but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

comment general competitive analysis in an economy with private information prescott and townsend 1984 extend the literature on general equilibrium theory to economies in which agents have private information about their preferences they examine the extent to which the classical welfare theorems carry over in this environment the existence of nonverifiable information imposes limits on the economy s contract structure contracts cannot be written to require an agent to reveal information unless truthful revelation is optimal incentive compatiblity constraints typically nonlinear are thereby introduced into the corresponding planner s problem as a result the space of feasible deterministic allocations is typically not convex the authors circumvent this problem by allowing for random allocations where the planner is choosing over the space of probability distributions of consumption allocations the incentive compatibility constraints in this space are linear in the planner s choice variables rendering the set of feasible consumption allocations convex some of the attainable random allocations pareto dominate the set of incentive feasible allocations attainable via deterministic allocation rules randomized allocations have two functions they convexify the planner s choice set and they may allow for pareto superior allocations to be achieved prescott and townsend s presentation may leave readers with the misleading conclusion that the nonconvexity of the choice set under deterministic allocations is necessary for random allocations to be pareto superior but one can attain pareto superior allocations with lotteries even when the choice set under deterministic allocation rules is convex this note demonstrates that prescott and townsend s own example has this property

labor market returns to two and four year college the paper examines labor market returns to a two and four year college education analysis of the 1972 national longitudinal survey of youth observation that the average person who attended a two year college earned about 10 percent more than those without any college education comparison with the wages of those who attended a four year college education

moral hazard in risk averse teams holmstrom 1982 has shown that a non budget balancing contract induces a team of risk neutral agents to choose the first best effort levels this is not generally true when agents are risk averse furthermore a massacre contract which punishes all but one agent when the outcome is low can attain the first best over a wider range of parameters than any other budget balancing contract

communicating subjective evaluations consider managers evaluating their employees performances should managers justify their subjective evaluations suppose a manager s evaluation is private information justifying her evaluation is costly but limits the principal s scope for distorting her evaluation of the employee i show that the manager justifies her evaluation if and only if the employee s performance was poor the justification assures the employee that the manager has not distorted the evaluation downwards for good performance however the manager pays a constant high wage without justification the empirical literature demonstrates that subjective evaluations are lenient and discriminate poorly between good performance levels this pattern was attributed to biased managers i show that these effects occur in optimal contracts without any biased behavior

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

a theory of contracts with limited enforcement we present a theory of contracts under costly enforcement in the context of a dynamic relationship between an uninformed buyer and a seller who is privately informed on his persistent cost at the outset public enforcement relies on remedies for breach private enforcement comes from severing relationships we first characterize aggregate enforcement constraints ensuring that trading partners do not breach contracts unduly whether a long term contract is enforceable does not depend on the distribution of penalties for breach between the buyer and the seller while under complete information the optimal contract would remain stationary non stationarity might arise under asymmetric information enforcement constraints are time dependent and easier to satisfy as time passes indeed a high cost seller may be tempted to trade high volumes at high prices at the beginning of the relationship before breaching the contract later on yet such take the money and run strategy becomes less attractive as time passes and can be prevented with backloaded payments the optimal contract thus goes through two different phases first quantities and prices increase at the inception of the relationship later on the contract looks more stationary the public and private sides of enforcement plays different roles in determining the length of the earlier phase of contracting long run screening distortions encapsulate the quality of enforcement offering de facto a link between the quality of the legal system and contractual performances

the effect of labor market performance on deforestation in developing countries under open access an example from rural nepal abstract this research examines the deforestation behavior of smallholder agriculturalists as off farm labor market conditions change a model of a representative village is proposed which incorporates dependence on open access forests for fuelwood and animal raising dynamic simulations are then presented which compare time paths of forest stocks deforestation levels and household labor supply under a variety of conditions despite the open access regime assumed in the model with a perfect albeit low wage off farm labor market the agro forestry system in nepal is basically stable an alternative model where there is no off farm labor market eliminates the important features of adjustment to deforestation which generate forest stability suggesting that the availability of off farm opportunities is an important determinant of deforesting behavior and equilibrium forest stock levels

