ex post participation constraint in a principal agent model with adverse selection and moral hazard abstract this paper analyzes optimal contracting when an agent has private information before contracting and exerts hidden effort that stochastically affects the output additionally the contract is constrained to satisfy the agent s ex post participation we highlight three features of this model first the agent faces countervailing incentives second the separation of types is never optimal third the optimal constant bonus rewarding success is distorted downward below its efficient level

the effect of financial liberalization on capital flight in african economies summary in this paper we assess the effects of financial liberalization on capital flight in african economies a portfolio model in which capital flight is one of the assets is estimated on a sample of nine african countries for 1970 91 the estimation results suggest that financial liberalization induces a reduction in capital flight after augmenting the model with submodels for the banking sector the government sector and the external sector we conduct simulation experiments involving an interest rate deregulation a decrease in reserve requirements and a change in exchange rate policy the simulation results show that capital flight is reduced by all the three financial liberalization measures the effects however are very small considering both the estimation and simulation results we conclude that financial liberalization policies are useful in attempts to reduce capital flight in african economies but per se the policies may not be the panacea

the disciplinary role of takeovers this paper presents a theory of the disciplinary role of takeovers based on an explicit model of managerial incentive problems stemming from asymmetric information it is argued that an informed raider can reduce incentive problems by making managerial compensation more sensitive to information unavailable to shareholders the paper also highlights the importance of specifying the source of contractual inefficiencies when analyzing the effect of takeovers on incentives

prejudice and wages an empirical assessment of becker s the economics of discrimination we test the predictions from becker s 1957 seminal work on employer prejudice and find that relative black wages a vary negatively with the prejudice of the marginal white in a state b vary negatively with the prejudice in the lower tail of the prejudice distribution but are unaffected by the prejudice of the most prejudiced persons in a state and c vary negatively with the fraction of a state that is black our estimates suggest that one quarter of the racial wage gap is due to prejudice with nontrivial consequences for black lifetime earnings

two principles for the next round or how to bring developing countries in from the cold t he november 1999 wto ministerial meeting in seattle was expected to usher in a new round of negotiations the ninth in a series that began in geneva in 1947 although wto members proved unable to launch a round efforts will continue in 2000 to develop a negotiating agenda in this paper i want to reinforce the call of the wto s director general mr moore for the next set of negotiations to be a development round basic notions of equity and a sense of fair play require that the next round reflect developing country interests and concerns more than was the case in earlier rounds seattle demonstrated that without greater balance the success of future negotiations will be imperiled dissatisfaction by developing countries regarding the extent to which their interests were reflected was a factor leading to the failure of the ministerial meeting the stakes are high there is a growing gap between the developed and the less developed countries highlighted in this year s world development report world bank 1999 the international community is doing too little to narrow this gap aid per capita to the developing world has fallen by nearly a third in the 1990s too often cuts in aid budgets are accompanied by the slogan trade not aid exhortations for the developing world to participate fully in the global marketplace and lectures about how government subsidies and protectionism distort prices and impede growth all too often there is a hollow ring to these exhortations as developing countries take steps to open their economies and

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

why should trade negotiators negotiate about in recent years there have been growing demands to make trade liberalization contingent on adoption of common labor and environmental standards the straightforward economic answer is that this makes little sense neither the gains from trade nor the gains from appropriate regulation are compromised if other countries impose standards that are weaker than your own it is possible to offer second bet economic rationales for harmonization but these are empirically unconvincing the only serious argument in favor or regulation is political that regulation which is in the national interest may not be politically feasible unless other countries do the same

employer attitudes the marginal employer and the ethnic wage gap in most eu countries ethnic minorities have lower wages than does the ethnic majority to what extent these wage gaps are the result of prejudice toward ethnic minority workers is virtually unknown the authors examine the role that prejudice plays in the creation of the ethnic wage gap in one of europe s most egalitarian countries sweden the analysis takes into account the important distinction between average employer attitudes and the attitude of the marginal employer the attitude of the most prejudiced employer hiring the ethnic minority results confirm that the attitudes of the marginal employer but not those of the average employer are important for explaining the ethnic wage gap

the economic situation of first and second generation immigrants in france germany and the united kingdom a central concern about immigration is the integration into the labour market not only of the first generation but also of subsequent generations little comparative work exists for europe s largest economies france germany and the uk have all become perhaps unwittingly countries with large immigrant populations albeit with very different ethnic compositions today the descendants of these immigrants live and work in their parents destination countries this article presents and discusses comparative evidence on the performance of first and second generation immigrants in these countries in terms of education earnings and employment it is widely believed that many european countries have a serious problem with the integration of immigrants and their children leed 2006 many northern european countries have accumulated sizeable populations of immigrants but the lack of longterm strategies and policies to integrate these into societal structures and the labour market is often cited as one reason for social and economic exclusion of the children of these immigrants in the past decade southern european countries such as spain and italy have experienced similar if not larger immigrations than the large northern european economies france germany and the uk in the late 1950s to early 1970s again it seems that there is little thought devoted to long term strategies for immigrants and their descendants the experience of those countries that had large scale immigration in the last half of the twentieth century should be of importance for devising future immigration and integration policies however there is rather little hard evidence in the literature about the relative position of immigrants and their descendants in these countries in a manner that allows comparisons to be made in this article we aim to provide a comparative study of a number of outcomes education earnings and employment of both first and second generation immigrants of different origins in the three largest european economies france germany and the uk

