overcoming institutional voids via arbitration extending the literature on institutional voids we introduce theory from law that highlights the ability of firms to choose the laws and enforcement mechanisms that govern their international joint ventures ijvs specifically firms may overcome institutional voids by borrowing institutions via binding international commercial arbitration bica rather than relying on host market institutions leveraging an institution based view we develop a theoretical framework to articulate the conditions under which ijv partners may choose bica as opposed to domestic courts to overcome institutional voids in host markets

on the duration of agreements a model of optimal contracts between two infinitely lived parties a borrower and lender is presented and analyzed the objective is to explain the phenomenon of finite length multi period contracts it is shown how costly information acquisition can account for multi period contracts which are of bounded length comparative statics results on how contract length responds to exogenous parameters such as the cost of information acquisition are also derived copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bargaining with imperfect enforcement the game theoretic bargaining literature insists on a noncooperative bargaining procedure but implicitly assumes cooperative implementation of agreements in reality courts cannot implement agreements costlessly and parties often prefer to use noncooperative implementation we present a bargaining model which incorporates the idea that agreements may be enforced noncooperatively we show that this has a substantial impact in limiting the inequality of agreements and results in a nonmonotonicity of the discount rate the model also explains why some parties may have incentives to deliberately write incomplete contracts as a way to enhance their bargaining power

optimal labour contracts when workers have a variety of privately observed reservation wages if a firm does not know the individual ex post outside opportunities of its contracted workforce then it can use hours wages and redundancy payments to screen them will a second best contract have underemployment inefficiency or overemployment and with a stochastic contract are those workers randomly selected for layoff worse off than their retained colleagues involuntary layoff or vice versa involuntary retention the answers depend on the nature of the workers preferences two polar cases are looked at corresponding to permanent and temporary layoff the former is characterized by overemployment and involuntary retention the latter by underemployment and involuntary layoff also examined are simple contracts where all retained workers are paid a common wage and all laid off workers receive a common redundancy payment handling asymmetric information in stochastic contracts has led to two technical innovations first a number of results are proved even though all the truth telling constraints are explicitly included second a new regularity condition is found under which the local constraints are sufficient to ensure global incentive compatibility at an optimum

real investment decisions under adjustment costs and asymmetric information abstract we study the cost of adjustment model of investment when there is asymmetry of information between owners the principal and managers the agent information asymmetry distorts the relationship between investment and the cost of capital for all agent types and a regime of inaction appears over a certain cost range in an observationally different way than when fixed adjustment costs or irreversibilities cause a similar phenomenon uncertainty in the form of an increase in the spread of agents types tends to reduce investment despite symmetric adjustment cost and perfect competition the model gives a new interpretation of tobin s q under asymmetric information explaining some results of the mergers and acquisition literature

field of use restrictions in licensing agreements a widely used clause in license contracts the field of use restriction four precludes licensees from operating outside of the technical field specified when a technology has several distinct applications four allow the licensor to divide up his rights and attribute them to the lowest cost producer in each field of use this can improve production efficiency with complex technologies however the boundaries of fields of use may be difficult to codify entailing a risk of licensees rights overlapping we explore how this affects the optimal license contract in a moral hazard framework where the licensor s effort determines the probability of overlap we show that depending on the contracting environment the license agreement may include output restrictions and non linear royalty schemes

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

incomplete contracts and strategic ambiguity why are observed contracts so often incomplete in the sense that they leave contracting parties obligations vague or unspecified traditional answers to this question invoke transaction costs or bounded rationality in contrast the authors argue that such incompleteness is often an essential feature of a well designed contract specifically once some aspects of performance are unverifiable it is often optimal to leave other verifiable aspects of performance unspecified the authors explore the conditions under which this occurs and investigate the structure of optimal contracts when these conditions are satisfied copyright 1998 by american economic association

agent discretion and the choice of insurance marketing system this article argues that different insurance marketing organizations arise as a means to minimize the costs of correctly matching policyholder risks with insurance coverage when policyholders are easily sorted without sales agent participation in screening exclusive dealing will be the preferred marketing organization when agent information is important for risk placement independent agency may be preferred empirical support for our theory is obtained from analysis of compensation contracts and market shares of the different marketing forms exclusive dealers are found to be prevalent in relatively standardized homogeneous product lines and markets and their agents receive less profit based compensation than those of independent agency insurers these findings are consistent with our theory

