social security liquidity constraints and pre retirement consumption one of the primary goals of the social security retirement program is the maintenance of consumption in old age in the past decade since the pioneering paper by feldstein 13 studies have examined the impact of the system on consumption over the entire life cycle and not just in old age empirical work has tested the impact on consumption of the individual wealth transfers accompanying the introduction of a pay as you go social security system extending this discussion of the impact of social security on pre retirement consumption hubbard 21 has shown in the context of lifetime uncertainty that even an actuarially fair fully funded social security system can raise lifetime consumption hence previous partial equilibrium estimates of the impact of social security on consumption drawn solely from consideration of the intergenerational wealth transfer at the introduction of the system are underestimates of the potential effect 2 an important assumption in the approaches cited above is that of perfect capital markets i e that individuals can borrow against prospective gains from participating in the social security system such an assumption is at variance with actual limitations on borrowing e g upward sloping interest rate schedules collateral requirements and quantity restrictions hayashi 18 found that approximately twenty percent of all consumption in the u s is accounted for by liquidity constrained consumers 3 flavin 16 found that the estimate of the marginal propensity to consume is affected dramatically by the inclusion of proxies for liquidity constraints suggesting that liquidity constraints are an important part of the observed excess sensitivity of consumption to current income since its inception in 1935 old age and survivors insurance oasi provided

bribes lobbying and development paign contributions or influence buying through other means as an activity that is aimed at changing existing rules or policies we view bribery in contrast as an attempt to bend or get around existing rules or policies the analysis contrasts these two means of influencing politics we use the labels lobbying and bribery for convenience and not because they are perfect defini tions for the two rent seeking activities we study in reality bribery and lobbying differ in several di mensions first lobbying is a legal and regulated activ ity in many countries whereas bribery is not second a change in the rules as a result of lobbying often af fects an entire industry whereas the return to bribery is more firm specific third a government that ponders a change in the rules might have quite different concerns than a bureaucrat considering a bribe our model cap tures all these differences possibly the most important difference however and the driving assumption in the model is that bending the rules is only temporary bu reaucrats can seldom commit to not asking for bribes in the future because corrupt deals are not enforceable in courts and because firms deal with different officials over time a legislative change on the other hand al ters the status quo and is therefore likely to last longer although policies and politicians also change over time our key assumption is that changing the rules is long lasting relative to bending them 2

political donations and the allocation of public procurement contracts abstract we study whether and when firms donations to political parties induce favouritism in public procurement allocations our analysis builds on a unique comprehensive dataset covering all public procurement contracts and all corporate donations to major political parties in the czech republic over the period from 2007 to 2014 and exploits changes in political control over regional governments within this period for identification purposes we find that firms donating 10 more to a political party gaining losing power witness an increase decrease in the value of their public procurement contracts by 0 5 0 6 importantly and in line with theoretical expectations these effects only arise for contracts allocated under less restrictive procurement allocation processes assessing the underlying mechanisms we show that donating firms receive more small contracts allocated under less regulated procurement procedures face less competition in more regulated and open procurement procedures and tend to win with bids further above the estimated cost of the procurement contract

international effects of tax reforms in an open economy with international capital flows there is an equivalence relation between income tax consumption tax international borrowing tax and an external interest earning tax this paper analyzes tax reform involving shifts between income and consumption taxes in this setting it is shown that the real effects of such revenue neutral tax reform depend critically on the country s current account position and the nature of the reform in particular whether the world interest rate rises or falls as a consequence of a budget deficit depends on the tax system in force the analysis provides a clear rationale for the international coordination of tax policies copyright 1989 by royal economic society

urban bias revisited in his book why poor people stay poor the author has argued that urban bias is the moving force behind needlessly slow and inequitable growth in contemporary developing countries this claim is defended against three main criticisms that the methods chosen to test it are not appropriate that the evidence tendered is not relevant or sufficient and that the rural urban polarity is not clear cut or does not represent the prime conflict within contemporary developing countries

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

legal standards enforcement and corruption stricter laws require more incisive and costlier enforcement because enforcement activity depends both on available tax revenue and the honesty of officials the optimal legal standard of a benevolent government is increasing in per capita income and decreasing in officials corruption in contrast to the tollbooth view of regulation the standard chosen by a self interested government is a non monotonic function of officials corruption and can be either lower or higher than that chosen by a benevolent regulator international evidence on environmental regulation shows that standards correlate positively with per capita income and negatively with corruption consistent with the model s predictions for benevolent governments jel d73 k42 l51

