a principal agent problem with heterogeneous demand distributions for a carbon capture and storage system abstract mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service we study the implications of uncertainty in agents demands on the principal s contracts specifically we consider the setting where agents demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution we present analytical solutions for the special case when there are two distributions each taking two discrete values as well as a method for deriving analytical solutions from numerical solutions we describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights

china s collectivisation puzzle a new resolution according to total factor productivity trends in chinese agriculture china achieved productivity gains both when collectivising 1954 58 and when decollectivising 1979 84 its agriculture if the productivity gains from decollectivisation were due mainly to eliminating the incentive problems of collective farms how the initial collectivisation could also have been associated with gains in productivity presents a major historical puzzle we suggest as an answer the possibility that agricultural production in china was widely organised on a household basis until 1958 despite the collectivisation of property rights and that the formation of the agricultural producers co operatives reduced the inefficiencies in factor allocation that existed following china s land reform

the institutional causes of china s great famine 1959 1961 this paper studies the causes of china s great famine during which 16 5 to 45 million individuals perished in rural areas we document that average rural food retention during the famine was too high to generate a severe famine without rural inequality in food availability that there was significant variance in famine mortality rates across rural regions and that rural mortality rates were positively correlated with per capita food production a surprising pattern that is unique to the famine years we provide evidence that an inflexible and progressive government procurement policy where procurement could not adjust to contemporaneous production and larger shares of expected production were procured from more productive regions was necessary for generating this pattern and that this policy was a quantitatively important contributor to overall famine mortality

agricultural distortions structural change and economic growth a cross country analysis taxing agriculture to mobilize resources for industrialization has been a widely used development strategy using novel cross country time series data sets with direct measures of agricultural taxation we examine how a policy bias against agriculture affects the speed of convergence in income per capita structural change and economic growth we find that distortionary agricultural policies in poor economies can account for the emergence of convergence clubs in our sample by significantly retarding their structural transformation and economic growth overall we find no evidence suggesting that policies that discriminate against agriculture have been beneficial for long term economic growth

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

rural urban disparity and sectoral labour allocation in china this study examines china s rural urban segmentation and its causes in the context of economic reforms household survey and aggregate data indicate a v shaped process in which rural urban consumption and income differentials decreased between 1978 and 1985 but then have continually increased to historically high levels this sectoral division is consistent with production function estimates based on provincial data that reveal higher labour productivity in urban state owned industries than in rural industries and agriculture to explain the v shaped change we argue that the precedent of successful rural reforms raised farmers relative earnings but the remaining obstacles to an efficient sectoral allocation of labour have prevented china from eliminating dualism recent financial policies consisting of urban price subsidies and increased investment credits have also had influential distribution effects that are biased against the rural sector

efficiency in auctions with private and common values an experimental study this discussion has resulted in a publication in the american economic review 2002 92 3 625 43 auctions are generally not efficient when the object s expected value depends on private and common value information we report a series of first price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders while some subjects fall prey to the winner s curse they weigh their private and common value information in roughly the same manner as rational bidders with observed efficiencies close to predicted levels increased competition and reduced uncertainty about the common value positively affect revenues and efficiency the public release of information about the common value also raises efficiency although less than predicted

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

india and china contrasts in economic liberalization abstract it is argued that in both india and china despite some important differences 1 a similar cultural and political imperatives led to similar systems of dirigisme and economic outcomes with the chinese growth higher than the indian because of higher investment 2 b crises engendered by their dirigiste regimes impelled reform 3 c their attempts to replace the plan by the market have striking similarities but 4 d ultimately because of continuing atavistic attitudes to toward trade and commerce the reforms remain insecure

prohibition of factor market exchanges and technological choice in chinese agriculture this article constructs a model of technological choice in an economy where market exchanges in land and labour are prohibited empirical data on demand for tractors tractor usage and chemical fertilisers in china are employed to test several hypotheses derived from the theoretical model the theory implies that the impact of relative factor scarcity on the pattern of technological choice in such an economy is similar to that in a market economy as postulated by the hicks ruttan hayami binswanger hypothesis of induced technological change the empirical evidence is found to be consistent with the implications of the model

entitlement to assort democracy compromise culture and economic stability abstract we propose a simple model to support rodrik s 2000 conjecture that democracy lowers economic instability through breeding compromise culture in the model a population of compromisers and opportunists collectively bargain over the assortativity level of matching through a democratic political institution we show that compromisers are able to achieve a positive level of assortativity which helps them to avoid matching with opportunists this in turn raises compromisers payoffs above opportunists and eventually compromisers dominate the population through cultural evolution

