the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

commitment and fairness in a dynamic regulatory relationship this paper considers a multiperiod model of a regulated firm that has stationary private information which may be revealed through performance if it cannot make commitments to future policies the regulator has an incentive to exploit any information the firm reveals and laffont and tirole show that there is no regulatory policy that is separating over any closed interval a fairness arrangement is proposed in which the firm agrees not to quit if in future periods the regulator allows it to earn a nonnegative profit given the type it revealed in earlier periods the properties of such arrangements are studied and an example is presented in which both the firm and the regulator prefer a fairness arrangement to a policy feasible without commitment

incentive effects of the u s welfare system a review the author would like to acknowledge support for prior work on this topic from the u s department of health and human services and helpful comments from three anonymous referees rebecca blank howard chernick john fitzgerald irwin garfinkel peter gottschalk edward gramlich david greenberg judith gueron james heckman v joseph hotz robert hutchens michael keane frank levy larry mead michael murray robert plotnick anuradha rangarajan philip robins howard rolston jeffrey smith and daniel weinberg all opinions and errors are those of the author alone

optimal contracts under adverse selection and moral hazard a continuous time approach this article presents a continuous time agency model in the presence of adverse selection and moral hazard with a risk averse agent and a risk neutral principal under the model setup we show that the optimal controls are constant over time and thus the optimal menu consists of contracts that are linear in the final outcome we also show that when a moral hazard problem adds to an adverse selection problem the monotonicity condition well known in the pure adverse selection literature needs to be modified to ensure the incentive compatibility for information revelation the model is applied to a few managerial compensation problems involving managerial project selection and capital budgeting decisions we argue that in the third best world the relationship between the volatility of the outcome and the sensitivity of the contract depends on interactions between the managerial cost and the firm s production functions contrary to conventional wisdom sometimes the higher the volatility the higher the sensitivity of the contract the firm receiving good news sometimes chooses safer projects or invests less than it does with bad news we also examine the effects of the observability of the volatility on corporate investment decisions copyright 2005 oxford university press

combining contingent valuation and travel cost data for the valuation of non market goods the travel cost method tcm has long been used to infer the economic value of nonmarket resources and public goods more recently contingent valuation cvm survey methods have gained popularity for eliciting these values here cvm survey responses are combined with tcm data on actual market behavior to estimate jointly both the parameters of the underlying utility function and its corresponding ordinary demand function this is a prototypical empirical example of a new modeling strategy variants of which should prove useful in many applications especially where reliance on a single valuation method is undesirable

endogenous incomplete contracts a bargaining approach in this paper we argue that by modelling the contracting process as a bargaining game one can endogenize the choice between complete and incomplete contracts this point is demonstrated within a stylized model in which agents can allocate an endowment stream either via a once for all bargain over the entire stream a long term contract or through a series of bargaining rounds a short term contract within this structure short term contracts arise as equilibrium outcomes under very general conditions because a short term contract implies reduced bargaining costs for one of the agents in essence reduced transaction costs produce a short term contract jel classification l14 c78

food stamps and food insecurity what can be learned in the presence of nonclassical measurement error policymakers have been puzzled to observe that food stamp households appear more likely to be food insecure than observationally similar eligible nonparticipating households we reexamine this issue allowing for nonclassical reporting errors in food stamp participation and food insecurity extending the literature on partially identified parameters we introduce a nonparametric framework that makes transparent what can be known about conditional probabilities when a binary outcome and conditioning variable are both subject to nonclassical measurement error we find that the food insecurity paradox hinges on assumptions about the data that are not supported by the previous food stamp participation literature

the estimation of demand parameters in hedonic price models this paper shows that the econometric problem of estimating hedonic demand parameters is not a standard identification problem caused by demand supply interaction as has been often assumed estimation procedures based on this assumption lead to biased results the hedonic estimation problem is instead caused by the endogeneity of both prices and quantities when households face a nonlinear budget constraint an instrumental variables solution to this problem is suggested using instruments that exogenously shift the budget constraint