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

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

evaluation of biodiversity policy instruments what works and what doesn t w e review and confirm the claim that credible evaluations of common conservation instru ments continue to be rare the limited set of rigorous studies suggests that protected areas cause modest reductions in deforestation however the evidence base for payments for ecosystem services decentralization policies and other interventions is much weaker thus we renew our urgent call for more evaluations from many more biodiversity relevant locations specifically we call for a programme of research conservation evaluation 2 0 that seeks to measure how programme impacts vary by socio political and bio physical context to track economic and environmental impacts jointly to iden tify spatial spillover effects to untargeted areas and to use theories of change to characterize causal mechanisms that can guide the collection of data and the interpretation of results only then can we usefully contribute to the debate over how to protect biodiversity in developing countries

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

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

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

notes on bribery and the control of corruption abstract existing models of corruption that allow for bribery have ignored an important recursive problem when an auditor or a policeman bargains over a bribe with a person he has arrested he has to take into account the fact that he may in turn be caught for taking this bribe and be involved in a similar bargain but from the other side the purpose of this paper is to provide a simple model for capturing this recursion having done so it goes on to analyse some conditions for the control of corruption these turn out to be different from what conventional wisdom suggests

efficient and nearly efficient partnerships this paper shows in two ways that the degree to which free riding diminishes the performance of deterministic partnerships may be less than has been generally thought first a necessary and sufficient condition is provided for a partnership to sustain full efficiency it implies that many non trivial partnerships sustain efficiency such as generic ones with finite action spaces and neoclassical ones with leontief technologies second approximate efficiency is shown to be achievable in a large class of partnerships including ones with smooth and monotonic production and disutility functions approximate efficiency is achieved by mixed strategy equilibria one partner takes with small probability an inefficient action the degree to which efficiency is approximated is restricted only by the amount of liability the partners can bear nonetheless their equilibrium payments are not arbitrarily large

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony

endogenous enforcement institutions we model the state as a self enforcing agreement over the use of force powerful individuals punish violations of contracts and property rights and if they shirk or abuse their power society reverts to a low production anarchy stage our model has two implications first improvements in coercion move the optimal enforcement system from private ordering where coercive punishments are not used to centralized state where punihments sanction violations by citizens but not by the ruler to decentralized state where punishments sanction all violations second institutions that reinforce the allegiance of state militias to the law simultaneously insure that contract violations are punished and that the ruler does not expropriate citizens thus they are more productive than judicial institutions which solely facilitate contract enforcement the model is consistent with the historical correlation between technological advances in coercion and the transition from private to state enforcement and with the fact that institutional constraints on the executive affected the long run economic development of nations more than improvements in judicial institutions acemoglu and johnson 2005 we also provide a framework for the optimal sequencing of institutional reforms they should focus first on the binding self enforcement constraint punishment or expropriation and switch to other constraints when the initially binding constraint becomes slack

sex wages and productivity an empirical analysis of israeli firm level data sex discrimination in labor markets may generate a wage gap between men and women that exceeds any gap in marginal productivity we test for this type of discrimination using unique firm level data on manufacturing firms in israel there is a statistically significant negative association between wages and the proportion of a firm s workforce that is female however there is also a statistically significant negative association between marginal productivity and the proportion of females the difference beween the wage and productivity gaps is small relative to wage regression estimates of wage discrimination and is not statistically significant which is most consistent with no discrimination

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

crime intimidation and whistleblowing a theory of inference from unverifiable reports we consider a game between a principal an agent and a monitor in which the principal would like to rely on messages by the monitor the potential whistleblower to target intervention against a misbehaving agent the difficulty is that the agent can credibly threaten to retaliate against the monitor in the event of an intervention in this setting intervention policies that are responsive to the monitor s message provide informative signals to the agent which can be used to target threats efficiently principals that are too responsive to information shut down communication channels successful intervention policies must therefore garble the information provided by monitors and cannot be fully responsive we show that policy evaluation on the basis of non verifiable whistleblower messages is feasible under arbitrary incomplete information provided policy design takes into account that messages are endogenous

