sharing and anti sharing in teams compared to budget balanced sharing contracts anti sharing may improve the eciency of teams the anti sharer collects a fixed payment from all team members he receives the actual output and pays out its value to them if a team members becomes anti sharer he will be unproductive in equilibrium hence internal anti sharing fails to yield the first best outcome anti sharing is more likely to yield a higher team profit than sharing the larger the team the curvature of the production function or the marginal eort cost sharing is more likely to be better the greater the marginal product the cross partials of the production function or the curvature of the eort cost

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

moral hazard in risk averse teams holmstrom 1982 has shown that a non budget balancing contract induces a team of risk neutral agents to choose the first best effort levels this is not generally true when agents are risk averse furthermore a massacre contract which punishes all but one agent when the outcome is low can attain the first best over a wider range of parameters than any other budget balancing contract

adaptation to climate change a review through a development economics lens abstract this paper looks at adaptation to climate change from the point of view of poor households since the development literature has firmly established the role of weather risk as a source of income volatility for the poor and climate change is expected to increase this risk we review the range of risk coping mechanisms available to poorer households with a focus on possible barriers to adaptation we ask both how government interventions affect the set of options available for adaptation and risk coping and also what these adaptive responses imply for the prospects of sustainable development support for adaptation can involve efforts to make existing locations livelihoods and forms of production more resilient to climate risk in situ adaptation or reductions in vulnerability through the geographical and sectoral mobility of the poor transformational adaptation our review shows how successful adaptation will need to strike a balance between the two forms of adaptation avoiding locking in unsustainable practices in locations that are already marginal from an economic perspective and taking account of broader socio economic trends already taking place in many developing countries such as population growth and urbanisation we also highlight important considerations for policy makers which to date have been relatively neglected in the literature in particular related to the dynamic interaction between adaptation and sustainable development

efficiency and equilibria in complementary teams abstract this paper considers a team or partnership where the partners effort levels enter as strict complements in the production function the existence of a linear budget balancing sharing mechanism is demonstrated which implements the team s efficient outcome as a nash equilibrium this result is in contrast to a result derived in holmstrom 1982

voting and optimal provision of a public good in this paper we study the optimal provision of a costly public good using an average efficiency criterion for every fixed cost we identify a quota mechanism as the optimal mechanism among those that are dominant incentive compatible deficit free and kind moreover we also consider the asymmetric case and demonstrate that a committee mechanism is optimal for a large class of mechanisms in particular this mechanism dominates all vcg pivotal mechanisms

optimal sales force diversification and group incentive payments in this research we show that the interaction between territory allocation and sales force compensation two key drivers of sales productivity strongly affects the firm s profitability we analyze an agency theoretic model that jointly considers the degree of negative or positive correlation across territory outcomes differences in territories sales potentials the agency problem with risk averse salespeople and the availability of both own territory compensation elements such as commission and elements dependent on the performance of others such as group commissions or tournaments we find that allocating salespeople to negatively correlated sales territories beneficially diversifies each salesperson s portfolio of sales outcomes when this allocation includes a group commission pay component and can improve profitability even with a decrease in average territory sales performance in a larger sales force a balanced allocation of salespeople coupled with a group commission dominates an imbalanced allocation comparing piece rate compensation with or without a group commission component to tournaments alongside the allocation problem we find that tournaments are favored over piece rate plans when territories are highly positively correlated territory sales potentials are similar and salespeople have a low disutility for effort and are not very risk averse a piece rate plan conversely dominates a tournament when these conditions are reversed

dynamic production teams with strategic behavior abstract we analyze if intergenerational teams reveal workers productivities some uncertainty on agents productivities persists when i each agent must work independently or ii technological shocks are agent specific in compulsory teams however when technological shocks are team specific in compulsory teams each worker s productivity is revealed when agents choose to work independently or in teams that problem falls in the class of dynamic games elective teams are preferred by high productivity young workers when the technological shocks are agent specific and maximize the expected utility of a young worker when shocks are team specific

