effect of exporter s incentives on foreign distributor s role performance a foreign distributor s motivation to perform local marketing tasks for an exporter is often poor due to agency conflicts and transaction cost constraints characterizing the export channel while exporters may engage in actions such as offering incentives and overseeing partner activities to improve foreign marketing such intrusions into partner operations often fail to enhance the distributor s role performance drawing on motivation theory the authors develop a model explaining the efficiency of different incentive types in enhancing the distributor s motivational context to act on behalf of the exporter thereby improving relationship quality distributor relationship specific investments and consequently distributor role performance the authors use a sample of 278 european exporters to test hypotheses regarding relationship factors that mediate and moderate the incentive role performance relationship the results indicate that the impact of low powered incentives lpis substitutes for the effect of high powered incentives on relationship quality and specific investments the key mediators driving distributor role performance in addition exporter oversight of distributor activities weakens the effectiveness of lpis to increase distributor specific investment the authors derive implications for designing portfolios of incentives with inferences based on efficiently matching incentive induced motivational context with foreign distributor s actions required to accomplish exporter goals

the form of incentive contracts agency with moral hazard risk neutrality and limited liability the analysis obtains a complete characterization of the optimal agency contract with moral hazard risk neutrality and limited liability we introduce a critical ratio that indicates the returns to providing the agent with incentives for effort in each random state the form of the contract is debt a capped bonus when the critical ratio is increasing decreasing in the state an increasing critical ratio in the state space setting corresponds to the hazard rate order for the reduced form distribution of output which we term the decreasing hazard rate in effort property dhrep the critical ratio also yields insights into agency with adverse selection

almost budget balanced vcg mechanisms to assign multiple objects subsidy free vcg mechanisms assign p identical objects to n agents the efficiency loss is the largest ratio of budget surplus to efficient surplus over all profiles of non negative valuations the smallest efficiency loss l n p satisfies l n p l n n2 43n if pn is bounded away from 12 l n p converges to zero exponentially in n participation is voluntary in the optimal mechanism achieving l n p if p 1 but not if p 2 among voluntary mechanisms the optimal efficiency loss is not significantly larger than l n p if pn 12 but it does not converge to zero in n if pn 12

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

incidents of gray market activity among u s exporters occurrences characteristics and consequences each year the value of gray market products sold throughout the world runs into the billions of dollars past research has stated that exporters of manufactured goods can hardly afford to ignore the possibility of this phenomenon due to the often severe effects on their sales volume margins and relationships with distributors and end users through a survey of export managers of manufacturing firms coupled with a series of qualitative interviews this study investigates how organizational specific control specific and market specific factors drive gray market activity and in turn explores the effects of unauthorized distribution on export performance several factors are shown to evaluate the potential of unauthorized distribution in their export markets namely the centralization of decision making the degree to which the product is standardized channel integration and channel control international experience market volatility and the number of markets served were found to have no effect on gray market activity this contrary to traditional thinking furthermore the effects of gray market activity on strategic versus economic performance is shown to be significantly different each of these issues is discussed in detail along with the implications for export managers

hospital price regulation and expenditure cap policy abstract in several european countries governments have chosen to put a global budget cap on health care expenditure this paper analyzes the strategies of the providers facing this policy and evaluates its effects on provider and patient surplus we consider this policy when it is applied to local monopoly hospitals and when it is applied to hospitals playing as cournot competitors using a two stage model to characterize the optimal expenditure cap policy taking the hospitals optimal responses as given we prove that this policy induces a level of welfare lower than the first best outcome however we show that a second best outcome may be achieved under this policy when the number of hospitals becomes large