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

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

do icdps work an empirical evaluation of forest based microenterprises in the brazilian amazon this paper evaluates public investments in forest based microenterprises as part of an integrated conservation and development project icdp in the brazilian amazon we combine matching with regression to quantify the effects of program participation on household income wealth and livelihoods we find that participation increased cash and total income and asset accumulation suggesting that the microenterprises contributed to the development goals of the icdp there is no clear evidence however that the microenterprise program helped achieve the icdp s conservation goals of shifting household livelihoods away from agriculture and into sustainable forest use

are educated workers really more productive abstract this paper presents a new method for examining the productive nature of education it outlines an econometric model which simultaneously estimates an earnings function and a production function for workers and the firms where they are employed this approach permits a direct comparison to be made between the relative wage and relative productivity of workers with different levels of education using a unique data set from ghana two primary questions are addressed 1 are educated workers more productive than workers with no formal education and 2 do earnings differentials between workers with different levels of education reflect genuine productivity differentials the results suggest that education is positively correlated with productivity in ghanaian manufacturing and that firms pay workers according to their productivity

are earnings profiles steeper than productivity profiles we test competing explanations of rising age earnings profiles by obtaining direct estimates of marginal productivity differentials between workers in different age groups and comparing these to associated earnings differentials using contemporary data from israeli manufacturing firms the results indicate that controlling for other productive inputs and firm characteristics for the unskilled or less skilled workers who represent most of the workers in our sample both earnings and productivity profiles are upward sloping moreover these profiles mirror each other closely and are statistically indistinguishable however the estimates of the profiles are sufficiently imprecise that even sizable deviations between point estimates of earnings growth and productivity growth would not be statistically significant while we view the results as most consistent with a general human capital model of rising earnings profiles over the life cycle there is not strong evidence with which to reject alternative models

linear inequality methods to enforce partnerships under uncertainty an overview we review different generic conditions on stochastic outcome functions to enforce either efficient or nearly efficient partnerships their logical relationship is explored two kinds of conditions are considered however the property for an action profile to be compatible plays a crucial role in both kinds also two kinds of enforcement mechanisms are considered enforcement through utility transfers and enforcement through repetition

truth telling by third party auditors and the response of polluting firms experimental evidence from india in many regulated markets private third party auditors are chosen and paid by the firms that they audit potentially creating a conflict of interest this article reports on a two year field experiment in the indian state of gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting there are three main results first the status quo system was largely corrupted with auditors systematically reporting plant emissions just below the standard although true emissions were typically higher second the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards third treatment plants in turn reduced their pollution emissions the results suggest reformed incentives for third party auditors can improve their reporting and make regulation more effective jel codes q56 m42 d22 copyright 2013 oxford university press

efficiency in partnerships with joint monitoring abstract this paper examines deterministic partnerships where a single partner observes the actions taken by a subset of the other partners and issues a report conditional on that observation no other partner has any additional information in such a model whenever the observing partner can see the action chosen by at least one other partner the efficient action vector can be sustained in a perfect bayesian equilibrium by sharing rule that exhibits budget balance and limited liability journal of economic literature classification numbers c7 d7 d8 l2

does compulsory school attendance affect schooling and earnings we establish that season of birth is related to educational attainment because of school start age policy and compulsory school attendance laws individuals born in the beginning of the year start school at an older age and can therefore drop out after completing less schooling than individuals born near the end of the year roughly 25 percent of potential dropouts remain in school because of compulsory schooling laws we estimate the impact of compulsory schooling on earnings by using quarter of birth as an instrument for education the instrumental variables estimate of the return to education is close to the ordinary least squares estimate suggesting that there is little bias in conventional estimates every developed country in the world has a compulsory schooling requirement yet little is known about the effect these laws have on educational attainment and earnings 1 this paper exploits an unusual natural experiment to estimate the impact of compulsory schooling laws in the united states the experiment stems from the fact that children born in different months of the year start school at different ages while compulsory schooling laws generally require students to remain in school until their sixteenth or seventeenth birthday in effect the interaction of school entry requirements and compulsory schooling laws compel students born

