implementation with contingent contracts we study dominant strategy incentive compatibility in a mechanism design setting with contingent contracts where the payoff of each agent is observed by the principal and can be contracted upon our main focus is on the class of linear contracts one of the most commonly used contingent contracts which consist of a transfer and a flat rate of profit sharing we characterize outcomes implementable by linear contracts and provide a foundation for them by showing that in finite type spaces every social choice function that can be implemented using a more general nonlinear contingent contract can also be implemented using a linear contract we then qualitatively describe the set of implementable outcomes we show that a general class of social welfare criteria can be implemented this class contains social choice functions such as the rawlsian which cannot be implemented using uncontingent transfers under additional conditions we show that only social choice functions in this class are implementable

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

what money canʼt buy efficient mechanism design with costly signals i study the ex ante efficient allocation of a set of quality heterogeneous objects to a number of heterogeneous risk neutral agents agents have independent private values which represent the maximum cost they are willing to sustain to obtain an object of unitary quality the designer faces a trade off between allocative efficiency and cost of screening because the cost sustained is wasted the optimal mechanism ranks agents based on their marginal contribution to social surplus and distributes objects to higher ranked agents the ranking is independent of the scarcity of objects or the extent of their heterogeneity if the hazard rates of the distributions of values are increasing agents are ranked according to their expected values if hazard rates are decreasing and agents are symmetric the objects are allocated to the agents that sustain the highest costs in general optimal mechanisms combine both pooling and screening of values

asymmetric reduced form auctions this paper provides a tractable characterization of feasibility of asymmetric reduced form auctions using this auction design problems can be stated in terms of the reduced form only this allows to solve optimal auction problems when classical solution techniques fail

implementation of reduced form auctions a geometric approach an auction is a mechanism for allocating a single indivisible object to one of several competing bidders the winner is the bidder who is awarded the object the rules of the auction specify two functions the first is the probability with which a bidder wins as a function of everyone s bids the second is the payment each bidder makes to the seller as a function of all the bids and whether or not he wins for instance a first price auction awards the object to the highest bidder with probability one providing there are no tie bids the winner pays his bid and the losers pay nothing the bidders in an auction differ significantly these differences are captured by the bidder s type a type may be the bidder s personal valuation of the object for sale his degree of risk aversion or perhaps his information about the object maskin and riley 1984 discuss a number of different economically meaningful examples of bidder types from the viewpoint of the seller and the other bidders each bidder s type is a random variable in this analysis we confine attention to auctions in which the types are independently and identically distributed according to a known probability distribution the revelation principle asserts that every auction is strategically equivalent to an auction in which bidders bid by announcing their type and no bidder has any incentive to lie such an auction is called an incentive compatible direct auction we will confine our attention to the probability functions for direct auctions and let the incentive compatibility conditions restrict the payment functions each bidder can compute the probability that he wins conditional on his own type by averaging over the types of the other bidders the function relating a bidder s type to his probability of winning is the reduced form of the auction the literature on optimal auctions usually addresses the problem of maximizing expected revenue for the seller for this purpose all the relevant information about the probability function of an auction is contained in its reduced form it is the reduced form that determines each bidder s behavior and hence the seller s expected revenue in a symmetric auction each bidder s reduced form is identical so that expected revenue is a functional defined on reduced forms which are functions of one variable namely types this makes the seller s problem somewhat tractable to design an auction a seller must be able to recognize a reduced form and recover the underlying auction reduced forms satisfy an intuitive feasibility condition given a set of types the

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

optimal allocation with costly verification consider a principal with a good to allocate among a number of agents each of whom wants the good each agent i knows the value the principal receives if he gives the good to i but the principal does not this value need not coincide with the value to i of getting the good the principal can verify the agents private information at a cost but cannot use transfers there are a number of economic environments of interest that roughly correspond to this scenario we discuss a few below how does the principal maximize the expected gain from allocating the good less the costs of verification we characterize optimal mechanisms for such settings we construct an optimal mechanism with a particularly simple structure which we call a favored agent mechanism there is a threshold value and a favored agent say i if each agent other than i reports a value for the good below the threshold then the good goes to the favored agent and no verification is required if some agent other than i reports a value above the threshold then the agent who reports the highest value is checked this agent receives the good if and only if his claims are verified and the good goes to any other agent otherwise in addition we show that every optimal mechanism is essentially a randomization over optimal favored agent mechanisms in this sense we can characterize the

credit constraints credit unions and small scale producers in guatemala abstract efficient and equitable development outcomes may depend in part on whether formal financial institutions leave low wealth producers tightly constrained in their access to credit if so can cooperative institutions efficiently relax these constraints these issues are explored using survey data gathered from 950 small scale producer households in areas of guatemala with market oriented credit unions that mobilize savings and make unsubsidized loans nonprice rationing by banks is found to be common among lower wealth households while credit unions relax credit constraints for a significant portion of those rationed by banks but not the poorest of the study households

