an empirical analysis of wage dispersion and efficiency wages the main purpose of this study is to examine inter industry wage differentials in sweden after controlling for individual and job characteristics the results indicate that these differentials are substantial the ranking of the differentials was stable over time while the dispersion of wage premiums fell by 50 per cent during the period 1968 81 a period of strong efforts to reduce wage dispersion in sweden the relation between industry wage premiums and a number of industry characteristics is also examined along with new evidence which is in line with the shirking model hypothesis on the relation between wages and worker control

cooperative management of groundwater resources in the presence of environmental externalities this paper investigates how cooperation among users can achieve a better management of groundwater in the presence of environmental externalities cooperation allows users to internalize the damages caused by their activities and reduce extractions the paper develops a game theoretical framework to assess the value of cooperation in an aquifer that is divided into three sub aquifers that are being overly exploited two types of externalities are modeled first water extractions in each sub aquifer impact water levels in neighboring sub aquifers extraction externality second the three sub aquifers are also connected to an ecosystem and thus decisions in each sub aquifer affect the health of the ecosystem environmental externality a cooperative game theory model is applied the model empirically shows how the uncontrolled extractions in each sub aquifer affects neighboring groundwater users but also cause severe impacts to the linked ecosystem the model is tested empirically in one of the most important aquifers in spain the eastern la mancha aquifer the results illustrate how both extraction and environmental externalities interact in affecting the likelihood of cooperation among the users the paper estimates the value of cooperation and its stability with and without the environmental externality

rank order contracts for a principal with many agents for a principal with many agents rank order contracts remain incentive compatible even when information about agents performance is known only to the principal because the total payment from the principal to all agents taken together is independent of the outcome that occurs under wider conditions than those considered previously in the literature there is shown to exist a rank order contract equivalent exactly or approximately to any nonlinear piece rate contract under those conditions therefore results that depend on the unenforceability of piece rates under such asymmetric information disappear if rank order contracts can be used in principal agent models compensation paid to agents is based on their outputs because their inputs are not public information in this context information is public if it is verifiable in court so that a contract contingent on it is legally enforceable rank order contracts also called tournaments and contests make each agent s compensation a function solely of the ranking of his output relative to the outputs of other agents in contrast individual piece rate contracts make each agent s compensation a function only of his own output lazear and rosen 1981 green and stokey 1983 and nalebuff and stiglitz 1983 all have results comparing the two when agents actions are not observed by the principal but only for the case in which the principal is risk neutral and the utility function of agents additively separable in income and action the main purpose of the present paper is to show that for the case of a continuum of agents these two kinds of contract are in fact formally equivalent or in some cases approximately equivalent under somewhat more general conditions than those considered so far in the

agent compensation and the limits of bonding agents in positions of trust may engage in malfeasance which is difficult to detect this paper develops a model in which employers seek to control malfeasance by paying wages contingent on imperfect monitoring and agents may be required to pay entry fees or post bonds we conclude that entry fees which exceed agents assets are ineffective in controlling malfeasance as a result conditions exist in which it is optimal to pay agents more than their opportunity cost such conditions lead to an excess supply of applicants and allow employers to engage in discrimination at zero cost to themselves

advances in supervision technology and economic welfare a general equilibrium analysis abstract we analyze the impact of improvements in the technology by which employers monitor their workers it is unclear a priori whether workers should benefit or not from such advances on the one hand they decrease the total costs of hiring workers and stimulate labor demand on the other hand as supervision becomes less costly employers tend to substitute monitoring for wages as a means of motivating workers we show how the impact on firms and workers of such technological progress depends on the nature of the labor market equilibrium i e whether there is full employment or not and the cost technology of monitoring a distinct possibility is that unemployed workers welcome the changes in supervision because they promote employment while employed workers resist such changes and the more intensive supervision they encourage

environmental quality competition and eco labeling abstract a three stage game of investment environmental quality provision and price competition is developed to study the impact of green technology investment eco labeling in a duopoly model of vertical product differentiation the firms incentives to invest in green technologies depend on their relative cost structure when firms are identical with respect to fixed costs both firms will always invest but if one firm is more efficient in investing then the other firm may or may not invest depending on the level of unit cost of investment quality competition will be tighter when the low quality firm is more efficient and looser when the high quality firm is more efficient in investing socially optimal investment for both firms is always positive but lower than in the duopoly solution in the absence of environmental externalities the quality dispersion chosen by profit maximizing firms may be too high or too low while environmental externalities increase the possibility low quality dispersion that is too low within the market solution finally and importantly ecolabeling can be used as a means of reducing excessive investment and increasing environmental quality that is too low

groundwater management efficiency and equity considerations abstract groundwater has the characteristics of commonly owned property and its use is likely to be inefficient in the absence of regulation several management tools can be used to regulate groundwater withdrawals with no one tool dominating the others in terms of efficiency of water use however the welfare distributional effects of various management schemes on individual users who vary in their derived demands for groundwater might be quite substantial and different users may find considerably different schemes attractive the equity problems associated with the division of management benefits may dominate the decisions about support of or opposition to groundwater management and hence they must be undertaken with considerable care and resolved by consensus among users although the negotiations are expected to be extensive and complicated there is a substantial basis for agreement because all users stand to gain the question is who will gain the most

missing markets and redundant reservoirs this paper uses a two sector two period spatial model of groundwater usage withstochastic surface water supply to illustratethe potential for the suboptimal management ofthe timing of groundwater uses a timeprofile externality is said to exist when thetiming of groundwater extraction by one set ofusers impacts on the time profile of wateravailability to another set of users theexistence of the time of use externalitydepends on the presence of importantdifferences in the preferences between thecontrol and non control sectors it alsodepends on the absence of the markets thatwould internalise these differences oneimportant implication of the existence of suchexternalities is that they can inducesub optimal insurance investments in the formof water storage capital i e unnecessarysurface water reservoirs

a private property rights regime to replenish a groundwater aquifer groundwater management is often reactive and in some cases the groundwater stock groundwater table of an aquifer may fall below its optimal steady state level before any thought is given to management this paper examines a private property rights regime to restore a groundwater resource to its optimal steady state results from a stochastic dynamic programming model of madera county california show that the private property rights regime recovers about 95 percent of the potential gain from groundwater management