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

vertical contracting with informational opportunism we consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts we highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship we characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints those constraints limit the manufacturer s ability to use yardstick competition among retailers they simplify contracts and restore a rent efficiency trade off even with correlated information we show that sell out contracts are optimal under a wide range of circumstances

community enforcement of trust with bounded memory we examine how trust is sustained in large societies with random matching when records of past transgressions are retained for a finite length of time to incentivize trustworthiness defaulters should be punished by temporary exclusion however it is profitable to trust defaulters who are on the verge of rehabilitation with perfect bounded information defaulter exclusion unravels and trust cannot be sustained in any purifiable equilibrium a coarse information structure that pools recent defaulters with those nearing rehabilitation endogenously generates adverse selection sustaining punishments equilibria where defaulters are trusted with positive probability improve efficiency by raising the proportion of likely re offenders in the pool of defaulters

perfect communication equilibria in repeated games with imperfect monitoring this paper introduces an equilibrium concept called perfect communication equilibrium for repeated games with imperfect private monitoring this concept is a refinement of myerson s myerson r b 1982 optimal coordination mechanisms in generalized principal agent problems j math econ 10 67 81 communication equilibrium a communication equilibrium is perfect if it induces a communication equilibrium of the continuation game after every history of messages of the mediator we provide a characterization of the set of corresponding equilibrium payoffs and derive a folk theorem for discounted repeated games with imperfect private monitoring

peer discipline and incentives within groups abstract we investigate how a collusive group can sustain non nash actions by enforcing internal discipline through costly peer punishment we give a simple and tractable characterization of schemes that minimize discipline costs while preserving incentive compatibility we apply the model to a public goods contribution problem we find that if the per capita benefit from the public good is low then regardless of whether peer discipline is feasible or not only small groups will contribute to the good if the public good benefit is significant but peer discipline is infeasible it remains the case that only small groups contribute on the other hand if the public good benefit is significant but peer discipline is feasible then full contribution takes place regardless of group size we reconcile this result with olson s idea that small groups are more effective by considering the case where the per capita benefit of the public good varies with group size

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

the relevance of standard estimates of rates of return to schooling for education policy a critical assessment abstract this paper examines the accuracy and usefulness of estimated rates of return to schooling based on the standard human capital model of becker and mincer regarding accuracy it investigates whether failure to account for differences in ability and school quality lead to significant biases estimates using ghanaian data confirm this possibility even when accurate estimated rates of return to additional years of schooling may have limited policy implications more useful for governments are rates of return to investments in school quality the paper uses data on cognitive skills to estimate rates of return to three types of school quality improvements

mediated contracts and mechanism design abstract the framework of incentive compatible finite direct coordination mechanisms in the sense of myerson 1982 5 is isomorphic to a framework of incentive compatible stochastic mediated contracts in the sense of rahman and obara 2010 11 and rahman 2009 10 the equivalence follows because the framework of myerson 1982 5 allows for a correlation between recommendations and transfers the literature has hitherto not recognized the importance of this correlation for the structure of optimal contracts and for extending the revelation principle to address agency moral hazard problems

the power of communication abstract in this paper i offer two ways in which firms can collude secret monitoring and infrequent coordination such collusion is enforceable with intuitive communication protocols i make my case in the context of a repeated cournot oligopoly with flexible production prices that follow a brownian motion and no monetary side payments an environment where it has previously been argued that any collusion is impossible trade associations can easily facilitate collusion by mediating communication amongst firms jel d21 d43 l12 l13