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

the implications of wto and gats for the banking sector in africa in this paper we assess the implications of the world trade organisation wto and the general agreement on trade in services gats for the banking sector in african signatory countries with emphasis on the free trade element we first review the relevant provisions of the gats for banking services and the main exemptions held by african countries we then analyse the main efficiency indicators for a sample of the top banks in 18 african economies for the period 1997 1998 we also use univariate statistics to analyse the dispersion of the key bank pricing and liquidity indicators in these economies for the period 1994 1998 the main findings imply that although full liberalization implicit in the wto and gats protocols will lead to a substantial shake up of the african banking industry however provided they have an appropriate regulatory framework and allow sufficient lead time most african countries have little to fear from liberalization at least in terms of the continuing existence of a locally owned banking industry and indeed these countries could reasonably expect to be able to restructure and compete at the very least in african wide or regional markets

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

field experiments of discrimination in the market place controlled experiments using matched pairs of bogus transactors to test for discrimination in the marketplace have been conducted for over 30 years and have extended across 10 countries significant persistent and pervasive levels of discrimination have been found against non whites and women in labour housing and product markets rates of employment discrimination against non whites in excess of 25 have been measured in australia europe and north america a small number of experiments have also investigated employment discrimination against the disabled in britain and the netherlands and against older applicants in the united states

purchasing sleeping patents to curtail budget padding abstract this paper provides an explanation for sleeping patents based not on their ability to deter external competitors but rather on their ability to discipline actions of the firm s employees by acquiring a patent upfront a firm is able to issue a credible threat that it will switch technologies if a manager s cost budget for the existing technology is too high this threat reduces the manager s propensity to pad budgets

repeated auctions of incentive contracts investment and bidding parity with an application to takeovers this article considers a two period model of natural monopoly and second sourcing the incumbent supplier invests in the first period after observing the incumbent s first period performance the buyer may break out in the second period the investment may or may not be transferable to the second source and it may be monetary or take the form of human capital we determine whether the incumbent should be favored at the reprocurement stage and how the slope of his incentive scheme should evolve over time we find that the gains from second sourcing are not so large as one might hope finally we reinterpret the second source as a raider and the breakout as a takeover we discuss the desirability of defensive tactics and obtain a rich set of testable implications concerning the size of managerial stock options the extent of defensive tactics the firm s performance and the probability of a takeover

the ethnic employment and income gap in sweden is skill or labor market discrimination the explanation this study uses a cognitive test score the swedish military enlistment test taken at age 18 to identify whether the ethnic employment and income gap in sweden is caused by a pre market skill gap and or ethnic discrimination the employment gap and income gap are estimated for males born in sweden with different ethnic backgrounds their parents were born in sweden or in southern europe or outside europe controlling for the cognitive test score does not affect the ethnic employment gap and for incomes the ethnic income gap almost disappears

developing countries in the world trading system from gatt 1947 to the third ministerial meeting of wto 1999 the debate on the role of openness to international flows of goods technology and capital in the development process is as old as economics after all adam smith praised the virtues of openness and competition in the wealth of nations a moment s reflection should be enough to convince anyone that the sources of economic development are essentially three the growth in inputs of production improvements in the efficiency of allocation of inputs across economic activities and innovation that creates new products new uses for existing products and brings about increases in the efficiency of use of inputs

coordination and externalities abstract we analyze the gains of coordinating decisions in a regulatory framework in which agents are sovereign and tax inducements are socially costly we consider a general multi agent situation with externalities among agents incomplete information and type dependent reservation utilities when the regulator optimally leaves informational rents to the most efficient agents centralized coordination reduces global activity coordination induces more activity when the principal optimally leaves rents to the most inefficient agents last if we impose budget balance our mechanism can also be interpreted as the optimal auction of a public good with congestion externalities journal of economic literatureclassification numbers d62 d82 l51

information expropriation and moral hazard in optimal second source auctions abstract government mandated technology transfers from the developer of a product to a second source offer a potential gain of reduced information rents and procurement costs to provide appropriate incentives technology must sometimes be transferred even when the second source is less efficient than the first additionally when developer moral hazard exists with respect to investments in cost reducing technology the optimal auction will make the developer s success in the auction more sensitive to the developing firm s announced costs

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

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