combining revealed and stated preference methods to value environmental amenities at residential locations this paper combines an established revealed preference method discrete choice he donic analysis and a relatively new stated refer ence method choice based conjoint analysis in order to estimate more accurately the aesthetic benefits generated by the presence and quality of environmental amenities associated with residen tial locations it applies the combined approach to the housing market of fairfield connecticut which contains several environmental amenities and is experiencing an improvement in the quality of its coastal wetlands due to active restoration efforts jel q26

viewpoint further results on measuring the well being of the poor using income and consumption we evaluate the relative merits of income and consumption based measures of well being our results provide evidence that consumption better captures well being for those with few resources the bottom deciles of expenditures exceed those of income suggesting under reporting of income the under reporting rate for government transfers is high and rising overall non response is more severe in u s income data than in expenditure data furthermore a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates finally very low consumption is more strongly related to other bad outcomes than very low income on evalue les merites relatifs des mesures de bien etre fondees sur le revenu et la consommation les resultats montrent que la consommation mesure mieux le bien etre de ceux qui ont peu de ressources les deciles au bas de la distribution des depenses depassent les deciles de la distribution des revenus ce qui suggere qu il y aurait des revenus non rapportes le taux de sous declaration des transferts gouvernementaux est eleve et croissant le taux global de non reponses est plus important aux etats unis pour les revenus que pour les depenses de plus les bases de donnees sur la consommation requierent moins d observations que celles sur le revenu pour obtenir le meme degre de precision des evaluations typiques finalement une tres basse consommation est plus fortement co reliee a d autres mauvaises conditions qu un tres bas niveau de revenu

combining revealed and stated preferences consistency tests and their interpretations this article models the recreation demand for iowa wetlands combining survey data on both actual usage patterns i e revealed preferences rps and anticipated changes to those patterns under hypothetical increases in trip costs i e stated preferences sps we formulate and test specific hypotheses concerning potential sources of bias in each approach and discuss what can be learned about the validity of the models from such tests

externality effects of small scale hazardous waste sites evidence from urban commercial property markets abstract studies have found that severely contaminated properties such as those on the u s epa s national priority list npl reduce the value of nearby single family homes however the vast majority of hazardous waste sites hws are not so severely contaminated as those on the npl we also know little about hws effects on other land uses such as commercial and industrial properties which may be of greater interest since these properties are more likely to be located near contaminated sites using data for atlanta georgia hws are found to negatively affect the market value of nearby commercial and industrial properties although none of the hws in this study are on the npl their impacts are estimated to be quite substantial in magnitude estimates of the total value losses caused by many of the sites are sufficiently large relative to the cost of remediation to justify tax increment financing as a clean up option

the interaction of implicit and explicit contracts in repeated agency abstract in a repeated principal agent model in which the agent s actions are observable to the principal but not verifiable in court the agent s incentives derive both from salary payments based on verifiable signals and from implicit promises by the principal of bonuses for good behavior explicit short term contracts are designed to enhance the effectiveness of the infinite horizon implicit contract between principal and agent in a constrained efficient equilibrium bonuses smooth the consumption path of the risk averse agent by moving in the opposite direction from salaries total consumption and expected discounted utility for the rest of the game journal of economic literature classification numbers c7 c73 d8

contracts without memory in multiperiod agency models abstract settings are considered in which optimal multiperiod contracts can have no memory i e where second period payments do not need to depend on first period outcomes if contracts have no memory a repeated agency game can be played myopically there are no gains to long term relationships conditions on preferences for a no memory contract are presented in an agency game with moral hazard on the act selection preference separability and domain additivity imply the existence of a no memory contract in a setting without moral hazard but with asymmetric information on the outcome domain additivity implies no memory

an empirical analysis of sales force compensation plans among the array of direct and indirect methods of motivation and control available to the sales manager is sales force compensation in this article the authors summarize theoretical predictions from the economics marketing finance and accounting literatures on the structure of optimal sales force compensation plans guided by these insights they then construct empirical models to quantify the effect of various sales force factors firm and product factors and market factors on compensation using data from 286 firms in 39 industries the authors examine determinants of incentive components and total pay and the optimal horizon for incentive pay copyright 1992 by university of chicago press

