary and sufficient conditions for the pricing incentive dichotomy to hold i e conditions under which the cost reimbursement rule but not pricing is used to provide incentives last the paper studies the regulation of the multiproduct firm in a general equilibrium framework both to assess the validity of the partial equilibrium approach and to formalize the notion of taxation by regulation

a simple approach to interest rate option pricing a simple introduction to contingent claim valuation of risky assets in a discrete time stochastic interest rate economy is provided taking the term structure of interest rates as exogenous closed form solutions are derived for european options written on 1 treasury bills 2 interest rate forward contracts 3 interest rate futures contracts 4 treasury bonds 5 interest rate caps 6 stock options 7 equity forward contracts 8 equity futures contracts 9 eurodollar liabilities and 10 foreign exchange contracts article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

public private partnerships and government spending limits abstract we consider public private partnerships in which a public official selects a project that is then developed and operated by a private contractor we derive optimal public accounting rules when the official s choice among projects is biased by ideology or social ties or because of pandering to special interests we give particular emphasis to how the rules should constrain the official s incentive to understate the costs of her pet projects in the basic model we show that the optimal accounting rule takes the form of a budget cap with a project s expected cost modified to reflect the official s distortionary incentives if the project can be partially financed privately then fixed price contracts can serve to curb political misbehavior by securitizing public sector liabilities we also consider the possibility that development and operations are each handled by different contractors such unbundling deprives public accountants of forward information about future costs but can prevent the official from funneling hidden future rents to contractors

collusion in a three tier hierarchy credible beliefs and pure self interest abstract the assumption of a purely self interested supervisor in the principal supervisor agent framework gives rise to the possibility of supervisor agent collusion in this paper i show that equilibrium refinement assumptions on type belief updating during side contract negotiations can guarantee that collusion occurs even if the principal is allowed to manipulate the incentives in the contract he offers the only way to prevent collusion is to ignore the supervisor thus the role of a purely self interested supervisor in this case is questioned lastly i discuss some plausible alternatives and explanations of the assumption of pure self interest

on monitoring and collusion in hierarchies abstract this paper studies a stylized three layer agency framework in which a principal hires a supervisor to monitor an agent s productive effort it is demonstrated that the possibility of collusion imposes no additional cost on the principal if the supervisor s report is hard information i e monitoring evidence can only be concealed and not forged this result holds irrespective of the nature of the penalty that can be imposed on the agent the findings suggest that it is strictly better for the principal to monitor the agent s action rather than to audit the agent s private information journal of economic literature classification numbers d82 l23

sustaining long term supply chain partnerships using price only contracts abstract in this paper we study how an informal long term relationship between a manufacturer and a retailer performs in turbulent market environments characterized by uncertain demand we show that the long term partnership based on repeated interaction is sustainable under price only contracts when the supply chain partners are sufficiently patient that is the channel can be coordinated over a long time horizon when the factor whereby the members discount the future value of this trusting relationship is sufficiently high second above the minimum discount factor a range of wholesale prices exists that can sustain the long term partnership and there are different possible profit divisions between the two players third when the market is turbulent i e either the expected demand or the demand variance changes from period to period according to a probabilistic law it is typically less possible to sustain the long term partnership in a booming market or in a market with low demand variability finally obtaining more information about future market fluctuation may not help the supply chain to sustain the long term partnership due to partners strategic considerations with the availability of the market signal total supply chain profits increase but the retailer may even be worse off

when ideas trump interests preferences world views and policy innovations the contemporary approach to political economy is built around vested interests elites lobbies and rent seeking groups which get their way at the expense of the general public the role of ideas in shaping those interests is typically ignored or downplayed yet each of the three components of the standard optimization problem in political economy preferences constraints and choice variables rely on an implicit set of ideas once the manner in which ideas enter these frameworks is made explicit a much richer and more convincing set of results can be obtained in particular new ideas about policy or policy entrepreneurship can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power

regulatory policy oecd experience and evidence in the past 20 years a key topic of public sector reform in oecd countries has been the emergence of regulatory policy during this period the nature of regulation has undergone profound and rapid change this paper reviews the development of regulatory policy in oecd countries over the last quarter century it identifies a range of tools and institutions that have been used by oecd countries to develop high quality regulation the analysis attempts to show that while there is considerable commonality on broad objectives of regulatory policy considerably diversity remains in the implementation of regulatory policy across oecd countries copyright 2006 oxford university press

