bonus culture competitive pay screening and multitasking to analyze the impact of labor market competition on the structure of compensation we embed multitasking and screening within a hotelling framework competition for talent leads to an escalation of performance pay shifting effort away from long term investments risk management and cooperation efficiency losses can exceed those from a single principal who dulls incentives to extract rents as competition intensifies monopsonistic underincentivization of low skill agents first decreases and then gives way to growing overincentivization of high skill ones aggregate welfare is thus hill shaped while inequality tends to rise monotonically bonus caps can help restore balance in incentives but may generate other distortions

quality competition with motivated providers and sluggish demand we study incentives for quality provision in markets where providers are motivated semi altruistic prices are regulated and firms are funded by a combination of block grants and unit prices competition is based on quality and demand adjusts sluggishly health or education are sectors in which the mentioned features are the rule we show that the presence of motivated providers makes dynamic competition tougher resulting in higher steady state levels of quality in the closed loop solution than in the benchmark open loop solution if the price is sufficiently high however this result is reversed if the price is sufficiently low and below unit costs sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady state quality prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated

the motivation and bias of bureaucrats many individuals are motivated to exert effort because they care about their jobs rather than because there are monetary consequences to their actions the intrinsic motivation of bureaucrats is the focus of this paper and three primary results are shown first bureaucrats should be biased second sometimes this bias takes the form of advocating for their clients more than would their principal while in other cases they are more hostile to their interests for a range of bureaucracies those who are biased against clients lead to more efficient outcomes third self selection need not produce the desired bias instead selection to bureaucracies is likely to be bifurcated in the sense that it becomes composed of those who are most preferred by the principal and those who are least preferred

watchdogs of the invisible hand ngo monitoring and industry equilibrium globalization has been accompanied by rising pressure from advocacy non governmental organizations ngos on multinational firms to act in socially responsible manner we analyze how ngo pressure interacts with industry structure using a simple model of ngo firm interaction embedded in an industry environment with endogenous markups and entry we explain three key empirical patterns in developing country industries under activist pressure the degree of exit under more intense activist pressure the differential response of industries to ngo activism and the general rise of ngo activism following globalization

competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

management of bureaucrats and public service delivery evidence from the nigerian civil service we study how the management practices bureaucrats operate under relate to the quantity and quality of public services delivered we do so exploiting data from the nigerian civil service for 4700 public sector projects we have hand coded independent engineering assessments of project completion rates and delivered quality we supplement this with a survey eliciting management practices for bureaucrats in the 63 civil service organizations responsible for these projects building on bloom and van reenen 2007 management practices matter a one standard deviation increase in bureaucrat s autonomy signi cantly increases project completion rates by 18 a one standard deviation increase in practices related to incentives monitoring of bureaucrats signi cantly lowers project completion rates by 14 we show the negative impacts of incentive provision monitoring arise because bureaucrats multi task and incentives are poorly targeted and because these management practices capture elements of subjective performance evaluation that leave scope for dysfunctional responses from bureaucrats to support a causal interpretation of our ndings we document the determinants of management practices and examine channels through which organizations might endogenously adjust management practices our results provide novel insights into how changes in how bureaucrats are managed can have potentially large impacts on public service delivery in a developing country context jel classi cation j33 j38 o20

resale price maintenance and collusion the article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude we analyze the scope for collusion with and without resale price maintenance rpm when retailers observe local shocks on demand or retail costs in the absence of rpm retail prices react to retailers information and deviations from collusive behavior are thus difficult to detect by eliminating retail price flexibility rpm facilitates the detection of deviations but reduces profits and thus increases the short run gains from a deviation overall rpm can facilitate collusion and reduce total welfare when firms adopt it