testing rent sharing using individualized measures of rent evidence from domestic helpers wing suen the market for resident domestic helpers offers a rare opportunity where the surplus from employment relationship can be quantitatively measured for each individual employee using the difference between employer s cost of time and employee s wage as a measure of rent it is found that wages for domestic helpers are positively related to rent however the apparent sharing of rent is better explained by matching than by efficiency wage models rent sharing is observed even in households where monitoring or turnover costs are low rent sharing is not observed among newly arrived foreign domestic helpers whose ability remains to be revealed jel j41 i introduction this article studies the pattern of wages for resident domestic helpers in hong kong no one would lure economists into paying attention to this arcane labor market were it not for one feature of the market for housework a measure of employment rent can be plausibly assigned to each individual employee having an individualized measure of rent at the worker level instead of a general measure at the firm level will shed considerable light on the large and growing literature of rent sharing in wage determination since 1975 the hong kong government has allowed the importation of foreign domestic helpers into the territory because of large wage differences between hong kong and some of its asian neighbors the program is highly popular the census and statistics department 1995 estimates that 92 700 households or 5 6 of all domestic households in hong kong employed domestic helpers in 1993 the figure is even more dramatic for high income households 44 of households with monthly income of over hk 50 000 had one or more domestic helpers 1 one consequence of the availability of market procured housework is that women who employ helpers have more time for market work in suen 1994 i estimate that the probability of labor force participation among married women who had domestic helpers is 22 percentage points higher than that for women without domestic help other things equal if hiring a helper enables a married woman to engage in market work then a plausible measure for the rent or surplus from this employment relationship is the difference between the woman s wage and her helper s wage if a woman with a domestic helper decides to stay home nonetheless the size of the surplus can be measured by the difference between the shadow value of leisure and the helper s wage wage information is readily available from census data and shadow wages can be estimated using standard techniques this article utilizes this rare opportunity to impute a measure of rent for each employer employee pair studying how the wages of domestic helpers vary wi th the magnitude of rent will provide direct evidence for rent sharing in the labor market there is a large literature which documents the fact that the characteristics of the employer such as industry affiliation and firm size are significantly correlated with the employees wages krueger and summers 19881 brown and medoff 1989 groshen 1991 helwege 1992 and many others offer convincing evidence that inter industry wage differentials and employer wage effects exist rent sharing is often invoked to account for such wage patterns however few studies in the literature offer a plausible account for the existence of or a measure for the size of the rent that is supposedly shared 2 at the industry level dickens and katz 1987 use variables such as concentration ratio capital labor ratio research and development expenditures and average rate of return on capital as covariates in wage equations these variables provide at best an indirect and error prone measure of employment rent campbell 1993 makes use of firm level characteristics instead of industry characteristics but t here is no information on profits in his firm level data

toward a theoretical model of voluntary overcompliance abstract we explain why some firms voluntarily overcomply with environmental regulation in our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels publicly available information on environmental performance of firms enables consumers to identify clean firms firms participate in a two stage duopoly game where they first choose their levels of cleaning technology and next engage in price competition the market gets segmented by income levels a minimum standard binding on the dirty firm has the effect of improving the performance of the cleaner firm a subsidy obtains the same competitive outcome

pareto improving water management over space and time the honolulu case we model welfare gains from efficient allocation of groundwater over space and time relative to the status quo policy of financial cost recovery in order to promote political feasibility an intertemporal compensation plan is devised that renders the reform pareto improving gainers from the reform finance the compensation in proportion to their benefits through a block pricing scheme for the honolulu case only 7 of the 441 million in gains to winners is needed to compensate losers from the reform future winners from the reform also repay the deficit created by the compensation package much as state and local governments finance capital improvements copyright 2009 oxford university press

the design of fishing right systems the nsw experience abstract in 1994 the australian state of new south wales nsw passed legislation to introduce a fishery share system in some ways it is similar to the itq or individual transferable quota fishery management systems found in new zealand iceland australia canada and other countries the focus of the system however is on fisheries rather than species in most of these fisheries a combination of input and output controls are used special design features include allotment of shares in the fishery rather than in quotas and a structure that forces adaptive resource management the system is designed to maximise the probability that fishery use will remain both sustainable and consistent with social objectives as they change through time the system s conceptual framework is of relevance to other fisheries and also many other industries that use natural resources consistent with periodically revised management plans rights to harvest specific amounts of fish or to use certain classes of boats and gear are issued in proportion to the number of shares held in each fishery fishery being flexibly defined by region and habitat with or without further specification by gear type species group or single species the management plan might for example specify a relationship between number of shares and size of boat or net any quotas are allocated in proportion to the number of shares held subject to compliance with periodically reviewed share conditions rights are perpetual and give each fisher a direct financial interest in the future of the fishery shares are mortgageable and fully transferable driven by the management plan structural adjustment is delegated to the market and individual fishers a dual property right structure is used to minimise transfer costs encourage self enforcement and compliance

specific human capital and sorting mechanisms in labor markets three major avenues of research on employment contracts which incorporate asymmetric information have been pursued first researchers have considered contracts in which the supply of employee effort is costly to monitor 3 8 9 12 second the allocation of labor has been examined when innate person specific characteristics are unobservable 4 5 14 15 third employment contracts have been designed when economic agents are uncertain about the state of nature concerning the worker s marginal product and the employee s reservation wage 6 7 this research agenda has provided an elaborate array of models which yield employment contracts that reduce the distortionary effects of asymmetric information however these models have two major short comings first under uncertainty concerning personspecific information employers have an incentive to screen employees the existing literature has analyzed two distinct screening mechanisms guasch and weiss 4 5 consider screening through wages while white 15 has considered screening through specific human capital however each mechanism has been analyzed in isolation the present paper combines these screening mechanisms and examines the impact of each upon the optimal employment contract second although the existing literature on employment contracts offers a general framework for analysis it is not directly amenable to empirical verification the present paper rectifies these short comings by developing a model which incorporates both screening mechanisms under asymmetric information and thereby provides a model conducive to empirical verification in our analysis three major simplifying assumptions are made first because we assume employees have no choice regarding the effort they supply we abstract from the agency problem discussed in the literature cited above second we assume employees differ in their innate person specific characteristics the latter is assumed to be observed by