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

grain exports and the causes of china s great famine 1959 1961 county level evidence abstract this study quantitatively evaluates the relative importance of different causes of china s great famine especially for the importance of grain exports we exploit county level over time variations in crop specialization patterns to construct bartik style measures of export shocks using county level panel data from 1955 to 1963 we regress death rates on the bartik export measures with county and province year fixed effects as well as time varying effects of county level observables we use weather shocks to instrument for output and consumption the regression results suggest that increases in grain exports substantially increase death rates this effect is larger in counties that are further from railways and with fewer local chinese communist party members to examine the relative importance of different mechanisms we also estimate the effects of the procurement policy the determinants of grain output and the relationship between death rates and county level average caloric consumption during the famine period the counterfactual experiments indicate that the fall in agriculture production the increase in procurement partly driven by grain exports and the increasingly progressive and inflexible procurement policy collectively increased the number of excess deaths where no single factor dominates in particular grain exports explain 15 percent of excess deaths which is one fourth of the effect of the increase in procurement rates between 1957 and 1959

the impact of china s economic reforms on agricultural productivity growth this paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post 1978 increase in china s agricultural productivity data on post 1978 chinese agricultural performance suggest that a little over three quarters of the measured productivity increase is due to payment system changes and the remainder to price increases we also use our method to calculate incentive indices giving an estimate of the fraction of their marginal product that peasants received under the pre 1978 regime

local governance and public goods provision in rural china in developing countries identifying the most effective community level governance mode is a key issue in rural development therefore empirical evaluation of these different modes is desperately needed since the 1980s tens of thousands of villages in rural china have held local government elections providing a good opportunity to investigate the effect of democratization on the level of public goods provision using a recent village survey conducted over a significant period of time this article compares two different governance modes it finds that elections affect little on the size of revenue but significantly shift the distribution of taxation from individuals to enterprises if possible however privatization has made taxation or levies on rural enterprises more difficult it also shows that elections and power sharing are conducive to improve the allocation of public expenditures

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

what drives china s new agricultural subsidies summary china s agricultural policy has undergone a fundamental transformation in the four decades since the introduction of market reforms in 1978 and now involves a wide array of policy instruments that range from output and input subsidies to public infrastructure expenditures this article analyzes the political economic determinants of china s agricultural subsidy changes using producer subsidy equivalents pses drawn from annual data from 1984 to 2015 on 16 agricultural commodity sectors that include multiple policy instruments empirical results indicate that national factors such as high rates of economic growth and a lower share of agriculture in the economy have been the primary drivers of increases in pses and that larger more geographically concentrated agricultural sectors are more likely to be subsidized at a higher pse rate finally china s joining the world trade organization in december 2001 led to significant increases in pses that were not already explained by internal national or commodity specific factors in essence china s agricultural subsidy programs and levels increasingly resemble those of developed countries primarily as a result of economic transformation and the ability to structure agricultural policies within the wto rules moreover this article predicts that agricultural subsidies will trend slightly upward in the next decade and that the strongest opportunities to export to china will be in animal products or grains that are utilized for feed or processed foods where the levels of subsidies are predicted to increase but remain lower than for traditional food crops

production organization and efficiency during transition an empirical analysis of east german agriculture enterprise restructuring is expected to improve efficiency in transition economies with data from former east germany we compare the efficiency of family farms and partnerships with large scale successor organizations of the collective and state farms lsos using parametric and nonparametric techniques we show that lsos display lower technical efficiency than do family farms and partnerships but that this difference is small and declining during transition mainly as a result of structural changes in agriculture family farms are not as scale efficient as partnerships and lsos and partnerships are superior to all other organizational forms