productivity in public services abstract this paper discusses issues arising in the measurement of productivity in public services compared to measuring productivity in the private sector difficulties arise because the output of public services is often unpriced and because some public services are consumed collectively a key problem is measuring the full range of outputs and quality improvements delivered by public sector organizations that are valued by society without comprehensive measures of output productivity statistics may be misleading i outline methods used in the measurement of both private and public sector productivity and discuss the measurement of public sector productivity in practice finally i discuss studies that examine factors underlying productivity differences and productivity growth in public and private sector organizations public sector reforms and the use of pilot schemes in public sector organizations present opportunities for research to identify causal effects on productivity

selfish bakers caring nurses a model of work motivation abstract work contributes to people s self image in important ways we propose a model in which effort is unobservable and where individuals have a preference for being important to others this gives the following predictions 1 if a worker s effort is paid by his marginal productivity bakers effort is just like in the standard model 2 if a worker s wage is unaffected by his effort nurses more effort is provided than in the standard model 3 to prevent that shirkers become nurses nurses wages must be kept strictly lower than bakers income at this wage level there will be too few nurses 4 overinvestment in nursing equipment can be justified as a means to attract motivated nurses 5 even with full income compensation both nurses and bakers may experience a net utility loss when losing their job 6 similarly both nurses and bakers may prefer work to welfare even with full income compensation

the expected utility hypothesis as immunity against the legal utilization of the money pump and underachiever methods the expected utility hypothesis is somewhat controversial not only has it met difficulty in experimental studies 2 but its theoretical status and traditional defense have been questioned 6 3 in particular the argument that non linear preferences allow an individual to make book against himself has been refined in green 3 green shows that an individual whose preferences are not quasi convex can be manipulated into making book against himself but an individual with quasiconvex preferences that are not linear will not make book against himself even though his choices are subject to certain infelicities 3 the present paper applies green s model and the expected utility hypothesis to the administrator of a government institution instead of an individual who is being manipulated as in green 3 we assume that the administrator attempts to exploit the institution for his own benefit expected utility theory is customarily aimed at describing individual choice under uncertainty while the scope of this paper is public choice rather than individual choice we adopt individual choice theory for our analysis with the following situations in mind i the administrator controls the institution s actions in a particular matter ii the administrator technically lacks authority as in i but the limitations on his control are just a formality for example in practice the administrator makes a recommendation and someone else rubber stamps it iii the administrator does not control the institution s actions but he influences them and his influence is important enough to study for example a united states senator cannot simply enact laws at his pleasure but his influence is still a matter of importance we will concentrate on the cases where as a practical matter the administrator has control of a particular action of the institution 4 to simplify exposition in this context we will speak of an administrator running an institution

quality competition with profit constraints abstract firms in markets such as health care and education are often profit constrained due to regulation or their non profit status and they are often viewed as being altruistic towards consumers we use a spatial competition framework to study incentives for cost containment and quality provision by altruistic firms facing profit constraints if prices are regulated profit constraints lead to lower cost containment efforts but higher quality if and only if firms are sufficiently altruistic under price competition profit constraints reduce quality and cost containment efforts but lead to lower prices if and only if firms are sufficiently altruistic profit constrained firms cost containment efforts are below the first best while their quality might be too high or too low if prices are regulated profit constraints can improve welfare and be a complement or substitute to a higher regulated price depending on the degree of altruism

the competitive effects of resale price maintenance the competitive effects of resale price maintenance rpm are theoretically diverse rpm can cause allocation distortions or promote productive efficiencies in the distribution process moreover extant cross sectional empirical evidence is incapable of distinguishing among the potentially disparate effects of rpm this paper conducts hypothesis tests of the alternative theories of rpm the empirical framework relates estimates of the effects of rpm for a cross section of observations to necessary conditions of the alternative models this analysis indicates that rpm is used both to foster cartels and promote efficiencies in the distribution process this result is consistent with the growing body of case study analysis that suggests that rpm is used for a variety of reasons this result also questions the current per se illegal status of rpm in the antitrust laws evidence is also provided concerning the strategic interaction between manufacturers and dealers in the distribution process and the use of financial data in analyzing propositions in industrial organization

