disproportional control rights and the governance role of debt we examine the governance role of debt in the context of u s based dual class ownership structures we hypothesize that the use of debt alleviates the conflict between shareholder classes by balancing the power of controlling insiders we document that dual class firms have higher leverage and a greater propensity to issue private debt they also more frequently use cash sweeps and performance based covenants dual class firms with greater agency conflicts and a greater need to access the capital market appear to rely more extensively on debt these findings are consistent with controlling insiders bonding against the agency costs associated with dual class ownership the governance role of debt is further corroborated by the valuation effect of debt for dual class companies private debt issuances trigger greater positive market reactions to the inferior dual class stock in relation to both the superior dual class stock and a matched sample of single class firms further leverage attenuates the previou

managing local commons theoretical issues in incentive design local commons encompass a wide range of resources whose shared feature is the need for some form of collective management in what follows we shall be concerned mainly with the problems of implementing a collective management plan whatever the mechanisms invoked many recent contributions to the literature have stressed that relatively informal collective management of common property resources can in the right circumstances avoid the severe resource degradation predicted by the tragedy of the commons nevertheless both empirical and theoretical arguments suggest that cooperative behavior may be only partial and the incentives of short term self interest only partially held in check under what circumstances then can more formal implementation mechanisms make good the deficiency and given that formal incentives are typically stronger than informal ones are there any reasons why informal incentives might nevertheless sometimes be preferred

political economy information and incentives abstract this paper shows how the instruments of incentive theory can be used to develop some views about the proper design of governments to avoid the capture of politicians and bureaucrats by interest groups first treating politicians as informed supervisors to whom economic policy is delegated we show the usefulness of the separation of powers to increase the transaction costs of collusion the relevance of asymmetric control for avoiding reciprocal favors the incompleteness of the constitutional contract leaves discretion to politicians who become residual decision makers we study the trade offs between greater efficiency obtained by allowing powerful instruments to politicians and less discretion by restricting on the contrary those instruments determinants of those trade offs are the variability of the environment the extent of asymmetric information about tastes and technologies and the size of majorities finally we show the new theory of incentives for group behavior can be used to determine the transaction costs of collusion under asymmetric information and to which extent these costs relax the constraints imposed on government by collusive behavior

coordination and the provision of incentives to a common regulated firm abstract this paper considers the problem faced by two regulators in providing incentives to a common privately informed regulated firm under various degrees of coordination in the model the firm exerts effort toward cost reduction and self dealing and incentives can be input based monitoring and output based demanded cost targets full coordination between the regulators leads to the second best allocation a setting in which the regulators do not fully coordinate leads to i higher overall monitoring more aggressive input based incentives and ii higher demanded cost targets i e more lenience in terms of output based incentives as a consequence of i in all possible equilibria the effort toward cost reduction will be smaller when the agent reports to two regulators who do not coordinate i and ii imply that the impact on the effort toward self dealing activities is ambiguous in our leading example self dealing will be larger if the regulators coordinate on monitoring levels but smaller if they choose monitoring levels independently

incentive regulatory policies the case of public transit systems in france we assess the empirical relevance of the new theory of regulation using a principal agent framework to study the regulatory schemes used in the french urban transport industry taking the current regulatory schemes as given the model of supply and demand provides estimates for the firms inefficiency the effort of managers and the cost of public funds it allows us to derive the first best and second best regulatory policies for each network and compare them with the actual situation in terms of welfare loss or gain fixed price policies lie between fully informed and uninformed second best schemes cost plus contracts are dominated by any type of second best contract from these results we may conjecture that fixed price contracts call for better informed regulators

oversight of long term investment by short lived regulators certain regulators of economic activity like utility regulators and government procurement officers typically serve for relatively short periods of time the authors consider how to best motivate long term investment in the presence of short lived regulators a firm s investment decision is overseen by one regulator whether the investment is ultimately adopted is determined by a second distinct regulator each regulator is concerned with the welfare of its own contemporary population transfer payments between populations are limited and relevant data cannot be verified by third parties underadoption and underinvestment on average result although overinvestment may also occur under the optimal regulatory charter copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

policy learning in embedded negotiations explaining eu electricity liberalization taking the example of the liberalization of the electricity supply industy i analyze member state negotiations in the european union eu confronting central tenets of the intergovernmental approach i suggest that member state executives act within the limits of bounded rationality and do not always hold clear and fixed preferences i focus on the large member states germany france and the united kingdom and identify four institutional mechanisms that support outcomes above the least common denominator 1 the role of norms that constrain strategic action and frame the negotiations 2 the empowerment of supranational actors 3 the decision routines of the council of the european union that provide standardized mechanisms for resolving conflicts and induce policy learning and preference changes and 4 the vertical differentiation within the council system that can unblock issue specific controversies even if as a result of these techniques eu legal acts contain several flexibilization elements they can trigger behavioral changes that clearly surpass their regulatory content

behind the revolving door a new view of public utility regulation regulatory officials frequently work for firms they regulate after they leave office this revolving door has been the subject of much scrutiny owing to the natural suspicion of corruption in a time dependent supergame i take a strategic look behind the revolving door and find it can lead to improved performance of regulated industries when firm managers and regulators have finite and concurrent terms investment incentives are minimal staggered terms and revolving doors can result in improved performance of regulated firms when each side s actions at each date are contingent on past outcomes