incentives for unaware agents the paper introduces the problem of unawareness into principalagent theory and discusses optimal incentive contracts when the agent may be unaware of her action space depending on the agent s default behavior it can be optimal for the principal to propose an incomplete contract that keeps the agent unaware or a complete contract the key tradeoff is that of enlarging the agent s choice set versus adding costly incentive constraints if agents differ in their unawareness optimal contracts show a self reinforcing pattern if there are few unaware agents in the economy optimal contracts promote awareness if unawareness is wide spread optimal contracts shroud the contracting environment thus keeping the agent unaware

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

implications of power when the ceo can pressure the cfo to bias reports abstract building on archival anecdotal and survey evidence on managers roles in accounting manipulations i develop an agency model to examine the effects of a ceo s power to pressure a cfo to bias a performance measure like earnings this power has implications for incentive compensation reporting quality firm value and information rents predictions from the model provide potential explanations for the differing results from recent empirical studies on the impact of regulatory interventions like sox and the extent to which the ceo s or cfo s incentives significantly impact on earnings management the model also identifies conditions under which either a powerful or a non powerful ceo can extract rents which can help explain mixed empirical results on the association between ceo power and excessive compensation

cagan s hypothesis and the first nationwide inflation of paper money in world history more than 25 years ago phillip cagan proposed the hypothesis that the demand for real cash balances depended mainly on the expected rate of inflation provided that the monetary sector was sufficiently isolated from changes in the real sector cagan 1956 to test his hypothesis cagan studied seven hyperinflations in modern europe during which variations in the real variables were negligible compared with the astronomical increases in prices it is well known that he got confirmatory results from his studies however until recently it has not been realized that the same hypothesis is also strongly supported by data from a very different socioeconomic context namely the first nationwide inflation of paper money in world history paper money was invented in china in the northern suing dynasty a d 960 1126 and widely used in the southern sung dynasty a d 1127 1278 the first inflation on a national scale occurred from around 1190 to the end of the dynasty when the monetary system collapsed in this inflation period available historical records do not suggest significant expansion of the economy or important changes in real income modern financial assets such as bonds and equities did

incentive schemes as a signaling device abstract this paper considers a model of moral hazard where the principal has private information for instance in an organizational setting the firm may be better informed about the profitability of a sales area for which it seeks to employ a new sales representative we show how this information asymmetry may lead to a game of signaling which can mute incentives

contractual contingencies and renegotiation in a dynamic model of asymmetric information between the owner of a firm and a manager we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible in particular we characterize the circumstances in which the contracting parties find it desirable to deliberately restrict what the owner can monitor thereby limiting the contractible contingencies our findings thus provide an endogenous explanation for contract simplicity in contrast to those based on transactions costs or bounded rationality

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

the insurance is the lemon failing to index contracts we model the widespread failure of contracts to share risk using available indices a borrower and lender can share risk by conditioning repayments on an index the lender has private information about the ability of this index to measure the true state that the borrower would like to hedge the lender is risk averse and thus requires a premium to insure the borrower the borrower however might be paying something for nothing if the index is a poor measure of the true state we provide sufficient conditions for this effect to cause the borrower to choose a nonindexed contract instead

transactional characteristics institutional environment and joint venture contracts this study examines how transactional characteristics and the institutional environment influence contractual governance for international joint ventures ijvs unlike previous studies that view joint venture contractual governance as a unidimensional construct clause specificity thus causing a debate upon whether ijv contracts should be more specific contractual governance herein is defined as a three dimensional construct that includes the extent to which contractual terms are clearly specified term specificity possible contingencies are accounted for contingency adaptability and joint venture parties are legally bound to the contract contractual obligatoriness our analysis of ijvs in china suggests that term specificity and contractual obligatoriness increase when the proprietariness of resources to be invested in the ijv or the incompleteness of the host country s legal system increase contractual obligatoriness appears to be an increasing function of economic exposure and environmental volatility whereas contingency adaptability in a contract rises when interparty dependency investment uncertainty and knowledge proprietariness intensify or when environmental hazards escalate these results suggest that an ijv contract if structured multidimensionally as above can curtail opportunism and guide venture evolution at the same time these contractual dimensions should not be prefixed but properly aligned with transactional and institutional characteristics this alignment has strong implications in reducing transaction costs and spurring ijv evolution in the complex and volatile institutional environment