incentives for motivated agents under an administrative constraint consider an agent who has an expertise in producing a non marketable good this good is valued by a single principal and there is a verifiable measure of the agent s performance crucially the agent is intrinsically motivated due to warm glow altruism in addition the agent s budget which is controlled by the principal must not be less than the monetary performance cost faced by the agent this gives rise to a limited liability constraint it also restricts the agent s ability to under report costs in such environment we determine the link between the agent s budget and performance our results come in contrast to the received solution of the principal agent problem and to most in the literature on mission motivated organisations and public services provision

social labeling by competing ngos a model with multiple issues and entry in many settings firms rely on nongovernmental organizations ngos to certify prosocial attributes embodied in their products we provide a model of competition between ngos in the provision of labeling services competition between a fixed number of ngos features a race to the top in labeling standards but entry of ngos offering new labels pushes standards down in a wide range of settings ngo entry and competition results in too many labels being adopted with each label being too stringent compared to a setting in which firms can credibly communicate the social attributes of their products labels demand greater prosocial behavior than is desired by firms although with proliferation of the number of labels this discrepancy disappears in contrast to existing models firms may engage in excessive corporate social responsibility when they rely on an ngo as a certifying intermediary this paper was accepted by bruno cassiman business strategy

face to face communication in organizations communication is integral to organizations and yet field evidence on the relation between communication and worker productivity remains scarce we argue that a core role of communication is to transmit information that helps co workers do their job better we build a simple model in which workers choose the amount of communication by trading off this benefit against the time cost incurred by the sender and use it to derive a set of empirical predictions we then exploit a natural experiment in an organization where problems arrive and must be sequentially dealt with by two workers for exogenous reasons the first worker can sometimes communicate face to face with their colleague consistently with the predictions of our model we find that 1 the second worker works faster at the cost of the first worker having less time to deal with incoming problems when face to face communication is possible 2 this effect is stronger when the second worker is busier and for homogenous and closely located teams and 3 the career incentives of workers determine how much they communicate with their colleagues we also find that workers partially internalise social outcomes in their communication decisions our findings illustrate how workers in teams adjust the amount of mutual communication to its costs and benefits

public private partnerships in micro finance should ngo involvement be restricted this paper examines public private partnerships in micro finance whereby ngos can help in channelizing credit to the poor both in borrower selection as well as in project implementation we argue that a distortion may arise out of the fact that the private partner i e the ngo is a motivated agent we find that whenever the project is neither too productive nor too unproductive reducing such distortion requires unbundling borrower selection and project implementation with the ngo being involved in borrower selection only further we compare and contrast two alternative credit delivery mechanisms the linkage mechanism which is the focus of this paper with the grameen one

screening for managerial objectives the debate between agency and stewardship theorists on the nature of managerial objectives in itself implies that a principal may be uninformed about managers objectives this article introduces a model of adverse selection in managerial types where classically opportunistic agents are contrasted with stewards who exhibit intrinsic preferences for the organization s success and experience betrayal crowding out when they are incentivized as if they were agents the analysis characterizes stewardship inefficiencies not previously identified by stewardship theorists this inefficiency is minimized via a menu of contracts that emphasizes the fixed component of pay for stewards moreover steward run firms are more successful than agent run firms

resale price maintenance an empirical analysis of uk firms compliance empirical evidence on resale price maintenance rpm is scarce this paper provides novel empirical evidence based on a unique database of rpm complaints lodged in the uk to the office of fair trading oft between 2007 and 2009 we describe the characteristics of the commodity being traded and of the relevant upstream and downstream firms and their sectors we then present an econometric analysis to assess how the probability of compliance to the oft request to withdraw the rpm can be affected by the specific features of the relevant economic context in which this restraint has taken place