interdependence in comparative politics substance theory empirics substance interdependence is ubiquitous and often central across comparative politics indeed as the authors show first theoretically any situation involving externalities from one unit s actions on others implies interdependence positive or negative externalities induce negative or positive interdependence which spurs competitive races or free riding with corresponding early or late mover advantages and thus strategic rush to act or delay and inaction the authors show next how to model interdependent processes empirically how not doing so risks omitted variable biases favoring domestic and exogenous external accounts over interdependence but how doing so naively risks simultaneity biases with the opposite substantive implications they then discuss how to estimate properly specified interdependence models and finally how to interpret and present estimated spatio temporally dynamic effects response paths and long run steady states with associated standard errors they illustrate by replicating a not

optimal leverage and aggregate investment we analyze the optimal financing of investment projects when managers must exert unobservable effort and can also switch to less profitable riskier ventures optimal financial contracts can be implemented by a combination of debt and equity when the risk shifting problem is the most severe while stock options are also needed when the effort problem is the most severe worsening of the moral hazard problems leads to decreases in investment and output at the macroeconomic level moreover aggregate leverage decreases with the risk shifting problem and increases with the effort problem

negotiated trade restrictions with private political pressure we consider a home government with political pressure to restrict trade the foreign country is compensated with a portion of the tariff revenues or quota rents but cannot directly observe the political pressure abroad in this setting the two countries negotiate over the volume of trade and transfer of rents depending on the level of political pressure we determine globally optimal incentive compatible trade policies in which the home government has no incentive to overstate or understate the pressure for protection

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these

policy spillovers in the regulation of multiple pollutants abstract we analyze the interplay between policies aimed to control transboundary and local pollutants such as greenhouse gases and particulate matter the two types of pollution interact in the abatement cost function of the polluting firms through economies or diseconomies of scope they are regulated by distinct entities potentially with different instruments that are designed according to some specific agenda we show that the choice of regulatory instrument and the timing of the regulations matter for efficiency emissions of the local pollutant are distorted if the regulators anticipate that transboundary pollution will later be regulated through emission caps the regulation is too stringent with diseconomies of scope and not enough with economies of scope in contrast we obtain efficiency if the transboundary pollutant is regulated by emission taxes or tradable emission permits provided that the revenue from taxing emissions are redistributed to the countries in a lump sum way and that the initial allocation of tradable emission permits is not linked to abatement costs

who formulates renewable energy policy a swedish example a broad participation by stakeholders and an extensive reliance on expert advice are often seen as preconditions for a legitimate and successfully implemented renewable energy policy however we have lacked systematic data for testing this argument this article s contribution is to examine the actors who take part in the making of swedish energy policy with the help of data on the composition of various committees of inquiry over the last twenty years 1988 2009 swedish renewable energy policy is often characterised with words like pioneering and forerunner suggesting that the policy making process in this area engages many different experts and stakeholders our data give only some support to this argument results point to a noteworthy predominance of politicians civil servants and representatives of state agencies within the policy process producers of uranium and fossils based energy have been engaged more often than producers of renewable energy experts have played a prominent role but this is mostly due to the participation of expert bureaucrats rather than of scientists the study suggests that a better understanding of the making of energy policy both in sweden and elsewhere requires greater attention to the networks and role of various state employees

knowledge accumulation within an organization in this article we consider a knowledge accumulation problem within an organization that cannot prevent the worker from quitting and using the knowledge outside the organization we show that knowledge accumulation is delayed the fraction of working time allocated to knowledge creation is highest at the early career stage falls gradually then rises again before falling finally toward zero we determine the effect of a change in the severity of the enforcement problem or the specificity of knowledge we also discuss the form of the optimal life cycle wage profiles the role of the initial knowledge level and the role of discounting

an institutional critique of intergovernmentalism most intergovernmentalist analyses of european integration focus on treaty bargaining among european union member governments recent articles also have examined everyday decision making through power index analysis an approach that asserts that a government s ability to influence policy is a function of all possible coalitions in the council of ministers to which it is pivotal this approach suffers from two major weaknesses first it fails to take into account the policy preferences of governments it overestimates the influence of governments holding extreme preferences and underestimates that of more centrist governments second power index analysis fails to consider the important roles of the commission of the european communities and the european parliament in legislative processes today s procedures affect the mix of agenda setting and veto power and this has systematic effects on policy outcomes if intergovernmentalism is to explain choices made during treaty rounds it must take into account these legislative dynamics

on governing multilateral transactions with bilateral contracts bilateral contracts while neither negotiated nor enforced in an integrated way are nevertheless often interrelated both economically and strategically owing to production or consumption complementarities and to asymmetric information a set of bilateral contracts forms a mechanism with special properties this mechanism forms a contract equilibrium if there is no joint incentive for a supplier and any individual customer unilaterally to alter the terms of their contract if agents preferences are risk neutral in money income and if their private information is independent then there exists a contract equilibrium that implements efficient transactions if in addition preferences are strictly concave and differentiable in goods and services and technologically feasible sets are suitably convex then this equilibrium is essentially unique

incentives for environmental protection this book explores the extent to which pricing incentives such as charges on emissions in contrast to regulatory standards can be shaped into a practical policy that is technically effective politically enactable administratively enforceable and equitable it also compares he advantages and disadvantages of this approach to those that characterize the policy of compliance to regulatory standards and it identifies the criteria on which either pricing mechanisms or regulatory standards should be based three case studies comprise the heart of the book one investigates carcinogenic chemical emissions another audits the tradeoffs in controlling aircraft noise near major airports and the third treats the protection of air quality from pollution by primarily stationary sources the case studies are introduced by a chapter that gives numerous examples of possible pricing approaches and identifies common lessons that the three diverse studies reinforce the studies are followed by a chapter which is based on interviews with congressional staff environmentalists and industrial lobbyists and other interest groups in washington revealing their assessments of pricing mechanisms in environmental protection thomas c schelling and his co authors david harrison jr albert l nichols robert repetto and steven j kelman are all affiliated with the kennedy school of government harvard university the book is fifth in the series regulation of economic activity