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

enforcement for sale lobbying for water in pakistan s indus basin abstract surface irrigation is a common pool resource subject to over exploitation by upstream users we ask to what extent state enforcement of de jure water allocations designed to ensure adequate irrigation to downstream users is up for sale unique data on the land ownership of nearly a quarter million irrigators in pakistan s vast indus basin watershed provide a measure of political influence consistent with an influence driven model the decline in water availability and land values from head to tail is accentuated along channels having greater lobbying power at the head and attenuated along channels having greater lobbying power at the tail our paper shows how power disparities can be leveraged through the administrative state to capture valuable common resources

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

competition among officials and the abuse of power traditional economic theory suggests that competition among officials providing government goods tends to reduce corruption however empirical evidence does not yet support this view in this paper i show that a corrupt and powerful central authority can use competition among officials to amass resources for itself while competition reduces corruption at the lower level of government corruption at the higher level of government is increased to avoid widespread theft from the central authority competing officials are monitored more intensively than a monopolist hence even though competition among officials generates more consumer surplus it may reduce welfare

bureaucracy intermediaries corruption and red tape abstract intermediaries that assist individuals and firms with the government bureaucracy are common in developing countries although such bureaucracy intermediaries are anecdotally linked with corruption and welfare losses few formal analyses exist we introduce a model in which a government license can benefit individuals we study the net license gain when individuals get the license through the regular licensing procedure through bribing or through intermediaries for a given procedure individuals using intermediaries are better off than if intermediaries and corruption had not existed then we study the incentives of corrupt bureaucrats to create red tape bureaucrats implement more red tape and individuals are unambiguously worse off in a setting with intermediaries than with direct corruption only intermediaries can thus improve access to the bureaucracy but also strengthen the incentives to create red tape a potential explanation why licensing procedures tend to be long in developing countries

managing innovation optimal incentive contracts for delegated r d with double moral hazard abstract managing innovation involves double moral hazard because the principal delegates r d to a specialized agent and then makes decisions to apply the resulting invention double moral hazard is significant because innovation by the principal implies that the optimal incentive contract satisfies monotonicity conditions the analysis shows that the optimal incentive contract for delegated r d is an option delegated r d with simultaneous sampling results in shirking but delegated r d with sequential sampling attains the efficient outcome the analysis considers a combined problem with simultaneous and sequential search and gives sufficient conditions under which delegated r d attains the first best the discussion also considers delegated r d with stochastic innovation and with stochastic quality of inventions

institutional development the world bank and india s new agricultural extension programme the new world bank sponsored and funded training and visit system of agricultural extension represents a major attempt by the bank to promote institutional development the very considerable investment has in fact resulted in little change or improvement in the quality of extension the reasons lie in failure to analyse the cause of the weakness of the previous extension systems inherent defects of the training and visit system and the way in which it has been introduced into india these failures in turn can be explained by the interests and the politics underlying the programme

the management of irrigation systems how to evoke trust and avoid prisoner s dilemma abstract the performance of canal irrigation systems depends partly on trust by farmers in the good faith and abilities of irrigation officials in india this trust is typically lacking there is instead a prisoners dilemma type syndrome of anarchy under the canals in which farmers lack the confidence that if they refrain from taking water out of turn they will get water on time and officials lack the confidence that if they work conscientiously to deliver the water on time farmers will refrain from rule breaking in east asia this syndrome of irrigation anarchy scarcely exists the reasons for the difference are partly to do with agro climatic conditions but they are also related to policy relevant variables of physical design and organizational arrangements within the constraints of agro climatic conditions features of east asian design and organization might usefully be transferred to indian conditions including break point reservoirs irrigation scheduling and monitoring separation of construction organization from operations and maintenance organization and catchment based operating agencies with their own revenue base

tax policies and the financially constrained farm household this article analyzes the implications of income profit and consumption taxes on the economic decisions of financially constrained farm households within a dynamic intertemporal framework the most important results are that replacing a profits tax with a consumption tax would lead to increases in on farm work farm income and farm production in the short run capital accumulation would be enhanced leading to similar effects in the long run if an income tax is replaced with a consumption tax similar expansive effects would occur in the intermediate and long run but in the short run there would be no effect on farm production

the impact of corruption on investment predictability matters abstract this paper argues that it is not only level of corruption that affects investment but also the nature of corruption corruption regimes that are more predictable in the sense that those seeking favors from government do obtain those favors have less negative impact on investment than those that are less predictable using the data collected by world bank in preparing the world development report of 1997 we provide empirical support for the conjecture

