screening ethics when honest agents care about fairness we analyze a principal s ability to discriminate between honest and dishonest agents who have private information about the circumstances of the exchange honest agents reveal circumstances truthfully as long as the mechanism is suciently fair the probability that an equilibrium allocation is chosen by an agent who is lying should not be too large without intolerance for lying the agent is given proper incentives if dishonest and zero rent if honest with even a small intolerance for lying the optimal mechanism is discontinuously altered it may still involve ethics screening whereby some allocation chosen by a dishonest agent is never chosen by an honest agent it happens either when the dishonest is overstating circumstances or when the principal is forced to allow for some suboptimal announcements due to an excessive intolerance for lying with limited intolerance for lying ethics screening allows for doing better than in the standard setup where the agent is dishonest with certainty even if honesty is unlikely however if intolerance for lying is too strong the principal cannot improve upon the standard setup

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

getting deals done the use of social networks in bank decision making economic actors confront various forms of uncertainty making decisions and how they deal with these obstacles may affect their success in accomplishing their goals this study examines the means by which relationship managers in a major commercial bank attempt to close transactions with their corporate customers it is hypothesized that under conditions of high uncertainty bankers will rely on colleagues with whom they are strongly tied for advice on and support of their deals drawing on recent network theory it is also hypothesized that transactions in which bankers use relatively sparse approval networks are more likely to successfully close than are transactions involving dense approval networks both hypotheses are supported bankers are faced with a strategic paradox their tendency to rely on those they trust in dealing with uncertainty creates conditions that render deals less likely to be closed successfully this paradox represents an example of unanticipated consequences of purposive social action

interorganizational determinants of promotion client leadership and the attainment of women attorneys explanations of gender inequality typically emphasize individual characteristics the structure of internal labor markets or pressures from the institutional environment extending the structuralist and institutional perspectives this article argues that the demographic composition of an organization s exchange partners can influence the demographic composition of the focal organization when the focal organization is dependent upon its partners specifically law firms with women led corporate clients increase the number of partners who are women attorneys data on elite law firms and their publicly traded clients support a bargaining power hypothesis whereby law firms promote women attorneys when their corporate clients have women in three key leadership positions general legal counsel chief executive officer and board director these effects are stronger when the law firm has few clients reinforcing the hypothesis that interorganizational influence is more vital when a focal organization is depe

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

on the distribution and dynamics of health care costs using data from the health and retirement survey and the assets and health dynamics of the oldest old survey we estimate the stochastic process that determines both the distribution and dynamics of health care costs we find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent ar 1 process we also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs simulating this model we find that in any given year 0 1 of households receive a health cost shock with a present value of at least 125 000 copyright 2004 john wiley sons ltd

trust and communication mechanisms for increasing farmers participation in water quality trading trust and communication barriers have contributed significantly to the lethargic performance of many point nonpoint source water quality trading programs farmers are often reluctant to participate despite direct financial incentives yet the literature lacks a comprehensive investigation of how the social context affects trading outcomes we draw on social embeddedness theory to analyze three mechanisms of communicating with farmers and conduct a case study analysis of 12 water quality trading programs we find that employing trustworthy third parties or embedded ties may reduce farmers reluctance to participate although the most effective mechanism ultimately depends on local conditions and program objectives

deductible contracts against fraudulent claims evidence from automobile insurance insurance fraud is now recognized as a significant resource allocation problem in many markets the object of this study is to verify how straight deductible contracts may affect the equilibrium level of falsification in automobile insurance this type of contract is observed in many markets even if it is not optimal under costly state falsification a higher deductible may create incentives to fraud or cheat particularly when the insured anticipates that the claim has a small probability of being audited to verify this proposition we estimate a loss equation for which one of the determinants is the amount of the deductible using a data set of claims filed for damages following an automobile accident with twenty insurance companies in quebec in 1992 because we have access only to reported losses a higher deductible also implies a lower probability of reporting small losses to isolate the fraud effect related to the presence of a deductible in the contract we jointly estimate a loss equation and a