enhancing international customer supplier relationships through it resources a study of taiwanese electronics suppliers the growing popularity of outsourcing and offshore partnering activities raises the issue of what strategies are appropriate for firms to successfully manage customer supplier relationships in the international context little has been written about how information technology it systems may impact on international exchange relationships in the present study we report on how suppliers use it as a strategic resource to govern their international exchange relationships with multinational enterprise customers taking the supplier s perspective we propose that two types of it resources it advancement and electronic integration create value for suppliers with respect to innovativeness and market performance we argue that this value creation process is mediated by three specific forms of governance cooperativeness output monitoring and behavior monitoring to test these arguments primary data obtained from 240 taiwanese electronics suppliers are used for hypothesis testing the survey results provide evidence that suppliers it resources enable them to work effectively with their international key customers importantly of the three governance mechanisms cooperativeness has the strongest impact on supplier performance owing to supplier electronic integration post hoc analysis revealed that cultural distance does not play a role in moderating the relationship between it resources and governance mechanisms in international exchange

developing successful trust based international exchange relationships trust is a central construct in relationship marketing yet the literature provides mixed empirical evidence on the trust performance linkage also there is limited research on how to build trusting international buyer seller relations we develop a comprehensive model integrating performance enhancing mechanisms and antecedent processes of trust in import export relationships our survey results from importers trading with overseas manufacturers suggest that existing levels of trust have a positive effect on relationship performance outcomes achieved 1 year later importantly trust takes on greater importance in enhancing performance under conditions of high interdependence whereas in circumstances of low interdependence trust has no discernible effect the findings also indicate that interfirm psychic distance internal uncertainty and exporter transaction specific assets and opportunism are related to importer trust implications for academics and practitioners are addressed

antecedents and performance implications of channel integration in foreign markets this study enhances our understanding of channel integration in foreign markets on two fronts first the eclectic approach to foreign entry mode proposed by hill hwang and kim 1990 and kim and hwang 1992 is used to examine transaction specific organizational capability and strategic factors that influence channel choices in foreign markets empirical results based on survey of u s firms support the combined relevance of these factors in predicting the degree of channel integration second the study empirically examines the performance consequences of channel integration the results suggest that although the degree of channel integration does not have a direct influence on channel performance a contingency model based on the fit between the contextual factors and the actual channel choice is significantly related to performance in foreign markets

behind intermediary performance in export trade transactions agents and resources integrating transaction cost agency and resource based theories this study extends the work of peng and ilinitch 1998 by undertaking the first empirical efforts to explore the determinants of export intermediary performance we suggest that given the transaction cost constraints and principal agent conflicts export intermediaries performance depends on their possession of valuable unique and hard to imitate resources which help minimize their clients transaction and agency costs survey results from 166 firms largely support our hypotheses

bounds on the welfare loss from moral hazard with limited liability we study a principal agent problem with discrete outcome and effort level spaces the principal and the agent are risk neutral and the latter is subject to limited liability quantifying welfare loss as the ratio between the first best social welfare and that arising from the principal s optimal pay for performance contract we provide simple parametric bounds for problem instances with moral hazard relying on that we compute the worst case welfare loss ratio among all problem instances with a fixed number of effort and outcome levels as a function of the number of possible effort levels and the likelihood ratio evaluated at the highest outcome as extensions we look at linear contracts and at cases with multiple identical tasks our work constitutes an initial attempt to quantify the losses arising from moral hazard when the agent is subject to limited liability and shows that these losses are non negligible in the worst case

health economics worldwide i issues in health insurance 1 pricing and imperfections in the medical care market place 2 how can we prevent cream skimming in a competitive health insurance market the great challenge for the 90s 3 the impact of utilization review on costs and utilization 4 the normative and positive economics of minimum health benefits ii criteria for allocating health care resources 1 cost effectiveness analysis of strategies for screening prostatic cancer 2 the validity of the mimic health index some empirical evidence 3 welfare economics and cost utility analysis iii administrative and market allocation in health care 1 excess demand and patient selection for heart and liver transplantation 2 non price allocative procedures scottish solutions to a national health service problem 3 priorities among waiting list patients 4 consumer information price and nonprice competition among hospitals iv health care in the political arena 1 cost containment in health care justification and consequences 2 political economy of hospital financing 3 a pooled cross sectional analysis of the health care expenditure of the oecd countries 4 is there a sisyphus syndrome in health care 5 deaths from gastrointestinal cancer in mexico probable cause for water sampling index of names index of subjects