nonpoint pollution control inducing first best outcomes through the use of threats abstract this paper develops an economic model to analyze the use of a policy that combines a voluntary approach to controlling nonpoint source pollution with a background threat of an ambient tax if the voluntary approach is unsuccessful in meeting a pre specified environmental goal we show that such a policy can be designed to induce cost minimizing abatement without actually imposing the tax because the threat of imposition of the tax is sufficient to induce voluntary compliance thus the combined policy approach can not only be more effective in protecting environmental quality than a pure voluntary approach but can also be less costly than a pure ambient tax approach however whether the cost minimizing choices are a unique equilibrium or not depends on the design of the tax policy and whether or not it can be applied retroactively all results still hold if the background threat takes the form of a reducing in government subsidies

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

weathering climate change some simple rules to guide adaptation decisions this paper discusses some of the elements that may characterise an efficient strategy to adapt to a changing climate such a strategy will have to reflect the long time horizon of and the prevailing uncertainties about climate change an intuitively appealing approach therefore seems to be to enhance the flexibility and resilience of systems to react to and cope with climate shocks and extremes as well as to improve information in addition in the case of quasi irreversible investments with a long lifetime e g infrastructure investments development of coastal zones precautionary adjustments may be called for to increase the robustness of structures or to increase the rate of depreciation to allow for earlier replacement many of these measures may already have to be considered now and could be worthwhile in their own right independent of climate change considerations

implementing just and efficient decision making in an economy with one public good one private good and quasi linear utilities we explore decision making mechanisms to non cooperatively implement an efficient outcome by auctioning the leadership role among agents one implements egalitarianism namely the efficient outcome that distributes equally the surplus available from an a priori given status quo a refinement of this mechanism so called autioning the leadership with differentiated buds allows us to implement an efficient anonymous and neutral outcome it achieves egalitarianism above the vickrey clarke groves decision

learning dynamics for mechanism design an experimental comparison of public goods mechanisms in a repeated interaction public goods economy incomplete information and dynamic behavior may affect the realized outcomes of mechanisms known to be efficient in a complete information oneshot game an experimental test of five public goods mechanisms indicates that subjects with private information appear to best respond to recent observations this provides predictions about which mechanisms will generate convergence to their efficient equilibrium allocations these predictions match the experimental result that globally stable efficient mechanisms realize the highest efficiency in practice the simplicity of the suggested best response model makes it useful in predicting stability of mechanisms not yet tested

diversification strategies and adaptation deficit evidence from rural communities in niger summary the paper provides fresh empirical evidence on the adaptation process in niger rural communities using original longitudinal socio economic panel data merged with granular geo referenced climatic information we identify the main drivers and impacts of crop and labor diversification which constitute two livelihood strategies on moderating the adaptation deficit in doing so we account for the interdependence between the two diversification practices and potential reverse causality between welfare outcomes and diversification behavior moreover we condition the impacts of diversification on different sections of the welfare distribution to capture potential non linear effects our results reveal that the diversification has positive and significant welfare impacts when most vulnerable households rely on it as an adaptation strategy to mid run climate variability and as a coping strategy to short run market shocks at the same time our results find lower but still positive impacts for well endowed households that are likely to diversify their activity portfolio given the very limited presence of policy support we conclude that the rural nigerien communities are characterized by a large and autonomous adaptation response which constitutes a key leverage mechanism for policy makers we thus suggest government interventions aimed at supporting the most important diversification drivers but also aimed at straightening some channels such as network infrastructures or the promotion of local crop varieties which may have a greater potential in triggering diversification