compensation benchmarking leapfrogs and the surge in executive pay scholars frequently argue whether the sharp rise in chief executive officer ceo pay in recent years is efficient or is a consequence of rent extraction because of the failure of corporate governance in individual firms this article argues that governance failure must be conceptualized at the market rather than the firm level because excessive pay increases for even relatively few ceos a year spread to other firms through the cognitively and rhetorically constructed compensation networks of peer groups which are used in the benchmarking process to negotiate the compensation of ceos counterfactual simulation based on standard and poor s execucomp data demonstrates that the effects of ceo leapfrogging potentially explain a considerable fraction of the overall upward movement of executive compensation since the early 1990s

the conditional nature of embeddedness a study of borrowing by large u s firms 1973 1994 economic and organizational sociologists have increasingly demonstrated that the actions of individuals and firms are affected by the social networks within which they are embedded in recent years scholars have begun to recognize that the effects of these social networks may vary across populations or types of relations this article examines the extent to which the effects of interfirm networks on the behavior of firms are historically contingent focusing on the level of debt financing among approximately 140 large u s corporations over a 22 year period the authors show that the extent to which the firms use of debt was influenced by those with which they were tied through director interlocks declined over time the authors argue that this decline in the network effect reflected a shift in the institutional environment within which the firms operated and that it was driven by three processes the professionalization of the finance function within the firm the internalization of financial decision

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

dynamics of networks if everyone strives for structural holes when entrepreneurs enter structural holes in networks they can exploit the related benefits evidence for these benefits has steadily accumulated the authors ask whether those who strive for such structural advantages can maintain them if others follow their example burt speculates that they cannot but a formal demonstration of this speculation is lacking using a game theoretic model of network formation the authors characterize the networks that emerge when everyone strives for structural holes they find that the predominant stable networks distribute benefits evenly confirming that no one is able to maintain a structural advantage in the long run

market networks and corporate behavior data on market relations between a large population of corporations and investment banks are used to study the organization market interforce the pattern of direct market ties between a firm and its banks forms of interfaces range from a long term exclusive tie the relationship interface to many short lived episodic ties the transaction interface with hybrid forms between the two poles contrary to widespread belief the article finds that strong relationships still exist transactions interfaces are rare most firms use hybrid interfaces a firm s interface is conceptualized as the intentional result of its efforts to reduce dependence and exploit power advantages observed interfaces are shown to be related systematically to various power dependence concepts including resource intensity number of transactions and dollar amounts raised criticality the availability of resource alternatives power asymmetry between a firm and its main bank organization size standardization of exchange and

economic behavior in institutional environments the corporate merger wave of the 1980s over the last 100 years the united states has experienced four waves of corporate merger activity the first occurred at the turn of the century then again in the 1920s the 1960s and the 1980s most research on merger waves has focused on individual mergers within a wave our research focuses on the wave itself we develop a theoretical model that centers on the actors who promote the mergers and on those changes in the political and economic environments that provide the resources these actors need to act specifically we argue that a permissive state combined with increased access to capital market funds encourages fringe players to initiate the innovations that enable them to execute mergers merger waves occur when these actors become increasingly successful and their innovations are imitated throughout the business community we provide empirical support for the model using data from the 1980 s merger wave

getting a bonus social networks performance and reward among commercial bankers research on the effects of social networks on individual status attainment has exploded in recent years but the results remain equivocal varying across network structures types of ties and outcome variables the focus in this literature has been on two primary outcomes performance benefits and rewards including promotion and compensation these two types of outcomes have often been conflated however despite the fact that high levels of one do not guarantee high levels of the other we examined the effects of job performance network tie strength and network structures on the size of the year end bonuses received by 71 relationship officers in a major multinational commercial bank we found that in networks based on information acquisition both strong ties and sparse networks are positively associated with high bonuses as is the combination of the two in networks based on approval and support for one s deals neither tie strength nor density predicts bonus size but the benefits of strong ties increase as network density increases our results demonstrate the importance of distinguishing networks based on collegial relations from those based on authority as well as the importance of distinguishing the network factors that improve performance from those that generate favorable evaluations independent of performance