conversion to a consumption tax the transition in a life cycle growth model this paper examines the transitional losses that may follow conversion from an income tax to a consumption tax even when conversion eventually raises steady state lifetime welfare two recent studies have left the impression that the transitional losses would be large using a life cycle growth model this paper examines two reasons why these studies have probably overestimated the transitional losses the model computes the welfare gains and losses of each age cohort along the transition path it is shown that the greater the bequest motive and subjective discount rate generating the particular initial income tax steady state the smaller would be the transitional losses similarly a policy of age phasing would reduce the losses the results demonstrate the importance of examining the transition path whenever a policy change alters capital accumulation

contracting with repeated moral hazard and private evaluations a repeated moral hazard setting in which the principal privately observes the agent s output is studied the optimal contract for a finite horizon is characterized and shown to require burning of resources these are only burnt after the worst possible realization sequence and the amount is independent of both the length of the horizon and the discount factor for the infinite horizon it is shown that there is no loss from restricting the analysis to contracts in which the agent receives a constant efficiency wage and no feedback until he is fired furthermore optimal contracts cannot be replicated by short term contracts a family of fixed interval review contracts is characterized longer review intervals are preferable but harder to implement comparative statics on the review length are carried out finally these contracts are shown approximate first best if players are very patient jel d82 d86

the success of a policy model irrigation management transfer in mexico abstract the mexican policy of irrigation management transfer has been widely propagated as a success and has become a model for other countries seeking to improve the performance of their irrigation systems while also cutting public expenditures this article analyses the process of policy making that has generated the policy model and follows the practices means and events through which it has achieved increasing transnational circulation popularity and support the main argument of this article is that the success of a policy model is only a success within the cultural and ideological understandings of a policy network and given the means practices and events that generate and disseminate it this particular case further suggests that success in policy making rather than being based on straightforward evidence of improved management performance is often part of a cultural performance

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

scalar politics in sectoral reforms negotiating the implementation of water policies in ecuador 1990 2008 in ecuador neo liberal reforms in the 1990s transformed the water and irrigation sector at different scales we analyze how these neoliberal reforms were implemented from the top down by the world bank and the national government as well as how from the grassroots water users negotiated these policies and their implementation at local and national level we show that these sectoral reforms were politically contested as it changed roles responsibilities and authority at different scales of governance this is evidenced by the fact that locally the relationships between water users differently scaled state agencies and broader networks greatly determined how water users associations negotiated the irrigation management transfer program as well as the development of new water policies our analysis highlights how the alliances that differently positioned actors create to navigate water policy implementation shape the scalar and the political dimensions of sectoral reforms it shows that actors need multi scalar networks of support to develop political leverage overcome opposition and materialize projects in the water governance domain

the wealth age relation among the aged aged people face the problem of allocating over the rest of their lifetimes the wealth that they have accumulated during their working years this problem is fairly complex because they are uncertain about the dates of their death and because they may wish to use their wealth to finance general consumption or hold it to meet emergencies leave estates or maintain power or status whether skilled at dynamic programming or not aged people effectively do make these decisions what are the results some studies of the entire lifetime pattern of saving and wealth tend to support the simple life cycle model in which the aged use up their wealth to help finance consumption harold lydall for example found saving rates to increase and then decrease with age in the whole population and to be negative for the group aged 65 and over guarded support for the theory was found by franco modigliani and albert ando in britain and by dorothy projector in the united states more recently a f shorrocks examined the lifetime pattern of wealth holding in estate tax data for a single cohort and found the hump pattern that is characteristic of life cycle saving other evidence on wealth holding runs contrary to this however in a study of estate tax returns in washington d c james d smith found that wealth increased with age among the aged after controlling for other demographic variables examining national estate tax data john brittain found wealth to increase with age in the united states and a b atkinson and a j harrison reported the same pattern in england and wales in a sample of tiaa annuity recipients analyzed by james mulanaphy over half reported that their total savings had increased during retirement and another quarter reported that their savings had remained about the same in this paper i examine wealth holding patterns among aged married couples using survey data representing the entire aged population of the united states in 1968 the statistical analysis serves as a test of the hypothesis that emerges from life cycle theory and provides some further exploration into the economic behavior of the aged i find that the aged tend to increase their wealth over time

the political economy of public goods some evidence from india we are interested in how public goods get allocated by a centralized state we use data on public goods and social structure from parliamentary constituencies in rural india to understand the allocation of these goods over the 1970s and 1980s national policies and political agendas during this period emphasized universal access to basic amenities and financed a rapid expansion in rural infrastructure we find evidence of considerable equalization in many of these facilities reflecting perhaps the importance of these commitments among the historically disadvantaged social groups those that mobilized themselves politically gained relative to the others measures of social heterogeneity that have been emphasized in the recent empirical literature on public goods are relevant but not overwhelming in their importance