optimal mechanism design with resale via bargaining abstract in this paper we examine the optimal mechanism design of selling an indivisible object to one regular buyer and one publicly known buyer where inter buyer resale cannot be prohibited the resale market is modeled as a stochastic ultimatum bargaining game between the two buyers we fully characterize an optimal mechanism under general conditions surprisingly in this optimal mechanism the seller never allocates the object to the regular buyer regardless of his bargaining power in the resale market the seller sells only to the publicly known buyer and reveals no additional information to the resale market the possibility of resale causes the seller to sometimes hold back the object which under our setup is never optimal if resale is prohibited we find that the seller s revenue is increasing in the publicly known buyer s bargaining power in the resale market when the publicly known buyer has full bargaining power myerson s optimal revenue is achieved when the publicly known buyer has no bargaining power a conditionally efficient mechanism prevails

a model of a team contest with an application to incentives under list proportional representation abstract we develop a model of a team contest for multiple indivisible prizes team members exert costly effort to improve their team s success we analyze two intrateam allocation rules under a list rule prizes are allocated according to a predetermined list under an egalitarian rule prizes are allocated according to a fair lottery we show that which allocation rule maximizes team success depends on the degree of complementarity between members efforts and the convexity of the individual cost of effort function we then apply the model to the context of elections under proportional representation with both open and closed lists we derive conditions under which closed lists generate stronger incentives than open lists our results offer a rationale for the lack of evidence on the negative incentive effects of closed lists

non excludable public good experiments we conduct a two stage game experiment with a non excludable public good in the first stage two subjects choose simultaneously whether or not they commit to contributing nothing to provide a pure public good in the second stage knowing the other subject s commitment decision subjects who did not commit in the first stage choose contributions to the public good we found no support for the evolutionary stable strategy equilibrium and the ratio of subjects who did not commit to contributing nothing increased as periods advanced that is the free riding rate declined over time furthermore this behavior did not arise due to altruism or kindness among subjects but from spiteful behavior of subjects

a voluntary participation game with a non excludable public good faculty of economics tokyo metropolitan university hachioji tokyo 192 0397 japanyamato takehiko c metro u ac jpreceived november 14 1997 revised august 21 1998in the previous mechanism design on public goods it was implicitly assumed thatevery agent must participate in the mechanism that the designer provides thisapproach neglects non excludability of public goods we explicitly incorporatenon excludability and examine a two stage game with voluntary participation inthe first stage each agent simultaneously decides whether she participates in themechanism or not and in the second stage knowing the other agents participationdecisions the agents who selected participation in the first stage choose theirstrategies participation of all agents is not an equilibrium in many situations journal of economic literature classification numbers c72 d71 d78 h41

moral hazard and optimal contract form for r d cooperation abstract this paper aims to explain the use of different governance modes for r d cooperation we argue that ex ante cross licensing agreements are preferred to r d joint ventures if potential synergy effects are negligible and the double moral hazard problem caused by unobservable r d effort can be solved by an appropriate royalty scheme it is shown that the first best effort decisions are implementable by a cross licensing agreement if royalty payments are based on r d success however if the payments have to be based on actual know how transfer because r d success is not verifiable there are cases where joint ventures are necessary to induce optimal r d effort

optimal technology policy under asymmetric information in a research joint venture abstract we analyze the optimal technology policy to solve a free riding problem between the members of an rjv assuming that government intervention is subject to an additional adverse selection problem caused by its inability to distinguish the value of the potential innovation although subsidies and monitoring may be equivalent policy tools to solve firms free riding problem they imply different social losses if the government is not able to distinguish perfectly the value of the potential innovation the advantage of monitoring tools relative to subsidies is proved to depend on which type of information the government can obtain about firms r d performance

the impact of china s economic reforms on agricultural productivity growth this paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post 1978 increase in china s agricultural productivity data on post 1978 chinese agricultural performance suggest that a little over three quarters of the measured productivity increase is due to payment system changes and the remainder to price increases we also use our method to calculate incentive indices giving an estimate of the fraction of their marginal product that peasants received under the pre 1978 regime