a signaling based theory of contractual commitment to relationships abstract in this paper i present signaling as an explanation for how and why parties commit to relationships when they initially contract about the terms of those relationships two forms of contractual commitment to a relationship are considered a promise to trade in the future contracted quantity and a promise not to trade with anyone else contracted exclusivity a party is said to commit more to a relationship if it commits initially to trade a higher quantity and or to a higher level of exclusivity i characterize equilibrium contracts and therefore commitment both the ability to signal information through an exclusivity commitment and whether the informed party commits more to the relationship when the relationship is more likely to succeed depend on the source of the asymmetry of information

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

termination clauses in partnerships abstract we show that when designing a partnership agreement partner firms may prefer not to specify how to allocate the commonly owned assets should there be an early termination of the contract by not including such a clause firms induce litigation before a court with positive probability firms create this ex post inefficiency in order to increase the levels of non contractible investments i e increase the ex ante efficiency the absence of an asset allocation clause works as a discipline device that mitigates the hold up problem within the partnership in our set up no other contract but that without an asset allocation clause can credibly create an ex post inefficiency

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

vertical restraints under asymmetric information on the role of participation constraints the impact on vertical contracting of a type dependent reservation utility is investigated within a sequential monopolies environment with asymmetric information the welfare and private properties of contracts controlling both the retail price and the sales level are compared with those restricting only sales when firms choose contracts non cooperatively retail price restrictions are desirable for the upstream supplier although detrimental to consumers whenever the retailer reservation utility has a relevant impact on optimal contracts if this impact is relatively weak and contracts are chosen cooperatively vertical price control fails to maximize firms joint profit although it would be beneficial to consumers

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

contractual signaling relationship specific investment and exclusive agreements i analyze a model of hold up with asymmetric information at the contracting stage the asymmetry of information concerns the value of trade with external parties i show that contractual signaling and efficiency of investment can conflict if only quantity is contractible this conflict generates inefficient equilibria in terms of investment contracting on exclusivity in addition to quantity resolves the conflict and consequently eliminates the inefficiency of investment

relational contracts and the value of relationships this article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known i consider a principal agent setting where the principal has persistent private information about her outside option i show that if the principal has the bargaining power she wants to understate her outside option to provide strong incentives and then renege on promised payments while if the uninformed agent has the bargaining power the principal wants to overstate her outside option to capture more surplus i characterize how information is revealed how the relationship evolves and how this depends on bargaining power jel c78 d82 d83 d86

subjective evaluations with performance feedback this paper models two key roles of subjective performance evaluations their incentive role and their feedback role the paper shows that the feedback role makes subjective pay feasible even without repeated interaction as long as there exists some veri able measure of performance it also shows that while subjective pay is helpful it cannot achieve full e ciency however fully e cient incentives are achievable if the rm can commit to a forced distribution of evaluations and employs a continuum of workers with a small number of workers a forced distribution is valuable only if the veri able measure is poor

the interaction of explicit and implicit contracts a signaling approach abstract we analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals fair principals are willing to honor implicit agreements selfish principals are not we investigate a separating equilibrium in which principals reveal their type through the contract offer to the agent explicit and implicit contracts are shown to be substitutes since the agent learns the principal s type a selfish principal must rely on explicit incentives a fair principal by contrast can effectively induce implicit incentives and does not need to use explicit incentives we also find a strategic complementarity between explicit and implicit incentives