incentives between firms and within this paper reviews the significant progress in agency theory i e the economic theory of incentives during the 1990s with an eye toward applications to supply transactions i emphasize six recent models in three pairs 1 new foundations for the theory of incentive contracts 2 new directions in incentive theory and 3 new applications to supply transactions by reviewing these six models i hope to establish three things first the theory of incentive contracts needed and received new foundations second new directions in incentive theory teach us that incentive contracts are not the only source of incentives finally and especially relevant to supply transactions the integration decision is an instrument in the incentive problem

of tournaments and temptations an analysis of managerial incentives in the mutual fund industry we test the hypothesis that when their compensation is linked to relative performance managers of investment portfolios likely to end up as losers will manipulate fund risk differently than those managing portfolios likely to be winners an empirical investigation of the performance of 334 growth oriented mutual funds during 1976 to 1991 demonstrates that mid year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid year winners furthermore we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time

a relational model of export performance export performance models anchored in the industrial organization and resource based theories have previously been developed and tested thus far there have been no empirically tested export performance models that have reflected the core tenets of the relational or behavioral paradigm drawing from relational exchange theory a model that includes reciprocal perceptions that relate to both past and future exchanges is developed this model is tested with dyadic data from 125 west east australia thailand exporter importer partnerships reflecting the increasing importance of west east exchange relationships results support the theory s contention that commitment to future exchanges is associated with export performance and is itself driven by a reciprocal cycle of each partner s perception of the other s commitment relationship specific investments and dependence this cycle of commitment is in turn influenced by each partner s trust in the other from past exchanges with different types of trust linked to different types of commitment trust and commitment are then found to be related both to interpersonal factors i e effective communication cultural sensitivity and likeability of partner and to firm factors reputation and competencies of partner

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

bounding the inefficiency of equilibria in nonatomic congestion games abstract equilibria in noncooperative games are typically inefficient as illustrated by the prisoner s dilemma in this paper we quantify this inefficiency by comparing the payoffs of equilibria to the payoffs of a best possible outcome we study a nonatomic version of the congestion games defined by rosenthal int j game theory 2 1973 65 and identify games in which equilibria are approximately optimal in the sense that no other outcome achieves a significantly larger total payoff to the players games in which optimization by individuals approximately optimizes the social good in spite of the lack of coordination between players our results extend previous work on traffic routing games

the price of a price on the crowding out and in of social norms we study the impact of financial incentives on social approval showing that in a society with altruists and egoists who all care about social approval introducing financial incentives to agents to contribute to a socially desirable outcome may actually decrease the number of contributions withdrawing the financial incentive does not restore the norm to contribute and may reduce the level of contributions even further when the norm has disappeared it may be possible to restore voluntary contributions by first introducing high price and then reducing it but such an operation is costly and its success uncertain

limited liability and incentive contracting with multiple projects i examine a principal agent model with multiple projects where a risk neutral manager is protected by limited liability the analysis has several interesting implications i incentive problems are shown to be a natural source of economies of scope as combining multiple projects under the management of a single manager relaxes the limited liability constraint ii as a result managers may be overloaded with work and exert inefficiently high effort and iii the analysis has implications for the optimal allocation of projects to different managers copyright 2001 by the rand corporation