optimal vcg mechanisms to assign multiple bads for the problem of assigning economic bads for example costly tasks or undesirable objects vickrey clarke groves vcg mechanisms achieve efficient allocations via money transfers however they can produce arbitrarily large budget surpluses or deficits we construct a performance index for a vcg mechanism to measure its budget surplus and deficit in the worst case using this index we develop mechanisms whose surpluses or deficits vanish as the number of participants increases for both cases of bads and goods we find that individual rationality creates an asymmetry between surplus and deficit particularly in the case of bads when the number of agents is large enough a minute amount of deficit can replace unit surplus to achieve a budget balance for the case of economic goods unit surplus can only be replaced with unit deficit regardless of individual rationality this result shows that the model with bads differs fundamentally from the model with goods

the effects of optimism bias in teams this article imports a behavioural perspective into a team context to study the effort coordination problem among agents specifically we investigate how the presence of optimism bias impacts the severity of the free rider problem the organizational structure of the team and the compensation contracts offered to agents in equilibrium the results indicate that all agents become more reluctant to exert effort and the team welfare decreases when some of its agents are optimistic suggesting that optimism aggravates the free rider problem in teams appointing a team leader makes all agents work harder and the team benefits more by having the optimistic agent as its leader these findings are in sharp contrast to the effects of overconfidence as identified in the literature it is advisable to pay the optimistic agents less than the rational agents encouragingly optimistic agents can learn about their own bias in the long run leaving their team without too much detriment of optimism

asymmetric treatment of identical agents in teams abstract we investigate when identical agents will be treated asymmetrically in a simple team setting asymmetric treatment is optimal when the agents individual contributions to team performance are strategic complements symmetric treatment of identical agents is optimal when the agents contributions are strategic substitutes or when they are independent

characterizations of the pivotal mechanism the pivotal mechanism is strategyproof demand revealing in public decision problems where preferences are quasi linear moreover no agent has an incentive to free ride by withdrawing from the committee and consuming whatever decision is taken by the remaining agents strategyproofness plus no free ride characterize the pivotal mechanism this mechanism is anonymous and neutral yet together strategyproofness anonymity and neutrality do not characterize it they will however if reasonable lower or upper bounds on final utilities are imposed our last characterization of the pivotal mechanism uses the no free ride axiom and two mild monotonicity properties but not strategyproofness

the damage costs of climate change towards a dynamic representation economic assessments of climate change impacts are commonly presented as the effect of a climate change associated with a doubling of the atmospheric concentration of carbon dioxide on the current economy this paper is an attempt to express impact as a function of both climate change and socio economic change with regard to climate change issues discussed are level versus rate of change speed of adaptation speed of restoration and value adjustment and symmetry with regard to socio economic change agriculture migration and the valuation of intangible losses are addressed uncertainty and higher order impacts are treated briefly it is qualitatively argued and quantitatively illustrated that these issues matter a great deal for the damage profile over the next century a damage model based on my best guesses is presented in the appendix

difference form contests and the robustness of all pay auctions abstract in much of the existing literature on rent seeking games the outcome of the contest is either infinitely sensitive or relatively insensitive to contestants efforts the current paper presents a family of contest games that permit characterization of equilibrium for all levels of sensitivity of the outcome to contestants efforts specifically the outcome of the contest depends on the difference between efforts which encompass the lottery and the all pay auction as polar cases the equilibrium converges to that of the all pay auction as the probability of winning the prize grows infinitely sensitive to one s effort and the main qualitative features of equilibrium persist over a large parameter region journal of economic literature classification numbers d44 d72

incentives and the structure of teams abstract this paper studies the relationship between moral hazard and the matching structure of teams we show that team incentive problems may generate monotone matching predictions in the absence of complementarities in the production technology second we analyze how complementarity in the underlying technology affects the matching predictions arising due to moral hazard we find that i even when the production technology is strongly complementary the incentive problem may lead to formation of negatively sorted teams ii as the degree of complementarity increases the optimal matching structure may switch from positive to negative solely due to the need to provide incentives