a structural model of multiple welfare program participation and labor supply work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously the authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation the results show asymmetric wage and tax rate effects with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates implying that high welfare tax rates do not necessarily induce major reductions in work effort copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities abstract the hedonic property value model is among our foremost tools for evaluating the economic consequences of policies that target the supply of local public goods environmental services and urban amenities we design a theoretically consistent and empirically realistic monte carlo study of whether omitted variables seriously undermine the method s ability to accurately identify economic values our results suggest that large gains in accuracy can be realized by moving from the standard linear specifications for the price function to a more flexible framework that uses a combination of spatial fixed effects quasi experimental identification and temporal controls for housing market adjustment

partial identification methods for evaluating food assistance programs a case study of the causal impact of snap on food insecurity we illustrate how partial identification methods can be used to provide credible inferences on the causal impacts of food assistance programs focusing on the impact that the supplemental nutrition assistance program snap formerly known as the food stamp program has on food insecurity among households with children recent research applies these methods to address two key issues confounding identification missing counterfactuals and nonrandomly misclassified treatment status in this paper we illustrate and extend the recent literature by using data from the survey of income and program participation sipp to study the robustness of prior conclusions the sipp confers important advantages the detailed information about income and eligibility allows us to apply a modified discontinuity design to sharpen inferences and the panel nature allows us to reduce uncertainty about true participation status we find that snap reduces the prevalence of food insecurity in households with children by at least six percentage points

teardowns and land values in the chicago metropolitan area an empirical model of residential housing demolitions and the redevelopment process in the chicago metropolitan area supports the theoretical prediction that the sales price of teardown property is approximately equal to its land value we control for sample selection bias associated with non random demolition permit applications using a probit model that accounts for misclassification of the dependent variable the probit models provide statistically significant evidence of misclassification and suggest that prime teardown candidates are small older homes near public transportation and traditional village centers

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

moral hazard and secured lending in an infinitely repeated credit market game we analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality even without learning or risk aversion long term bank borrower relationships are welfare enhancing the main result is that the borrower obtains an infinite sequence of unsecured loans at below spot market cost following the first good project realization this contract produces first best action choices prior to this stage the borrower gets secured loans with above market borrowing cost the optimal contract thus displays a selective memory feature taking only one of two forms at any given point in time depending on prior history we consider an infinitely repeated bank borrower relationship with moral hazard and universal risk neutrality and explore the ramifications of credit contract duration when the two well known benefits of long term contracting learning and improved risk sharing are absent our objectives are twofold the first is to analyze an infinitely repeated game with discounting in a credit market context we thus relate the theory of repeated games to financial intermediation theory particularly to issues of moral hazard and collateral related distortions the second objective is to understand noteworthy stylized facts of credit markets such as durability in credit relationships lower borrowing costs for established borrowers and unsecured loans for established borrowers versus secured loans for newer borrowers while these practices may be partly due to learning we show that learning is not essential to rationalize them even if information decays rapidly and banks learn nothing about borrowers through time these aspects of credit contracting arise in a repeated game context our main results are as follows first despite universal risk neutrality and the absence of learning a durable bank relationship benefits the borrower 2 the intuition is that the long term contracting permitted by a durable relationship enables the bank to efficiently tax and subsidize the borrower through time to reduce the use of costly collateral second the average welfare loss due to moral hazard per period is positive even as the time horizon goes to infinity third the optimal infinite horizon contract has the striking property that following the period

preference representation and randomization in principal agent contracts abstract conditions on an agent s preferences that induce a demand for ex ante randomization are derived when the agent has constant absolute risk aversion in wealth but additive separable preferences in wealth and effort optimal contracts often require randomization under additive separability the principal can use randomization to exploit the interaction between incentive considerations and the agent s outside opportunities however when the agent has constant absolute risk aversion in wealth but multiplicative separable preferences participation and incentive considerations separate hence optimal contracts do not exhibit ex ante randomization

