an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

a survey of agency models of organizations abstract in recent years neoclassical economists have begun to turn their attention to issues of firm organization stimulated in large part by methodological advances in the economics of incentives and incomplete information the paradigm on which much of this work is based views an organization as an agency relationship agency models incorporate two basic features of organizations incomplete information and goal conflict among members of the organization this essay characterizes and critiques the existing research on agency models of organizations in order to broaden the set of consumers of such models and to stimulate the production of new research

decentralisation of active labour market policy the case of swedish local employment service committees decentralisation of decision making in active labour market policy makes it possible to use local information to the fullest but may also impinge on the fulfilment of national objectives as suggested by principal agent theory the purpose of this study is to examine the effects of a swedish pilot programme in 1996 which strengthened the role of the local authorities in labour market policy in parts of the country survey evidence suggests a non negligible divergence between the objectives of the municipality representatives and the central government s goals regarding programme effects our econometric findings do not indicate any increase in geographical lock in of the unemployed but decentralisation seems to spur local initiatives in the form of labour market programmes organised by the municipalities in addition targeting on outsiders is to some extent more common in municipal projects than in others

the rise and evolution of public pension systems security crisis basically the crisis manifests itself by the fact that if young participants in the existing public pension plans were allowed to withdraw and invest voluntarily in their own preferred privately marketed insurance plans they would be able to secure a rate of return that is substantially higher than the rate of return under the existing plan of course this would not be the case if public pension plans were financed by a funding system rather than the existing pay as you go payg system given the paygsystem and the actual decline of birth rates in many western countries future pension tax rates can reach levels as high as 40 percent or more it might be suspected that future generations will not be willing to contribute to the system by the necessary amount making declining benefit rates inevitable if not the altogether elimination of the system notice that if the present generations expects this future development to arise they can calculate their rate of return under the present benefit tax structure to be even lower the inevitable conclusion thus seems to be that if the implicit claims build up under the existing system can be expected not to be allowed by future generations the present generation will do likewise with respect to the claims of the now living older generation however the popular support for public pension plans is not detoriating at present in many western countries thus falsifying the foregoing observation

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

social classes and state behavior abstract van winden 1983 developed the interest function approach to the study of politico economic phenomena it starts from the familiar premise that economic agents have preferences with regard to the results of economic and political processes this paper develops a behavioral model with four classes of participants in the system and attempts to estimate the behavioral influences of these groups on the state

optimal employment contracts in a principal agent relationship abstract two unique characteristics of modern japanese labor management practice are the prevalence of lifetime employment and of biannual bonuses in contrast these practices are relatively infrequent in the united states many of the explanations offered so far attribute the difference to cultural and or institutional differences in the two countries in this paper we present a different point of view one that provides an economic rationale for various practices the model developed is based upon the framework of the principal agent relationship the principal employer offers to the agent employee a contract which specifies contract length wage rate and profit sharing schedule so as to maximize the expected value of a stream of future profits the agent in turn accepts this contract if and only if he can make himself better off in doing so if the appropriate level of effort can be specified and enforced by the principal there is no agency problem the resulting outcome is said to be first best on the other hand in many situations the principal is not able to enforce the effort level due to for example monitoring costs or lack of observability thus in the presence of this agency problem the appropriate level of effort is chosen for any given contract by the agent in such a way that his expected utility is maximized the optimal contracts in this framework are said to be second best the main focus in the paper is on the second best case we find that the optimal contracts depend upon various factors such as labor productivity disutility of effort risk aversion alternate market opportunity transaction cost demand conditions and discount rates by using numerical examples obtained by dynamic programming we illustrate that any form of employment policy can be optimal for the appropriate situations in addition we estimate the agency cost or the incentive gap between the first best and second best solutions

the applicability of the traditional theory of economic policy abstract the traditional theory of economic policy requires targets instruments an empirical economic model and a social welfare or criterion function to be specified in order to derive the optimal economic policy empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner subject to interference from political factors this survey addresses the problems of specifying estimating and applying an economic model when economic policy is following a path specified by a reaction function attention is paid to rational expectations the lucas critique and the policy neutrality proposition lack of knowledge of the policy maker s objective function poses the most serious difficulty when applying the theory of economic policy various methods of determining this function are reviewed and the possibility that policy makers might be satisficing is discussed the role played by political factors is considered in the light of the public choice literature

a dynamic model of the interaction between the state and the private sector abstract the main characteristic of the micro model developed in this paper is the endogenous behaviour of the state the state is treated as an organization in its own right made up of politicians and bureaucrats its behaviour is related to the interests of these agents and their relative power within the state organization the economic consequenses of this interest representation by the state and the impact of structural coercion constraints originating from the private sector on these consequences are our main concern a particular feature of the model is that it allows for the fact that technology may be dependent on the state s activities

the isomorphism hypothesis the prisoner s dilemma as intertemporal allocation and vice versa abstract economists model the choice of the current self in intertemporal allocation as the outcome of identity the current and future selves belong to the same decision maker by the sheer fact they reside in the same biological skin defined by biological identity the economists should be consistent and likewise model the choice of each player in the prisoner s dilemma or generally the social dilemma as the outcome of identity the selves of the players belong to the same decision maker by the sheer fact they reside in the same social skin defined by social identity if the economists consider cooperation rather than defection to be the rational strategy of the current self in intertemporal allocations they should be consistent and consider cooperation rather than defection to be the rational strategy of each player in social dilemmas symmetrically if the economists judge defection rather than cooperation to be the rational strategy in social dilemmas it behooves them to also judge defection rather than cooperation to be the rational strategy in intertemporal allocations