the timing and strategic role of self protection self protection has private goods characteristics as it reduces own exposure to pollution given a certain level of pollution we study the effect of timing self protection before after or simultaneously with abatement we find that self protection when timed before abatements has strategic effects in this case self protection shifts the second stage subgame perfect nash equilibrium of abatements such that own contributions of abatement are decreased and those of the other country are increased thereby shifting future abatement costs to the other country when countries cooperate only on abatement the incentives to shift future abatement costs are greater contrary to intention cooperation on abatement may in fact worsen environmental quality if it does not include self protection

optimal contracts for teams in a team subject to both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed optimal contracts are under certain conditions linear in the team s output the outcome is the same whether the principal observes just the total output or each individual s contribution thus monitoring is not needed to prevent shirking by team members instead the role of monitoring is to discipline the monitor production is a collective enterprise by workers in a firm or firms in a joint venture the synergy that is the reason for the team s existence may mean that an individual s contribution to the team s output is not distinguishable so that it is impossible to pay him according to his own productivity how should the principal remunerate the team members so as to maximize his own profit in this paper we analyze incentives in teams with asymmetric information both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed directly holmstrom 1982 showed that in a team model with moral hazard the principal can ensure an outcome arbitrarily close to the full information ideal by using a contract that punishes each team member arbitrarily severely whenever team output falls below some target however this seems to be an unrealistically drastic way of solving the moral hazard problem in our model we in effect prevent the principal from using such a contract by introducing adverse selection in addition to moral hazard and by assuming that ability and effort interact in such a way that the principal is unable to disentangle an agent s effort from his ability under the assumption that the principal and the team members are risk neutral we shall show that the principal can implement his information constrained optimum simply by offering each agent a payment linear in the team s output although the essential feature of our analysis is the interaction between adverse selection and moral hazard this result can be understood by first considering the special case in which the agents abilities are common knowledge in this case the moral hazard problem can be completely solved the principal can do as well as he

toward an economic theory of leadership leading by example this paper explores leadership within organizations leadership is distinct from authority because following a leader is a voluntary rather than coerced activity of the followers this paper considers how a leader induces rational agents to follow her in situations when the leader has incentives to mislead them copyright 1998 by american economic association

group decision making theory and behavior under performance based water quality payments abstract two theoretical models explaining group allocation decisions under watershed level performance based payments are explored i reward and penalize individual contributors and ii reduce the problem with cost sharing and cooperative abatement under model i an optimal amount of pollution from individual contributors can be achieved with proper payment incentive and group allocation formula model ii represents a cost effective solution to pollution reduction where the group optimizes its return from group payments but does not necessarily achieve an optimal level of pollution field experiment observations support farmer behavior closer to model ii

strategic incentives in teams implications of returns to scale this article demonstrates the critical relationship between the characteristics of the production function and the strategic incentives in a team equilibrium effort increases in team size when substitutability is low relative to returns to scale effort levels are actually strategic complements when returns to scale exceed the substitutability of members effort moreover even with equal shares the well known problem is determined by returns to scale and becomes worse as returns increase while a target scheme can support the optimal output level as an equilibrium it does not completely deter free riding a team member will accommodate shirking by increasing their own effort within a remarkably large accommodation zone where the additional effort cost is less than the bonus this accommodation of shirking by others exists for different returns to scale and even for very low levels of substitutability