promised lead time contracts under asymmetric information we study the important problem of how a supplier should optimally share the consequences of demand uncertainty i e the cost of inventory excesses and shortages with a retailer in a two level supply chain facing a finite planning horizon in particular we characterize a multiperiod contract form the promised lead time contract that reduces the supplier s risk from demand uncertainty and the retailer s risk from uncertain inventory availability under the contract terms the supplier guarantees on time delivery of complete orders of any size after the promised lead time we characterize the optimal promised lead time and the corresponding payments that the supplier should offer to minimize her expected inventory cost while ensuring the retailer s participation in such a supply chain the retailer often holds private information about his shortage cost or his service level to end customers hence to understand the impact of the promised lead time contract on the supplier s and the retailer s performance we study the system under local control with full information and local control with asymmetric information by comparing the results under these information scenarios to those under a centrally controlled system we provide insights into stock positioning and inventory risk sharing we quantify for example how much and when the supplier and the retailer overinvest in inventory as compared to the centrally controlled supply chain we show that the supplier faces more inventory risk when the retailer has private service level information we also show that a supplier located closer to the retailer is affected less by information asymmetry next we characterize when the supplier should optimally choose not to sign a promised lead time contract and consider doing business under other settings in particular we establish the optimality of a cutoff level policy finally under both full and asymmetric service level information we characterize conditions when optimal promised lead times take extreme values of the feasible set yielding the supplier to assume all or none of the inventory risk hence the name all or nothing solution we conclude with numerical examples demonstrating our results

history institutions and economic performance the legacy of colonial land tenure systems in india we analyze the colonial land revenue institutions set up by the british in india and show that differences in historical property rights institutions lead to sustained differences in economic outcomes areas in which proprietary rights in land were historically given to landlords have significantly lower agricultural investments and productivity in the post independence period than areas in which these rights were given to the cultivators these areas also have significantly lower investments in health and education these differences are not driven by omitted variables or endogeneity problems they probably arise because differences in historical institutions lead to very different policy choices

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

justifying the first order approach to principal agent problems it is of interest to know when the incentive compatibility conditio n in principal agent problems can be replaced by the condition that the agent s expected utility be stationary in effort the mirrlees rogerson conditions do not work if the principal can observe more than one observable statistic also the mirrlees rogerson assumption that the distribution function of output is convex in the agent s action is unsatisfactory even in the context of the basi c model it is too restrictive the paper presents a suite of conditio ns that are applicable to the multistatistic case and replaces the objectionable convex distribution function assumption copyright 1988 by the econometric society

risk aversion and the winner s curse this article analyzes an auction in which bidders see independent components of a common prize value the nash equilibrium for two rational bidders is shown to be independent of risk attitudes the information structure allows explicit calculation of an alternative equilibrium in which naive bidders do not correctly discount the value of the prize contingent on winning and thus they suffer the winner s curse subjects in a laboratory experiment clearly fall prey to the winner s curse the data conform most closely to the predictions of the naive model moreover the level of risk aversion implied by fitting the naive model is similar to an independent risk aversion measure obtained in a separate private value bidding exercise

infrastructure growth and the two dimensions of industrial policy when sustained growth depends on establishing an indivisible infrastructure for directly productive activities dpas both discrete and marginal departures from optimal growth can undermine the dynamic efficiency of the market producers anticipations of paying monopoly fees for infrastructure services dampen their incentive to invest in dpas and may prevent the economy from reaching a minimal level of activity that would justify investment in a large indivisible infrastructure and potential investors in infrastructure may be intimidated by the prospect of expropriatory regulation thus a credible prior commitment to effective but fair regulation is necessary for achieving optimal growth but it may not be sufficient low level expectations before the infrastructure is established can be self fulfilling indicating a role for coordinative industrial policy investment subsidies even in conjunction with regulation cannot induce an efficient equilibrium