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

do firms maximize evidence from professional football this paper examines a single narrow decision the choice on fourth down in the national football league between kicking and trying for a first down as a case study of the standard view that competition in the goods capital and labor markets leads firms to make maximizing choices play by play data and dynamic programming are used to estimate the average payoffs to kicking and trying for a first down under different circumstances examination of actual decisions shows systematic clear cut and overwhelmingly statistically significant departures from the decisions that would maximize teams chances of winning possible reasons for the departures are considered

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

tax incentives for r d a critical evaluation abstract a number of policy proposals have recently been presented that seek to address the problem of declining productivity growth many of these are aimed at encouraging private r d spending through tax incentives this paper first reviews some of these proposals then evaluates tax incentives per se as a policy tool for encouraging r d growth and finally offers suggestions for redesigning r d related tax incentive policies

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

bureaucracy monopoly and competition a critical analysis of the budget maximizing model of bureaucracy niskanen has argued that if government bureaus act so as to maximize their budgets they will always produce an output greater than a private industry resulting in efficiency losses to society since the budget maximizing model relates to a number of intersecting areas of organizational analysis from several disciplines it is important to note the limitations of the model first niskanen s result is only true for a bureau which can exercise perfect price discrimination in its relationship with its financial sponsor where this is not the case the bureau may produce less than a private industry second further variation is introduced by examining the effects on a bureau of specialized resources public goods competition and low productivity a bureau which would otherwise produce an output in excess of the competitive level will when any of these factors are present produce an output closer to the competitive output these results may also have significant policy implications since major industrial countries are favoring policies to return some governmental activities to the private sector

theoretically sound practically useless government grants for industrial r d in australia abstract for nearly twenty years the australian government has relied on a system of grants to encourage r d activity in firms despite low and declining r d effort in this sector and only equivocal evidence that grants were having the desired effect the board that administers the grants programme has regularly expressed its total confidence in its success indeed the government has long relied on grants as the foundation of its industrial r d policy until recently at the cost of any major alternative programme much of this confidence has been encouraged by the combined influence of market failure theory and faith in the linear model of technological change the first explaining what is wrong rather than how it may be put right and the second imputing a simplicity to the innovative process which suggests that if something is wrong it can be easily and assuredly rectified by stimulating r d

towards a politico economic theory of social security social security which will be taken here in its wide european sense not only encompassing public pension schemes but also other income transfers such as to unemployed sick and disabled persons and to widows and orphans nowadays figures large among government outlays after its continuous and fast expansion over especially the past two decades see e g saunders and klau 1985 and table 0 1 accordingly social security is receiving increasing attention in the economic profession recent discussions have focused on the effects of social security on capital accumulation and on its ability to achieve a more desirable distribution of income in these studies social security programs are typically treated as exogenously determined little attention has hitherto been paid to the explanation of social security policies

decentralization decisions in bureaucracies as a principal agent problem abstract in this paper a positive theory of internal bureaucratic decision making is presented a model is formulated to explain why some decisions within a public bureaucracy are decentralized while others are not the explanation using the notions of principal agent theory involves such factors as different access to information and different objectives of central and decentral actors an empirical test of the model is carried out using data on decisions of local government in the netherlands on capacity reductions in hospitals

state regulation and university behavior abstract the impact of state regulation on the economic behavior of american public research universities is studied using a unique sample of data on costs outputs and regulation measures for 98 institutions the university cost structure is modeled by a multiple output translog cost function explicitly allowing for the impact of state regulation regulating non faculty salary expenditures and the spending of non state revenues decreases costs while regulating faculty salary expenditures increases costs given the same output levels the results are interpreted in terms of the principal agent relationship of state regulators and universities efficiency gains and losses depend on the relative accuracy of state information on the production process

political influence economic interests and endogenous tax structure in a computable equilibrium framework with application to the united states 1973 and 1983 we consider the properties of a computable equilibrium model ofa competitive political economy in which the economic interestsof groups of voters and their effective influence on equilibriumpolicy outcomes can be explicitely distinguished and computed the model incorporates an amended version of the gemtap taxmodel calibrated to data for the united states for 1973 and1983 emphasis is placed on how the aggregation of gemtaphouseholds into homogeneous groups affects the numericalrepresentation of interests and influence for representativemembers of each group

the roles of science in technological innovation abstract one of the central issues in science policy during the past decade has been the extent to which the national levels of expenditure on scientific education and research influence the standard of living this paper provides empirical evidence to show that the pay off from this investment in science is more complex and indirect than previously supposed

a positive model of tax reform this paper is devoted to the explanation of tax policy from a behavioural theoretic point of view it for the first time brings together within a unified framework behavioural determinants of government expenditure taxation and tax reform administrative and compliance costs associated with taxation factors generally neglected in models of taxation as well as tax avoidance evasion deadweight losses and the costs that are involved in the tax reform process itself play a crucial role in the model the paper investigates how these factors influence the development of taxation and expenditure and the occurrence of tax reform