repeated moral hazard with a time inconsistent agent abstract i consider a repeated principal agent model with moral hazard in which the agent has preferences which are widely used to capture time inconsistency i analyze the case where the agent is sophisticated in the sense that he is fully aware of his inconsistent discounting i characterize the optimal wage scheme for such an agent and compare it to time consistent benchmarks the marginal cost of rewarding the agent for high output today exceeds the marginal benefit of delaying these rewards until tomorrow in this sense the principal does not smooth the agent s rewards over time when facing a sophisticated agent it is optimal for the principal to reward the good performance more and punish the bad performance more in the early period relative to the optimal wage scheme for a time consistent agent

combining revealed and stated data to examine housing decisions using discrete choice analysis abstract this paper uses stated preference and revealed preference data separately and jointly to examine individuals housing choices in particular it combines an established revealed preference approach discrete choice analysis of actual housing purchases and a relatively new stated preference approach choice based conjoint analysis of hypothetical housing purchases to provide us with a better understanding of the factors driving housing decisions these methods are appropriately combined since they reflect the same decision process households select the dwelling that provides the best combination of attributes from the feasible set of alternatives in total this paper analyzes three data sets only actual housing purchases only hypothetical housing purchases and both types of purchases combined analysis finds that actual and hypothetical housing purchases are similar decision processes with respect to some attributes yet are dissimilar with respect to other attributes nevertheless combining the two types of data improves identification of both categories of attributes journal of economic literature classification number r21

adverse selection in dynamic moral hazard this paper studies a multiperiod moral hazard problem under two assumptions i contracts are subject to renegotiations ii the agent s action has long term effects the action is also interpreted as a choice of characteristic or type renegotiation proof contracts that implement various actions including random ones are characterized under appropriate conditions the equilibrium involves the principal implementing a random action therefore the equilibrium has standard properties of adverse selection models

sparkling wine choice from supermarket shelves the impact of certification of origin and production practices we report the results of a study based on revealed and stated preference data on choice of prosecco wines in retail stores close to the origin of production in northern italy emphasis is placed on ability to reconcile the utility structure of stated preference data with that underlying revealed preference data we extend the analysis to cover nonattendance of key attributes such as price and certification of origin while controlling for the large range of brand effects

an investigation of the equal commission rate policy for a multi product salesforce for a multi product sales force the policy of paying commissions as an equal percentage of realized gross margins is shown to be in general nonoptimal from the firm s profit maximization point of view for a homogeneous salesforce the nonoptimality results from the fact that earlier research while taking into account the effect of commission rates on a salesperson s allocations of total time to the multiple products has not incorporated the effect of commission rates on salesperson s total selling time resulting from his her trading off income vs total time to maximize utility the equal commission rate policy is however optimal for the cases of i salesperson with a fixed total selling time and a minimum income requirement and ii fair income salesperson whose total selling time is merely a function of income and not based on rate of change of income as in the utility maximization case if the salesforce is heterogeneous e g different salespersons have differing sales responses to selling time this makes the equal commission rate policy to be in general nonoptimal even for the restrictive cases i and ii it is suggested that the commission rates be set higher for products with greater elasticities relating quantities sold to selling times the common practice of paying commissions as a percentage of total dollar sales rather than gross margins is shown to be optimal under certain assumptions

combining revealed and stated preference data to estimate the nonmarket value of ecological services an assessment of the state of the science this paper reviews the marketing transportation and environmental economics literature on the joint estimation of revealed preference rp and stated preference sp data the rp and sp approaches are first described with a focus on the strengths and weaknesses of each recognizing these strengths and weaknesses the potential gains from combining data are described a classification system for combined data that emphasizes the type of data combination and the econometric models used is proposed a methodological review of the literature is pursued based on this classification system examples from the environmental economics literature are highlighted a discussion of the advantages and disadvantages of each type of jointly estimated model is then presented suggestions for future research in particular opportunities for application of these models to environmental quality valuation are presented