the impact of market friendly reforms on credit and land markets in honduras and nicaragua summary this article explores the impacts on credit access and agrarian structure of land market liberalization policies undertaken in honduras and nicaragua during the 1990s like liberalization efforts pursued in many latin american countries these market friendly reforms were designed to activate land transfers and enhance agricultural efficiency in large part by improving the access of the rural poor to both credit and land markets panel data sets gathered in honduras and nicaragua are used to compare title credit and land access patterns before and after the reforms descriptive nonparametric regression analyses show that despite major gains in titling across the land size spectrum and some increase in land market activity the other hoped for improvements in credit and land access did not occur and appear unlikely to occur without further policy attention to credit markets

asset smoothing consumption smoothing and the reproduction of inequality under risk and subsistence constraints abstract a growing literature asks whether low wealth agents can accumulate assets over time or whether they are trapped in poverty this paper develops a stochastic dynamic programming model with endogenous asset price risk to explore savings and portfolio decisions in a resource poor environment characterized by risk and subsistence constraints optimal portfolio strategies are found to bifurcate despite divisible assets and fully rational agents wealthier agents acquire a higher yielding portfolio and pursue conventional consumption smoothing poorer agents acquire a less remunerative portfolio and pursue asset smoothing rather than consumption smoothing asset based risk coping thus results in positive correlation between initial wealth and portfolio rate of return

does supervision matter some hypothesis tests using indian farm level data abstract a model is developed and estimated to test for heterogeneity of family and hired labor in agricultural production and to estimate the impact of employer supervision on the productivity of hired labor plot level data are used from a rice growing village in semi arid tropical india the hypothesis that family and hired labor are homogeneous inputs was rejected results indicate that family member supervision is required to increase hired labor productivity output loss attributable to operating at reduced supervision intensity was greater than 10 on over 40 of the plots

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

land tenure and property rights theory and implications for development policy this article explores the nature of property rights systems their evolution and their effect on resource allocation it is argued that certain institutional arrangements for land rights have evolved in order to reduce uncertainty and increase efficiency in credit as well as in land markets of particular relevance to developing countries the article emphasizes the contribution of public sector infrastructure to effective land rights systems an appendix to the article presents a formal model analyzing the effects of security of land rights on land prices the intensity of cultivation and the use of credit empirical evidence from thailand supports several of the propositions derived from the model

auctions with contingent payments an overview i survey a literature on auctions with contingent payments that is auctions in which payments are allowed to depend on an ex post verifiable variable such as revenues in oil lease auctions based on demarzo et al 2005 i describe a partial ranking of auction revenues for auctions that differ in terms of contract forms pricing rules and seller commitment and why the revenue equivalence theorem does not apply even in an independent private values setup i discuss models that incorporate adverse selection moral hazard competition between auctioneers common values and the sale of multiple units

the happiness of cities florida r mellander c and rentfrow p j the happiness of cities regional studies this research examines the factors that shape the happiness of cities whereas much of the existent literature has focused on the happiness of nations it is argued that in addition to income which has been found to shape national level happiness human capital levels will play an important role in the happiness of cities metropolitan level data from the 2009 gallup healthways survey are used to examine the effects of human capital on city happiness controlling for other factors the findings suggest that human capital plays the central role in the happiness of cities outperforming income and every other variable florida r mellander c and rentfrow p j 2009 gallup healthways florida r melland

limited liability and mechanism design in procurement in the presence of cost uncertainty limited liability introduces the possibility of default in procurement with its associated bankruptcy costs when nancial soundness is not perfectly observable we show that incentive compatibility implies that nancially less sound contractors are selected with higher probability in any feasible mechanism informational rents are associated with unsound nancial situations by selecting the nancially weakest contractor stronger price competition auctions may not only increase the probability of default but also expected rents thus weak conditions are su cient for auctions to be suboptimal in particular we show that pooling rms with higher assets may reduce the cost of procurement even when default is costless for the sponsor

optimal allocation with ex post verification and limited penalties several agents with privately known social values compete for a prize the prize is allocated based on the claims of the agents and the winner is subject to a limited penalty if he makes a false claim if the number of agents is large the optimal mechanism places all agents above a threshold onto a shortlist along with a fraction of agents below the threshold and then allocates the prize to a random agent on the shortlist when the number of agents is small the optimal mechanism allocates the prize to the agent who makes the highest claim but restricts the range of claims above and below

assigning resources to budget constrained agents this article studies different methods of assigning a good to budget constrained agents schemes that assign the good randomly and allow resale may outperform the competitive market in terms of utilitarian efficiency the socially optimal mechanism involves random assignment at a discount an in kind subsidy and a cash incentive to discourage low valuation individuals from claiming the good copyright oxford university press