governing a groundwater commons a strategic and laboratory analysis of western water law we examine strategic behavior in groundwater depletion within the setting of state governance of groundwater resources in the american west solving a dynamic common pool resource model for its optimal solution and its subgame perfect equilibrium provides benchmarks for behavior observed in laboratory experiments three forms of legal rules common pool depletion with a rule of capture to establish ownership absolute ownership doctrine entry restrictions prior appropriation doctrine and stock quotas correlative rights doctrinekre examined in terms of their impact on individual strategic behavior in laboratory experiments

transaction costs and institutional performance in market based environmental water allocation policy reforms in the columbia basin spurred water rights reallocation for ecological recovery transaction costs have caused implementation to lag this paper examines transaction costs and institutional performance in environmental water allocation it evaluates spatial and temporal performance trends in watershed cases along three dimensions of adaptive efficiency water recovery transaction costs and program budgets performance trends demonstrate intrastate variability and volatility over time due to the importance of local institutional capacity which is uneven within states higher levels of water recovery may coincide with moderate to high transaction costs and program budgets particularly during initial implementation efforts this finding reflects investments in multilevel policy reform to strengthen enabling conditions and adapt to unintended consequences jel q25 q58

the demand for irrigation water in the high plains of texas 1957 80 a new method of calculating groundwater pumpage is used to estimate water demand these results are used via the gisser sanchez model to show that pumpage regulation is unlikely to be beneficial in the texas high plains a sensitivity analysis is performed on present value profits under optimal control and competitive schemes using different water demand slope and intercept values the results indicate that the gisser sanchez rule is useful in determining the divergence in pumpage time paths and percentage difference in profits under the two schemes but it is not insightful in determining the nominal difference in profits

the externalities associated with the common property exploitation of groundwater abstract in this paper the rate of groundwater extraction under the common property arrangement is the outcome of a dynamic game played with feedback strategies the analysis clarifies the externalities associated with the common property extraction of groundwater and identifies an risk externality that arises when firms are risk averse identifying the various externalities bears on the development of appropriate forms of groundwater management in particular the risk externality would be unknown to the watermaster of a central control agency suggesting the need for creative decentralized forms of groundwater management

vertical control and price versus nonprice competition this paper considers a manufacturer distributing a product through retailers who compete in price and service which reduces the time it takes to purchase a good the mix of these instruments that maximizes collective profit is determined by the tastes of consumers on the product margin whereas decentralized retailers consider as well the tastes of consumers on the interretailer margins given search or travel costs consumers with low time costs are overrepresented on the interretailer margins in considering customers on the wrong margin retailers are therefore biased toward price competition this distortion that can be corrected with vertical restraints

sharing a groundwater resource in a context of regime shifts we study the occurrence of shocks in a common groundwater resource problem using a differential game in particular we use rubio and casino s adaptation of the gisser and sanchez model where we introduce a sudden change in the dynamics of the resource namely a decrease in the recharge rate of the aquifer we compare the pareto optimal solution with open loop and feedback equilibria first we show analytically how different solutions at the steady state depend on the intensity of the shock moreover we show that the cost and the strategic effects are decreasing functions of the intensity of the shock i e that all the solutions get closer at the steady state for more intense shocks we finally apply the game to the particular case of the western la mancha aquifer the aim of this application is to estimate how shocks influence the inefficiency of open loop and feedback strategies in terms of welfare we show that this inefficiency decreases the earlier the shock occurs or the higher the intensity of the shock

employment relations in dual labor markets it s nice work if you can get it jobs in big firms command higher wages i examine four theories that could explain this relation first large firms incur higher fixed employment costs including more specific training second monitoring costs are greater in big firms and can be spread by hiring more productive workers third large firms may choose to pay efficiency wages to deter shirking finally large employers organize production around teams and pay higher wages to get workers who comply with the discipline of team production the dispersion of wages and working conditions in the u s labor market reflect the heterogeneity of jobs employment relations and individuals

resource rights and markets in a general equilibrium model of production rights to a free resource lead to distributional deadweight losses in partial equilibrium the present paper examines related distortions in a general equilibrium model of production with output prices constant for the small open economy the free resource can result in lower output than a market with weak substitution in the other sector the free resource also leads to a convex production frontier implying a price increase lowers output in the sector regarding policy an import tariff export subsidy or price support would lower sector output these general equilibrium distortions increase the incentives to favor resource markets over rights

cadillac desert revisited property rights public policy and water resource depletion to alleviate arizona s dependence on groundwater the federal government subsidized construction of the central arizona project cap to import water from the colorado river in exchange for the subsidy arizona reformed its groundwater law to eliminate common property pumping and to ban groundwater mining after the year 2025 we build a model of water resource development in which imported water is a capacity constrained backstop the model is applied to quantify the welfare effects of alternative cap construction dates and arizona groundwater laws we reach two general conclusions first cap was completed 86 years too early in 1987 at a deadweight loss of 2 612 billion ironically construction in 1987 yielded lower surplus than never constructing cap second the political exchange of reform for subsidy introduced a greater loss 2 612 billion than it corrected 0 810 billion the exchange was worse than doing nothing at all

a model of involuntary unemployment and wage rigidity worker incentives and the threat of dismissal this paper analyzes a model that highlights imperfect monitoring and the threat of dismissal as microeconomic underpinnings for the efficiency wage hypothesis my major innovation is to allow the rules for dismissal as well as the wage to be determined endogenously as the equilibrium of a stackelberg game played between firms and workers the key results are as follows a nontrivial equilibrium where positive output is produced must involve involuntary unemployment in that employed workers are strictly better off than are the unemployed in addition the equilibrium wage is rigid with respect to exogenous shifts in productivity

physician licensure a new approach to examining the role of professional interests for years economists have debated the extent to which organized medicine has benefited from medical licensing restrictions this debate has been hampered by the lack of a viable alternative hypothesis this paper provides an alternative hypothesis and suggests an empirical test which focuses on the relationship between licensure restrictions and the level of consumption of physician services across states the evidence suggests that in the mid 1960s the interests of organized medicine dominated those of consumers in influencing the medical regulatory supply process