the great leap forward anatomy of a central planning disaster the great leap forward disaster characterized by a collapse in grain production and a widespread famine in china between 1959 and 1961 is found attributable to a systemic failure in central planning wishfully expecting a great leap in agricultural productivity from collectivization the chinese government accelerated its aggressive industrialization timetable grain output fell sharply as the government diverted agricultural resources to industry and imposed an excessive grain procurement burden on peasants leaving them with insufficient calories to sustain labor productivity our analysis shows that 61 percent of the decline in output is attributable to the policies of resource diversion and excessive procurement

effort technology and the efficiency of agricultural cooperatives abstract the inefficiency of cooperative agriculture relative to private farms is often attributed to difficulties in monitoring or poor incentives we develop a model to show that in technologies with numerous sequential steps even small shortfalls in worker effort can result in large output declines using data on cooperative and private farms in el salvador we find greater shortfalls in efficiency between cooperatives and private farms as well as among cooperatives for coffee a crop requiring numerous steps in its cultivation than for maize and sugar which require fewer steps thus the undersupply of effort in cooperatives may be less than differences in productivity suggest and cooperative agriculture is most likely to be successful where production does not involve many sequential steps

institutional reforms and dynamics of agricultural growth in china abstract the collective farming system the state monopolized procurement and marketing system and the grain self sufficient policy formed in the early 1950s made the rapid development of heavy industries possible in china however they were detrimental to farmers incentives and resulted in a serious misallocation of resources consequently despite sharp improvements in technology and increases in the use of modern inputs grain production in china barely kept up with population growth before the 1979 reform the shift from the collective farming system to the household based farming system in 1979 greatly improved farmers incentive and resulted in a sharp increase of grain output in the early 1980s in the late 1980s grain production stagnated again because the incompleteness of procurement system reform made the production of grain unprofitable for producing enough grain to feed china s ever increasing popualation it is imperative for the chinese government to liberalize the grain procurement and marketing system and to invest in yield improvement research it is also desirable for china to adjust her trade policy and to import more grain for meeting domestic grain demands

equilibria in open common value auctions abstract a sufficient condition for uniqueness of nash equilibrium in second price common value auctions is identified we establish that there exists a continuum of equilibria in irrevocable exit common value auctions for the case of two bidders we provide plausible sufficient conditions under which the expected seller revenue is maximized at the symmetric equilibrium an example in which the auctioneer s revenue at the symmetric equilibrium in a second price auction is strictly greater than the revenue at many asymmetric equilibria in the corresponding irrevocable exit auction is provided

trigger strategies in chinese agricultural teams in this paper the reasons why chinese agricultural teams could not reply on the threat of internal effort response to solve incentive problems are investigated the detrimental effects of state extractive agricultural policies the basic needs program and cultural revolution era ideology on the dynamic self enforcing mechanism in chinese teams are analysed using the data on the teams of a moderately prosperous commune during the period 1970 76 the author estimates the discount factor and the impact of the trigger strategies on workers effort decisions it is found that the estimates of the discount factor and the trigger strategy effect are significantly greater than zero in some periods but not large enough to eliminate the need for monitoring

a dynamic model of privatization with endogenous post privatization performance this paper presents a dynamic model of privatization driven by improved institutional protection of private property rights and constrained by the buyer s financial constraints government ownership is more efficient than private ownership when private property rights are insecure improved institutional protection of property rights over time creates the need to privatize the buyer s financial constraints affect the timing of privatization causing the firm s post privatization performance either to improve or to deteriorate in the short run financial constraints also have the possibility of inducing an underpricing phenomenon during privatization where the firm is priced below both what the buyer is willing to pay and the buyer s ability to pay faster institutional development calls for earlier privatization but it also has the potential to either create or exacerbate deadweight losses associated with inefficient privatization a host of empirically testable implications are derived copyright wiley blackwell

collectivization and china s agricultural crisis in 1959 1961 the agricultural crisis in china in 1959 61 after the initial success of the collectivization movement resulted in 30 million extra deaths in this paper a game theory hypothesis proposes the main cause of this catastrophe i argue that because of the difficulty in supervising agricultural work the success of an agricultural collective depends on a self enforcing contract in which each one promises to discipline oneself a self enforcing contract however can be sustained only in a repeated game in the fall of 1958 the right to withdraw from a collective was deprived the nature of the collectivization was thus changed from a repeated game to a one time game as a result the self enforcing contract could not be sustained and agricultural productivity collapsed the empirical evidence is consistent with this hypothesis