an agenda for the design and study of international environmental agreements abstract the combination of a general greening of international political debate and the events of 1992 at the rio earth summit have led to great interest in the question of global environmental protection while it is recognized that international environmental agreements ieas are the means by which the earth s fragile environment is most likely to be protected this recognition has been recent hence there is very little formal research on the design and study of ieas as such in this paper i propose and describe a research agenda for the design and study of ieas very generally i propose that we frame the iea design question as a problem in mechanism design we will then be able to use inter alia the theory of common agency and the theory of hierarchies to generate interesting new theoretical and practical insights into the workings of ieas

does centralization increase the size of government abstract are fiscal programs larger or smaller if they are run centrally rather than locally in a prospective federation we abstract completely from well understood economic issues and focus instead on the political effects of centralization for fiscal programs with benefits broadly spread in the population such as redistributive transfer schemes social insurance and general government consumption centralization changes the coalition of voters who favor a large program in a direction that depends on the nature of the redistributive instrument for fiscal programs with localized benefits such as provision of local public goods centralization creates opportunities for rent seeking which increases the size of government

comparative statics of a monopolistic firm facing price cap and command and control environmental regulations abstract an exhaustive comparative statics analysis of a model of a monopolistic firm facing price cap regulation and a variety of commonly implemented command and control environmental regulations is carried out the comparative statics are intrinsic to each of the models and thus form their basic empirically testable properties several unanticipated results emerge from the analysis in particular it is shown that a subset of the intrinsic comparative statics are qualitatively invariant to all of the commonly employed command and control environmental regulations that a price cap regulated profit maximizing monopoly might face while others are specific to the type of command and control environmental regulation in place

strategic tax competition implications of national ownership abstract two jurisdictions compete to capture the rents of a large multinational enterprise mne which invests locally and which is partly owned by local investors the mne contributes to local welfare by tax payments and dividends and it has private information about the efficiency of the operations in the two localisations it is shown that the distortions in the mne s real investment portfolio are determined by a trade off between fiscal externalities and equity externalities and that investments in the case of strategic tax competition may be lower than in the co operative case ownership matters and we show how the firm may reduce its overall tax payments by influencing the distribution of owner shares between investors in the two countries

noncooperative regulation of a nonlocalized externality with a nonlocalized pollution externality different groups bear the costs and benefits of abatement in the case of acid rain these groups are respectively consumers in the midwest and pollutees in the northeast these groups have conflicting interests that are represented respectively by a public utilities commission and an environmental regulator we analyze a model in which the environmental protection agency acting as a von stackelberg leader regulates pollution and the public utility commission regulates the price for a monopolist that has private information about the effectiveness of its abatement alternatives we characterize a noncooperative equilibrium and compare it with a cooperative equilibrium a nonlocalized pollution externality poses special regulatory problems when the benefits and the costs of abatement are borne by distinct groups whose interests are represented by different regulatory agencies a relevant example is acid rain which is believed to be caused in part by coal fired electricity generating plants these emit sulfur dioxide and nitrogen oxide which upon contact with moisture in the atmosphere form acid that falls with rain measures to reduce these emissions are of concern to the residents of the states in which the coal fired generating plants are located because abatement costs increase the prices they pay for electricity a number of plans have been proposed for distributing those costs more broadly but the costs of reducing the emissions of generating plants located in ohio will likely be borne in large part by ohio consumers and utilities while the benefits from abatement will largely be realized by the residents of the northeast and canada the control of a nonlocalized externality such as acid rain raises the issue of the relationship between the environmental regulator the environmental protection agency epa and the public utility commission the former is responsible for achieving an acceptable balance between the damage from pollution and the cost of abatement the latter is responsible for pricing electricity on the basis of the costs of production and pollution control one possibility is that cooperation between the two regulators leads to the joint regulation of emissions and prices cooperation would internalize the conflicting interests and mandates of the regulators but the distributive consequences of the regulatory alternatives inhibit cooperation the public utility commission for example has an interest in avoiding abate

the nordic welfare model providing energy transition a political geography approach to the eu res directive the eu renewable energy strategy res directive requires that each member state obtain 20 of its energy supply from renewable sources by 2020 if fully implemented this implies major changes in institutions infrastructure land use and natural resource flows this study applies a political geography perspective to explore the transition to renewable energy use in the heating and cooling segment of the swedish energy system 1980 2010 the nordic welfare model which developed mainly after the second world war required relatively uniform standardized local and regional authorities functioning as implementation agents for national politics since 1980 the welfare orientation has gradually been complemented by competition politics promoting technological change innovation and entrepreneurship this combination of welfare state organization and competition politics provided the dynamics necessary for energy transition which occurred in a semi public sphere of actors at various geographical scales however our analysis suggest that this was partly an unintended policy outcome since it was based on a welfare model with no significant energy aims our case study suggests that state organization plays a significant role and that the eu res directive implementation will be uneven across europe reflecting various welfare models with different institutional pre requisites for energy transition

incomplete social contracts there is a long normative social contract tradition that attempts to characterize ex post income inequalities that are agreeable to all behind a veil of ignorance this paper takes a similar normative approach to characterize social decision making procedures it is shown that quite generally some form of majority voting is preferred to unanimity behind a veil of ignorance whenever society faces deadweight costs in making compensating transfers deviations from unanimity or ex post pareto optimality are ex ante efficient to the extent that they economize on costly compensating transfers put another way the optimal decision rule trades off the benefits of minority protection and those from greater flexibility jel h11 g33 g34 d63 p16 p48