intrinsic motivation and incentives workers act in the interests of their employ ers for a host of reasons sometimes money is the motivation but often it is because they care about what they do despite the importance of such intrinsic motivation the economic litera ture has offered little in terms of understanding relevant trade offs when alignment of inherent preferences rather than monetary interests is what motivates people 1 instead the literature has focused largely on the efficiency gains that arise from agents sharing the preferences of their employers 2 this paper offers such a theory of intrinsic motivation where firms partially solve agency problems by hiring agents with particu lar preferences unlike the previous literature i show that firms in general hire agents who do not share their interests instead agents are disproportionately motivated to carry out a sub set of what the firm cares about specifically i show that the institution hires the agent with similar preferences to himself only in the limit ing case where the agent s preferences are irrel evant namely when output can be perfectly contracted on instead the optimal response of the institution is to hire biased agents with the degree of bias increasing as contracting mea sures get worse the reason for this is rather simple that jobs within firms are specialized so for example some people make things others design them yet other sell them and so on similarly aca demics do research deans raise money admin istrators do the books social workers provide services to clients while their superiors are charged with cost control etc the principal novelty of this paper is to show how hiring practices and specifically the intrinsic moti vation of those hired changes as the ability to contract worsens in a world where tasks are specialized in doing so it paints a picture of firms responding to noncontractibility by hiring agents with very extreme interests at the cost of their ignoring other aspects of their jobs so for example if the output of a social worker cannot be measured a natural response will be to hire agents who are highly motivated to get benefits to clients at the cost of their ignoring things like cost control simple though this observation is it illustrates a cost to using intrinsic motiva tion namely the endogenous hiring of those who increasingly care only about one aspect of their job in this way the simple model outlined here lays the foundation for a view of poor contracting firms as fiefdoms where those with extreme competing interests reside a point i elaborate on elsewhere prendergast 2008 for a theory of intrinsic motivation to be use ful firms must have some control over it the central assumption here is that firms have some ability to hire employees based on these intrin sic preferences i build a model of an institution that carries out two activities say service pro vision and cost control it employs two agents to do so the tasks are somewhat specialized in that one agent primarily but not exclusively does service provision and the other primarily does cost control the institution has an objec tive that trades off these two components and has a performance measure that can reward agents the firm also chooses whom to hire potential discussant robert gibbons massachusetts institute of technology

identity and the economics of organizations on plebes first day at west point called r day they strip down to their underwear their hair is cut off they are put in uniform they then must address an older cadet with the proper salute and with the statement sir new cadet doe reports to the cadet in the red sash for the first time as ordered plebes must stand and salute and repeat and stand and salute and repeat until they get it exactly right all the while being reprimanded for every tiny mistake in the summary of david lipsky 2003 pp 145 154 who spent four years tracking a company of cadets at west point on r day you surrender your old self in stages but r day is just the beginning of the training and personal re engineering that is to come so that west point graduates emerge four years later as loyal officers in the u s army lipsky shows that despite some failure this tough program is remarkably successful in creating officers with the will to lead in battle economists current picture of organizations and work incentives has no place for the west point program and the motivations it seeks to inculcate in recruits in a standard economic model an individual s preferences are fixed and utility depends only on pecuniary variables the army s aim at west point is to change cadets preferences they wish to inculcate non economic motives in the cadets so that they have the same goals as the u s army alternatively stated the goal of west point is to change the identity of the cadets so they will think of themselves above all else as officers in the u s army they will feel bad about themselves they will lose utility if they fall short of the ideals of such an officer this change in identity

does privatisation of vocational rehabilitation improve labour market opportunities evidence from a field experiment in sweden this paper analyses if privatisation of vocational rehabilitation can improve labour market opportunities for individuals on long term sickness absence we use a field experiment performed by the p

not for profit entrepreneurs abstract entrepreneurs who start new firms may choose not for profit status as a means of committing to soft incentives such incentives protect donors volunteers consumers and employees from ex post expropriation of profits by the entrepreneur we derive conditions under which completely self interested entrepreneurs opt for not for profit status despite the fact that this status limits their ability to enjoy the profits of their enterprises we also show that even in the absence of tax advantages unrestricted donations would flow to non profits rather than for profit firms because donations have more significant influence on the decisions of the non profits