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

the moral hazard of budget breaking it has recently been suggested in the agency literature that moral hazard in teams can be dealt with by introducing a third party who breaks the budget balancing constraint and that this facilitates the design of contracts that can sustain the pareto optimum as a perfect nash equilibrium this note offers an explanation for why the use of budget breaking schemes is not so widespread as that of active monitoring despite the fact that such schemes would save the resources expended on supervision the note demonstrates that allowing the budget to be broken introduces the potential for moral hazard on the part of the third party which could render the proposed equilibrium incredible

deregulation and quality abstract this paper analyses within a static model the effect of quality concern on optimal market structure it focuses on cases where industry quality has public good like features and is not contractible it is shown that the introduction of competition raises a free rider problem which depresses quality the smaller producer free rides on its competitor investment which as a result underinvests to encourage the efficient producer to provide quality the regulator diminishes the market share of the opportunistic producer and chooses more often a monopoly however when quality is verifiable the introduction of competition entails no welfare loss whether the regulator observes total quality outcome or individual contributions

a theory of the optimal cost barrier to corporate takeovers this paper characterizes financial and employment contracts in the presence of both worker moral hazard and the threat of opportunistic takeovers firms in which worker efforts or specific investments are of greater importance are shown to exhibit a greater degree of deferred compensation supported by governance structures that allow managers to resist hostile takeovers more vigorously this effect is most pronounced in firms where workers pay for their job by accepting low wages early in their careers firms in which large deferred payments cannot be offset by low starting wages will offer less resistance to a hostile bidder copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

efficiency in sequential partnerships abstract we consider sequential partnerships in which agents obtain non verifiable information about the actions taken by previous agents for such partnerships a budget balanced sharing rule exists that induces efficient production the sharing rule has many desirable features 1 it uniquely implements efficient production 2 it does not rely on message games 3 it does not rely on unlimited liability and 4 it is robust to renegotiation the rule is furthermore simple intuitive and robust to sabotage coalition formation and noise it also induces efficient production when agents obtain incomplete information about previous actions journal of economic literature classificationnumbers d82 l23

start ups venture capitalists and the capital gains tax a model of start up finance with double moral hazard is proposed entrepreneurs have ideas and technical competence but lack own resources as well as commercial experience venture capitalists vcs provide start up finance and managerial support both types of agents thus jointly contribute to the firm s success but neither type s effort is verifiable we find that the market equilibrium is biased towards inefficiently low entrepreneurial effort and venture capital support in this situation the capital gains tax is particularly harmful the introduction of a small tax impairs effort and advice and leads to a first order welfare loss several other policies towards venture capital and start up entrepreneurship are also investigated

output and wages with inequality averse agents we analyze a two task work environment with risk neutral but inequality averse individuals for the agent employed in task 2 eort is verifiable while in task 1 it is not accordingly agent 1 receives an incentive contract which due to his wealth constraint leads to a rent that the other agent resents we show that greater inequality aversion unambiguously decreases total output and therefore average labor productivity more specifically inequality aversion reduces eort wage

the separability axiom and equal sharing methods a quasi linear social choice problem is defined as selecting one among finitely many indivisible public decision and a vector of monetary transfers among agents to cover the cost of this decision this decision is based upon individual preferences which are assumed to be additively separable and linear in money the separability axiom is a consistency property for choice methods on societies with variable size the decision is not affected if we remove an arbitrary agent under the condition that he be guaranteed his original utility level and the cost to the remaining agents is modified accordingly thus the utility level assigned by the social choice function to agent i is the price at which the other agents are unanimously willing to buy agent is share of the decision power a general characterization of choice methods satisfying this axiom is provided three subclasses of particular interest are characterized by additional milder axioms those are i equal sharing of the surplus left over some reference utility e g the utility at a status quo decision ii utilitarian methods that merely select the efficient public decision and perform no monetary transfers and iii equal allocation of nonseparable costs which divides equally the surplus left over from the utility derived from the pivotal mechanism also known as the vickrey clarke groves mechanism