optimal auditing with scoring theory and application to insurance fraud this article makes a bridge between the theory of optimal auditing and the scoring methodology in an asymmetric information setting our application is meant for insurance claims fraud but it can be applied to many other activities that use the scoring approach fraud signals are classified based on the degree to which they reveal an increasing probability of fraud we show that the optimal auditing strategy takes the form of a red flags strategy which consists in referring claims to a special investigative unit siu when certain fraud indicators are observed the auditing policy acts as a deterrence device and we explain why it requires the commitment of the insurer and how it should affect the incentives of siu staffs the characterization of the optimal auditing strategy is robust to some degree of signal manipulation by defrauders as well as to the imperfect information of defrauders about the audit frequency the model is calibrated with data from a large european insurance company we show that it is possible to improve our results by separating different groups of insureds with different moral costs of fraud finally our results indicate how the deterrence effect of the audit scheme can be taken into account and how it affects the optimal auditing strategy

agricultural innovation and new ventures assessing the commercial potential innovation and new ventures have been part of the food production and distribution industry for decades if not centuries in recent times new ventures under the banner of valueadded agriculture have become the mantra for producers politicians and agri businesses that are searching for better margins and higher incomes than provided by traditional commodity production and distribution but the commercial potential of value added ventures and innovations is not obvious often is not realized and may be frequently overestimated in fact studies of new business start ups in agriculture and other sectors indicate that a high proportion of those businesses fail during the first twelve months of operation and many are not sustainable even after this most vulnerable start up period sba the objective of this paper is to provide a framework for assessing the commercial potential of innovation in agriculture we highlight the four critical components of market analysis essential to successful innovation and new ventures those are the assessment of customers competitors sustainable competitive advantage and internal capabilities we identify and describe where concepts of economics

dynamic inducements in r d investment market signals and network locations this research shows that alliance networks shape how firms respond to uncertainty reducing information generated outside a network product awards signal the potential commercial success of the awa

public insurance and private savings who is affected and by how much this paper employs a recently developed instrumental quantile regression method to investigate the effect of medicaid on household savings across different wealth groups it finds that the disincentive effect of medicaid on household savings is heavily concentrated in the middle net worth households in contrast the effects on the bottom and top net worth households are quite small and insignificant these heterogeneous incentive effects are partly explained by medicaid asset tests our findings hold regardless of whether affluence is measured in terms of wealth or income they suggest that despite generating substantial crowd out for the mean household medicaid expansions are unlikely to discourage the savings of the poorest households copyright 2008 john wiley sons ltd

exploring mediators effects of the composition of organizational affiliation on organization survival and mediator performance market mediation literature has been taking primarily a triadic view in studying the role and impact of mediators actors that occupy a middle position on supply and demand conditions in markets mediating organizations facilitate exchange relationships on a continuous basis between multiple networks of interdependent affiliated actors an affiliation structure gives rise to the property of duality whereby the behavior and performance of the affiliates affect the behavior and performance of mediators and vice versa in the context of the banking industry this study examines how the structural properties of the underlying network of affiliated organizations affect the survival of affiliated organizations and the performance of mediating organizations the results show that firms that are affiliated with mediating organizations having high customer set connectedness or with those that are industry specialists increase their chances of survival furthermore mediating organizations having high customer set

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

efficient committed budget for implementing target audit probability for many inspectees strategic models of auditor inspectee interaction have neglected implementation details in multiple inspectee settings with multiple inspectees the target audit probability derived from the standard analysis can be implemented with sampling plans differing in the budgets committed to support them overly committed audit budgets tie up unneeded resources that could have been allocated for better uses this paper studies the minimum committed budget required to implement a target audit probability when i the audit sample can be contingent on red flags due to signals of inspectees private information e g from self reporting and ii the number of inspectees is large it proposes an audit rule called bounded simple random sampling srs which is shown to require no more committed budget to support than two other rules naturally generalized from the one to one analysis when the number of inspectees is large enough bounded srs is nearly as good as any efficient audit rule which demands the lowest committed budget necessary to implement the target audit probability the results offer insights on how audit sampling plans may be formulated to reduce inefficiency and what budget usage ratios should be expected accordingly

hardball and the soft touch the economics of optimal insurance contracts with costly state verification and endogenous monitoring costs abstract we examine an environment of costly state verification in which insureds possess private information about the magnitude of an insurable loss insurers can verify the actual loss suffered only by incurring a positive resource cost and insureds may verification and may lead to more generous settlements optimal insurance contracts are shown to mitigate the incentives to evade by a combination of incentives which include the overpayment of easily monitored losses and undercompensation for claims exhibiting higher verification costs