on some agency costs of intermediated contracting abstract this paper identifies a new agency cost of intermediated contracting a non productive intermediary can extract some rents when a the productive agent has some private information and b the intermediary s sub contract with the productive agent is not directly controlled by the top principal we show that the intermediary s informational rent is an increasing and concave function of the productive agent s own informational rent

the multiprincipal nature of government abstract one of the theoretical tools required to open the black box of the government organization is the theory of multiprincipals which describes how different incentive mechanisms compete with each others in viewing the set of relationships between several government bodies and the entities they regulate as a set of competing contracts in which the control of the regulatory process is shared amongst these different regulators we can address the question of the costs and the possible benefits of such structural separation first this paper surveys the previous literature on the topic then it traces out the possible benefits of such structures to the non benevolence of regulators we discuss also how regulatory rights of control and communication channels must be designed all together to deal with this problem

guiding the future energy transition to net zero emissions lessons from exploring the differences between france and sweden abstract despite similarities in their current energy mixes france and sweden s pathways have been very different since the 1970s when both systems were highly dependent on fossil fuels after the oil crisis both countries chose to reduce their oil consumption by developing nuclear power however sweden pursued a more diversified energy policy that has subsequently allowed it to reduce its co2 emissions today both countries have committed to a carbon neutrality goal by 2045 for sweden and 2050 for france in order to understand the key factors that can drive energy transition toward a carbon neutrality goal we propose to compare the past energy transitions in france and sweden two countries that have significantly reduced their co2 emissions and fossil fuel dependency to assess the impacts of the current energy system and its regulations on the feasibility of meeting carbon neutrality we use times bottom up energy system optimization models the results show that france faces more challenges in transforming its energy system than sweden i e an increase in power production a decrease in gas consumption the replacement of heating systems in buildings and the electrification of industry thus confirming that its energy policy has to be driven with a long run perspective

technology policy and the organization of r d abstract in this study we examine how technology policy in the form of r d subsidies and encouragement of research joint ventures rjvs affects the investment incentives of firms in various types of imperfectly competitive markets we find that joint ventures yield lower research intensities in the absence of subsidies in the presence of optimal subsidy policy higher expected welfare is obtained with rjvs but the optimal policy may also involve a more costly subsidy program the analysis also identifies possible difficulties in implementing socially optimal policies arising from private incentives conflicting with the public interest

competition policy in banking this paper summarizes some of the arguments relating competition and banking instability draws connections between regulation and competition policy and surveys and analyses the role of competition policy in the banking sector in a financial crisis it is argued that a trade off between competition and stability is bound to persist despite improvements in regulation that the banking sector specificity should be recognized by competition policy and that competition policy and regulation need close coordination copyright 2011 oxford university press

interjurisdictional competition with adverse selection abstract in this paper we study the welfare consequences of imposing alternative regimes of competition between two local governments that compete for mobile firms which have private information on their degree of mobility competition among jurisdictions raises the firms rents to higher levels than if jurisdictions were to cooperate therefore from the perspective of a utilitarian federation constitutional constraints on the competition process may be desirable we find that imposing a system of coarser policy instruments improves welfare relative to competition with discretionary instruments because it reduces the socially costly rents that are granted to firms in equilibrium we also find that the gains from constraining competition to uniform policy instruments are maximal when communities are identical but decline if the extent of asymmetry between locations in terms of local market size or technological complementarities increases

renegotiation design with multiple regulators abstract one striking feature of the internal organization of governments is the existence of multiple regulators this paper explains this organizational choice as coming from the government s limited ability to commit the separation of powers between two regulators is modeled as a stackelberg common agency game with respect to the case of a single regulator the allocative efficiency and the regulated firm s informational rent are both reduced in the unique equilibrium of this game however when regulators have a limited ability to commit this static cost of regulators separation becomes a dynamic benefit separation makes renegotiation harder and improves commitment journal of economic literature classification numbers d82 l51

tripartite income employment contracts and coalition incentive compatibility tripartite contracts between workers a firm and an insurance broker pareto dominate the usual bilateral arrangements if coalitions are not feasible they do this by allowing the broker to run surpluses over a reservation expected utility in some states and deficits in others we show that these contracts are manipulable by coalitions this motivates our main contribution the definition and characterization of coalition incentive compatible tripartite contracts we then ask whether broker intermediation can still be useful the answer is that not every coalition incentive compatibility requirement annuls the critical budget breaking property specifically if firm broker coalitions are feasible there is no three party contract that is coalition incentive compatible and pareto superior to bilateral firm worker contracts except in the extreme case where the workers demand for leisure is income inelastic but if only a firm worker coalition can form the addition of a broker to a bilateral arrangement does reduce the welfare losses caused by the existence of asymmetric information

state versus federal environmental regulation in a non cooperative monopoly screening model abstract a multiple principal monopoly screening model is presented in which two regulators act as rivals when setting a menu of contracts composed of a two part pricing scheme and design standard state and federal environmental regulation are modeled we show that the firm prefers federal environmental regulation because the design standards are more stringent this preference for stricter control occurs because higher standards generate higher information rents for the firm

hierarchical organization and incentives abstract we study decentralization in public decision making as the possibility for local authorities to sign incentive contracts with local agents in a context of asymmetric information we first review some theoretical arguments put forward for the optimality of decentralized structures we then present a model of organization of incentive policy in the eu context where national authorities have better information on their agents but less bargaining power than central authorities at the community level we show the complementarities between both levels of regulation