procuring fast delivery sole sourcing with information asymmetry this paper studies a queuing model in which a buyer sources a good or service from a single supplier chosen from a pool of suppliers the buyer seeks to minimize the sum of her procurement and operating costs the latter of which depends on the suppliers lead time the selected supplier can regulate his lead time but faster lead times are costly although the buyer selects the supplier to source from possibly via an auction and dictates the contractual terms the buyers bargaining power is limited by asymmetric information the buyer only has an estimate of the suppliers costs while the suppliers know their costs precisely we identify a procurement mechanism that minimizes the buyers total cost procurement plus operating this mechanism is not simple it is a numerically derived nonlinear menu of contracts therefore we study several simpler mechanisms e g one that charges a late fee and one that specifies a fixed lead time requirement no menus no nonlinear functions we find that simple mechanisms are nearly optimal generally within 1 of optimal because asymmetric information conveys significant protection to the supplier i e the supplier is able to retain most of the benefit of having a lower cost renegotiation is another concern with the optimal mechanism because it does not minimize the supply chains cost the firms can be both better off if they throw away the contract and start over interestingly we find that the potential gain from renegotiation is relatively small with either the optimal or our simple mechanisms we conclude that our simple mechanisms are quite attractive along all relevant dimensions buyers performance supply chain performance simplicity and robustness to renegotiation

success and failure of reform insights from the transition of agriculture this paper analyzes the linkages between the reform strategies in transition countries and economic performance the authors focus on agriculture because of the sharpness of the policy changes fundamental differences among countries and relative simplicity of agricultural relationships the authors document post reform performance in the transition countries of asia and europe the authors show how a pricing reform and subsidy reductions b land rights reform and policies that affect farm restructuring and c the presence institutions that facilitate exchange either markets or market substitutes affect output and productivity the paper ends with general lessons on reforms and transition

maxmin mechanism in a simple common value auction this paper models the data generating process of common value auctions in a parameter estimation way known as the classical approach in statistical inference viewing the true value of the object as a parameter that nobody ever knows we let our value function be the average of the individual estimations signals of all agents a robust estimation of the parameter under this simple value function we select almost uniquely the mechanism that gives the seller the largest portion of the true value in the worst situation among all the direct mechanisms that are feasible ex post implementable and individual rational our maxmin mechanism which randomly assigns the object to one agent provides the seller n 1 n of the true value when expected revenue is concerned where n is the number of the agents

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

the theory of moral hazard and unobservable behaviour part i principal agent models are studied in which outcomes conditional on the agent s action are uncertain and the agent s behaviour therefore unobservable for a model with bounded agent s utility conditions are given under which the first best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes for general models it is shown that the solution may not always be obtained by using the agent s first order conditions as constraint general conditions of lagrangean type are given for problems in which contracts are finite dimensional 1 the moral hazard situation

total factor productivity change in china s farming sector 1952 1989 a crucial problem in economic development is choosing institutions that are relatively efficient in resource allocation and conducive to growth however institutional innovations usually take time and it is often difficult to isolate these effects from the effects of noninstitutional factors modern china is one of the few exceptions it offers a rich experience in dramatic institutional changes after 1949 a smallholder system was experimented with immediately after the land reform this was quickly followed by various forms of collectivization since 1979 the household responsibility system hrs has gradually replaced the commune system thus china provides a unique opportunity for a comparative study of these different rural institutions in terms of the total factor productivity index tfpi this index measures the change in output relative to the change in inputs the examination of the tfpi also has policy implications the apparent plateau in grain production and the slow growth in other crop production from 1985 to 1989 constitute a sharp contrast to the period 1979 84 which witnessed rapid growth in both grain and economic crop production in china public ownership is favored by orthodox ideology and noneconomic factors often play an important role in economic life 2 in facing slower growth in crop production whether the hrs should or should not be the long term rural institution has become a sensitive question again and has kindled a heated debate within china in this study i will examine the performance of the successive rural institutions in china in terms of changes in the tfpi over the period 1952 89 using 1989 as the final year of my study the most important finding of this study is that the hrs showed a clear advan