government versus private ownership of public goods there has been a dramatic change in the division of responsibility between the state and the private sector for the delivery of public goods and services in recent years with an increasing trend toward contracting out to the private sector and public private partnerships this paper analyzes how ownership matters in public good provision we show that if contracts are incomplete then the ownership of a public good should lie with a party that values the beneets generated by it relatively more this is true regardless of whether this party is also the key investor or other aspects of the technology

public service motivation as an argument for government provision a public service motivation psm inclines employees to provide effort out of concern for the impact of that effort on a valued social service though deemed to be important in the literature on public administration this motivation has not been formally considered by economists when a psm exists this paper establishes conditions under which government bureaucracy can better obtain psm motivated effort from employees than a standard profit maximizing firm the model also provides an efficiency rationale for low powered incentives in both bureaucracies and other organizations producing social services 2000 elsevier science s a all rights reserved

building resilient health systems experimental evidence from sierra leone and the 2014 ebola outbreak this paper experimentally examines efforts aimed at improving health worker performance in the context of the 2014 15 west african ebola crisis roughly two years before the outbreak in sierra leone the study randomly assigned two accountability interventions to government run health clinics one focused on community monitoring and the other gave status awards to clinic staff the findings show that prior to the ebola crisis both interventions led to improvements in utilization of clinics patient satisfaction with the health system and child health outcomes during the crisis the interventions led to higher reported ebola cases as well as lower mortality from ebola particularly in areas with community monitoring clinics the paper explores the potential mechanisms and the findings provide evidence consistent with the following mechanism by building trust and confidence in health workers and improving the perceived quality of care provided by clinics prior to the outbreak the interventions encouraged patients to report and receive treatment the results suggest that accountability interventions not only have the power to improve health systems during normal times but also can make health systems resilient to crises that may emerge over the longer run

resale price maintenance and interlocking relationships dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of rpm we analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers we show that rpm indeed limits the exercise of competition at both levels and can generate industry wide monopoly pricing the impact on prices depends on the extent of potential competition at either level as well as on the parties influence in determining the terms of the contracts our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies

endogenous matching and the empirical determinants of contract form empirical work on contracts typically regresses contract choice on observed principal and agent characteristics if i some of these characteristics are unobserved or partially observed and ii there are incentives whereby particular types of agents end up contracting with particular types of principals estimated coefficients on the observed characteristics may be misleading we address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early renaissance tuscany controlling for endogenous matching has an impact on parameters of interest and tenants risk aversion appears to have influenced contract choice

organizational form and output quality this paper re examines the relationship between a firm s organizational form not for profit versus for profit and its output quality the arrow hansmann theory of hidden action on the part of providers predicts higher quality for not for profit suppliers this prediction has a puzzling lack of support in the empirical literature we propose a theory that resolves the empirical puzzle and generates additional testable implications the theory starts with the traditional assumptions of hidden action and supplier altruism it then incorporates two additional features of real world markets hidden information on supplier ability to provide high quality and a variation across buyers in the degree of informational asymmetry the central prediction of the theory is that quality has a higher variance across for profits than across not for profits preliminary evidence from the us market for hospital care is consistent with this prediction

public expenditure under uncertainty the net benefit criteria public expenditure under uncertainty is modeled as the problem of determining the quantities of l public goods and m private goods to be provided to n consumers when the private goods are claims to a single commodity dollars which are contingent upon the occurrence of one of m possible states of nature a real valued net benefit function is identified and criteria based upon this function are provided that are both necessary and sufficient for pareto improving or pareto efficient solutions to this problem copyright 1992 by american economic association

micro finance competition motivated micro lenders double dipping and default abstract we develop a tractable model of competition among socially motivated mfis so that the objective functions of the mfis put some weight on their own clients utility we find that the equilibrium involves double dipping i e borrowers taking multiple loans from different mfis whenever the mfis are relatively profit oriented further double dipping necessarily leads to default and inefficiency and moreover borrowers who face relatively higher transactions costs optimally decide to double dip interestingly an increase in mfi competition can increase the extent of double dipping and default further the interest rates may go either way with the interest rate likely to increase with more competition if the mfis are very socially motivated