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

designing incentive systems for truthful forecast information sharing within a firm we consider a firm where the sales division sales is responsible for demand forecasting and the operations division operations is responsible for ordering sales has better information about the demand than operations and sends a nonbinding demand forecast to operations to incentivize truthful information sharing we include a forecast error penalty in the incentive system of sales besides monetary payoffs we also add behavioral factors to the utility function of sales we model the setting as a signaling game and derive the pareto dominant separating equilibria of the game in laboratory experiments we observe human behavior that is in line with the predictions of the behavioral model but deviates substantially from expected payoff maximizing behavior we use the behavioral model to design incentive systems for truthful information sharing and validate the approach in an experiment with out of sample treatments and out of sample subjects we conduct additional experiments to provide further robus

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

measuring the well being of the poor using income and consumption we examine the relative merits of consumption and income as measures of the material well being of the poor consumption offers several advantages over income because consumption is a more direct measure of well being than income and is less subject to underreporting bias measurement problems with income are problematic for analyses of changes in well being of the poor because the biases appear to have changed over time and are correlated with government policies on the other hand income is often easier to report and is available for much larger samples providing greater power to test hypotheses we begin by considering the conceptual and pragmatic reasons why consumption might be better or worse than income then we employ several empirical strategies to examine the quality of income and consumption data first we compare income and consumption reports for those with few resources as well as their assets and liabilities to examine measurement errors and under reporting second we examine other evidence on the internal consistency of reports of low income or consumption third we compare how well micro data in standard datasets weight up to match aggregates for classes of income and consumption that are especially important for low resource families fourth we validate income and consumption measures by comparing them to other measures of hardship or material well being although the evidence tends to favor consumption measures our analyses suggest that both measures should be used to assess the material well being of the poor

long term relationships governed by short term contracts this paper studies the effects of contract duration on the incentive to invest in a relationship when its parties are rational and have perfect information and contracts are complete ex cept that short term contracts specify only current period actions t hen short term contracting distorts investment decisions only when t he efficient plan involves mainly sunk cost investment and the relati onship plays a consumption smoothing role there is a general but no t universal tendency to underinvest copyright 1988 by american economic association

costa contribution optimizing sales territory alignment the alignment of sales territories has a considerable impact on profit and represents a major problem in salesforce management practitioners usually apply the balancing approach this approach balances territories as well as possible with respect to one or more attributes such as potential or workload unfortunately this approach does not necessarily guarantee maximizing profit contribution thus it does not provide an evaluation of the profit implications of an alignment proposal in comparison with the existing one in consequence several authors proposed nonlinear integer optimization models in the 1970s these models attempted to maximize profit directly by considering the problems of allocating selling time calling plus travel time across accounts as well as of assigning accounts to territories simultaneously however these models turned out to be too complex to be solvable therefore the authors have either approximated the problem or proposed the application of heuristic solution procedures on the basis of the suboptimal principle of equating marginal profit of selling time across territories to overcome these limitations we propose a new approach costa an acronym for contribution optimizing sales territory alignment in contrast to previously suggested profit maximizing approaches costa operates with sales response functions of any given concave form at thelevel of sales coverage units scus that cover a group of geographically demarcated individual accounts thus costa works with sales response functions at a more aggregated level that requires less data than other profit maximization approaches costa models sales as a function of selling time which includes calling time as well as travel time assuming a constant ratio of travel to calling time in addition the formulation of the model shows that an optimal solution requires only equal marginal profits of selling time across sales coverage units per territory but not across scus of different territories basically costa consists of an allocation model and an assignment model both of which are considered simultaneously the allocation model optimally allocates the available selling time of a salesperson across the scus of his or her territory whereas the assignment model assigns the scus to territories thus costa predicts the corresponding profit contribution of every possible alignment solution which enables one to perform what if analyses the applicability of the model is supported by the development of a powerful heuristic solution procedure a simulation study showed that costa provided solutions that are on average as close as 0 195 to an upper bound on the optimal solution the proposed heuristic solution procedure enables one to solve large territory alignment problems because the computing time increases only quadratically with the number of scus and proportionally to the square root of the number of salespersons in principle we also show how costa might be expanded to solve the salesforce sizing as well as the salespersons location problem the usefulness of costa is illustrated by an application the results of this application indicated substantial profit improvements and also outlined the weaknesses of almost balanced territories it is quite apparent that balancing is only possible at the expense of profit improvements and also does not lead to equal income opportunities for the salespersons this aspect should be dealt with separately from territory considerations by using territory specific quotas and linking variable payment to the achievement of these quotas furthermore the superiority of costa turned out to be stable in a simulation study on the effect of misspecified sales response functions costa is of interest to researchers as well as practitioners in the salesforce area it aims to revive the stream of research in the 1970s that already proposed sales territory alignment models aimed at maximizing profit such profit maximizing models are theoretically more appealing than approaches that strive to balance one or several attributes such as potential or workload costa s main advantage over previous profit maximizing approaches is that it is less complex consequently costa demands less data so that even large problems can be solved close to optimality within reasonable computing times