honesty on the streets a field study on newspaper purchasing many publishers use an honor system for selling newspapers in the street we conducted a field experiment to study honesty in this market finding that a moral reminder increases the level of honesty in payments whereas the same message has no effect on whether one is honest reminding customers of the legal norm has no effect we argue that these results are consistent with a preference for honesty based on an internalized social norm auxiliary evidence suggests that the moral message remains effective when it is posted for longer periods and even when it is removed again authors abstract

optimal insurance under costly falsification and costly inexact verification abstract this paper integrates the often dichotomized models of costly state verification and costly claim falsification it is found that when verification is inexact it is possible for an optimal insurance contract to consist of both positive claim falsification and positive insurer verification provided that falsification cost and verification cost are sufficiently low and the insured is risk averse satisfying constant absolute risk aversion this result certainly contrasts with the common belief that falsification and verification are mutually exclusive in an optimal insurance contract some characteristics of the optimal falsification verification and indemnification profiles including implementability are analyzed

do welfare asset limits affect household saving evidence from welfare reform we use data from the panel study of income dynamics to estimate the effect of new saving incentives implemented as part of the 1996 welfare reform on household saving economic theory predicts that loosening asset limits will increase total savings for households with a large ex ante probability of welfare receipt such as female headed households with children we follow a sample of female heads with children and find that in both absolute terms and relative to comparison groups of male heads and female heads without children there has been no effect of welfare policy changes on the saving of at risk households

costly risk verification without commitment in competitive insurance markets abstract this paper analyzes the equilibrium of an insurance market where applicants for insurance have a duty of good faith when they reveal private information about their risk type insurers can at some cost verify the type of insureds who file a claim and they are allowed to retroactively void the insurance contract if it is established that the policyholder has misrepresented his risk when the contract was taken out however insurers cannot precommit to their risk verification strategy the paper analyzes the relationship between second best pareto optimality and the insurance market equilibrium in a game theoretic framework it characterizes the contracts offered at equilibrium the individuals contract choice as well as the conditions under which an equilibrium exists

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

national health insurance and precautionary saving evidence from taiwan abstract by reducing uncertainty about future medical expenses comprehensive health insurance can reduce households precautionary saving we examine this effect using taiwan micro data spanning the 1995 introduction of national health insurance the effects of national health insurance are identified using employment based variation in prior insurance coverage replacement of the households prior insurance coverage with national health insurance is exogenous to the household so our estimates are not subject to selection bias compared with the preceding government insurance programs national health insurance reduced saving by an average of 8 6 13 7 with the largest effects for households with the smallest saving

providers affiliation insurance and collusion abstract this paper provides a theoretical analysis of the benefits for an insurance company to develop its own network of service providers when insurance fraud is characterized by collusion between policyholders and providers in a static framework without collusion exclusive affiliation of providers allows insurance companies to recover some market power and to lessen competition on the insurance market this entails a decrease in the insured s welfare however exclusive affiliation of providers may entail a positive effect on customers surplus when insurers and providers are engaged in a repeated relationship in particular while insurers must cooperate to retaliate against a fraudulent provider under non exclusive affiliation no cooperation is needed under exclusive affiliation in that case an insurer is indeed able to reduce the profit of a malevolent provider by moving to collusion proof contracts when collusion is detected and this threat may act as a deterrent for fraudulent activities this possibility may supplement an inefficient judicial system it is thus a second best optimal anti fraud policy

local appeal and competition in multiple geographic markets evidence from california retail banking between 1900 and 1990 this article assesses the effect of identity related local appeal when firms compete in multiple geographic markets and investigates how local appeal and multimarket advantages collectively determine the competitive strength of an organization compared with numerous studies that identified the benefits for being a chain system recent researches on organizational identity highlight the social sanctions and discount when an organizational form does not fully conform to the norms and expectations at a given market empirical evidence from california retail banks in the 20th century demonstrates that organizational identity can be an important source of competitive strength even when considerable scale and scope advantages exist however when customers are not locally oriented an organization s identity based appeal becomes less meaningful such a finding suggests the scope condition for organizational identity research

estimating the prevalence and cost of yield switching fraud in the federal crop insurance program producers who manipulate and switch their reported crop yields between separately insured units can increase their insurance indemnities substantially a statistical model that identifies potential yield switching is developed the unrestricted statistical model is singular and is identified by imposing a mixture of system estimable and system nonestimable restrictions lower bound estimates of yield switching fraud incidence and costs are obtained by applying the model to 207 067 multiple unit producers who purchased crop insurance in 1998

embeddedness in the making of financial capital how social relations and networks benefit firms seeking financing i investigate how social embeddedness affects an organization s acquisition and cost of financial capital in middle market banking a lucrative but understudied financial sector using existing theory and original fieldwork i develop a framework to explain how embeddedness can influence which firms get capital and at what cost i then statistically examine my claims using national data on small business lending at the level of dyadic ties i find that firms that embed their commercial transactions with their lender in social attachments receive lower interest rates on loans at the network level firms are more likely to get loans and to receive lower interest rates on loans if their network of bank ties has a mix of embedded ties and arm s length ties these network effects arise because embedded ties motivate network partners to share private resources while arm s length ties facilitate access to public information on market prices and loan opportunities so that the benefits of different types of ties are optimized within one network i conclude with a discussion of how the value produced by a network is at a premium when it creates a bridge that links the public information of markets with the private resources of relationships

should social security benefits be means tested social security retirement benefits distort the saving decisions of workers who are rational enough to save for their future since the implicit rate of return in an unfunded social security program is less than the marginal product of capital the resulting decline in saving causes a welfare loss the present paper examines the conditions under which the welfare loss could be reduced by replacing the current universal social security program with a means tested program that pays benefits only to those individuals with little or no other retirement income or assets every society must solve the problem of supporting those individuals who become too old to work but have not made adequate provision for their own old age by saving when they were young at the present time the major industrial countries of the world have responded to this problem by creating social security programs that tax the working population and use the proceeds to provide a universal benefit to all retirees regardless of their financial condition this universal provision of social security benefits distorts the saving decisions of those workers who are rational enough to plan for the future since the implicit rate of return that taxpayers get on their this research is part of the nber study of the government budget and the private economy a more complete version of this paper with some numerical calculations is available as nber working paper no 1775 feldstein 1985b i am grateful to gilbert metcalf for assistance with the calculations presented in this paper and for helpful discussions for a discussion of the effect of promised retirement benefits on the savings of employees see feldstein 1974 1982 barro 1974 1978 has discussed an interesting

the social organization of conspiracy illegal networks in the heavy electrical equipment industry we analyze the social organization of three well known price fixing conspiracies in the heavy electrical equipment industry although aspects of collusion have been studied by industrial organization economists and organizational criminologists the organization of conspiracies has remained virtually unexplored using archival data we reconstruct the actual communication networks involved in conspiracies in switchgear transformers and turbines we find that the structure of illegal networks is driven primarily by the need to maximize concealment rather than the need to maximize efficiency however network structure is also contingent on information processing requirements imposed by product and market characteristics our individual level model predicts verdict guilt or innocence sentence and fine as functions of personal centrality in the illegal network network structure management level and company size people of the same trade seldom meet together but the conversation ends in a conspiracy against the public or in some diversion to raise prices

social identity market memory and first mover advantage considerable attention goes to whether there is a first mover advantage among organizations technical mechanisms have been considered for this advantage such as learning and occupancy of preferred market segments we argue that first movers may also benefit from a social identity advantage because being identified as the original in a market implies authenticity when first mover advantage is based on such an identity market memory is important initially audiences distinguish the originality of the first mover but as time passes such differences are less recognizable we find evidence of this pattern and that organizations are constrained from expanding beyond where their identity is established the results suggest the usefulness of a sociological approach to understanding the first mover strategy copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

does means testing welfare discourage saving evidence from a change in afdc policy in the united states abstract this paper provides empirical evidence on the impact of a welfare program s asset test on the saving behavior of its target population the approach exploits a policy experiment the essential federalization of the afdc program s asset testing policy in 1981 data on female headed households from the national longitudinal survey young women are used to test the hypothesis that likely afdc users adjusted their asset stocks in response to this change the findings indicate additional saving between 1978 and 1983 of about 25 cents for each additional 1 increase in the limit in most states

self reporting investigation and evidentiary standards abstractself reporting schemes have become a substantial part of law enforcement this paper analyzes the optimal use of such schemes when the authority cannot commit to an ex post investigation effort i show that this leads to a negative relationship between self reporting incentives and investigation effort three main conclusions arise first violators self report with a probability of 1 if and only if full amnesty is offered second self reporting schemes are not efficient when the level of harm of the act is high finally authorities can increase the incentives to self report when they convict without hard evidence however a hard evidence standard provides more deterrence and is weakly welfare superior

auditing claims in the insurance market with fraud the credibility issue abstract this paper characterizes the equilibrium of an insurance market where opportunist policyholders may file fraudulent claims we assume that insurance policies are traded in a competitive market where insurers cannot distinguish honest policyholders from opportunists the insurer policyholder relationship is modelled as an incomplete information game in which the insurer decides to audit or not the market equilibrium depends on whether insurers can credibly commit or not to their audit strategies we show that a no commitment equilibrium results in a welfare loss for honest individuals which may even be so large that the insurance market completely shuts down we also show that transferring monitoring costs to a budget balanced common agency would mitigate the commitment problem

workers compensation and moral hazard two types of moral hazard have been determined the first type is related to self prevention activities affecting probabilities of accidents the second type relates to the agent s activities whenever the accident occurs the authors objective consists of presenting an empirical measure of the significance of this second type of moral hazard in the workers compensation market the main challenge in isolating moral hazard consists of dividing into two parts the total variation in recovery time with respect to changes in insurance coverage 1 the variation of consumption corresponding to a given level of information and 2 the variation of consumption due to greater asymmetrical information the methodology used in this study separates these two variations copyright 1991 by mit press

heterogeneity of the effects of health insurance on household savings evidence from rural china summary we estimate the impact of the new cooperative medical scheme ncms on household savings by income quartiles in rural china we control for endogenous ncms participation with an instrumental variable strategy using the china health and nutrition survey we find that ncms has a negative impact on middle income savings but does not affect the poorest participants ncms also decreases richest participants savings when they do not benefit from other health programs thus the implementation of a health care scheme appears to be an appropriate tool to lower savings and boost consumption and so sustain economic growth

financing technology based small firms in europe what do we know this paper reviews the evidence on financing technology based small firms tbsfs in europe european tbsfs finance new investments by relying primarily on internal funds due to capital market failures induced by asymmetric information european venture capital has caught up with us venture capital but this is mainly because of the growth in uk venture investments it is unclear whether european venture capital has been able to certify the quality and enhance the growth of funded companies compared with the nasdaq there is little development of trading in high tech stocks in europe the so called new markets established in the 1990s collapsed in the wake of the internet bubble crash public venture capital and research and development r d tax incentives seem to have positively affected high tech firms

the effects of 401 k participation on the wealth distribution an instrumental quantile regression analysis we use instrumental quantile regression approach to examine the effects of 401 k plans on wealth using data from the survey of income and program participation using 401 k eligibility as an inst

business groups networks and embeddedness innovation and implementation alliances in japanese electronics 1985 1998 author s lincoln james r guillot didier sargent matthew abstract this paper examines the changing process of strategic alliance formation in the japanese electronics industry between 1985 and 1998 with data on 123 135 japanese electronics electrical machinery makers we use a dyad panel regression methodology to address hypotheses drawn largely from embeddedness theory on how the firms horizontal and vertical keiretsu business group affiliations and prior alliance networks supported and constrained partner choice in new rad innovation and nonrad implementation domestic economy alliances we find that in the first half of our series 1985 1991 the preburst period keiretsu served as infrastructure for new strategic alliances that had both innovation rad and implementation nonrad goals in the second half of our series 1992 1998 the postbubble period the keiretsu effects on rad alliance formation were gone but the groups role in nonrad alliances had magnified moreover as the keiretsu effect on new alliances fell or rose those of prior direct and indirect alliance ties moved in the opposite direction we conclude with some discussion of whether these period shifts in the embeddedness of the electronics industry alliance formation process were or were not effective adaptations to the turbulence and uncertainty of the postbubble japanese economy

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

the impact of social structure on economic outcomes s ocial structure especially in the form of social networks affects economic outcomes for three main reasons first social networks affect the flow and the quality of information much information is subtle nuanced and difficult to verify so actors do not believe impersonal sources and instead rely on people they know second social networks are an important source of reward and punishment since these are often magnified in their impact when coming from others personally known third trust by which i mean the confidence that others will do the right thing despite a clear balance of incentives to the contrary emerges if it does in the context of a social network economists have recently devoted considerable attention to the impact of social structure and networks on the economy for example see the economists chapters in rauch and casella 2001 and the illuminating review essay of this volume by zuckerman 2003 as well as dutta and jackson 2003 and calvoarmengol 2004 however i focus here on sociologists contributions sociologists have developed core principles about the interactions of social structure information ability to punish or reward and trust that frequently recur in their analyses of political economic and other institutions i begin by reviewing some of these principles building on these i then discuss how social structures and social networks can affect economic outcomes like hiring price productivity and innovation

competing vertical structures precommitment and renegotiation we consider a model where two agents privately informed about their own characteristics play a normal form game on behalf of two uninformed principals we analyze the existence of precommitment effects through public announcements of contracts in a model where agency contracts designed ex ante can always be secretly renegotiated at the ex ante and interim stages we show that the existence of precommitment effects depends both on the strategic complementarity of the agents actions and on the direct effect of the opponents actions on each principal s welfare in our model the possibility of renegotiation is crucial for the existence of precommitment effects the results are introduced through an example of cournot and bertrand competition between firms viewed as vertical structures

explaining the wealth holdings of different cohorts productivity growth and social security in this paper we explore the reasons why different generations accumulate different amounts of wealth we use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth the first one represents productivity differences across cohorts the aggregate level of gross national product per capita around the time the head of the household entered the labor market the second measure summarizes the changes in social security during the head of household s working life using panel data from the dutch socio economic panel we show that productivity growth can explain all the cohort effects present in income data while productivity growth and the generosity of social security can explain all the cohort effects present in household net worth we also find a limited offset of social security on wealth holdings

health insurance eligibility utilization of medical care and child health two economists applied data from the current population survey and the national health interview survey and state level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of medicaid eligibility on low income children the models took into consideration the recent expansions of medicaid to low income children 38 of those ineligible for medicaid in 1984 who became eligible due to changes during 1984 1992 were uninsured between 1984 and 1992 expansions of the medicaid program increased the proportion of children eligible for medicaid almost two fold 16 1 vs 31 2 yet coverage rates were always lower than eligibility rates 13 2 vs 16 1 in 1984 and 20 3 vs 31 2 in 1992 and the increase in coverage rates was only about 50 of the increase in eligibility rates during 1984 1992 the probability that a child was eligible for medicaid increased the probability of health insurance coverage by 29 77 when the model considered bias in variables e g a recession in a state the take up rate was only 22 73 nevertheless medicaid markedly increased use of medical care for example eligibility for medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50 it also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to medicaid enrollees medicaid eligibility had a significant effect on reducing child mortality the 15 1 percentage point increase in eligibility during 1984 1992 reduced child mortality by 4 5 when the researchers examined parent assessed subjective health measures medicaid eligibility had no effect on child health medicaid eligibility reduced race and education based disparities in the number of visits and racial differences in mortality yet it may actually intensify current disparities in health care delivery site

delegation as commitment the case of income tax audits in this article we study the value of delegating authority over income tax audit policy arising from the incompleteness of contracts consider a utilitarian government whose ability to commit is limited to aggregate dimensions of its audit policy as publicly verifiable information about detailed allocations of audit budgets is not available we show that the welfare level associated with the full commitment solution can be attained by delegating authority over audit policy to a manager the latter is offered a simple incentive scheme based only on the aggregate variables which are publicly observable in contrast if the government retains authority direct commitment to these same variables does not allow the full commitment welfare level to be achieved thus despite sharing a common informational basis delegation may perform better than centralized arrangements in the presence of incomplete contracts