social motives in intergroup conflict group identity and perceived target of threat we experimentally test the social motives behind individual participation in intergroup conflict by manipulating the perceived target of threat groups or individuals and the symmetry of conflict we find that behavior in conflict depends on whether one is harmed by actions perpetrated by the out group but not on one s own influence on the outcome of the out group the perceived target of threat dramatically alters decisions to participate in conflict when people perceive their group to be under threat they are mobilized to do what is good for the group and contribute to the conflict on the other hand if people perceive to be personally under threat they are driven to do what is good for themselves and withhold their contribution the first phenomenon is attributed to group identity possibly combined with a concern for social welfare the second phenomenon is attributed to a novel victim effect another social motive reciprocity is ruled out by the data

university knowledge transfer private ownership incentives and local development objectives abstract we study the impact of private ownership incentive pay and local development objectives on university licensing performance we develop and test a simple contracting model of technology licensing offices using new survey information together with panel data on u s universities for 1995 99 we find that private universities are much more likely to adopt incentive pay than public ones but that ownership does not affect licensing performance conditional on the use of incentive pay adopting incentive pay is associated with about 30 40 percent more income per license universities with strong local development objectives generate about 30 percent less income per license but are more likely to license to local in state start up companies in addition we show that government constraints on university licensing activity are costly in terms of forgone license income and the creation of start up companies these results are robust to controls for observed and unobserved heterogeneity

making book against oneself the independence axiom and nonlinear utility theory an individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty this paper examines the restrictions that can be placed on an individual s preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original the relationship of these axioms to the independence axiom of von neumann and morgenstern and to the quasi convexity of preferences in the wealth distribution are explored

herding cats management and university performance using a tried and tested measure of management practices that has been shown to predict firm performance we survey nearly 250 departments across 100 uk universities we find large differences in management scores across universities and that departments in older research intensive universities score higher than departments in newer more teaching oriented universities we also find that management matters in universities the scores particularly with respect to provision of incentives for staff recruitment retention and promotion are correlated with both teaching and research performance conditional on resources and past performance moreover this relationship holds for all universities not just research intensive ones

managerial rewards and the behavior of for profit governmental and nonprofit organizations evidence from the hospital industry abstract studies of mixed industries frequently focus on differential behavior between for profit and either nonprofit or governmental producers substantially less is known about differences among governmental religious nonprofit and secular nonprofit organizations we examine the compensation of hospital ceos to assess the extent to which these three organizational forms pursue similar objectives compensation levels the use of salaries versus bonuses as proxies for weak versus strong incentives and the criteria organizations use to determine bonuses are analyzed we conclude that the ceo incentive contracts at religious nonprofit secular nonprofit and governmental hospitals imply substantive differences in the behavior of these organizations

trust social capital and economic development many argue that elements of a society s norms culture or social capital are central to understanding its development however these notions have been difficult to capture in economic models here we explore ap ossible role for trustworthiness as corresponding to social capital individuals are trustworthy when they perform in accordance with promises even if this does not maximize their payoffs the usual focus on incentive structures in motivating behaviour plays no role here instead we emphasize more deep seated modes of behaviour and consider trustworthy agents being socialized to act as they do to model this socialization we borrow from a process of preference evolution pioneered by bisin and verdier 2001 the model developed endogenously accounts for social capital and explores its role in the process of economic development it captures in a simple formal way the interaction between social capital and the economy s productive processes the results obtained caution against rapid reform and provide an explanation for why late developing countries may not easily be able to transplant the modes of production that have proved useful in the west

political authority expertise and government bureaucracies by applying the revelation principle we focus on how a sponsor who possesses political authority could minimise the efficiency losses when bureaucrats are experts that is when they control information about the true costs of public services production our results come in striking contrast to those in the literature on bureaucracies and public procurement in a two types setting and in the absence of monitoring and control mechanisms we find that the agency is productively efficient under certain conditions the agency is also allocatively efficient while under others the low cost bureau oversupplies and the high cost agency undersupplies its output