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

modules for modernisation colonial irrigation in india and the technological dimension of agrarian change water control is central to the political economy of water distribution in large scale irrigation in india the changes in water distribution irrigation technology and agrarian development through the introduction of the block system technical devices called modules and volumetric water pricing in the nira left bank canal bombay presidency in the period 1900 40 are discussed to show the relationship of the three dimensions of water control technical managerial and socio political this analysis points to the crucial but contradictory role of the state in triggering processes of agricultural modernisation through intervention in water management the debate on the success of the block system continues to the present day but little progress has been made in designing solutions for inequality in water distribution the article suggests that liberalisation policies create political and institutional space for changing accountability relations and agricultural price regimes relevant to wa

an efficiency and welfare classification of rationing by waiting in the presence of bribery abstract governments often allocate commodities at low prices and on a first come first served basis rationing by waiting while bureaucrats who distribute the commodities usually take bribes a model is developed to classify the efficiency implications of bribery and socially optimal pricing schemes in rationing by waiting if the rationed good and individual income spent on other goods other income are complements then bribery may enhance allocative efficiency and a dual pricing scheme can augment social welfare however if the rationed commodity and other income are substitutes then bribery may not improve allocative efficiency and distributing the rationed commodity free is socially optimal

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

the effects of migration on collective action in the commons evidence from rural china summary over the past three decades scholars have studied the effects of more than three dozen factors on collective action in the commons but little is known about the effects of rural to urban migration we examine this question with the case of china which has the world s most extensive levels of rural to urban migration using ols logit and probit models and data from a survey of 1 780 households from 18 provinces we find that migration has a statistically significant adverse effect on collective irrigation controlling for a large number of theoretically relevant variables the effects of migration on collective action in the commons are possibly mediated by a number of factors frequently identified in the literature including leadership social capital sense of community economic heterogeneity and dependence on resources we speculate that massive out migration partly explains the significant drop in the use of collective canal irrigation and exacerbated the significant increase in groundwater irrigation since the start of reforms in 1980s these findings have important policy implications for commons governance in china given that massive rural to urban migration will continue in the next decade because of the increasing rural to urban migration worldwide especially in developing countries the findings could also partly explain the deteriorating state of rural village infrastructure natural common pool resources and ecological systems in many developing countries

is there an alternative for irrigation reform summary poor performance of government managed irrigation systems persists in developing countries despite numerous policy interventions over the last four decades we argue that many of these interventions have failed because they did not recognize irrigation bureaucracies as prime actors in policy change this paper examines the varied actors and agendas within irrigation bureaucracies highlighting the dichotomy between hydraulic missions on the one hand and direct service provision to farmers on the other to increase the significance of future reform bureaucracies must be considered as explicit actors and reform efforts should derive from better understanding of the farmer agency interface

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

a theory of delegated search for the best alternative searching for the best worker a reliable supply alternative or the most profitable investment is frequently delegated to an agent this article develops a theory of delegated search we show that the principal s ability to delegate depends on the agent s luck her initial resources and the contract that governs her search with moral hazard the optimal contract is characterized by performance deadlines with bonuses for early completion if performance cannot be specified the optimal search is implemented by an option to buy contract for the principal if performance is partially specified the optimal contract is a standard pay for performance arrangement

welfare effects of criminal politicians a discontinuity based approach abstract this paper uses unique data on the criminal records of indian bureaucrats to examine the relationship between politicians criminality and consumption crime and corruption the identification relies on a regression discontinuity design by which individuals living in districts where a criminal politician was barely elected are compared with individuals living in districts where a criminal politician barely lost the results show that criminal politicians decrease consumption by vulnerable sections of society the monthly per capita expenditure of scheduled castes scheduled tribes or other backward classes decreases by 19 percent this paper suggests that the effect of criminal politicians on criminality and corruption may explain this result