salesforce compensation plans in environments with asymmetric information in this paper we present a theory of salesforce compensation plans to provide insights into why it may be advantageous for a profit maximizing firm to offer members of its salesforce the opportunity to choose from a menu of compensation plans although such contractual arrangements are not commonly used in the industry they have been introduced and implemented by firms such as ibm and st regis paper as in our previous work on salesforce compensation plans basu lal srinivasan and staelin basu a k r lal v srinivasan r staelin 1985 salesforce compensation plans an agency theoretic perspective marketing sci 4 fall 267 291 we use an agency theory framework in this paper we relax the assumptions of information symmetry and salesforce homogeneity and show the conditions under which it is optimal to offer a menu of compensation plans we also show that even when these assumptions are relaxed there are situations where offering a single plan characterized by basu lal srinivasan and staelin basu a k r lal v srinivasan r staelin 1985 salesforce compensation plans an agency theoretic perspective marketing sci 4 fall 267 291 is still optimal insights gained from the analyses are discussed in the context of an existing compensation scheme

market potential for smart growth neighbourhoods in the usa a latent class analysis on heterogeneous preference and choice with data from a 2011 national association of realtors community preference survey we examined individuals preferences and the resulting market potential for smart growth neighbourhoods in the usa using a latent class choice model we discovered four classes of individuals that reveal distinctive behaviours when choosing smart growth neighbourhoods based on the interplay between aspects of community design socioeconomic characteristics and personal attitudes based on these results we estimated the demand for smart growth neighbourhoods given the way they are planned and built by linking the results of the latent class choice to a market diffusion model we were able to evaluate the effectiveness of a proposed smart growth neighbourhood design in inducing less sprawling development

optimization models for salesforce compensation abstract this paper reviews models which address the design of optimal salesforce compensation schemes the discussion starts with agency theoretic models that are able to derive the optimal form for a compensation scheme under assumptions regarding the degree of information asymmetry and heterogeneity within the salesforce for the four resulting extreme cases models are presented that allow for the determination of optimal parameter values for specific compensation schemes such as fixed salary plus commission bonus for quota achievement and menus of plans finally there follows an examination of approaches through which commission rates or bonuses can be optimally differentiated such that the salespersons allocate their selling time in their own and at the same time in the firm s best interest all of these models are reviewed in particular with respect to their applicability in practice

dynamic contracting with persistent shocks abstract in this paper we develop continuous time methods for solving dynamic principal agent problems in which the agent s privately observed productivity shocks are persistent over time we characterize the optimal contract as the solution to a system of ordinary differential equations and show that under this contract the agent s utility converges to its lower bound immiserization occurs unlike under risk neutrality the wedge between the marginal rate of transformation and a low productivity agent s marginal rate of substitution between consumption and leisure will not vanish permanently at her first high productivity report also the wedge increases with the duration of a low productivity report we apply the methods to numerically solve the mirrleesian dynamic taxation model and find that the wedge is significantly larger than that in the independently and identically distributed i i d shock case