separation of powers and development abstract we model separation of powers as an instrument against corruption more specifically as a way to decrease the costs of collusion proofness then we show that the value of this institutional design is higher in developing countries unfortunately the same reasons which are behind this higher value also increase the implementation cost of this institution

industrial policy and politics abstract recognizing the uncontrollable nature of the political system in a fine tuning way we derive simple constitutional rules for industrial policies which take into account simultaneously the inefficiencies of the political system and informational asymmetries of regulators we apply this methodology to the regulation of natural monopolies we consider a two type political system with the majority rule we study how the chosen cost reimbursement rules and pricing rules which characterize regulation are affected by constitutional choices such as public ownership or privatization creation of incentives for regulators or not price discrimination or not

toward a theory of regulation for developing countries following jean jacques laffont s lead the efficient operation and expansion of infrastructures in developing countries is crucial for growth and poverty reduction however recent reforms aimed at improving the performance of these sectors have had limited success evidence suggests that in many instances this was because the traditional regulatory theory relied on by policymakers was not suitable for the institutional context in developing countries this article surveys more recent theoretical work focusing on problems with regulation in these countries at the heart of the survey is the work of jean jacques laffont who in the last decade of his life set about developing a theoretical framework for regulation in developing countries we consider the implications of his work which focused on the key institutional limitations faced in developing countries we then discuss where experience suggests that there are important omissions from this modeling bringing in extensions and alternative approaches pursued by other authors we conclude by summarizing the key ways in which regulatory policy will be different when institutions are weak overall we find that an understanding of the institutional context and its implications are crucial when designing a regulatory framework for developing countries

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

concessions of infrastructure in latin america government led renegotiation this paper analyzes government led renegotiations in infrastructure concession contracts in latin america based on the same sample used in guasch laffont and straub 2003 to examine firm led renegotiations after extending the theoretical framework to a multiple period context in which both pareto improving and rent shifting renegotiations at the initiative of the government can occur we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results while some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged significant differences arise with respect to the effect of investment and financing as well as the corruption variables we provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism copyright 2007 john wiley sons ltd

decentralization hierarchies and incentives a mechanism design perspective separation of ownership from management multidivisional firm organizations delegation of production decisions to worker teams delegation of pricing and advertising decisions to retail franchisers reliance on intermediaries in trade or finance and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision making authority instead of centralizing it this paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination it starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ one class of models pertain to contexts where the classical revelation principle applies i e where costs of contractual complexity information processing or communication are absent agents do not collude and the mechanism designer can commit to the mechanism delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality top down contracting and monitoring of transfers or production assignments between subordinates the next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility which has to be traded off against possible control losses of delegation finally consequences of collusion among agents is discussed which typically enlarge the range of circumstances under which delegation can attain optimal second best outcomes the paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role adoption of innovative human resource management practices new information technologies and retail franchising

covenants in venture capital contracts this paper studies how covenants are included in contracts between venture capitalists vcs and entrepreneurs i show that vcs hold covenanted veto rights even though they are shareholders who have access to other powerful governance solutions unlike bank loans and bonds venture capital vc contracts exhibit considerable variation in their contractual designs i exploit this variation to confirm the argument that covenants are in place to overcome a conflict of interest that arises from debt like contractual features of a venture capitalist s preferred stock in particular i find that contracts with higher fixed payoffs include 1 6 more covenants than do contracts with lower fixed payoffs similarly vc contracts with no vc board majority requirement include 0 6 more covenants than do contracts that require a vc board majority covenants are also more common with older companies and when fewer vcs invest in a round my findings contribute to both the debt covenant literature and the entrepreneurial finance literature this paper was accepted by brad barber finance

incentive compatible regulation of a foreign owned subsidiary abstract transfer prices are administered charges for intra firm transfers of factors of production for a multinational firm transfer prices for international transfers provide the means to redistribute costs and increase global profits given variations in national tax and profit repatriation policies local regulation of a subsidiary may thus be necessary to limit the welfare costs of strategic transfer pricing prusa journal of international economics 1990 28 155 172 characterizes the welfare maximizing regulations for a monopoly subsidiary that induce the firm to report transfer prices truthfully we show however that it can be more efficient to implement regulations that encourage the firm to misrepresent its true transfer costs

regulation of prices and pollution under incomplete information abstract regulation of prices and pollution for a monopolist with private information is considered with a focus on the relative efficiency of standard setting and emissions taxation approaches to pollution control with incomplete information emissions taxation is a dominated regulatory instrument for abatement purposes because it generates information costs that can be avoided when an abatement standard and prices are set by the regulator an emissions tax has value however as a means of reducing those information costs but its use for this purpose may increase pollution

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

contestation contingency and justice in the nordic low carbon energy transition the five nordic countries have aggressive climate and energy policies in place and have already emerged to be leaders in renewable energy and energy efficiency denmark is renowned for its pioneering use of wind energy finland and sweden bioenergy norway hydroelectricity and iceland geothermal energy all countries aim to be virtually fossil free by 2050 this study explores the nordic energy transition through the lens of three interconnected research questions how are they doing it what challenges exist and what broader lessons result for energy policy the study firstly investigates the pathways necessary for these five countries to achieve their low carbon goals it argues that a concerted effort must be made to 1 promote decentralized and renewable forms of electricity supply 2 shift to more sustainable forms of transport 3 further improve the energy efficiency of residential and commercial buildings and 4 adopt carbon capture and storage technologies for industry however the section that follows emphasizes some of the empirical barriers the nordic transition must confront namely political contestation technological contingency and social justice and recognition concerns the study concludes with implications for what such historical progress and future transition pathways mean for both energy researchers and energy planners

political sustainability and the design of social insurance this paper examines how the issue of political support affects the design of social insurance it distinguishes between redistributive character and size of social protection three main results emerge first it may be appropriate to adopt a system which is less redistributive than otherwise optimal in order to ensure political support for an adequate level of coverage in the second voting stage second supplementary private insurance may increase the welfare of the poor even if it is effectively bought only by the rich third the case for prohibiting supplementary private insurance may become stronger when the efficiency of private insurance markets increases