private politics and public regulation public regulation is increasingly facing competition from private politics in the form of activism and corporate self regulation however its effectiveness welfare consequences and interaction with public regulation are poorly understood this article presents a unified dynamic framework for studying the interaction between public regulation self regulation and boycotts we show that the possibility of self regulation saves on administrative costs but also leads to delays without an active regulator firms self regulate to preempt or end a boycott and private politics is beneficial for activists but harmful for firms with an active regulator in contrast firms self regulate to preempt public regulation and private politics is harmful for activists but beneficial for firms our analysis generates a rich set of testable predictions that are consistent with the rise of private politics over time and the fact that there is more self regulation and activism in the u s while public regulation continues to be more common in europe

the congressional bureaucratic system a principal agent perspective with applications to the sec this paper provides the theoretical perspective and empirical support for congressional dominance of agency decisions my thesis is twofold first because much of the previous evidence on this question is not evidence at all many scholars intuition and conclusions are based on a logically flawed foundation second i have provided here and in previous work a look at a variety of different agencies and in each case have shown how the events can plausibly be interpreted as involving congress agency problems within the congressional bureaucratic system are real and substantial just as they are within corporations however as in the latter institutional forms develop within the congressional system to partially if not wholly mitigate these problems the logical perspective together with the evidence provide a strong case against the agency dominance hypothesis as typified by the early sections of niskanen 1971 and wilson 1980

tirole s industrial regulation and organization legacy in economics jean tirole was awarded the 2014 sveriges riksbank prize in economic sciences in memory of alfred nobel for his analysis of market power and regulation this paper provides an overview of some of that work and of his related contributions to game theory

the politics of government decision making a theory of regulatory capture the paper develops an agency theoretic approach to interest group politics and shows the following 1 the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation 2 the threat of producer protection leads to low powered incentive schemes for regulated firms 3 consumer politics may induce uniform pricing by a multiproduct firm 4 an interest group has more power when its interest lies in inefficient rather than efficient regulation where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal congress

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

fixed income linked life insurance policies with minimum guarantees pricing models and numerical results abstract we propose a pricing model for life insurance policies in which the benefits are linked to the performance of a portfolio of interest rate sensitive assets reference fund and a minimum guarantee provision is present the model is cast in the celebrated term structure framework developed by cox ingersoll and ross 1985 as for the behaviour of the investment component we analyse two polar cases in the first one the payments due on the reference fund when the contract is still alive are not reinvested while in the second case we propose a reinvestment policy we show how to obtain a closed form solution for the single premium in the no reinvestment case and how to implement a simulation approach to calculate numerically the single premium in the reinvestment case we illustrate our analysis with numerical results that help in understanding the comparative static properties of the models proposed

the domestic politics of banking regulation this article seeks to ground financial regulatory choices in domestic politics based on evidence from twenty two industrialized countries we argue that electoral rules specifically the extent to which they are centrifugal or centripetal have a significant effect on whether the banks or their consumers pay for the security of the banking system moreover despite the homogenizing effects of global financial integration the political dynamics generated by these electoral rules continue to shape the nature and extent of prudential regulations that countries adopt in the place of banking cartels

pressure groups and experts in environmental regulation we study a problem of adverse selection in the context of environmental regulation where the rm may suffer from a certain degree of ignorance about its own type in this framework we analyze the impact on the regulatory process of the presence of informed third parties we study and compare the role of environmentalists and of unbiased experts our analysis allows us to support the spirit of the actual e u legislation concerning the assessment of the impact of public and private projects on the environment and provides insights about the potential role of interested parties as information providers in a regulatory process jel classi cation d82 l51

when is the optimal lending contract in microfinance state non contingent whether a micro nance institution should use a state contingent repayment or not is very important since a state contingent loan can provide insurance for borrowers however the classic grameen bank used state non contingent repayment which is puzzling since it forces poor borrowers to make their payments even under hard circumstances this paper provides an explanation to this puzzle we consider two modes of lending group and individual lending and for each mode