the salesperson as outside agent or employee a transaction cost analysis this descriptive study explores the reasons for integration of the personal selling function i e the use of employee direct salespeople rather than manufacturers representatives reps a hypothesized model is developed based on both transaction cost analysis and the sales force management literature data from 13 electronic component manufacturers covering 159 u s sales districts are used to estimate a logistic model of the probability of going direct in a given district results are shown to be stable across specification and estimation methods and to fit the data well the transaction cost model is generally supported the principal finding is that the greater the difficulty of evaluating a salesperson s performance the more likely the firm to substitute surveillance for commission as a control mechanism i e to use a direct sales force among other findings direct sales forces are also associated with complex hard to learn product lines and with districts that demand considerable nonselling activities several factors prove unrelated including company size the amount of travel a district requires and the importance of key accounts this article was originally published in marketing science volume 4 issue 3 pages 234 254 in 1985

structuring a multiproduct sales quota bonus plan for a heterogeneous sales force a practical model based approach this paper presents an agency theoretic model based approach that assists sales managers in determining the profit maximizing structure of a common multiproduct sales quota bonus plan for a geographically specialized heterogeneous sales force operating in a repetitive buying environment this approach involves estimating each salesperson s utility function for income and effort and using these models to predict individual sales achievements and the associated aggregate profit for the firm under a specified plan the utility function estimation is based on the salesperson s own preference rank ordering of alternative sales quota bonus plans once these functions have been estimated they are incorporated in a mathematical programming model that the sales manager can use to determine the best plan the authors demonstrate the approach in the context of a case involving the design of a two product sales quota bonus plan for a set of salespeople at a pharmaceutical products firm

stigmatized asset value is it temporary or long term stigma is a negative attribute of real estate acquired by environmental contamination and reflected in its value elliot jones 1996 using a model of neighborhood turnover with external economies we show that both temporary stigma and long term stigma are possible equilibrium outcomes after the discovery and cleanup of a hazardous waste site the existence and duration of stigma are examined using hedonic price techniques with data from housing sales prices in dallas county texas we find that results depend critically on distance from the hazardous waste site neighborhood turnover due to changes in the level of poverty also appears likely

holdups simple contracts and information acquisition abstract in a typical procurement setup several recent papers have shown that when complete contracting is not possible simple noncontingent contracts may suffice to solve the under investment problem this paper points out that a noncontingent contract offer such as a fixed price contract may induce the seller to acquire information on the future course of costs and only to accept the offer if the cost is low it is shown that sometimes the buyer prefers to wait and buy on the spot market than to offer a long term contract when the seller rejects a contract offer or the buyer chooses not to make one the seller will not make efficient investments because he expects to be held up on the spot market

estimating housing demand with an application to explaining racial segregation in cities we present a three stage nonparametric estimation procedure to recover willingness to pay for housing attributes in the first stage we estimate a nonparametric hedonic home price function in the second stage we recover each consumer s taste parameters for product characteristics using first order conditions for utility maximization finally in the third stage we estimate the distribution of household tastes as a function of household demographics as an application of our methods we compare alternative explanations for why blacks choose to live in center cities while whites suburbanize

identifying demand parameters in the presence of unobservables a combined revealed and stated preference approach we develop a combined revealed and stated preference approach to identify discrete choice demand parameters in the presence of unobserved determinants of choice our approach overcomes difficulties associated with small choice sets multicollinearity and endogeneity that arise with revealed preference approaches to illustrate our framework we revisit two canadian moose hunting datasets our empirical results suggest the potential gains from fusing revealed and stated preference data but they also suggest its limitations when the data generating processes for the data sources differ

repeated principal agent relationships with lending and borrowing abstract it is shown optimal long term contracts are strictly better than a series of unrelated short term contracts for two reasons long term contracts allow risk to be spread over time and the agent s intertemporal choices provide information about the unobservable random variable

combining revealed and stated preference data to estimate preferences for residential amenities a gmm approach we show how stated preference information obtained from a choice experiment and revealed preference information based on housing market transactions can be combined via generalized method of moments gmm estimation specifically we use a moment condition matching the predicted marginal willingness to pay wtp from a first stage hedonic model to the marginal wtp formula implied by the choice experiment utility function this is coupled with other moments from the choice experiment to produce gmm based estimates of parameters that reflect the strengths of each data source our application values remediation of a contaminated site in buffalo new york and we find evidence in support of estimates arising from our approach jel q51 q53