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

spillovers and international competition for investments abstract two jurisdictions compete to attract shares of the investment budget of a large multinational enterprise whose investments confer positive spillovers on national firms the firm has private information about its efficiency and about spillovers it is shown that the firm may be harmed by tax competition relative to a cooperative tax agreement tax competition may induce excessive investments in the country where the positive spillover effects are lowest also with sufficiently asymmetric spillovers investments under competition will be excessively spread out not properly concentrated to the country where spillovers would be largest

monitoring and structure of debt contracts this paper presents a theory of optimal debt structure when the moral hazard problem is severe the main idea is that the optimal debt contract delegates monitoring to a single senior lender and that seniority allows the monitoring senior lender to appropriate the full return from his monitoring activities the theory explains i why debt contracts are prioritized ii why short term debt is senior to long term debt and iii why financial intermediaries usually hold short term senior debt whereas long term junior debt is widely held another implication of the theory is that covenant and maturity structures will be set to conform to the seniority structure

the politics of government decision making a theory of regulatory capture the paper develops an agency theoretic approach to interest group politics and shows the following 1 the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation 2 the threat of producer protection leads to low powered incentive schemes for regulated firms 3 consumer politics may induce uniform pricing by a multiproduct firm 4 an interest group has more power when its interest lies in inefficient rather than efficient regulation where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal congress

credit and efficiency in centralized and decentralized economies we study a credit model where because of adverse selection unprofitable projects may nevertheless be financed indeed they may continue to be financed even when shown to be low quality if sunk costs have already been incurred we show that credit decentralization offers a way for creditors to commit not to refinance such projects thereby discouraging entrepreneurs from undertaking them initially thus decentralization provides financial discipline nevertheless we argue that it puts too high a premium on short term returns the model seems pertinent to two issues soft budget constraint problems in centralized economies and differences between anglo saxon and german japanese financing practices

the subsidiarity bias in regulation abstract we study the choice of the regulatory structure when a firm engages in different activities for different countries under decentralization regulatory contracts suffer from two opposite distortions the competition between regulatory authorities leads to too high powered contracts however with a dispersed ownership structure contracts tend to be too low powered for sufficiently substitutable activities decentralization always leads to an inefficient drift towards fixed price contracts nonetheless when regulators have private agendas and possess the discretion to distort their policy to gain the support of some interest groups decentralization may be preferred to centralization as competition between regulatory authorities mitigates their discretionary power

regulating an externality generating public utility a multi dimensional screening approach abstract in this paper i present a monopoly screening model in which a firm holds private information on fixed abatement costs because of the nature of the optimal contracts bunching is never optimal even with n distinct types a characterization of full and limited information solutions is offered and it is shown that the design standards alone determine the value of an information rent the variable charge is completely free of any marginal information costs this allows the variable charge to track marginal damages and thereby ensures that marginal social costs are covered a fixed charge implements the optimal solution

managerial legacies entrenchment and strategic inertia this paper argues that the legacy potential of a firm s strategy is an important deter minant of ceo compensation turnover and strategy change a legacy makes ceo replacement expensive because firm performance can only partially be attributed to a newly employed manager boards may therefore optimally allow an incumbent to be entrenched moreover when a firm changes strategy it is optimal to change the ceo because the incumbent has a vested interest in seeing the new strategy fail even though ceos have no specific skills in our model legacy issues can explain the empirical association between ceo and strategy change this paper proposes a model of ceo replacement and puts forward a novel determinant for turnover decisions the legacy potential of a firm s strategy we mean by this the extent to which a manager s decisions affect future firm cash flows potentially beyond the manager s own tenure the replacement of a ceo is arguably one of the most important decisions a firm takes yet the theoretical and empirical finance literature has relatively little to say about the firm and manager specific characteristics that lead to one manager being fired and replaced by another as brickley 2003 points out the only variable that predicts turnover empirically is poor firm performance but it has little pre dictive power theoretical papers on managerial turnover tend to reduce ceo successions to a sequence of static interactions see below for more details as such they do not distinguish between a ceo who is hired and can start a fresh project or one who is constrained in this choice because he inherits a prede cessor s long term strategy our paper focuses on this latter phenomenon and investigates turnover decisions when strategy choices have a legacy potential the fact that a dynamic link exists between a ceo and his predecessor is probably more recognized in the accounting literature than in finance pourciau both authors are from the toulouse school of economics and the institut d administration des

fiscal decentralization and intergovernmental fiscal relations a cross country analysis abstract fiscal decentralization consists primarily of devolving revenue sources and expenditure functions to lower tiers of government by bringing the government closer to the people fiscal decentralization is expected to boost public sector efficiency as well as accountability and transparency in service delivery and policy making decentralization also entails greater complexity in intergovernmental fiscal relations and coordination failures in fiscal relations are likely to have a bearing on fiscal positions nationally and subnationally evidence provided in this paper for a sample of 30 countries suggests that coordination failures in intergovernmental fiscal relations are likely to result in a deficit bias in decentralized policy making particularly in the case of developing countries which may not meet important requirements for successful decentralization