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives

climate change and insurance a critical appraisal several issues relating to insurance and the damage costs of climate change are discussed it is argued that the option of insuring climate change is severely limited because the associated damages are hardly quantifiable and little diversifiable in addition binding contracts are a problem on long time scales and in an international context hedging consumption smoothing over time precautionary investments and liability are not to be presented under the heading of insurance not only because this unnecessarily and confusingly expands the traditional definition of insurance but also because this could create a false sense of security the impact of climate change on the profitability of the commercial insurance sector is not likely to be severe as the insurance companies are capable of shifting changed risks to the insured provided that they are properly and timely informed on the consequences of climate change

all sorry to disagree a general principle for the provision of non rival goods a group of agents with identical rights but different preferences share the cost of a public good in a situation where each agent is held responsible for his own preferences the principle says that nobody can benefit from the difference between his and other agents preferences all are sorry to disagree this axiom is incompatible with the pay according to benefits approach and in particular with lindahl pricing methods however it is compatible with foley s stand alone core constraints the author s axiom unlike the stand alone properties applies to any number of public goods or bads and to arbitrary public decisions copyright 1992 by the editors of the scandinavian journal of economics

coordinating research through research joint ventures abstract in a simple model we show that a joint venture can implement the rates of investment that maximize joint profit when firms research abilities are private information this can be done with budget balance even though there are participation constraints there is no conflict between budget balance and participation constraints because firms payoffs can depend on ex post signals of abilities the conflict between budget balance and participation constraints is restored when both abilities and rates of investment are unobservable we give a condition under which the profit maximizing rates of investment can be implemented if we relax budget balance

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

optimal contracts for teams a note on the results of mcafee and mcmillan in a team subject to adverse selection and moral hazard r p mcafee and j macmillan 1991 found surprisingly that under certain conditions the outcome is unaffected whether the principal observes only total output or whether the principal can observe each person s individual contribution to the production of the output this leads mcafee and macmillan to conclude that the purpose of monitoring is to discipline the monitor however when team members are risk averse the principal can benefit by monitoring copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

project characteristics incentives and team production we develop a model to show how agency conflicts free rider effects and monitoring costs interact to affect optimal team size and workers incentive contracts team size increases with project risk decreases with profitability and decreases with monitoring costs as a proportion of output our predictions are consistent with empirical evidence that firm specific risk has increased over time average corporate earnings have declined and firms organizational structures have also flattened the predicted effects of monitoring costs on team size are supported by evidence that improvements in information technology likely to lower monitoring costs lead to larger teams further firms with relatively more intangible assets where monitoring costs are likely to be higher are smaller optimal incentive intensities decrease with risk and increase with profitability the endogenous determination of team size accentuates the positive effects of a decline in risk and an increase in profitability on incentives

regulation via the polluter pays principle we consider the problem of regulating an economy with environmental pollution we examine the distributional impact of the polluter pays pp principle which requires that any agent compensates all other agents for the damages caused by his or her pollution emissions with constant marginal damages we show that regulation via the pp principle leads to the unique welfare distribution that induces non negative individual welfare change and renders each agent responsible for his or her pollution impact we extend both the pp principle and this result to increasing marginal damages due to pollution we also compare the pp principle with the vickrey clark groves scheme

regulating multiple polluters deterrence and liability allocation we conisicler regulation of multiple polluters when inidividual emissions are uniobservable the tension between pollution deterrence and funding of remediation is examined under two constraints that penalty revenues fully fund remediation costs and that the regulator cannot make positive transfers to firms to isolate the effect of increasinig the niumber of polluters we compare an industiy consisting of a single large firm with one in which many small firms in aggregate mimic the large firm contrary to previous findings both the number of firms and the ability to monitor individual firms affect the welfare of a large class of regulators

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

team production in competitive labor markets with adverse selection abstract team production is a frequent feature of modern organizations combined with team incentives team production can create externalities among workers since their utility upon accepting a contract depends on their team s performance and therefore on their colleagues productivity we study the effects of such externalities in a competitive labor market if workers have private information on their productivity we find that in any competitive equilibrium there must be pareto efficient separation of workers according to their productivity we further find that externalities facilitate equilibrium existence where under a particular condition on workers indifference curves even arbitrarily small externalities guarantee equilibrium existence