obtaining a driver s license in india an experimental approach to studying corruption we conduct two experiments to understand the process of obtaining a driver s license in india in the first experiment we randomly assign license candidates to one of three groups bonus offered a financial reward if they could obtain their license fast lesson offered free driving lessons upfront and control the control group alone illustrates bureaucratic failures 71 of the license getters in that group avoided the mandated driving test and 62 failed a surprise driving test the system responds to private needs there are more license getters in the bonus group but at a social cost there are more license getters who cannot drive in the bonus group the system however also appears to respond to social considerations as there are more license getters in the lesson group large extra legal payments are made by license getters those in the control group pay 2 5 times the official fee more of these extra legal payments take place in the bonus group surprisingly these extra legal payments are not direct bribes to bureaucrats but instead payments to agents in the second experiment we perform an audit study to better understand the role of agents the audit shows that agents can provide licenses to individuals even if they cannot drive but the audit also shows that agents cannot as easily circumvent all other rules we argue that our findings are most consistent with agents being the channel for corruption in this system we also report some suggestive evidence that bureaucrats create red tape possibly to induce more license candidates to use agents

optimal contracts for experimentation this paper studies a model of long term contracting for experimentation we consider a principal agent relationship with adverse selection on the agent s ability dynamic moral hazard and private learning about project quality we find that each of these elements plays an essential role in structuring dynamic incentives and it is only their interaction that generally precludes efficiency our model permits an explicit characterization of optimal contracts

capital income taxation in a two commodity life cycle model the role of factor intensity and asset capitalization effects this paper discusses the impact of changes in capital income taxation in a two commodity life cycle general equilibrium growth model in contrast to the solow swan one commodity framework which has been used in previous life cycle policy simulation summers 1981 auerbach et al 1983 auerbath and kotlikoff 1983 1987 we use a two commodity uzawa 1961 1963 type model consumption and capital goods are separately identitied with an endogenously determined relative price between them as a result both asset capitalization effects changes in the relative price of capital and consumption goods and factor intensity effects across sectors are captured calculations with the model suggest that both of these effects

time consistent taxation in a dynastic family model with human and physical capital and a balanced government budget this paper analyzes optimal time consistent taxation in a dynastic family model with human and physical capital and with a balanced government budget when tax revenue is used for publicly provided consumption or lump sum transfers leisure would be higher than its social optimum pareto optimal taxation requires taxing capital income more heavily than labour income and subsidizing investment at the same rate of the tax also it requires either subsidizing labour at the same rate as a consumption tax or subsidizing consumption at the same rate as a labour income tax and hence it is not a practical guide to policy further a consumption tax or equivalently a uniform income tax with investment subsidies at the same rate can be improved on by taxing capital income more heavily than labour income ce memoire analyse la fiscalite optimale et consistante dans le temps dans un modele de famille dynastique avec capital humain et physique et un budget gouvernemental equilibre quand le revenu fiscal est utilise pour financer la consommation publique ou pour des transferts forfaitaires le niveau de loisir sera plus eleve que l optimum social la fiscalite optimale paretienne exige qu on taxe le revenu du capital plus fortement que celui du travail et qu on subventionne l investissement au meme taux que la taxe elle exige aussi soit qu on subventionne le travail au meme taux que la taxe a la comsommation soit qu on subventionne la consommation au meme taux que l impot sur le revenu du travail et donc ce n est pas un guide pratique pour la politique de plus un regime de taxe sur la consommation ou de maniere equivalente d impot uniforme sur le revenu avec subvention a l investissement au meme taux peut etre ameliore en taxant le revenu du capital plus fortement que celui du travail

the system of administrative and political corruption canal irrigation in south india the paper describes how some irrigation engineers raise vast amounts of illicit revenue from the distribution of water and contracts and redistribute part to superior officers and politicians it argues that the corruption system which is centred on control of personnel transfers is an important supply side reason for poor performance of canal irrigated agriculture insofar as the same system operates in other government departments it may be more important for understanding indian politics and the political influences on economic development than has previously been realised

efficient spatial allocation of irrigation water in the presence of conveyance losses the efficient quantity of water applied falls with distance from the water source but the amount of water sent including conveyance losses actually increases with distance from the source except toward the tail end of the inigation system this implies that if marginal cost pricing were implemented farmers at the middle and lower reaches of the system would have to pay more money for less water received the model is illustrated and alternative financing schemes compared for an empirically derived demand function for imgation water despite massive public investments in irrigation infrastructure ex post evaluations of irrigation projects in developed and developing countries indicate that actual benefits are substantially below projected levels considerable evidence suggests that these low benefits are largely the result of poor on farm water use efficiencies and rent seeking activities that result from water charges that are low and often unrelated to water use chaudhry repetto bowen and young for example farmers near the system headworks are said to consume a disproportionate share of irrigation water while tail farmers are left with scanty and unreliable residual supplies reidinger wade many governments faced with increasing political pressure to conserve water and reduce fiscal deficits are considering higher water charges to decrease waste and increase cost recovery from project beneficiaries there is also increased awareness that low water charges and loosely enforced water rationing guidelines lead to environmental damages and excessive mining of groundwater resources in general the problems of water allocation and low user charges contribute to derivative problems in achieving efficiency equity fiscal stability and environmental sustainability