interpreting transnational infrastructure vulnerability european blackout and the historical dynamics of transnational electricity governance recent transnational blackouts exposed two radically opposed interpretations of europe s electricity infrastructure which inform recent and ongoing negotiations on transnational electricity governance to eu policy makers such blackouts revealed the fragility of europe s power grids and the need of a more centralized form of governance thus legitimizing recent eu interventions yet to power sector spokespersons these events confirmed the reliability of transnational power grids and the traditional decentralized governance model the disturbances were quickly contained and repaired this paper inquires the historic legacies at work in these conflicting interpretations and associated transnational governance preferences it traces the power sector s interpretation to its building of a secure transnational power grid from the 1950s through the era of neoliberalization next it places the eu interpretation and associated policy measures against the historical record of eu attempts at transnational infrastructure governance uncovering the historical roots and embedding of both interpretations we conclude that their divergence is of a surprisingly recent date and relates to the current era of security thinking finally we recommend transnational interpretative and historical analysis to the field of critical infrastructure studies

wealth constraints and option contracts in models with sequential investments summary the paper investigates a model where two parties a and b invest sequentially in a joint project an asset investments and the asset value are nonverifiable and a is wealth constrained so that an initial outlay must be financed by either agent b insider financing or an external investor a bank c outsider financing we show that an option contract in combination with a loan arrangement facilitates first best investments and any arbitrary distribution of surplus if renegotiation is infeasible moreover the optimal strike price of the option is shown to dier across financing modes if renegotiation is admitted we identify conditions under which the first best can still be attained then either b financing or c financing may be strictly preferable and a combination of insider and outsider financing may be strictly optimal

regulating an externality generating utility environmental taxes under limited information global warming is currently an important item on most nationalenvironmental agendas in many countries coal fired electricity generatingstations represent an important source of greenhouse gases we examinehow regulations to curb emissions affect public utility pricing regulationwhen regulators act non cooperatively we show that when there is limitedinformation on fixed abatement costs an environmental regulator prefersan emission tax over an output tax or a lump sum environmental tax thepublic utility regulator prefers the lump sum tax regime

the switching effect of environmental taxation within bertrand differentiated duopoly we investigate second best optimal taxation of the polluting variety of a product in a bertrand duopoly with differentiated varieties the analysis provides novel insight on a useful social function of environmental regulation besides internalizing the environmental externality the taxation of the polluting variety improves the matching of consumers and product varieties and so creates a socially desirable business switching between the differentiated varieties

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

public policies pressure groups and dead weight costs abstract this paper presents a model of competition among special interest groups for political influence each active group exerts pressure to affect its taxes and subsidies where activities of different groups are related by the equality between total tax collections and total tax subsidies the dead weight costs and benefits of taxes and subsidies play a major role in our model an increase in the dead weight cost of taxation encourages pressure by taxpayers while an increase in the dead weight costs of subsidies discourages pressure by recipients various applications of the analysis are discussed

the cost of contract renegotiation evidence from the local public sector the renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts however assessing the cost of such renegotiation remains an open issue from an empirical viewpoint to address this question we fit a structural principal agent model with renegotiation on a set of urban transport service contracts the model captures two important features of the industry first only two types of contracts are used in practice fixed price and cost plus second subsidies increase over time we compare a scenario with renegotiation and a hypothetical situation with full commitment we conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators

activism separation of powers and development we consider a model of constitutional mechanism design with separation of powers where different institutions are assigned different tasks in this context we define activism as an institution extending its mechanism of decision making into the domain of other institution s tasks when members of the institutions are likely to be benevolent as well as non benevolent such activism in a limited form reduces the cost of achieving collusion proofness and raises welfare hence the value of such activism can be potentially very high in the context of developing economies but as the fraction of non benevolent member increases such activism turns excessive and reduces welfare it is argued that developing economies are likely to get caught in the excessive activism trap because of the high levels of corruption and bribery

do regulated microfinance institutions achieve better sustainability and outreach cross country evidence in spite of increasing pressure on microfinance institutions mfis operating in developing countries to transform into regulated financial intermediaries to date no study has investigated whether regulated mfis actually achieve better financial results and reach more poor clients than nonregulated mfis this article explores the impact of regulation on mfi performance using newly released data for 114 mfis from 62 countries in an empirical model where performance is specified as a function of mfi specific regulatory macroeconomic and institutional variables consistent with recent cross country evidence on the impact of banking regulations on bank performance barth et al 2004 this article finds that regulatory involvement does not directly affect performance either in terms of operational self sustainability or outreach the article also finds that less leveraged mfis have better sustainability the policy implication is that mfis transformation into regulated financial institutions is may not

accountability and incentives of appointed and elected public officials political agency models suggest that elected public officials choose different policies than appointed officials do this paper is the first a to apply a clean empirical design to study whether t

information and control in ventures and alliances this paper develops a theory of control as a signal of congruence of objectives and applies it to nancial contracting between an investor and a privately informed entrepreneur we show that formal investor control is i increasing in the information asymmetries ex ante ii increasing in the uncertainty surrounding the venture ex post iii decreasing in the entrepreneur s resources and iv increasing in the entrepreneur s incentive consict in contrast real investor control that is actual investor interference is decreasing in information asymmetries control rights are further such that control shifts to the investor in bad states of nature