the incentive effects of missions evidence from experiments with ngo employees and students abstract this paper studies the incentive effects of an organization s mission on the effort provision of agents across treatments i exogenously vary how much the agents and their projects missions match in the first study ngo employees are assigned the role of agents in an online one shot principal agent experiment in the second study i replicate the experimental design with a student subject pool in both experiments the agents effort choices are for any given piece rate increasing in their mission match in a third study a laboratory experiment with a finitely repeated principal agent game with random matching i do not find a motivational effect of missions unlike in my first two studies

hospital competition and quality with regulated prices we analyse the effect of competition on quality in hospital markets with regulated prices considering the effect of both introducing competition monopoly versus competition and increasing competition through either lower transportation costs increased substitutability or a higher number of hospitals with semi altruistic providers and a fairly general cost structure we show that the relationship between competition and quality is generally ambiguous in contrast to the received body of theoretical literature this is consistent with and potentially explains the mixed empirical evidence

resale price maintenance output increasing or restricting the case of distilled spirits in the united states theories of resale price maintenance rpm differ strongly on the pro and a nti competitive effects on rpm there are few tests of the welfare ga ins or losses from rpm in industry case studies this paper tests rpm s welfare effects in the retail sale of distilled spirits in the u s using regression analysis to estimate demand comparing liquor stor e license values over time and analyzing political contributions th e study finds that efficiency arguments for rpm are unsupported with rpm leading to a reduction in distilled spirits consumption evidenc e shows substantial wealth transfers from consumers to retail liquor store owners due to rpm copyright 1987 by blackwell publishing ltd

the economics of career concerns part ii application to missions and accountability of government agencies the paper uses a simple multitask career concern model in order to analyse the incentives of government agencies officials incentives are impaired by the agency pursuing multiple missions a lack of focus is even more problematic in the case of fuzzy missions that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency consequently agencies pursuing multiple missions receive less autonomy the paper further shows that professionalization creates a sense of mission for the agency and that the specialization of officials raises their incentives last the paper compares its predictions with the stylized facts on government bureaucracies 1999 the review of economic studies limited

optimal price setting in pay for performance schemes in health care abstract the increased availability of process measures implies that the quality of health care is in some areas de facto verifiable optimal price setting for verifiable dimensions of quality is well described in the theoretical literature on incentive design we seek to narrow the large gap that remains between actual price setting behaviour in pay for performance schemes and the incentive design literature we present a stylised model for hospital price setting for process measures of quality and show that optimal hospital prices should reflect the marginal benefit of the expected health gains the weight given to patients benefit relative to profits and the opportunity cost of public funds based on published estimates we derive the optimal prices for three measures of quality that have been incentivised in the english national health service since april 2010 treatment in an acute stroke unit rapid brain imaging and thrombolysis with alteplase we then compare the optimal prices with the actual prices offered to hospitals in england under the best practice tariffs scheme for emergency stroke care

outsourcing education experimental evidence from liberia in 2016 the liberian government delegated management of 93 randomly selected public schools to private providers providers received us 50 per pupil on top of us 50 per pupil annual expenditure in control schools after one academic year students in outsourced schools scored 0 18 higher in english and mathematics we do not find heterogeneity in learning gains or enrollment by student characteristics but there is significant heterogeneity across providers while outsourcing appears to be a cost effective way to use new resources to improve test scores some providers engaged in unforeseen and potentially harmful behavior complicating any assessment of welfare gains

replacing trust with control a field test of motivation crowd out theory results in behavioural economics suggest that material incentives can crowd out motivation if agents are mission oriented rather than self interested we test this prediction on a sample of non profit organisations in sweden traditionally contracts with the main principal the swedish foreign aid agency have been based on trust and self regulation we designed a randomised policy experiment effectively replacing the trust based contract with an increased level of monitoring from the principal overall using both self reported and observed measures of outreach we find that the intervention increased outreach reduced expenditures and reduced the number of financial irregularities