schooling information and nonmarket productivity contraceptive use and its effectiveness information from two u s fertility surveys on couples knowledge about and use of specific contraceptives are used to estimate the technology of human reproduction in order to examine the association between schooling and productivity in the household sector the results indicate that more schooled couples have a wider knowledge of contraceptive methods use more efficiently those contraceptive methods for which there is little information and large scope for misuse and are better able to mitigate the effects of their biological constraints fecundity on their fertility compared to less schooled couples excerpt

the impact of group based credit programs on poor households in bangladesh does the gender of participants matter this paper estimates the impact of participation by gender in the grameen bank and two other group based micro credit programs in bangladesh on labor supply schooling household expenditure and assets the empirical method uses a quasi experimental survey design to correct for the bias from unobserved individual and village level heterogeneity we find that program credit has a larger effect on the behavior of poor households in bangladesh when women are the program participants for example annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs compared with 11 taka for men

motivation and markets many workers receive pay based on subjectively assessed performance yet the shirking model of efficiency wages excludes it this paper incorporates such pay with the following results performance pay is more efficient than efficiency wages when the costs of having a job vacant are low and qualified workers in short supply more capital intensive industries pay more than less capital intensive industries as observed in studies of interindustry wages differentials sustaining an efficient outcome requires a social convention similar to the notion of a fair wage the model also makes predictions about the relationship between turnover wages growth and unemployment copyright 1998 by american economic association

impact of cooperatives on smallholders commercialization behavior evidence from ethiopia this article examines the impact of marketing cooperatives on smallholder commercialization of cereals using detailed household data in rural ethiopia we use the strong government role in promoting the establishment of cooperatives to justify the use of propensity score matching to compare households that are cooperative members to similar households in comparable areas without cooperatives the analysis reveals that although cooperatives obtain higher prices for their members they are not associated with a significant increase in the overall share of cereal production sold commercially by their members however these average results hide considerable heterogeneity across households in particular we find that smaller farmers tend to reduce their marketed output as a result of higher prices whereas the opposite is true for larger farmers

the cost effectiveness of conservation payments international donors invest billions of dollars to conserve ecosystems in low income nations the most common investments aim to encourage commercial activities such as ecotourism that indirectly generate ecosystem protection as a joint product we demonstrate that paying for ecosystem protection directly can be far more cost effective although direct payment initiatives have imposing institutional requirements we argue that all conservation initiatives face similar challenges thus conservation practitioners would be well advised to implement the first best direct payment approach rather than a secondbest policy option an empirical example illustrates the spectacular cost savings that can be realized by direct payment initiatives

an example of a repeated partnership game with discounting and with uniformly inefficient equilibria in this note we present an example of a repeated partnership game with imperfect monitoring in which all supergame equilibria with positive discount rates are bounded away from full efficiency uniformly in the discount rate provided the latter is strictly positive on the other hand if the players do not discount the future then every efficient one period payoff vector that dominates the one period equilibrium payoff vector can be attained by an equilibrium of the repeated game thus the correspondence that maps the players discount rate into the corresponding set of repeated game equilibrium payoff vectors is discontinuous at the point at which the discount rate is zero

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

making corruption harder asymmetric information collusion and crime we model criminal investigation as a principal agent monitor problem in which the agent can bribe the monitor to destroy evidence building on insights from laffont and martimort s 1997 paper we s

efficiency in partnerships we provide the necessary and sufficient condition for a partnership to be able to sustain efficiency when the output is stochastic when limited liability is imposed we show that only the level of the average liability of the partnership is important the individual levels of liability are irrelevant however the allocation of the total liability among the partners is crucial when additional conditions such as neutrality or individual rationality are imposed