the economics of clear advice and extreme options i study a principal agent model in which the agent collects information and then chooses a verifiable action i show that the principal can find it desirable to constrain the agent s action set even though there is no disagreement about the ranking of actions ex post the elimination or penalization of intermediate actions which are optimal when information is poor improves incentives for information collection i characterize optimal action sets when the agent is infinitely risk averse with respect to income shocks and optimal incentive schemes when the agent is risk neutral copyright 2005 wiley blackwell

optimal contracting with subjective evaluation this paper extends the standard principal agent model to allow for subjective evaluation the optimal contract results in more compressed pay relative to the case with verifiable performance measures moreover discrimination against an individual implies lower pay and performance suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination finally the optimal contract entails the use of bonus pay rather than the threat of dismissal hence neither efficiency wages nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract

the financing of innovation learning and stopping we consider the financing of a research project under uncertainty about the time of completion and the probability of eventual success we distinguish between two financing modes namely relationship financing where the allocation decision of the entrepreneur is observable and arm s length financing where it is unobservable we find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes the rate at which funding is released becomes tighter over time under relationship financing and looser under arm s length financing the tradeoff in the choice of financing modes is between lack of commitment with relationship financing and information rents with arm s length financing

irrigation reform in conditions of populist anarchy an indian case abstract it is true that the performance of india s canal irrigated agriculture could be substantially and cheaply improved by change in canal operating and maintenance procedures but current procedures allow some farmers and state officials to capture disproportionate benefits for themselves through a well institutionalised system of corruption these beneficiaries of the status quo make up powerful interes groups against reform the paper illustrates just how intensely political irrigation reform can be by tracing what happened when an attempt was made to carry out an apparently simple improvement in water allocation rules under a south indian canal the events suggest a wider process of cumulative causation making for low rates of growth of food production and weaker political authority the process is not inevitable however and the paper ends with some suggestions about how in the irrigation context public policy might help to offset the decline

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

public policy reform and informal institutions the political articulation of the demand for work in rural india summary the emphasis on rights that individual citizens can claim from the state represents a significant institutional development for poverty alleviation policies in india important legislation was passed in 2005 to guarantee rural households 100 days of work paid at a statutory wage rate this right to work legislation has enabled the implementation of the world s largest public works program the mahatma gandhi national rural employment guarantee scheme or nregs this study explores variation in policy outcomes under nregs within a rural district of north india uttar pradesh it finds that this variation is the product of the interaction between formal and informal institutions as such the demand for work benefits does not emerge spontaneously from self selecting rural citizens but is articulated by local elected officials who are pressurised to accommodate demands for rents from the bureaucracy specifically local elected officials are compelled to proceed to a selective activation of the demand for benefits to ensure the generation of a surplus which will form the basis of bureaucratic rent payments the study relies on qualitative data specifically interviews with past beneficiaries of the scheme bureaucrats tasked with policy implementation and elected village leaders the gram pradhans in the indian state of uttar pradesh to document the conditions under which a surplus is extracted and rent payments made the study shows that caste and political leadership structures at the local level affect the generation of surpluses and the payment of rents by gram pradhans to the bureaucracy while the right to work legislation represents progress for poverty alleviation policies such as nregs that emphasize rights and the expression of a demand for benefits need to consider more carefully the conditions under which this demand emerges as well as the ways in which discretionary authority can thwart the goals of public policy

decentralized corruption or corrupt decentralization community monitoring of poverty alleviation schemes in eastern india democratic decentralization and community participation often stand at the center of an agenda of good governance that aims to reduce corruption and increase the state s accountability to its citizens however this paper suggests based on empirical studies on the employment assurance scheme in rural west bengal that the strength of upward accountability especially to political parties is as crucial as downward accountability to communities when these vertical accountabilities are weak horizontal accountability structures between local civil society and officials can mutate into networks of corruption in which community actors become accomplices or primary agents