european competition policy in manufacturing and services a two speed approach the paper examines whether differences in the nature of competition between manufacturing and service activities are reflected by similar differences in ec competition the two differences between manufacturing and services which are mainly emphasized are local versus global competition and regulatory controls the paper finds that the implementation of ec competition policy instruments has differed significantly between manufacturing and services in terms of both the time profile and the type of instrument it also finds that the conflicts between competition industrial and trade policies are generally far greater in manufacturing than in services because trade offs between competition and competitiveness are less likely in the latter copyright 1993 by oxford university press

does the political power of nonfinancial stakeholders affect firm values evidence from labor unions whereas corporate political connections are known to enhance equity values we demonstrate that union political activity can have the opposite effect we examine the consequences of a recent australian state law that restricts union political activity but does not change collective bargaining rights in the wake of this law the equity values of affected unionized firms significantly increase and consistent with this market reaction these firms are able to bargain for more favorable labor contracts than their unionized peers in other states the evidence strongly suggests that unions use political activism to extract rents from shareholders and benefit their members

red tape and corruption abstract we study the emergence and interaction of red tape and corruption in a principal bureaucrat agent hierarchy the principal is to provide the agent with a unit of a good that involves externalities so that market mechanisms fail to achieve first best red tape produces information but is costly to the agent and is administered by a corrupt bureaucrat first the bureaucrat may extort bribes from the agent in exchange for reducing the amount of red tape second the bureaucrat may take bribes to conceal the information produced through red tape even though the former kind of corruption tends to reduce red tape we show that the equilibrium level of red tape is above the social optimum

to what extent are eu steel companies susceptible to competitive loss due to climate policy abstract in recognition of their competitive vulnerability a set of special rules have been devised for managing sectors such as iron and steel within the eu ets under these rules the eu steel sector has received free allocations in excess of their compliance needs to now and will continue to receive some free allowances up to 2020 however perceptions of the sector s competitive vulnerability have been largely based on inherently hypothetical analyses which rely heavily on counterfactual scenarios and abatement cost estimates often provided by firms themselves this paper explores how the three largest steel firms in the eu acerlormittal corus and thyssenkrupp have sought to strategically exaggerate their vulnerability to carbon pricing to the effect of an inefficient policy outcome we conduct a qualitative assessment of two of the key narratives underpinning the competitive vulnerability argument of eu steel companies lack of abatement opportunities and inability to pass through cost increases based on interviews case studies and publicly available data we find that these arguments provide only partial and weak justifications for competitive loss and preferential treatment under the eu ets the strategy however remains successful due to information asymmetry and the peculiar political economy of eu climate regulation

endogenous risk and point nonpoint uncertainty trading ratios point nonpoint trading enables highly uncertain nonpoint pollution abatement to be substituted for relatively certain point source pollution abatement market designers use uncertainty trade ratios to address imperfect substitution between these commodities guidance from government agencies and other entities recommends large ratios that penalize trades for nonpoint abatement and extant programs universally implement this guidance previous research has shown that the standard guidance is based on an inappropriate framing of the risk effects of substituting nonpoint for point source pollution abatement and has demonstrated that the trade ratios should be set to encourage or discourage substitution depending on whether the substitution is risk reducing or risk increasing however the pigouvian pricing approach used to develop this result obscures the underlying economic calculus because it does not recognize or characterize the tradeoffs between abatement costs savings and environmental risk that must be considered in an economic evaluation of alternative ratios and that would be key to explaining why ratios recommended by economic analysis would be preferred to received wisdom we develop a new approach that explicitly identifies and characterizes the tradeoffs associated with the choice of ratio the approach is examined both in first best settings where trade ratios and initial permit allocations are jointly determined and in second best settings where permit allocations are taken as given we provide a numerical analysis of trading in the susquehanna river basin in pennsylvania to illustrate theory we find theoretical and numerical support suggesting that smaller ratios may be optimal

merchants of corruption how entrepreneurs manufacture and supply bribes summary we wondered how corruption endemic in nigeria is experienced by a specific and understudied set of actors entrepreneurs semi structured interviews with founders ceos of firms in three industries associated with high levels of corruption revealed entrepreneurs rather than victims of bribe demanding government agents are themselves active perpetrators of bribery adopting a set of bribery best practices governed by a well embedded set of social norms rules routines and power relations to deliberately subvert formal state budgetary systems while reforming institutions is a key focus of anti corruption policies in many sub saharan african countries our results suggest a bottom up approach to remediation based on understanding the practice from the perspective of those who actively engage in it