adaptive learning and the transition to fiat money this article explores some implications of adaptive learning for monetary evolution using a search theoretic framework that allows for media of exchange network effects adaptive learning precludes any voluntary transition to a fiat standard from a non monetary state of nature and can account for the historically observed tendency for fiat monetary standards to emerge only following the prior appearance of commodity money and the widespread employment of redeemable banknotes adaptive learning can also account for governments frequent resort to coercive measures to force a switch to fiat money and for their ability to affect such a switch even when doing so is not pareto optimal exchange media fall into the general category of products for which the utility that a user of the good derives from use of the good increases with the number of other agents using the good katz and shapiro 1985 p 424 there are two reasons for these positive network effects 1 indirect the more agents who employ a particular medium of exchange the more likely it is that prices will be quoted in terms of that medium of exchange i e that the medium of exchange will also serve as the economy s principle medium of account the costs of exchange are less for a medium of exchange that trades at par this indirect external effect is analogous to one encountered in computer hardware the more purchasers of a particular kind of hardware the more likely manufacturers of software are to supply compatible products 2 direct the more persons who use a particular exchange medium the better its quality or performance this direct network effect is analogous to one encountered in communications technologies such as telephones the analogy is especially close for fiat money which is useless to an isolated individual this article examines some ways in which media of exchange network effects influence the evolution of monetary standards and especially their role in determining both when and how a transition may occur from barter or commodity money to fiat money the approach taken here emphasises the role of adaptive learning where agents select exchange strategies that reflect static expectations concerning other agents preferred strategies although the exchange game agents play generally has multiple nash equilibria including one in which all agents accept fiat money adaptive learning precludes a spontaneous transition from barter to a fiat monetary standard even where a fiat standard would be welfare enhancing yet such learning does not rule out the spontaneous evolution of a commodity money standard or the eventual substitution of redeemable banknotes for commodity money readers familiar with the literature on network effects will recognise this

imperfect information credit markets and unemployment this paper describes how imperfect information in both capital and labor markets can in a context of maximizing firms and perfectly flexible prices and wages give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles this abstract was borrowed from another version of this item

contractual distortions in a market with frictions abstract this paper analyses contract design in a decentralized market environment with frictions while principals e g firms have all contractual power their market power is constrained as agents e g workers can choose to wait and search for better offers we find that results depend crucially on how market frictions affect agents utilities with type independent costs of search and waiting equilibrium contracts are always first best if agents are impatient and discount future payoffs however distortions vanish only gradually in the latter case we also characterize equilibrium offers and show that the market exhibits two types of externalities both of which are absent in the case of type independent costs of search

latin america s resurgent centre national government strategies after decentralisation this article identifies the menu of options available to national governments as they seek to re assert the centre s prerogatives in the aftermath of decentralisation these include policy strategies bureaucratic strategies institutional strategies and societal strategies each of which has afforded opportunities for the centre to reclaim the role of protagonist that it lost as a result of decentralisation illustrated through the use of examples from across latin america our survey of these options shows that short of outright recentralisation national politicians and bureaucrats have been highly creative in their search for strategies to re centre politics

limited contract enforcement and strategic renegotiation this paper presents a strategic theory of contract renegotiation in this theory suboptimal contracts are put in place initially to protect one party against undesirable a ctions by another party and are renegotiated once the danger is past the authors develop a model to establish the cases in which simple contracts cannot achieve desirable outcomes so that only a complicated contract or renegotiation will serve unlike most previous accounts of contract renegotiation this theory does not rely on exogenous uncertainty to motivate renegotiation copyright 1988 by american economic association

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

targeting at the margin the glass of milk subsidy programme in peru this article evaluates the vaso de leche vl feeding programme in peru in order to illustrate an evaluation methodology based on targeting criteria for a decentralised transfer programme we find that the degree of overall targeting of poor individuals attributable to the central government s choice of districts is greater than that attributable to choice of participants within districts made by the municipalities and the mothers committees however when we use a version of a targeting efficiency measure first introduced by galasso and ravallion 2003 which we modify to be defined on the values of allocations the opposite is the case the community based decision makers appear to be targeting the poor in terms of the values of the transfers

intention based reciprocity and the hidden costs of control abstract empirical research suggests that despite strengthening conventional incentives to put in effort exerting control might reduce worker performance the present paper shows that intention based reciprocity can explain such hidden costs of control if individuals differ in their propensity for reciprocity and preferences are private information not being controlled might then be considered to be kind because not everybody reciprocates not being controlled with high effort this argument contrasts existing theoretical wisdom on the hidden costs of control that is almost exclusively based on signaling