optimal allocation without transfer payments abstract often an organization or government must allocate goods without collecting payment in return this may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs in this paper we find an optimal mechanism to allocate goods when the designer is benevolent while the designer cannot charge agents he can receive a costly but wasteful signal from them we find conditions for cases in which ignoring these costly signals by giving agents equal share or using lotteries if the goods are indivisible is optimal in other cases those that send the highest signal should receive the goods however we then show that there exist cases where more complicated mechanisms are superior also we show that the optimal mechanism is independent of the scarcity of the goods being allocated

partially verifiable information and mechanism design in a principal agent model with adverse selection we study the implementation of social choice functions when the agent s message space is a correspondence which depends on this true characteristic we characterize such correspondence for which the revelation principle is valid returns must not contradict easily observable elements of the taxpayer s lifestyle in this paper we present a model of two person organizations in which these considerations are important we ask whether the restrictions on fallacious statements inherent in the system are sufficient to achieve the goals of the organization we show that the optimal way of eliciting the agent s response may not be to establish incentives for truthtelling in all instances in our model there is one player the agent who observes the state of the economic system another player the principal takes an action based on the information presented to him by the agent this class of models is often referred to as the principal agent problem in the extensive and growing literature on this problem it has always been assumed that the agent could lie to the principal and therefore that he had to be properly motivated to act at least partially in the principal s interest our formal way of modelling the partial verifiability of information is to introduce the restriction that the agent s responses must lie in a set m o that varies with the true state 0 it is assumed that this set always admits the possibility of responding with the true state the way in which the allowable response set varies with the true state is known to the principal in other respects we retain the usual principal agent formalization in particular the principal is the stackelberg leader in this game he can commit himself to choose a collective action as a function of the message transmitted by the agent whether the variation of the message space with the true observation is purely technological or whether it is induced by the severity of potential actions of the principal

level playing fields and laissez faire postliberal development strategy in inegalitarian agrarian economies focusing on the rural sector in latin america this paper explores the microeconomic linkages between distribution and growth which drive the possible reproduction of rural poverty over time the result of this exploration is a neostructuralist perspective which argues that actually existing laissez faire agrarian economies do not present a level playing field and that low wealth farms face disadvantages which tend to reproduce or even deepen sectoral inequality the paper then tries to identify the sorts of public policy and collective action which might modify the nature of growth and distribution in post liberalization agrarian market economy

implementation with partial provability we extend implementation theory by allowing the social choice function to depend on more than just the preferences of the agents and allowing agents to support their statements with hard evidence we show that a simple condition on evidence is necessary for the implementation of a social choice function f when the preferences of the agents are state independent and sufficient for implementation for any preferences including state dependent with at least three agents if the social planner can perform small monetary transfers beyond those called for by f if transfers can be large f can be implemented in a game with perfect information when there are at least two players under a boundedness assumption for both results transfers only occur out of equilibrium the use of evidence enables implementation which is robust in the sense that the planner needs little information about agents preferences or beliefs and agents need little information about each others preferences our results are robust to evidence forgery at any strictly positive cost

bidding with securities auctions and security design we study security bid auctions in which bidders compete for an asset by bidding with securities that is they offer payments that are contingent on the realized value of the asset being sold the value depends on investment by the winner thus creating the possibility of moral hazard such auctions are commonly used both formally and informally in formal auctions the seller generally restricts bids to an ordered set such as an equity share or royalty rate by restricting the bids standard auction formats such as first and second price auctions can be used in informal settings with competing buyers the seller does not commit to a mechanism upfront rather bidders offer securities and the seller chooses the most attractive bid based on his beliefs ex post we characterize equilibrium payoffs and bidding strategies in this setting and show that an informal mechanism yields the lowest possible revenues across all mechanisms we also determine the optimal formal mechanism and show that the security design is more important than the auction format we show that the revenue equivalence principle that expected revenues are independent of the auction format holds if the set of permissible securities is ordered and convex such as equity otherwise it need not hold for example when bidders offer standard debt securities a second price auction is superior on the other hand if bidders compete on the conversion ratio of convertible debt a first price auction yields higher revenues finally we examine how different forms of moral hazard impact our results

market and non market mechanisms for the optimal allocation of scarce resources a number of identical objects is allocated to a set of privately informed agents agents have linear utility in money the designer wants to assign objects to agents that possess specific traits but the allocation can only be conditioned on the willingness to pay and on observable characteristics i solve for the optimal mechanism the choice between market or non market mechanisms depends on the statistical linkage between characteristics valued by the designer and willingness to pay

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

the relation between farm size and farm productivity the role of family labor supervision and credit constraints abstract the paper shows that if the performance of hired farmhands is affected by supervision from family members and if the availability of credit is dependent on the amount of land owned then a systematic positive or negative relationship between per acre yields and farm size will prevail a model with no supervision effects on labor productivity would predict that yields are unaffected by farm size the paper also investigates the relation between land utilization and owned holding size when land rental possibilities are limited results are shown to be compatible with various observed patterns in ldcs