what drives infrastructure spending in cities of developing countries there exists a dearth of empirical studies on what determines infrastructure spending in cities of developing countries this in part can be attributed to the absence of quality data and the tendency for researchers to gloss over variations in infrastructure expenditure in or across developing world cities in the general belief that investment in infrastructure is generally low using the united nations human settlements programme s global urban indicators database this paper examines variations in infrastructure spending across cities in developing countries with a view to identifying the factors that explain these differences the empirical analysis identifies substantial intercity variations in infrastructure spending both across and within the regions of africa asia the middle east latin america and the caribbean and the economies in transition further analysis suggests that intercity variations in infrastructure spending are accounted for by differences in the macroeconomic environment urban g

optimal taxation in a growth model with public consumption and home production in a neoclassical growth model with public consumption we show the following pareto optimal tax rules the government should tax leisure and private consumption at the same rate and subsidize net investment at the same rate it taxes net capital income also it should tax capital income more heavily than labor income in an extension for home production the additional rule is to tax investment for home production at the same rate of the tax on private market consumption these tax and subsidy rates should be constant over time except the initial tax rate on capital income

why do foresters plant trees testing theories of bureaucratic decision making in central india summary there is growing awareness of the problems of applying blueprint approaches to public sector management in developing countries however scholars lack tools for context specific policy advice this paper develops an organitoring focuses on the short term sizing framework for theories of bureaucratic action and applies this theory to indian forest departments tree planting programs tree planting is implemented successfully in the central indian regions of maharashtra and andhra pradesh states but does not protect ecosystems or reduce poverty this partial success is driven by interplay between the self regarding behavior of bureaucrats and a professional logic of appropriateness and is a challenge to single issue reformers

urban bias of consequences classes and causality choice theoretic accounts of urban bias ub in ldcs are popular because they also explain rural bias in richer countries such misguided elegance notwithstanding class theoretic not simply marxist productionist accounts are preferable why 1 ub alleges persistently inefficient and or unfair i anti rural outcomes ii intra rurally biases towards rural elites who in return deliver surpluses townwards 2 if ub declines for one outcome it must increase for others unless pro urban classes weaken relative to pro rural thus farm price ub fell in 1975 90 in many ldcs but with urban rural class power balances little changed public expenditure ub rose to compensate 3 yet long term development transforms such balances shifting many outcomes from ub to rural bias 4 explaining 2 and 3 involves understanding urban rural class relations when and to obtain which outcomes do rural elites seek rural rather than urban alliances choice game coalition theories help but only within i

traveling agents political change and bureaucratic turnover in india abstract we develop a framework to empirically examine how politicians with electoral pressures control bureaucrats with career concerns and the consequent implications for bureaucrats career investments unique microlevel data on indian bureaucrats support our key predictions politicians use frequent reassignments transfers across posts of varying importance to control bureaucrats high skilled bureaucrats face less frequent political transfers and lower variability in the importance of their posts we find evidence of two alternative paths to career success officers of higher initial ability are more likely to invest in skill but caste affinity to the politician s party base also helps secure important positions

the fruits and fallacies of neoliberalism the case of irrigation policy abstract neoliberal doctrine provides the analytic basis for a convincing explanation and critique of irrigation policy in the third world there is a strong case for subjecting capital and recurrent decisions to the discipline of scarcity pricing however it is rarely practicable to apply scarcity pricing rigorously because of the economic and technical infeasibility of volumetric water pricing in most third world irrigation schemes the taiwanese experience illustrates that political and institutional mechanisms for promoting managerial performance can be effective where the neoliberal prescription fails

a continuous time version of the principal agent problem this paper describes a new continuous time principal agent model in which the output is a diffusion process with drift determined by the agent s unobserved effort the risk averse agent receives consumption continuously the optimal contract based on the agent s continuation value as a state variable is computed by a new method using a differential equation during employment the output path stochastically drives the agent s continuation value until it reaches a point that triggers retirement quitting replacement or promotion the paper explores how the dynamics of the agent s wages and effort as well as the optimal mix of short term and long term incentives depend on the contractual environment the understanding of dynamic incentives is central in economics how do companies motivate their workers through piece rates bonuses and promotions how is income inequality connected with productivity investment and economic growth how do financial contracts and capital structure give incentives to the managers of a corporation the methods and results of this paper provide important insights to many such questions this paper introduces a continuous time principal agent model that focuses on the dynamic properties of optimal incentive provision we identify factors that make the agent s wages increase or decrease over time we examine the degree to which current and future outcomes motivate the agent we provide conditions under which the agent eventually reaches retirement in the optimal contract we also investigate how the costs of creating incentives and the dynamic properties of the optimal contract depend on the contractual environment the agent s outside options the difficulty of replacing the agent and the opportunities for promotion our new dynamic insights are possible due to the technical advantages of continuous time methods over the traditional discrete time ones continuous time leads to a much simpler computational procedure to find the optimal contract by solving an ordinary differential equation this equation highlights the factors that determine optimal consumption and effort the dynamics of the agent s career path are naturally described by the drift and volatility of the agent s pay offs the geometry of solutions to the differential equation allows for easy comparisons to see how the agent s wages effort and incentives depend on the contractual environment finally continuous time highlights many essential features of the optimal contract including the agent s eventual retirement in our benchmark model a risk averse agent is tied to a risk neutral principal forever after employment starts the agent influences output by his continuous unobservable effort input the principal sees only the output a brownian motion with a drift that depends on the agent s effort the agent dislikes effort and enjoys consumption we assume that the agent s utility function has the income effect that is as the agent s income increases it becomes costlier to compensate him for the effort also we assume that the agent s utility of consumption is bounded from below