benefits from groundwater management magnitude sensitivity and distribution empirical estimates of benefits from groundwater management are reported for an area in california with heavy reliance on groundwater supplies benefits are quite sensitive to the water demand schedule and interest rate but less sensitive to other parameters however in all cases considered the increases in welfare from groundwater management are less than ten percent tax revenues received under a system of pump taxes are four to five times as large as the benefits from management thus groundwater users gain under a system of quotas but may suffer substantial welfare losses under pump taxes

non cooperative institutions for sustainable common pool resource management application to groundwater as demands for limited natural resources increase developing management institutions that ensure the sustainability of such resources is essential many natural resources are common pool resources cprs managed under different non cooperative cooperative and externally imposed management frameworks while early studies of non cooperative cpr management suggest inevitable tragedy of the commons here we discuss how users can avoid tragic outcomes by changing their decision making rationales and exploitation strategies even in a non cooperative environment this paper introduces and compares various types of non cooperative institutions that are available to manage cprs these management institutions are then applied using a numerical groundwater exploitation example to determine how different planning variables are affected by the choice of management institution results indicate that cpr users can improve their gains by considering the externalities and developing long term exploitation plans as opposed to short term plans with no consideration of externalities that result in rapid exhaustion of the resource and lead to the so called tragedy of the commons

did henry ford pay efficiency wages we examine henry ford s introduction of the five dollar day in 1914 in an effort to evaluate the relevance of efficiency wage theories of wage and employment determination we conclude that the ford experience strongly supports the relevance of these theories ford s decision to increase wages dramatically is most plausibly the consequence of labor problems of the kind efficiency wage theorists stress the structure of the five dollar day program is consistent with the predictions of efficiency wage theories there is vivid evidence that the introduction of the five dollar day resulted in substantial queues for ford jobs significant increases in ford productivity and profits accompanied the new regime

income distributional effects of using market based instruments for managing common property resources in this article the authors show the trade offs between efficiency and equity that arise from the application of market based instruments to a heterogenous population of agents drawing from a natural resource pool using the example of groundwater they find that there are overall losses in allocative efficiency when the centralized planner is constrained by equity considerations and that the distribution of gains or losses to management becomes skewed asymmetrically across agents these results demonstrate the importance of considering both efficiency gains and disparities in distributional inequity when designing policy instruments that create winners and losers with potentially serious sociopolitical ramifications

using tradable water permits in irrigated agriculture the present paper examines both theoretically and empirically the environmental and economic benefits of introducing a policy to optimally manage groundwater used in irrigated agriculture and the efficiency potential of allowing trading of water permits we confirm the results appearing separately in the literature on optimal resource management and tradable permits that both tradable water permits and non tradable quotas provide the basic mechanism for sustainable water use and yield substantial economic benefits and that allowing trading of water permits improves efficiency in order to derive the above results we develop a discrete time model to realistically describe farmer s myopic behavior while using a continuous time model to describe optimal management we also incorporate into the analysis the economic effect of sea water intrusion in the aquifer and we estimate the cost of water overexploitation under myopic behavior the empirical part of the paper is based on simulations using data from an agricultural region in northern greece the main contribution of the paper is the introduction of heterogeneity in crops production and market characteristics we show that the more diverse are the crops in technology and market prices and the stricter is the water constraint the higher are the benefits from using a tradable water permit system

the incentive effects of dismissals efficiency wages piece rates and profit sharing the relation of several incentive schemes to productivity is studied with a particular emphasis on the effects and determinants of dismissals dismissals turn out to be positively but in a nonlinear way associated with productivity similarly profit sharing raises productivity wages and piece rates are insignificant profit sharing decreases the number of dismissals made by firms copyright 1991 by mit press

the virtual aquarium commodity fiction and cod fishing abstract this article deals with the commoditization and pricing of environmental goods in particular the practice and social theory of individual transferable quotas itqs in fisheries emphasizing ethnographic material related to the management system introduced in iceland in 1984 icelandic fisheries discourse i argue is increasingly textual and hegemonic dominated by marine scientists resource economists and state officials at the same time the allocation and exchange of quotas are matters of an ongoing moral debate this debate i suggest reflects the politics of independence and equity in icelandic history as well as a deeper concern in western society with the status of money and monetary exchange a concern that has a number of parallels in other parts of the world

the distribution of wealth and the efficiency of institutions the distribution of wealth and the efficiency of institutions this paper explores the effect on economic efficiency of the distribution of wealth and systems for enforcing property rights we construct a two person two period economy in which each person can consume plant transfer or steal corn we find circumstances in which redistribution of wealth is pareto optimal and in which increasing sanctions against theft to their maximum level is not these results suggest that it is not only important to consider distribution in the design of property institutions but also that redistribution itself may serve to increase the efficiency of systems of property rights i introduction a fundamental insight of economics is that property rights may foster creation of wealth nevertheless property rights which can be freely violated serve no function so that to be meaningful they must be enforceable effective enforcement requires the existence of enforcement systems to monitor violations impose sanctions and provide for restitution of stolen property an effective enforcement system produces obvious desirable effects by deterring theft and providing for restitution it assures that individuals will appropriate the fruits of their labors and hence enforcement serves to increase efficiency it is a standard observation in the literature on crime and punishment that the possibility of crime may lead potential victims to alter their behavior in efficiency reducing ways the possibility of street crime may for example empty the streets neher 1978 conversely the establishment of an effective enforcement system can return people to the streets both by deterring theft or reducing the probability that it will occur and by providing for restitution in the event theft occurs and the thief is apprehended we refer to these efficiency enhancing effects of enforcement as deterrence and restitution effects however the benefits of operating an enforcement system must be weighed against its costs such a system may be resource using and may yield undesirable as well as desirable effects thus maintaining a criminal justice system entails direct costs resources to operate a police force courts and prisons and indirect costs in that potential criminals may modify their behavior to adjust to the prospect of sanctions in efficiency reducing ways see becker 1968 usher 1986 a criminal may for instance dissipate resources in the face of expected sanctions or otherwise deploy them in an inefficient fashion to escape appropriation hence the tendency of criminals to exhibit apparently high discount rates observed by wilson and herrnstein 1985 may reflect the prospect of sanction rather than indicate a strong preference for immediate gratification as they suggest likewise the reduced risk of appropriation may explain the willingness of criminals to pay large transactions costs to maintain secrecy in swiss bank accounts we refer to these efficiency reducing effects of enforcement systems as sanction effects cheung 1970 and others have observed that the costs of enforcing property rights may depend on their distribution 1 ehrlich s 1973 finding that there is a positive relation between the level of crime and the degree of income inequality is supportive of this view beyond this it has frequently been suggested that redistribution may increase respect for property rights along with monitoring and sanctions the notion that giving people more to lose can render them more law abiding is central to liberal theories of rehabilitation it is also embedded in efficiency wage models where high wages are shown to be economical to the extent they increase the efficacy of sanctions and extend an employer s basis for control see for example eaton and white 1983 yellen 1984 any wealth transfers to individuals must of course come from other individuals