delegated monitoring versus arm s length contracting abstract this paper analyzes the optimal organization of input suppliers in a procurement context we discuss when a top firm chooses to induce information sharing and active coordination between its suppliers consolidation rather than having them contract at arm s length delegation in designing the organization the firm anticipates that different supplier networks have different costs of inducing information revelation from suppliers when the cost of information sharing varies the optimal organization exhibits various discrete degrees of consolidation there is excessive arm s length contracting compared to the case where the top firm controls this organizational choice itself the paper offers also a methodology to study in a unified framework various organizational forms separately analyzed in the literature

collusion and biased tournaments abstract tournaments are vulnerable to collusion this paper finds that biased tournaments can be more effective at preventing collusion than unbiased ones when agents can collude to exert low effort introducing some bias into tournaments generates opposite effects on favored and disfavored agents respective incentives to exert high effort and provides strong incentives for the favored agent to deviate from collusion introducing an adequate degree of bias reduces the principal s incentive cost for preventing collusion however granting excessive bias instead increases the incentive cost we show that the optimal level of bias can be endogenously determined

an empirical test of the resource based theory strategic regulation in the dutch audit industry the resource based view of the firm is a recent strategic management theory that seeks to identify the resources that may provide firms with a sustainable competitive advantage this paper has two purposes first the paper relates strategic management arguments to parallel lines of reasoning in industrial organization theory and argues that strategic regulation is a major source of sustainable competitive advantage the second purpose of the paper is to report the results of an empirical test of the resource based theory on the basis of a longitudinal data set on the postwar history of the dutch audit industry a key determinant of this history proves to be strategic regulation which stimulates demand for audit services and protects rent producing resources

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

the market impact and the cost of environmental policy evidence from the swedish green car rebate we quantify the effects of the swedish gcr a program to reduce oil dependence and greenhouse gas emissions in the automobile industry we find the gcr to increase the market shares of green cars and its cost to be 109 tonco2 saved thus 5 times the price of an emission permit since the main green cars in sweden are ffvs flexible fuel vehicles which can switch between petrol gasoline and ethanol we also account for fuel choice which increases the cost of the program finally we show that consumers would have purchased ffvs regardless of the rebate provided by the gcr

the impact of standards and regulation on innovation in uncertain markets abstract this study analyses the impact of formal standards and regulation on firms innovation efficiency considering different levels of market uncertainty we argue that formal standards and regulation have different effects depending on the extent of market uncertainty derived from theoretical considerations about information asymmetry and regulatory capture our empirical analysis is based on the german community innovation survey cis the results show that formal standards lead to lower innovation efficiency in markets with low uncertainty while regulations have the opposite effect in cases of high market uncertainty we observe that regulation leads to lower innovation efficiency while formal standards have the reverse effect our results have important implications for the future application of both instruments showing that their benefits heavily depend on the market environment

endogenous public sector budgeting to centralize or not in this paper the impact of budget size on a government s choice to centralize or decentralize the budgetary process is investigated using asymmetric information differing preferences and endogenous budgetary arrangements the central government chooses between a budgetary process that excludes the regional board centralization and one that includes the board decentralization in the determination of program budget levels it is predicted that the central government will decentralize the budgetary process at low and centralize at high overall budget levels switching from decentralization to centralization is predicted to

honest certification and the threat of capture abstract this paper derives conditions under which reputation enables certifiers to resist capture these conditions alone have strong implications for the industrial organization of certification markets 1 honest certification requires high prices that may even exceed the static monopoly price 2 honest certification exhibits economies of scale and constitutes a natural monopoly 3 price competition tends to a monopolization the results derive from a general principle of reputation models that favors concentration this principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms

attitudes toward catastrophe in light of climate change and other global threats policy commentators sometimes urge that society should be more concerned about catastrophes this paper reflects on what society s attitude toward low probability high impact events is or should be we first argue that catastrophe risk can be conceived of as a spread in the distribution of losses based on this conception we review studies from decision sciences psychology and behavioral economics that explore people s attitudes toward various social risks contray to popular belief we find more evidence against than in favor of catastrophe aversion the preference for a mean preserving contraction of the loss distribution and discuss a number of possible behavioral explanations next we turn to social choice theory and examine how various social welfare functions handle catastrophe risk we explain why catastrophe aversion may be in conflict with equity concerns and other regarding preferences finally we discuss current approaches to evaluate and regulate catastrophe risk