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

an evaluation of indian government rice policy in tamil nadu abstract the indian government procures rice from wholesalers or producers at a price below the market price and then distributes it to low income consumers at a subsidized price this paper uses a simulataneous equations econometric model to evaluate the effects of this policy on supply demand of rice in the state of tamil nadu between 1956 and 1985 results show that production is more responsive to power for irrigation and fertilizer prices than to output prices because supply is inelastic producers bear the burden of the tax imposed by procurement even though rice is procured from the wholesaler rice distributed by the government displaces rice demanded in the open market and thus the government distribution of rice has not increased the total consumption of rice

the consumption tax in the presence of altruistic cash and human capital bequests with endogenous fertility decisions abstract we provide an analysis of the consumption tax policy in the presence of cash bequests human capital investments in children and endogenous fertility decisions it is shown that the consumption tax is no longer neutral if the tax rate is constant over the taxpayer s life cycle labor supply is exogenous and the parent expects the offspring to pay the same tax rate if the number of children is chosen optimally by the parent neutrality breaks down because the shadow prices of both bequests and fertility are interlinked it is more expensive to produce a child the larger either bequest is and it is more expensive to make a bequest of either type to each child the larger the number of children produced several examples are provided where imposing the consumption tax induces an increase in the number of children produced and a decrease in net capital formation

can analytic narrative inform policy change the political economy of the indian electricity irrigation nexus abstractagricultural electricity subsidisation has led to high electricity demand groundwater depletion and public financial burdens the policy persists although paralleled by fundamental changes in electricity governance how can lock in and policy trajectories be explained theories of institutional public choice and regulation are reviewed two game models are built to analyse narratives based on interviews and secondary historical data the findings reveal path dependencies inherent in the existing action situations resolving the current equilibrium requires changes outside the political or regulatory process such as the electricity distribution level where coordination failure impedes infrastructure improvements contributing to resistance among the agricultural electorate

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

tax reform and external balance abstract this paper examines the effect of a transformation from capital taxation to consumption in an open economy with the residential capital tax rate being endogenous an increase in the domestic consumption tax rate decreases the interest rate increases capital accumulation and increases the domestic country s net foreign asset holdings and trade surplus with the territorial capital tax rate being endogenous an increase in the domestic consumption tax rate may either increase or decrease the domestic country s interest rate net foreign asset holdings and trade surplus depending on the interest elasticity of capital demand

the market for public office why the indian state is not better at development abstract how and why officials are transferred from one post to another can in india does have far reaching consequences for the effectiveness of public service organizations such as irrigation agriculture forestry and soil conservation departments the transfer mechanism used in many departments of indian states involves a kind of internal labor market a truer market than in the way that term is often used by labor market economists it allows pressures for corrupt behavior to bear down on the incumbents of certain posts and itself amplifies those pressures frequently the pressures on officials to be corrupt cause them to behave in ways contrary to the ostensible objectives of their departments why is the indian state not better at promoting development to an important degree because of the corruption transfer mechanism and its effects on bureaucratic initiatives

development studies findings frontiers and fights abstract very low incomes and relatively low mobility in ldcs limit the scope for lessons for dcs three areas remain however analogues interactions and above all conceptual transfers development studies have moved away from adding up individual responses to change towards examining interactions that produce systemic outcomes examples are analyzed from the evolving debates about a peasant response as related to tenure and risk b farm systems vs village systems analysis c impact of the green revolution on the poor d unemployment development studies show analysts of developed countries especially in case d above that adding up approaches ignoring interactions and total systems produce very misleading results