lobbies delegation and the under investment problem in regulation abstract a time inconsistency problem in regulation often results in under investment especially where there are high sunk costs in network industries such as electricity gas telecommunications and water this paper provides a new perspective on this hold up problem facing the price regulation of a firm with market power where full commitment to a price regime is not possible we compare a political equilibrium based on a voting model with lobbying with a delegation equilibrium where a government can delegate to a particular type of pro or anti industry regulator our analysis suggests two possible ways in which we may observe price regulation that encourages socially optimal investment in the absence of externally imposed regulatory commitment first there is less than total transparency in which voters receive an optimal amount of information and second the decisions on price are delegated to a sufficiently but not excessively pro industry regulator

ambivalent investment and the hold up problem in this paper we add to the foundations of incomplete contracting literature we study the hold up problem with ambivalent investment where investment benefits the investing party if ex post the right decision is undertaken but harms the investing party if the wrong decision is made in this context we show that the power of contracts to provide investment incentives depends on three factors the commitment value of contracts the amount of quasirents that the investing party can expect in the case of out of contract renegotiation and the degree of ambivalence of investment first contracts provide first best investment incentives when parties can commit to a contract regardless of the type of investment second with sufficiently ambivalent investment if parties cannot commit not to renegotiate a contract and if the investing party s bargaining power is intermediate contracts cannot improve investment incentives above those provided by no contract in contrast a simple buyer or seller option contract is optimal when the investing party s bargaining power is extreme jel d23 k12 l22

verifiable and non verifiable anonymous mechanisms for regulating a polluting monopolist abstract optimal regulation of a polluting natural monopolist must correct for both external damages and market power to achieve a social optimum existing non bayesian regulatory methods require knowledge of the demand function while bayesian schemes require knowledge of the underlying cost distribution we introduce mechanisms adapted to use less information our p rice based s ubsidy ps mechanisms give the firm a transfer that matches or approximates the incremental surplus generated each period the regulator need not observe the abatement activity or know the demand cost or damage functions of the firm all of the mechanisms induce the firm to price at marginal social cost either immediately or asymptotically

transaction costs institutional design and the separation of powers abstract the internal organization of the government can be used as a constraint on the capture of political decision makers in a setting where multiple interest groups try to influence policy outcomes centralization i e the choice of a single agency dealing with all interest groups is costly because it induces a better coordination of their influences the choice of specialized agencies is better because it increases the overall transaction costs of capture making agencies more immune to capture by interest groups more generally we discuss how an institutional design relying on separation of powers among specialized agencies may improve policy outcomes

performance versus design standards in the regulation of pollution abstract this paper presents a model of pollution regulation in an oligopolistic market two forms of regulation are considered performance standards which regulate pollution directly by an upper limit on emissions and design standards which regulate pollution indirectly by a minimum usage requirement of an enissions control input equilibria under each regulatory regime are characterized a welfare analysis reveals that performance standards are preferred to design standards if the objective is minimization of emissions plus pollution damage costs however the comparison is indeterminate if the regulator s objective is total surplus less pollution damage an equivalence between emissions taxes and performance standards is established so the above welfare comparisons also apply to emissions taxes versus design standards

should we pay for ecosystem service outputs inputs or both payments for ecosystem service outputs have recently become a popular policy prescription for a range of agri environmental schemes the focus of this paper is on the choice of contract instruments to incentivise the provision of ecosystem service outputs from farms the farmer is better informed than the regulator in terms of hidden information about costs and hidden actions relating to effort the results show that with perfect information the regulator can contract equivalently on inputs or outputs with hidden information input based contracts are more cost effective at reducing the informational rent related to adverse selection than output based contracts mixed contracts are also cost effective especially where one input is not observable such contracts allow the regulator to target variables that are costly to fake as opposed to those prone to moral hazard such as effort further results are given for fixed price contracts and input based contracts with moral hazard the model is extended to include a discussion of repeated contracting and the scope that exists for the regulator to benefit from information revealed by the initial choice of contract the models are applied to a case study of contracting with farmers to protect high biodiversity native vegetation that also provides socially valuable ecosystem services

intertemporal common agency and organizational design how much decentralization abstract in common agency where one agent contracts with several principals to what extent should the principals cooperate and centralize provision of incentives if the agency is over contract complements where an increase in activity for one principal increases the marginal value of contracting with other principals complete centralization seems optimal since this internalizes all externalities we show that this intuition is not generally valid for dynamic agency situations for although centralization provides more accurate incentives to the agent it also aggravates the ratchet effect and this negative effect may dominate the optimal degree of decentralization is discussed and partly characterized

alternative environmental regulation schemes for the belgian power generation sector this paper discusses the effects of alternative waysof using external cost estimates to regulateinvestments and generation in the electricityproduction sector starting from the existing system four alternatives are considered emission taxes forthe utility and for independent producers emissiontaxes limited to the electric utility emissionpermits limited to the electric utility and finally asystem where only investments are regulated anddispatch is not taking external damage estimates fromthe literature these alternatives are compared usinga dynamic partial equilibrium model of the belgianelectricity market for the period 1995 2034 theefficiency and distribution effects of the alternativeenvironmental policy instruments are quantified

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

politicians bureaucrats and targeted redistribution abstract the paper argues that for political reasons elected politicians are more likely to be engaged in targeted redistribution than appointed bureaucrats it uses the example of patronage jobs in the u s local governments to provide empirical support for this claim it shows that the number of public employees is higher for elected chief executives this difference is stronger in public services with bigger private public wage differential and it increases during election years it also finds that the number of public employees increases with the age of bureaucrats while there is no such relationship in the case of politicians which is consistent with younger bureaucrats having stronger career concerns