estimating the long term impact of the great chinese famine 1959 61 on modern china summary this research analyzes the long term impact of the great chinese famine 1959 61 on the modern chinese economy and shows that areas in which famine was most severe have significantly lower per capita gdp today the great famine coincided with the chinese communist party s industrialization and agriculture modernization plan the great leap forward glf to remove omitted variable and endogeneity problems a unique relationship between the communist army s takeover of mainland china 1946 50 and the degree to which subnational leadership was willing to enforce glf policies to the detriment of rural citizens well being is exploited via instrumental variable iv estimation specifically areas liberated later had a higher density of zealous administrators by the start of the glf in 1958 and in turn experienced stricter enforcement of glf policies which resulted in greater famine severity as a result this research finds a relatively pronounced impact of politically triggered famine captured by the iv approach which strengthens the growing outlook that famine is a consequence of inadequate food entitlement as opposed to being simply food shortages

setting the right incentives for global planning and operations we study incentive issues seen in a firm performing global planning and manufacturing and local demand management the stochastic demands in local markets are best observed by the regional business units and the firm relies on the business units forecasts for planning of global manufacturing operations we propose a class of performance evaluation schemes that induce the business units to reveal their private demand information truthfully by turning the business units demand revelation game into a potential game with truth telling being a potential maximizer an appealing refinement of nash equilibrium moreover these cooperative performance evaluation schemes satisfy several essential fairness notions after analyzing the characteristics of several performance evaluation schemes in this class we extend our analysis to include the impact of effort on demand

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

competition and structure in serial supply chains with deterministic demand supply chains often consist of several tiers with different numbers of firms competing at each tier a major determinant of the structure of supply chains is the cost structure associated with the underlying manufacturing process in this paper we examine the impact of fixed and variable costs on the structure and competitiveness of supply chains with a serial structure and price sensitive linear deterministic demand the entry stage is modeled as a simultaneous game where the players take the outcomes of the subsequent post entry cournot competition into account in making their entry decisions we derive expressions for prices and production quantities as functions of the number of entrants at each tier of a multitier chain we characterize viability and stability of supply chain structures and show using lattice arguments that there is always an equilibrium structure in pure strategies in the entry game finally we examine the effects of vertical integration in the two tier case altogether the paper provides a framework for comparing a variety of supply chain structures and for studying how they are affected by cost structures and by the number of entrants throughout the chain

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

growth renewables and the optimal carbon tax optimal climate policy is investigated in a ramsey growth model of the global economy with exhaustible oil reserves an infinitely elastic supply of renewables stock dependent oil extraction costs and convex climate damages four regimes can occur depending on the initial social cost of oil being larger or smaller than that of renewables and depending on the initial oil stock being large or small we also offer some policy simulations for the first and second regime which illustrate that with a lower discount rate more oil is left in situ and renewables are phased in more quickly we identify the conditions under which the optimal carbon tax rises or decreases subsidizing renewables without a carbon tax induces more oil to be left in situ and a quicker phasing in of renewables but oil is depleted more rapidly initially the net effect on global warming is ambiguous abstract from author

does risk aversion affect bank output loss the case of the eurozone abstract we propose a new model to infer the evolution of bank specific output losses due to the uncertainty in bank output prices losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices our model allows us to measure time varying bank specific output losses and risk aversion while taking into account all bank cross sectional heterogeneity we employ a panel data set to estimate the input and output elasticities with both parametric and non parametric techniques we are the first to document that increasing risk aversion among eurozone banks during the financial crisis resulted in sizable output losses although subdued thereafter losses have been resurging in recent years both conventional and unconventional monetary policy responses by the european central bank ecb mitigated uncertainty in bank output prices though unequally so across countries certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses but mainly so for large countries