groundwater use under incomplete information abstract this paper introduces a game theoretic model of groundwater extraction in a two cell aquifer under incomplete information a novel assumption is that individual users have incomplete knowledge of the speed of lateral flows in the aquifer although a user is aware that his neighbor s water use has some influence on his future water stock he is uncertain about the degree of this impact we find that the lack of information may either increase or decrease the rate of water use and welfare in a two period framework the relevant characteristic is the ratio of the periodic marginal benefits of water use depending on whether this ratio is convex or concave the average speed with which the aquifer is depleted decreases or increases when users learn more about the local hydrologic properties of groundwater in principle welfare may decrease even in cases when the groundwater allocation is closer to the efficient groundwater allocation

the tradable permits approach to protecting the commons lessons for climate change tradable permit approaches for rationing access to the commons have been applied to many different types of resources in many different countries this essay reviews the experience with three main applications of tradable permit systems air pollution control water supply and fisheries management as well as some unique related programmes the purpose of the review is to draw together what we have learned about tradable permits in practice that might offer some useful insights for the implementation of the three tradable permit mechanisms that are part of the kyoto protocol copyright 2003 oxford university press

current issues in the economics of groundwater resource management the issue of groundwater management remains a practical concern in many regions throughout the world while water managers continue to grapple with the question of how to manage this resource in this article we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity we present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources indicate why the role of the market is limited with respect to the price of this very complex resource and point to the mechanisms that can pull competitive groundwater price and quality graded quantity of groundwater in line with their equilibrium levels in particular we critically review economic models of groundwater use examine the potential for groundwater management discuss the difficulties encountered in the estimation of the relevant control variables of such models and identify the advantages and limitations of the instruments devised for the efficient use allocation of this resource finally we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation and we suggest a core of conditions necessary for successful groundwater management reforms

groundwater management in a food security context this article analyzes the sustainability of market based instruments such as tradable permits for the management of a renewable aquifer used for irrigated agriculture in our dynamic hydro economic model a water agency aims at satisfying a food security constraint within a tradable permit scheme in the presence of myopic heterogeneous agents we identify analytically the viability kernel that defines the states of the resource yielding inter temporal feasible paths able to satisfy the set of constraints over time and the associated set of viable quota policies we then illustrate the theoretical results of the paper with numerical simulations based on the western la mancha aquifer

reconsidering the initial allocation of itqs the search for a pareto safe allocation between fishing and processing sectors advancement of rights based fishing is stymied by industry and congressional concern over distributional issues arising out of traditional itq design this paper examines the existence and policy feasibility of two alternative initial allocations intended to leave the two principal industry participants the fishers and processors no worse off while maximizing efficiency market structure is shown to be a critical consideration not only to avoid unintended wealth redistribution but also to achieve efficiency

the effects of well management and the nature of the aquifer on groundwater resources we compare groundwater use under collective well management in china where village leaders allocate water among households and under private well management where farmers either pump from their own wells or buy water from wells owned by other farmers villages are divided into connected or isolated groups depending on whether there are lateral groundwater flows between aquifers underlying a village and neighboring ones in rural china households under collective well management use less water even under collective management households located in connected villages use more water indicating that the connectedness of the aquifers may undermine leaders incentives to conserve water

an empirical look at franchising as an organizational form franchise contracts are identified as a hybrid form of economic organization motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm firm growth managerial and employee selection a nd brand name capital empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available the results s uggest that both principal agent incentives and informational incenti ves favor the use of franchise arrangements copyright 1988 by the university of chicago

potential for tradable water allocation and rights in jordan this paper estimates the costs of buying water use rights from farmers located in the mafraq azraq basin in jordan the farmers water supply curve is estimated using data gathered from a contingent valuation survey and nonparametric procedures estimation results indicate that a total supply of 29 million m 3 could be periodically purchased from farmers at an annual price of approximately jd 0 23 m 3 1 jd 0 70 us or a total cost of about jd 6 8 million per year

competitive versus efficient extraction of a common property resource the groundwater case abstract in this paper socially optimal and private extraction of a common property aquifer are compared open loop equilibrium and feedback equilibrium in linear strategies have been computed to characterize private extraction the use of these two equilibrium concepts allows us to distinguish between cost and strategic externalities as long as the open loop solution captures only the cost externality and the feedback solution captures both the results show that strategic behaviour increases the overexploitation of the aquifer compared to the open loop solution however if the groundwater storage capacity is large the difference between the socially optimal and private extraction the latter characterized by a feedback equilibrium is negligible