convergent validity of revealed and stated recreation behavior with quality change a comparison of multiple and single site demands we consider the convergent validity of several demand models using beach recreation data two models employ multiple site data a count data demand system model and the kuhn tucker demand system model we explore the role of existing variation in beach width in explaining trip choices and analyze a hypothetical 100 foot increase in beach width we compare these models to a single equation model where we jointly estimate revealed and stated preference trip data and focus on a hypothetical scenario considering a 100 foot increase in beach width in each case we develop estimates of the change in beach visits and the welfare impacts from the increase in width the trip change estimates from two of the three models are similar and convergent valid though the willingness to pay estimates differ in magnitude

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

salesforce compensation theory and managerial implications this paper discusses recent advances in the study of salesforce motivation and compensation special emphasis is given to quantitative approaches from the economics finance and marketing literatures the paper summarizes the findings in this analytical work in the context of some examples of compensation practice in order to illustrate the usefulness of the paradigm for the evaluation and setting of compensation systems we consider some major issues in setting compensation such as the firm s own objective the salesperson s objective and the nature of the sales response function variations in these factors imply significant variation in optimal compensation policy where optimal takes into account the components in the plan the parameter levels of the components and whether or not a menu of such plans should be made available to the salesforce by highlighting the results in the literature in light of some relevant compensation examples we show the applicability of theory to the practical concerns of salesforce management we close with a summary of these insights and directions for future research in the area

benefit transfer via preference calibration prudential algebra for policy this paper proposes a new approach to benefit transfer the method assumes a specific form for preferences and uses available benefit information to identify and calibrate the preference parameters to match the existing benefit estimates this approach assures economic consistency of the transfers benefit measures can never be inconsistent with household income the logic also offers a series of potentially observable predictions that can be used to gauge the plausibility of benefit transfers when multiple benefit estimates from different methods are available such as hedonic property value travel cost demand and contingent valuation the framework uses the definition of the benefit concept from each method in a single preference function to reconcile differences it provides a specific way to take account of baseline conditions and scope effects i e the size of the proposed change consistently in the transfer the method is illustrated using estimates for benefit measure changes in water quality from three studies travel cost demand hedonic property value and contingent valuation analysis q26

the multiperiod principal agent problem in repeated principal agent models long term contracts can improve on short term contracts only if they commit either principal or agent to a payoff in some future circumstance lower than could be obtained from a short term contract negotiated if that circumstance occurs we show that efficient contracting under moral hazard alone does not require long term commitment from the principal provided a short term contract can punish the agent sufficiently in a sense made precise it requires no commitment from the agent either then linking payoffs in one period to outcomes in previous periods does not improve the tradeoff between incentives and risk sharing

estimation with response error and nonresponse error in survey data originates from failure to contact the sample and from false answers to verifiable questions these errors may be systematic and associated with uncooperative or unreliable respondents zabel modeled attrition in the survey of income and program participation and found systematic demographic and design effects bollinger and david modeled response error and identified correlations to income per capita in this analysis we link missing interviews in a panel and response error through a trivariate probit analysis robustness of the correlation between attrition and response error is examined by comparing variants of the model the joint model of response error and attrition becomes the first stage of a pseudolikelihood estimate of a model of food stamp participation the model is significantly different from naive probit on the survey data

compensation plans for single and multi product salesforces an application of the holmstrom milgrom model the agency theory approach to understanding salesforce compensation plans is modified to incorporate the intratemporal nature of the salesperson s effort rate decision i e the decision about the effort rate at any given point in time potentially depends upon the sales performance up to that point in time in the accounting period under the assumptions considered in this paper holmstrom and milgrom 1987 have shown that the optimal compensation plan is linear in total sales over the accounting period the comparative statics results obtained here corroborate most of the corresponding results in the salesforce compensation literature moreover we derive many additional results not available in the literature it is demonstrated that the commission income as a fraction of total compensation goes up with an increase in the effectiveness of the sales effort or an increase in base sales on the other hand the salary component of the total compensation goes up with increases in uncertainty absolute risk