the sale of ideas strategic disclosure property rights and contracting ideas are difficult to sell when buyers cannot assess an idea s value before it is revealed and sellers cannot protect a revealed idea these problems exist in a variety of intellectual property sales ranging from pure ideas to poorly protected inventions and reflect the nonverifiability of key elements of an intellectual property sale an expropriable partial disclosure can be used as a signal allowing the seller to obtain payment based on the value of the remaining undisclosed know how we examine contracting after the disclosure and find that seller wealth is pivotal in supporting a partial disclosure equilibrium and in determining the payoff size

cognition and incomplete contracts thinking about contingencies designing covenants and seeing through their implications is costly parties to a contract accordingly use heuristics and leave it incomplete the paper develops a model of limited cognition and examines its consequences for contractual design

hyperinflations their origins development and termination abstract this paper summarizes and critically surveys research on hyperinflation appraisal and review of the literature considers the origins development termination and the lessons to be learned from hyperinflations the historical evidence as well as the econometric evidence is analyzed it is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations such as an understanding of the forces which link monetary and fiscal policies to inflation and policy makers role in influencing individuals expectations

contributions of neoclassical economics to public utili iy analysis neoclassical economics the dominant economics paradigm has influenced and been influenced by developments in regulated industries we identify major theoretical and empirical accomplishments discuss the impactofthese accomplishmentsonpolicydevelopment andlist the channelsthrough which the impacts are madepossible we then discuss regulatorypolitics lack ofresearchperspective an overly narrow focus on economic efficiency and the academic profession as factors limiting the impact of neoclassical economics on public policy

public spending and quality of education in brazil abstractwe examined whether brazil s educational spending on public primary schools resulted in better quality of education 2003 2009 our hypothesis was municipalities that received higher government spending on primary education had higher student tests scores we used a panel analysis with fixed effects including a simulated instrumental variable to control for endogeneity even though the magnitude of all significant estimated coefficients increased when controlling for endogeneity they were still very small findings proved that the relationship between quality of education and educational spending was not optimal weakly contributing to the increase in test scores

incentive provision when contracting is costly we analyse optimal incentive contracts in a model where the probability of court enforcement is determined by the costs spent on contracting the analysis shows that there is no monotonic relationship between contracting costs and incentive intensity and that an increase in contracting costs may lead to higher powered incentives moreover we formulate hypotheses about the relationship between legal systems and incentive provision specifically the model predicts higher powered incentives in common law than in civil law systems we also find that better performance measures may induce lower investments in contracting and potentially lead to lower powered incentives

modern hyper and high inflations since 1947 hyperinflations by cagan s definition in market economies have been rare much more common have been longer inflationary processes with inflation rates above 100 percent per annum based on a sample of 133 countries and using the 100 percent threshold as the basis for a definition of very high inflation episodes this paper examines the main characteristics of such inflations among other things we find that i close to 20 percent of countries have experienced inflation above 100 percent per annum ii higher inflation tends to be more unstable iii in high inflation countries the relationship between the fiscal balance and seigniorage is strong both in the short and long run iv inflation inertia decreases as average inflation rises v high inflation is associated with poor macroeconomic performance and vi stabilizations from high inflation that rely on the exchange rate as the nominal anchor are expansionary

incomplete contracts and signaling this article presents a principal agent model in which asymmetric information leads to contractual incompleteness i show that in the presence of transactions costs incompleteness may act as a signal of the principal s type two types of transactions costs are considered those incurred ex ante drafting costs and those incurred ex post enforcement or verification costs i prove that in the presence of either of these costs asymmetric information leads to more contractual incompleteness than full information does

contract design and bargaining power abstract it is a common assumption in contract theory that the uninformed side makes a take it or leave it proposal in contrast this paper explores a model which allows a shift in bargaining power continuously between the two parties endowing the informed side with more bargaining power gradually reduces distortions

should we write prenuptial contracts abstract a successful marriage requires for both parties to make investments in their relationship and marital assets how such assets would be divided if and when the parties divorce is an important factor determining each party s ex ante investment incentives using the incomplete contracting approach we characterize the optimal asset division rule one that provides the parties with the best investment incentives we then discuss the circumstances under which the spouses would agree in equilibrium to contract out state imposed rules governing the allocation of marital assets upon divorce we conclude by exploring the implications of our results in the context of various asset division rules currently discussed by policy makers

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