2006 presidential address water markets in the west prices trading and contractual forms rising urban and environmental demand for water has created growing pressure to reallocatewaterfromtraditionalagriculturaluses theevolutionofwatermarketshas beenmorecomplicatedthanthoseforotherresources inthispaper wefirstexplainthese differences by examining water rights and regulatory issues second we place our research in the context of the economics literature on water marketing third we present new comprehensive data on prices and the extent nature and timing of water transfers across 12 western states from 1987 to 2005 we find that prices are higher for agriculture to urban trades versus within agriculture trades in part reflecting the differences in marginal values between the two uses prices for urban use are also growing relative to agricultural use markets are responding in that the number of agriculture to urban transactions is rising whereas the number of agriculture to agriculture transfers is not further there is a shift from using shortterm leases to using multiyear leases of water and permanent sales of water rights this pattern underscores the need to consider the amounts of water obligated over time rather than examining only annual flows in assessing the quantities of water traded as is the common practice in the literature considering water obligated over time termed committed water we find significantly more is transferred and the direction of trading is different than if the focus is on annual flows finally the data reveal considerable variation in water trading across the states jel q2 n5 l5 k3

marketable permits market power and cheating abstract in this paper we present a model of a noncompliant firm operating in a marketable pollution permit market in the main result of the paper we show how compliance is related to the initial distribution of permits a firm with market power will cheat less the larger its endowment of permits is from a fixed stock of permits the competitive fringe however will cheat more as its endowment of permits is reduced generating an ambiguous global impact on cheating

evaluating policy interventions with general equilibrium externalities abstract we report on the results of analytical and numerical models that describe the effects of non separable externalities or public goods on public policies with important general equilibrium consequences in the numerical exercise we calibrate a general equilibrium model with non separable air quality benefits in order to measure the excess burden and total net benefits of transportation and energy taxes in the 1995 u s economy the change in the physical level and the economic value in air quality associated with a given policy is a function of the substitution patterns between air quality and market goods that we assume the size of the deadweight loss due to pre existing distortions such as a tax on labor income is substantially affected by these substitution patterns

efficiency wages and equilibrium wages i introduction economists have long sought to explain unemployment in ways consistent with individual agents optimizing behavior a recent although controversial model in this vein is the efficiency wage paradigm which focuses on the difficulty of monitoring worker performance when production is organized in teams to discourage nonperformance by employees firms monitor their workers and dismiss those who are caught shirking a firm may further discourage nonfeasance by paying its workers higher wages than they could earn elsewhere then workers caught shirking not only become unemployed but forfeit the rents associated with their jobs 1 in this scenario in order to maintain the incentives not to shirk firms will not cut wages even though equally qualified unemployed workers are willing to work for less the result is disequilibrium in the labor market and possibly involuntary unemployment 2 a series of theoretical studies have demonstrated the conditions under which efficiency wages may occur standard references include eaton and white 1982 1983 shapiro and stiglitz 1984 foster and wan 1984 bowles 1985 and calvo 1985 yellen 1984 reviews the early literature while katz 1986 stiglitz 1987 and carmichael 1990 discuss more recent work but as carmichael emphasizes in his review few papers have actually attempted to test the predictions of the efficiency wage models most of the existing empirical investigations examine the importance of industrial wage differentials krueger and summers 1987 1988 dickens and katz 1987 and murphy and topel 1987a find that there are substantial unexplained industrial wage differentials which bulow and summers 1986 and krueger and summers 1987 1988 attribute to efficiency wages however the magnitude as well as the interpretation of these industrial wage differentials is disputed see carmichael 1990 leonard 1987 and murphy and topel 1987a 1987b for differing views this paper extends the efficiency wage model in a straightforward way to address two questions will the labor market clear if firms can only imperfectly monitor worker effort and do industrial wage differentials provide a test for the importance of efficiency wages we offer two modifications to traditional efficiency wage models first we recognize that there may be an explicit cost to being fired for instance dismissed workers may find it more difficult to find future employment because of poor references from their previous employer they may incur high psychic costs as a result of being fired or they may have to suffer large search costs in locating another job second we let the firm choose the performance standard 3 it seems only natural that a firm wanting more effort from its employees would hold its workers to a more rigorous performance standard just as a firm seeking a higher quality labor force may require more schooling of its applicants while the firm must compensate the worker for the extra effort necessary to meet the higher performance standard payment of efficiency wages could be avoided following the efficiency wage literature we make the strong assumption that all implicit or explicit bonding mechanisms are prohibitively costly to implement our model of the worker s and firm s behavior is specified in section ii the model includes as special cases a market paying equilibrium wages one paying non market clearing efficiency wages and a dual labor market that is a combination of the two we demonstrate that the firm need not pay efficiency wages even in the presence of the agency problem the use of the performance standard gives the firm another instrument other than the wage to control worker effort and welfare there are limits to how high the performance standard will be adjusted however before the firm will offer an efficiency wage we present the details of these arguments in section iii

water quantity management in a heterogeneous landscape with farsighted farmers agricultural production contributes to many environmental problems in semi arid areas agricultural irrigation causes the so called waterlogging phenomenon this phenomenon is both spatial and dynamic since percolation depends on soil quality summed up in landscape heterogeneity and evolves along time furthermore farmers can be farsighted with respect to their contribution to percolation we study regulation schemes to be implemented to restore the socially optimal spatial and temporal production plan of farmers in such a context we show that both a temporal tax on percolation and a spatio temporal tax on inputs both at the extensive and at the intensive margin are efficient for the restoration of the socially optimal solution furthermore a numerical example demonstrates that the consequences of implementing a fiscal scheme designed for myopic farmers whereas they are farsighted depends on the distribution of soil quality

the role of common pool problems in irrigation inefficiency a case study in groundwater pumping in mexico groundwater depletion is a serious problem in mexico several policy alternatives are currently being considered in order to improve the efficiency of irrigation water use so that extraction of groundwater is diminished an understanding and quantification of different sources of inefficiency in groundwater extraction is critical for policy design survey data from a geographically extensive sample of irrigators is used to gauge the importance of common pool problems on input specific irrigation inefficiency results show that mechanisms of electricity cost sharing implemented in many wells have a sizable impact on inefficiency of irrigation application moreover irrigation is very inelastic to its own unitary cost therefore results suggest that policies aimed at eliminating electricity cost sharing mechanisms would be significantly more effective than electricity price based policies in reducing irrigation application results also show that well sharing does not affect groundwater pumping significantly suggesting either a limited effect of individual pumping on water level or absence of strategic pumping by farmers sharing the wells