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

communication in repeated games with costly monitoring abstract we study repeated games with discounting where perfect monitoring is possible but costly it is shown that if players can make public announcements then every payoff vector which is an interior point in the set of feasible and individually rational payoffs can be implemented in a sequential equilibrium of the repeated game when the discount factor is high enough thus efficiency can be approximated even when the cost of monitoring is high provided that the discount factor is high enough

microcredit social capital and common pool resources abstract the paper presents a conceptual scheme for understanding the impact of microcredit small loans to poor borrowers on common pool resources impacts on common pool resources are posited to occur through changes in household production and consumption the focus on women and the social capital created from group training decision making and risk bearing with the group lending techniques characteristic of many microcredit programs enhanced human and social capital can improve environmental outcomes a nonrandom survey of microfinance organizations suggests increased environmental awareness and potential cpr stewardship through microcredit but empirical research is needed to demonstrate actual impacts

the quality of schooling quantity alone is misleading although much research discusses the quantity of schooling as an effective impact on productivity and earnings most such research leaves out the idea of the quality of schooling which may cause biases in the estimated returns to schooling this paper consequently attempts to extend the standard mincerian approach to incorporate school quality as well as quantity it demonstrates how exclusion of quality in the standard procedure may cause biases in the estimated returns to years of schooling probably in the upward direction the paper explores the implications of this extension of the standard model for the case of young brazilian males it shows that the estimate of the private return to years of schooling using the preferred quality inclusive specification is only one half the estimate using the standard procedure indicating substantial upward bias in the standard estimates it further outlines a method for estimating a social return to quality and finds that it exceeds substantially the social return to quantity the paper then shows why this in turn suggests there may be an equity productivity trade off in schooling investments

samurai accountant a theory of auditing and plunder a risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know but may verify through a costly auditing procedure we characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent the main results are that efficient schemes involve preaudit payments which are increasing in the agent s wealth audit probabilities are decreasing in the agent s wealth and also satisfy certain constraints as equalities in general such schemes involve stochastic auditing and rebates after an audit in this paper we analyse the problem of a principal extracting wealth from an agent who is reluctant to part with it and is also better informed than the principal as to the amount he owns we assume that the principal has a costly means of discovering the agent s

bertrand and walras equilibria under moral hazard we consider a simple model of competition under moral hazard with constant return technologies we consider preferences that are not separable in effort marginal utility of income is assumed to increase with leisure especially for high income levels we show that in this context bertrand competition may result in positive equilibrium profit this result holds for purely idiosyncratic shocks when only deterministic contracts are considered and extends to unrestricted contract spaces in the presence of aggregate uncertainty finally these findings have important consequences on the definition of an equilibrium we show that in this context a walrasian general equilibrium a la prescott townsend may fail to exist any equilibrium must involve rationing

the folk theorem for repeated games with observation costs abstract the folk theorem literature has been relaxing the assumption on how much players know about each other s past action here we consider a general model where players can buy precise information every period each player decides whether to pay a cost to accurately observe the actions chosen by other players in the previous period when a player does not pay the cost he obtains only imperfect private signals observational decisions are unobservable to others known strategies such as trigger strategies do not work since they fail to motivate players to pay for information this paper shows that the folk theorem holds for any level of observation costs unlike existing folk theorems with private monitoring ours imposes virtually no restriction on the nature of costless imperfect signals the theorem does not use explicit or costless communication thereby having implications on antitrust laws that rely on evidence of explicit communication the main message is that accurate observation alone however costly enables efficient cooperation in general repeated games

robustly collusion proof implementation a contract with multiple agents may be susceptible to collusion we show that agents collusion imposes no cost in a large class of circumstances with risk neutral agents including both uncorrelated and correlated types in those circumstances any payoff the principal can attain in the absence of collusion including the second best level can be attained in the presence of collusion in a way robust to many aspects of collusion behavior the collusion proof implementation generalizes to a setting in which only a subset of agents may collude provided that noncollusive agents incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism our collusion proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion

a difficulty in implementing correlated equilibrium distributions we view achieving a particular correlated equilibrium distribution for a normal form game as an implementation problem we show using a parametric version of the two person chicken game that a social choice function that chooses any particular correlated equilibrium distribution does not satisfy maskin monotonicity and therefore can not be fully implemented in nash equilibrium thus no mechanism that aims to understand a correlated distribution as the unique outcome of nash equilibrium play can be found jel classi cation numbers c72 keywords correlated equilibrium distribution implementation monotonicity

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded