optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

does tourism influence economic growth a dynamic panel data approach on average tourism specialized countries grow more than others this is not consistent with the core of modern economic growth theory that suggests that economic growth is linked to sectors with high tech intensity and large scale in this article we use appropriate panel data methods to study the relationship between tourism and economic growth in general we show that tourism is a positive determinant of economic growth both in a broad sample of countries and in a sample of poor countries however contrary to previous contributions tourism is not more relevant in small countries than in a general sample this is a fully modified version of a working paper co authored by one of the authors

positive self image in tournaments this paper analyzes the implications of worker overestimation of productivity for firms in which incentives take the form of tournaments each worker overestimates his productivity but is aware of the bias in his opponent s self assessment the manager of the firm on the other hand correctly assesses workers productivities and self beliefs when setting tournament prizes the paper shows that under a variety of circumstances firms make higher profits when workers have positive self image than if workers do not by contrast workers welfare declines due to their own misguided choices

tourism welfare and de industrialization in a small open economy this paper investigates the effects of an expansion of tourism on welfare output and factor prices in the host country using a general equilibrium international trade model in the absence of taxes foreign ownership and distortions an increase in foreign visitors will increase welfare only if the price of nontradables increases factor mobility and foreign ownership tend to reduce the gains from tourism while commodity taxes tend to increase them conditions under which an increase in tourism can lead to deindustrialization are also discussed copyright 1991 by the london school of economics and political science

foreign direct investment and total factor productivity growth new macro evidence although the role of foreign direct investment fdi in facilitating technology transfer is well known in the literature empirical evidence regarding the effect of fdi on growth is mixed the contradictory results in the literature may be due to the failure to account for endogeneity and for the abortive capacity of the hosting countries using panel data for 49 countries over the period 1974 2008 and the existence of investment promotion agencies in the receiving countries as an instrument our results show that increased fdi stock leads to higher productivity growth we also find a significant positive effect on the interaction between fdi stock and distance to the technological frontier suggesting that the ability of technologically backward countries in absorbing technologies developed at the frontiers increases as more fdi stock is accumulated

phasing the operation mode of foreign subsidiaries reaping the benefits of multinationality through internal capital markets the lifetime of foreign equity partnerships is often limited research suggests that mncs abandon their local partners when the need for sharing ownership in foreign subsidiaries has diminished this study shows that mncs may abandon their local equity partners to reap the benefits of multinationality as mncs gain a competitive advantage from leveraging resources across borders they will initially benefit from sharing ownership with a local firm to embed their foreign subsidiaries in the local environment and access local resources more effectively later they will benefit from taking over the local partner s equity share to better embed their subsidiaries in the parent organization and transfer locally accessed resources to the mnc s other locations moderated mediation regressions provide evidence of such practice in the context of cross border transfers of capital resources this strategy seems to work as a corollary of our model panel regressions suggest that sharing ownership with local firms in a host country with a capital resource advantage is associated with appropriating more capital resources from the local debt market while abandoning these partner firms later is associated with transferring more capital resources from this host country via internal capital markets to other parts of the mnc

an applied general equilibrium analysis of the economic effects of tourism in a quite small quite open economy a computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the australian economy the most striking conclusion is that queensland usually thought to be the most tourism oriented of the australian states would be a net loser from an economy wide expansion of tourism as well as having a relatively large share of its gsp accounted for by tourist oriented activities queensland is also relatively heavily dependent on agriculture and mining traditional export sectors which are crowded out by the expansion of international tourism

measuring and forecasting regional environmental and economic efficiency in italy abstractenvironmental and economic efficiency has being receiving growing attention among researchers in general terms this concept is related to the capability of the economic systems to employ natural resources efficiently so as to increase economic and human wealth this clearly implies that both the economic and ecological aspects of decisions ought to be considered bearing this in mind this article considers economic and ecological performance together by applying data envelopment analysis and the malmquist productivity index to investigate the efficiency of the 20 italian regions from 2004 to 2011 the results reveal that the northern regions have been more efficient than the southern ones highlighting the strong geographical differences between the two furthermore this article uses the grey system theory to forecast regional economic and environmental efficiency the results of the forecasting analysis show that the north south duality remains strong and will possibly increase since the r

tourism and economic development the beach disease abstract this paper analyses empirically the danger of a dutch disease effect in tourism dependent countries in the long run data on 134 countries of the world over the period 1970 2007 is used in a first step the long run relationship between tourism and economic growth is analysed in a cross country setting the results are then checked in a panel data framework on gdp per capita levels that allows to control for reverse causality non linearity and interactive effects it is found that there is no danger of a beach disease effect on the contrary tourism dependent countries do not face real exchange rate distortion and deindustrialisation but higher than average economic growth rates investment in physical capital such as for instance transport infrastructure is complementary to investment in tourism

foreign direct investment co2 emissions nexus in middle east and north african countries importance of biomass energy consumption abstract this study examines the association between foreign direct investment fdi and carbon emissions for the middle east and north african mena region in 1990 2015 including biomass energy consumption as an additional determinant of carbon emissions we apply the generalized method of moments gmm to validate the existence of the pollution haven hypothesis phh the n shaped association is also validated between fdi and carbon emissions the link between economic growth and carbon emissions is inverted u and n shaped that is it satisfies the environmental kuznets curve ekc hypotheses biomass energy use lowers carbon emissions and the causality analysis reveals that fdi causes co2 emissions clearly the results confirm the existence of a feedback effect between economic growth and carbon emissions the connection between biomass energy use and co2 emissions is also bidirectional the empirical findings suggest policy makers to design comprehensive trade and energy policies by targeting the cleaner production practices for not only to ensure environmental sustainability but also to fulfil the objectives of sustainable development goals

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

fdi and economic growth new evidence on the role of financial markets this study uses a threshold regression model and finds new evidence that the positive impact of fdi on growth kicks in only after financial market development exceeds a threshold level until then the benefit of fdi is non existent

positive self image and incentives in organizations this paper investigates the implications of individuals mistaken beliefs of their abilities on incentives in organizations using the principal agent model of moral hazard the paper shows that if effort is observable then an agent s mistaken beliefs about own ability are always favorable to the principal however if effort is unobservable then an agent s mistaken beliefs about own ability can be either favorable or unfavorable to the principal the paper provides conditions under which an agent s over estimation about own ability is favorable to the principal when effort is unobservable finally the paper shows that workers mistaken beliefs about their coworkers abilities make interdependent incentive schemes more attractive to firms than individualistic incentive schemes

international capital mobility and unemployment dynamics empirical evidence from oecd countries we use a panel of 20 oecd countries over a 30 year period to estimate the implications of international capital mobility for unemployment we nd that the increase in capital ows since the mid 1980s has contributed to an ampli cation of the impulse response of unemployment to country speci c shocks and to a fall in the persistence of unemployment in response to the same shocks

remittances and financial development empirical evidence from heterogeneous panel of countries remittances are the second largest source of external finance after foreign direct investment in the developing economies in this study we analyse the role of incoming remittances on financial de

is energy security a driver for economic growth evidence from a global sample abstract this study examines whether energy security contributes to economic growth for a global sample of 74 countries covering the period from 2002 to 2013 the benchmark model is built based on an extended version of the cobb douglas production function ten measures of energy security are employed to capture five aspects of energy security including availability accessibility acceptability affordability and develop ability besides the whole sample we also conduct the panel data analysis on subsamples of countries based on different income levels using panel corrected standard errors pcse and feasible generalized least squares fgls techniques that correct for heterogeneity and autocorrelation and produce robust standard errors the empirical results appear to be relatively robust to these two estimation techniques overall we find that energy security enhances economic growth for both the whole sample and subsamples of countries meanwhile energy insecurity measured by energy intensity and carbon intensity variables has a negative impact on economic growth the results vary across subsamples for several cases the findings imply that at the global level energy for economic development energy security and climate change mitigation should be pursued as integrated themes since there are linkages among these three agendas

the impact of experience on risk taking overconfidence and herding of fund managers complementary survey evidence abstract empirical research has shown that inexperienced fund managers yield significantly higher returns than their more experienced colleagues if the portfolios of inexperienced are not more risky this result would contradict the hypothesis of market efficiency therefore it is an important question whether inexperienced fund managers tend to taker higher risks higher risk taking may be explained by a higher degree of overconfidence less herding behavior or a lower degree of risk aversion since the results concerning the relationship between experience and risk taking in previous studies are rather contradictory we provide complementary survey evidence of 117 german fund managers which can improve our understanding in this field in line with the results of previous studies we find that herding is decreasing with experience while the evidence concerning risk taking and overconfidence is mixed nevertheless our results provide some support for the hypothesis that inexperienced managers do indeed take higher risks

looking at the bright side the motivational value of confidence abstract the motivational value of confidence postulates that individual effort provision is increasing in beliefs on one s own ability this relation is supposed to also hold for overconfident individuals who have exaggerated ability beliefs we present the first empirical evidence on the existence of a motivational value of absolute confidence that many microeconomic models with overconfident agents build on moreover we document that negative debiasing information on individual ability diminishes effort provision a result that is of obvious relevance for many contexts such as labor relations or learning at school we also offer a strategy for identifying significant absolute overconfidence at the individual level

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

institutional quality thresholds and the finance growth nexus using an innovative threshold estimation technique this study examines whether the growth effect of financial development in countries with distinct levels of institutional development differs the results demonstrate that there is a threshold effect in the finance growth relationship specifically we found that the impact of finance on growth is positive and significant only after a certain threshold level of institutional development has been attained until then the effect of finance on growth is nonexistent this finding suggests that the financial development growth nexus is contingent on the level of institutional quality thus supporting the idea that better finance i e financial markets embedded within a sound institutional framework is potent in delivering long run economic development

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

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

the causality between fdi and sector specific production in turkey evidence from threshold cointegration with regime shifts abstractthis article considers bidirectional nonlinear cointegration relation between fdi and industrial output in turkey the data cover the monthly period 2005 1 2013 10 for the time series of total industrial production 36 sub industrial sectors production and fdi following nonlinear threshold cointegration and vecms the article yields that i total industrial production and nine sub industrial productions have positive long run impact on fdi with significant error corrections ii six sub industrial productions have short term influence on fdi iii fdi has long run positive impulse on total industrial production and nine sub industrial productions with some significant error corrections and iv fdi affects four sub industrial productions in the short run as well as in the long run the results of vecms from i also reveal that the all short term adjustment parameters are found significant and powerful in 10 typical regimes regime 1s and in 5 extreme regimes regime 2s finally the outcom

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

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists

a paradigm shift to a new strategy for small island economies embracing demand side economics for value enhancement and long term economic stability abstract the article answers three interrelated questions pertaining to small island economies and tourism development under the condition of globalization 1 why is tourism relevant for small island economies 2 why is a supply perspective inappropriate for these economies and 3 why is a demand perspective more appropriate for small island economies in the era of globalization empirical realities indicate that small islands have performed well in specializing as tourist destinations despite their size constraints and resulting disadvantage in economic terms the caribbean region is an appropriate proxy for small island economies however globalization may be taking its toll on sectoral specialization in the caribbean as a development strategy the supply side strategy seems to have lost its effectiveness to reverse this trend the study proposes the implementation of new tourism strategies based on a demand focused approach to sustain value enhancement these strategies have important managerial and policy implications

taxing tourism and subsidizing non tourism a welfare enhancing solution to dutch disease abstract using a combined analysis of a general equilibrium and a partial equilibrium this study models the impacts of a combined policy tool based on taxing tourism and subsidizing non tourism in a tourism dependent destination the results suggest that such a policy tool while widely discussed in economics literature may not be suitable for a tourism destination as it might have adverse effects on local welfare