market power and transferable property rights the appeal of using markets as a means of allocating scarce resources stems in large part from the assumption that a market will approximate the competitive ideal when competition is not a foregone conclusion the question naturally arises as to how a firm might manipulate the market to its own advantage this paper analyzes the issue of market power in the context of markets for transferable property rights first a model is developed that explains how a single firm with market power might exercise its influence this is followed by an examination of the model in the context of a particular policy problem the control of particulate sulfates in the los angeles region

a dynamic approach to pes pricing and finance for interlinked ecosystem services watershed conservation and groundwater management a theory of payment for ecosystem services pes pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices since ecosystem services are generally interdependent this requires joint optimization across multiple resource stocks we develop such a theory in the context of watershed conservation and groundwater extraction the optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners financed by efficiency prices of groundwater set by a public utility the theory is extended to cases where land is publicly owned conservation instruments exhibit non convexities on private land or the size of a conservation project is exogenous in these cases conservation investment can be financed from benefit taxation of groundwater consumers while volumetric conservation surcharges induce inefficient water use a dynamic lump sum tax finances investment without distorting incentives since the optimal level of conservation is generated as long as payments are correct at the margin any surplus can be returned to consumers through appropriate block pricing the present value gain in consumer surplus generated by the conservation induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation biodiversity and cultural values

labor subsidies and just cause employment laws in an efficiency wage model efficiency wage models differ from standard labor market models in that wages do not necessarily clear markets wages act as devices to encourage work effort or more generally to increase productivity firms set their wages above the market clearing level and there is involuntary unemployment there are several reasons firms set wages high one is that this may increase employee morale and so lead to greater effort as observed by solow 12 salop notes that high wages may reduce labor turnover and so allow the firms to avoid turnover costs 10 high wages may also reduce the workers incentive to shirk on the job if shirking increases the chance of losing an attractive position see shapiro and stiglitz 11 akerlof and yellen give examples of other motivations for efficiency wages 1 this article uses a shirking model to discuss optimal government policies economists have placed little emphasis on government policies in such models shapiro and stiglitz do discuss employment subsidies and unemployment benefits 11 2 an employment subsidy or a reduction in unemployment compensation increases employment in their basic model as in most shirking models a suboptimal employment level is the main distortion so the two policies can increase efficiency 3 if firms choose minimum acceptable effort levels to ask of their workers as in this paper there is a second distortion both the employment and the effort levels are too low to be optimal employment subsidies still lead to greater employment but also lead to a reduction in effort these policies reduce one distortion while making the other more severe the net effect on efficiency is ambiguous section ii presents the model section iii considers the welfare effects of unemployment compensation two subsidies and just cause employment laws these two subsidies are wagerate subsidies paid based on the total wage bill and employment subsidies paid per worker

energy efficiency subsidies with price quality discrimination abstract we compare various designs of energy efficiency subsidies in a market subject to both energy use externalities and price quality discrimination by a monopolist we find that differentiated subsidies can establish the social optimum unlike per quality regimes ad valorem regimes generate downstream interferences subsidising of the high end good leads the monopolist to reduce the quality of the low end good for this reason ad valorem differentiated rates should always decrease with energy efficiency a result seemingly at odds with actual practice in contrast with per quality differentiated subsidies the rates can increase if the externality is large enough relative to the market share of low type consumers contrary to differentiated subsidies what we shall call single instrument subsidies only achieve second best outcomes a uniform ad valorem subsidy should have a rate higher than that needed to specifically internalise energy use externalities lastly if as is often observed in practice only the high end good is to be incentivised a per quality regime should be preferred to an ad valorem one an ad valorem tax on the high end good may even be preferred to an ad valorem subsidy if the externality is small enough and low end consumers dominate the market

imperfect information and labor market bias against small and medium sized enterprises a korean case we examine the labor market s bias against small and medium sized enterprises focusing on the seoul digital industrial complex case we adopt heckman s approach to control selection bias and use primary data from questionnaire surveys conducted at both firm and employee levels we find that conventional firm specific factors such as wages fringe benefits and weekly work hours primarily explain the labor market bias but imperfect information is also positively associated with the bias for example a firm s inadequate ability to identify a pool of potential employee candidates or to provide them comprehensive firm or job specific information tends to worsen labor shortages and an employee s ex ante incomplete knowledge of on the job training or education opportunities tends to increase ex post turnover intentions our results suggest that reducing the market bias requires improving imperfect information as well as conventional firm specific conditions

the economy of high wages an agency problem latitude with respect to the effort they supply and monitoring of effort and output is costly in this paper we examine the agency problem that arises in these circumstances the agent employee is assumed to maximize expected utility which depends on wages and effort a bad we assume that output is a deterministic function of effort that either effort or output can be accurately monitored and that monitoring is costly the firm s problem is to select a level of monitoring and a compensation package that will minimize the cost of obtaining a desired level of effort given the cost of monitoring the agent s preferences and the agent s opportunity cost of accepting employment with the firm his labour supply constraint the firm chooses a compensation scheme from the set in which compensation is contingent on effort if the agent is monitored and is equal to a standard

differential environmental regulation effects on electric utility capital turnover and emissions this paper tests the hypothesis that differential regulations reduced the rate of capital turnover in the electric utility industry resulting in increased emissions of sulfur dioxide based on a sample of forty four privately owned electric utilities operating over the period 1969 83 the authors results indicate that 1 regulation increased the age of capital by an average of 3 29 years 24 6 percent 2 increases in the age of capital have no statistically significant impact on emissions and 3 in the absence of regulation emissions would have increased by 3 79 tons per million kwhs 34 6 percent copyright 1993 by mit press

joint quantity quality management of groundwater economic literature on groundwater managementhas traditionally been split into two areas there are papers that evaluate different schemes of dynamicaquifer management considering that pumping costs vary with stock but ignoring water quality on the other hand there are papers that considercontamination problems caused by specificpollutants this paper presents two alternative models for joint quantity quality management and it shows that existing models are in fact special cases of these the framework isdynamic and considers both the stock of waterquantity and a stock measure of water quality optimal taxes are derived and shown to be different from those in existing quantity only or quality only models implementationproblems are briefly discussed