fiscal corruption a vice or a virtue abstract recent literature on tax administration in poor countries suggests there are virtues in allowing fiscal corruption by strengthening the bargaining power of corrupt tax officers it is argued that tax evasion may be reduced and tax revenues increased but does such an intriguing paradox justify policies that stimulate corruption our answer is no and this note puts forward three arguments to support our view first while an increase in corruption may raise revenues in the short run in general the opposite will be the case in the longer run second the instrumental value of reducing corruption goes far beyond its effects on tax evasion and tax revenues accepting corruption as a policy strategy to increase tax revenues may undermine values of democracy and good governance third eliminating corruption should be considered an end in itself thus contrary to recent suggestions on incentive reforms in tax administration the reasonable starting point for policy debates in this area should still be that an increase in fiscal corruption is not an appropriate instrument for raising tax revenues sustained development cannot occur in an institutional framework that fosters corruption and extra legal tax enforcement

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

tax competition rent seeking and fiscal decentralization abstract the present paper provides a basis for evaluating fiscal decentralization of expenditure and tax responsibilities by encompassing the literature on tax competition and rent seeking both tax and rent seeking competitions are conceived of as being wasteful and self defeating we find that rent seeking activities account for political distortions which may be mitigated in the process of fiscal decentralization while tax competition results in economic distortions associated with decentralization welfare evaluation should be based on the balance of the political gain and the economic cost

being virtuous and prosperous sri s conflicting goals can sri be a means to make investors both virtuous and prosperous this paper argues that there can be significant tensions between these goals and that sri and indeed all investment should not allow the pursuit of maximizing investment returns to prevail over an ethical agenda of promoting social and economic justice and environmental protection the discourse on sri has changed dramatically in recent years to the point where its capacity to promote social emancipation sustainable development and other ethical goals is in jeopardy historically sri was a boutique sector of the market dominated by religious based investors who sought to invest in accordance with the tenets of their faith from the early 1970s the aspirations of the sri movement morphed significantly in the context of the divestment campaign against south africa s apartheid regime no longer were social investors satisfied with just avoiding profit from immoral activities instead they also sought to change the behavior of others business case sri is a problematic sri benchmark for several reasons often there is a countervailing business case for financing irresponsible activities given the failure of markets to capture all social and environmental externalities secondly even if investors care about such concerns there may be no means of financially quantifying their significance for investment purposes and thirdly even if such factors can be financially quantified they may be deemed to be such long term financial costs or benefits that they become discounted and ignored the ethics case for sri and ethical business practices more generally takes the view that both investors and the companies they fund have ethical responsibilities that trump the pursuit of profit maximization ethical investment should be grounded on this foundation however it may not be enough to keep ethical investment ethical will likely require institutionalizing new norms and governance standards in such domains as reforming fiduciary duties and the internal governance of financial organizations sri s own codes of conduct including the unpri have yet to demonstrate the robustness to move the financial community beyond business as usual

optimal trading ratios for pollution permit markets abstract we demonstrate a novel method for improving the efficiency of pollution permit markets by optimizing the exchange of emissions through trade under full information it is optimal for emissions to exchange according to the ratio of marginal damages under asymmetric information we derive necessary conditions for the marginal damage trading ratios to be optimal illustrate that the marginal damage trading ratios are generally not optimal and show how to improve efficiency using optimal trading ratios we calculate the optimal trading ratios for a global carbon market the gains from using optimal trading ratios rather than marginal damage trading ratios range from substantial to trivial which suggests the need for careful consideration of asymmetric information when designing permit markets

differences in social and public risk perceptions and conflicting impacts on point nonpoint trading ratios if stochastic nonpoint pollution loads create socially costly risk then an economically optimal point nonpoint trading ratio the rate point source controls trade for nonpoint controls is adjusted downward a risk reward for nonpoint controls encouraging more nonpoint controls however in actual trading programs ratios are adjusted upward in response to nonpoint uncertainties a risk premium for nonpoint controls this contradiction is explained using a public choice model in which regulators focus on encouraging abatement instead of reducing damages the result is a divergence of public and social risk perceptions and a trading market that encourages economically suboptimal nonpoint controls copyright 2001 oxford university press