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

optimal health insurance and provider payment the authors derive optimal insurance for patients and payment method for physicians when neither the input decided by the patient quantity of treatment nor the input decided by the physician effort are contractible the equilibrium in this third best regime may sometimes be second best in which both the physician input and the report of treatment are verifiable otherwise truthful reporting forces a third best characterized by provider prospective payment and suboptimal effort while consumers demand becomes excessive the authors also analyze how professional ethics alters the equilibrium finally collusive reporting mechanisms imply more stringent constraints while competition among physicians relaxes them copyright 1997 by american economic association

physician induced demand for childbirths a controversial technique for testing the hypothesis that physicians induce demand involves two stage least squares tsls regression analysis of cross section data on physician supply and utilization this paper tests the power of tsls by applying it where there is at most only a trivial amount of demand inducement the demand for childbirths we find evidence of inducement of childbirths calling into question the validity of the tsls approach this unlikely finding may be traced to at least two factors the first stage regression is not identified and the second stage regression does not adequately address border crossing

drivers of commitment and its impact on performance in cross cultural buyer seller relationships the importer s perspective much of the recent literature on interorganizational relations provides evidence that relationship commitment can produce significant benefits for firms somewhat surprisingly limited attention has been devoted to the role that commitment plays in international buyer seller associations merging findings from the international business and transaction cost economics literature we propose and test a model that explains how commitment develops and its impact on performance in cross cultural interorganizational relations a sample of 216 overseas distributor manufacturer relationships provides the empirical setting for this research the findings suggest that transaction specific investments by the importer and exporter opportunism affect importer commitment and that environmental volatility and cultural sensitivity are indirectly associated with commitment through opportunism most important the study reveals that an importer s commitment has a positive impact on its performance in the relationship however no relationship is established between environmental volatility and commitment the implications of the study are discussed along with limitations and directions for future research

the treadmill effect in a fixed budget system abstract we examine the interaction in the market for physician services when the total budget for reimbursement is fixed physicians obtain points for the services they render at the end of the period the budget is divided by the sum of all points submitted which determines the price per point we show that this retrospective payment system involves compared to a fee for service remuneration system a severe coordination problem which potentially leads to the treadmill effect we argue that when market entry is possible a budget can be efficiency enhancing if in addition a price floor is used

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

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

fiscal year ends and nonlinear incentive contracts the effect on business seasonality salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay these agents therefore have incentive to manipulate prices influence the timing of customer purchases and vary effort over their firms fiscal years this paper empirically establishes results consistent with agents focusing on performance over the fiscal year most notably in addition to varying with the calendar business cycle manufacturing firms sales are higher at the end of the fiscal year and lower at the beginning than they are in the middle further evidence is found in fiscal year price movements and patterns in the industry variation of fiscal year effects

manufacturer governance of foreign distributor relationships do relational norms enhance competitiveness in the export market research on international marketing channels accentuates the importance of relational norms and trust building activities between buyers and sellers indeed cultural and country differences may limit the use and effectiveness of traditional tools such as market incentives and authoritative control that govern the relationship between an exporting manufacturer and its foreign distributor consequently exporting manufacturers need to emphasize relationships with their foreign distributors this research finds evidence that supports both direct and indirect effects between the manufacturer s use of governance via relational norms and its competitiveness in the export market the indirect effect results from the mediating role of trust a finding that makes a key contribution to the understanding of the role of relational governance in cross border relationships

price and capacity competition we study the efficiency of oligopoly equilibria in a model where firms compete over capacities and prices our model economy corresponds to a two stage game first firms choose their capacity levels second after the capacity levels are observed they set prices given the capacities and prices consumers allocate their demands across the firms we establish the existence of pure strategy oligopoly equilibria and characterize the set of equilibria we then investigate the efficiency properties of these equilibria where efficiency is defined as the ratio of surplus in equilibrium relative to the first best we show that efficiency in the worst oligopoly equilibria can be arbitrarily low however if the best oligopoly equilibrium is selected among multiple equilibria the worst case efficiency loss is 2 n 1 n 1 with n firms and this bound is tight we also suggest a simple way of

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

renegotiating moral hazard contracts under limited liability and monotonicity in a principal agent model with unobservable effort and possible renegotiation contracts are assumed to satisfy two natural restrictions limited liability for the agent and monotonicity of payments for the principal the main result is that if the agent has the renegotiation bargaining power any contract is weakly pareto dominated by a debt contract journal of economic literature classification numbers d820 l140 o261