strategic behavior and efficiency in the common property extraction of groundwater groundwater has always been regarded as a common property resource where entry is restricted by land ownership and private exploitation is inefficient in 1980 gisser and sanchez presented a first estimation of this inefficiency cornparing socially optimal exploitation with private competitive exploitation using a model with linear water demand average extraction cost independent of the rate of extraction and linearly decreasing with respect to the water table level they characterized the private exploitation of the aquifer assuming that farmers are myopic and choose their rate of extraction to maximize their current profits whereas optimal exploitation is obtained by maximizing the present value of the stream of aggregate profits their results show that if the storage capacity of the aquifer is relatively large the difference between the two systems is so small that it can be ignored for practical consideration this result has been called the gisser sanchez rule by nieswiadomy 1985 and it has and important policy implication regulation of the resource does not seem justified since the profits it brings are not very high 1

optimal groundwater extraction under uncertainty and a spatial stock externality we introduce a model that incorporates two important elements to estimating welfare gains from groundwater management stochasticity and a spatial stock externality we estimate welfare gains resulting from optimal management under uncertainty as well as a gradual stock externality that produces the dynamics of a large aquifer being slowly exhausted this groundwater model imposes an important aspect of a depletable natural resource without the extreme assumption of complete exhaustion that is necessary in a traditional single cell bathtub model of groundwater extraction using dynamic programming we incorporate and compare stochasticity for both an independent and identically distributed as well as a markov chain process for annual rainfall we find that the spatial depletion of the aquifer is significant to welfare gains for a parameterization of a section of the ogallala aquifer in kansas ranging from 2 9 to 3 01 which is larger than those found previously over the region surprisingly the inclusion of stochasticity in rainfall increases welfare gains only slightly

the dynamic efficiency costs of common pool resource exploitation we conduct the first empirical investigation of common pool resource users dynamic and strategic behavior at the micro level using real world data fishermen s strategies in a fully dynamic game account for latent resource dynamics and other players actions revealing the profit structure of the fishery we compare the fishermen s actual and socially optimal exploitation paths under a time specific vessel allocation policy and find a sizable dynamic externality individual fishermen respond to other users by exerting effort above the optimal level early in the season congestion is costly instantaneously but is beneficial in the long run because it partially offsets dynamic inefficiencies jel d24 q21 q22

strategic quality competition and the porter hypothesis abstract this paper offers new support for the porter hypothesis within the context of a quality competition framework we use a duopoly model of vertical product differentiation in which two firms simultaneously choose to produce either a high environmentally friendly quality or low standard quality variant of a good before engaging in price competition in this simple setting we show that a nash equilibrium of the game featuring the low quality good can be pareto dominated by a different strategy profile in which both firms opt in favour of the green product our analysis demonstrates that in such a case both firms stand to profit from the introduction of a rule penalizing any firm refusing to produce the environmentally friendly product we also find that consumers themselves may benefit from such regulations this is always the case when shifting from low quality to high quality production brings about a cost efficiency improvement

tax subsidy policies in the presence of environmentally aware consumers abstract we study policy measures to improve environmental quality in the presence of environmentally aware consumers we consider two sets of policy instruments uniform policies for the firms and policies that discriminate between the firms based on their environmental quality for the latter set either the better performer is rewarded with a subsidy or the worse performer is punished with a tax we find that while a uniform subsidy policy improves average environmental quality a uniform tax policy worsens it further while a discriminatory subsidy policy reduces total pollution and enhances aggregate welfare a discriminatory tax policy may increase total pollution and may reduce aggregate welfare

quality distortion by a discriminating monopolist the standard model of monopolistic imperfect quality discrimination involving consumer self selection has shown that no distortion occurs at the highest quality level while all lower quality levels are degraded in order to maintain profitable market segmentation this result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality the paper develops a reasonable model in which the standard assumption is not satisfied and this alternative model yields vastly different conclusions regarding the form of quality distortion in particular quality may be enhanced not degraded to maintain profitable market segmentation copyright 1989 by american economic association

minimum wage legislation in a dual labor market the paper studies the equilibrium effects of minimum wage legislation in an economy with coexisting primary and secondary labor markets owing to difficulties in monitoring relative wages and the threat of job loss play a functional role in eliciting effort from primary sector workers minimum wage laws hence affect the primary wage and employment level even if the law only binds in the secondary labor market furthermore interaction between the two sectors can also alter the secondary outcome relative to the standard analysis and has implications for participation decisions and for the level of unemployment

does inequality lead to greater efficiency in the use of local commons the role of strategic investments in capacity abstract this paper examines how inequality in access to credit affects the strategic behavior of users of a common resource in their investment and extraction decisions a dynamic two stage game is developed in which agents choose the level of sunk investment in capacity and the consequent extraction path the results show that agents invest in excess capacity except when inequality is very high the relation between inequality and efficiency in resource extraction is found to be non monotonic with the steady state resource stock being closest to the optimal level when either inequality is very high or very low

the monopolist is not the best environmentalist s best friend an example this letter addresses the second degree price discrimination issue when a monopolized product is tied with environmental quality the monopolist may degrade environmental quality too much when marginal valuations of environmental quality and the good itself are positively related across consumers

the story of the moment risk averse cypriot farmers respond to drought management this article illustrates the importance of estimating risk preferences when evaluating water policy using agricultural production data from the kiti region of cyprus we estimate farmers risk preferences a la antle journal of business and economic statistics 1 192 201 1983 american journal of agricultural economics 69 509 22 1987 and show sensitivity to higher order moments of profit such as skewness we show that farmers in the kiti region are risk averse with risk premiums in the region of 20 of expected profit we use these estimates to analyse the impact of a water quota from the perspective of three policy makers who differ only in their understanding of farmers risk preferences we show in the case of kiti that policy makers who model risk preferences incorrectly that is either a assume risk neutrality or b ignore down side risk wrongly predict the magnitude and direction of input responses and therefore the magnitude of welfare changes this highlights the importance of accomm

wage prospects and the existence of job queues when the wage is a sorting device abstract we consider a labor market where information is asymmetric previous research suggests that excess supply may result in this situation we find no excess supply if labor suppliers respond to wage prospects the wage times the probability of employment