managerial incentives and product market competition are imperfectly competitive leibenstein 1966 claims that there may be a substantial amount of x inefficiency where x inefficiency measures the degree to which actual profits depart from the maximum of profits that could be obtained if all operations in the firm were carried out at minimal costs he offers empirical evidence from case studies showing that the welfare loss due to organizational slack is of an order of magnitude bigger than the welfare loss due to monopolistic price distortions on imperfectly competitive markets these results support the common presumption that increasing competition reduces organizational and in particular managerial slack however this early literature does not offer a theoretical explanation for the link between competition and managerial incentives in particular it ignores the fact that managerial incentives can be affected by the design of an incentive scheme in this paper i derive the optimal incentive scheme for a manager as a function of the competitiveness of the environment in which his firm operates the basic impact of increased competition is that it reduces the profits of a firm this has two effects in the model first if a firm has high costs then the reduction of profits may be sufficient to render the firm unprofitable so the probability that it has to be liquidated goes up this unambiguously induces the manager of the firm to work harder for a cost reduction in order to avoid liquidation and to keep his job second the reduction in profits may affect

bureaucrats or politicians part i a single policy task this paper investigates the normative criteria that guide the allocation of a policy task to an elected politician versus an independent bureaucrat the bureaucrat is preferable for technical tasks for which ability is more important than effort or if there is great uncertainty about whether the policymaker has the required abilities the optimal allocation of redistributive tasks is ambiguous and depends on how the bureaucrat can be instructed but irrespective of the normative conclusion the politician prefers not to delegate redistributive policies

the productivity of schools and other local public goods producers abstract i construct an agency model of local public goods producers in which households make tiebout choices among jurisdictions in a world of imperfect information and costly residential mobility i examine producers effort and rent under local property tax finance and centralized finance i show that if there are a sufficient number of jurisdictions conventional local property tax finance can attain about as much productivity as a social planner with centralized finance can even if the social planner is armed with more information than a real social planner could plausibly have the key insight is that decentralized tiebout choices make some information the social planner would need verifiable and other information unnecessary

on the efficiency effects of subsidies in microfinance an empirical inquiry summary using an original database of rating agencies this paper gives empirical evidence on the impact of subsidy intensity on the efficiency of microfinance institutions mfis we find that subsidies have had a positive impact on efficiency in the sense that mfis that received subsidies are more efficient than those that do not however we find also that subsidization beyond a certain threshold renders the marginal effect on efficiency negative in our sample 26 of mfis receive levels of subsidization higher than that threshold which implies that a marginal cut on subsidy intensity would increase their efficiency

intrinsic motivation and optimal incentive contracts i study the role of intrinsic motivation on optimal incentive contracts agents engage in efforts to generate projects with both financial return and intrinsic value to the agent in a neutral environment where intrinsic motivation has no direct effect on the disutility of effort static contracts are unaffected by intrinsic motivation in contrast the firm s profits from an implicit contract are increasing in the degree to which the agent is intrinsically motivated showing that implicit contracts and intrinsic motivation are complements the results are further extended to consider the role of multiple implicit contracts and product market strategy

nature of human capital technology and ownership of public goods abstract besley and ghatak 2001 show that a public good should be owned by the agent who values the public good the most irrespective of technological factors in this paper we relax their assumptions in a natural way by allowing the agents to be indispensable and we show that the relative valuations are not the sole determinant of an optimal ownership structure but also the nature of human capital and technology matter

corporate social responsibility a microeconomic review of the literature this paper provides a review of the theoretical and empirical literature on corporate social responsibility csr depending on whether an individual can be considered as selfish or whether she has also social preferences motives for csr can be explained in different ways furthermore we explicitly highlight the influence of different corporate governance system on csr as well as the relationship between firms size and social commitment because it is difficult to distinguish between different theories in empirical studies we argue that an experimental approach might be suitable to test theories of csr

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

effects of contracting out employment services evidence from a randomized experiment in many countries welfare services that traditionally have been provided by the public sector are being contracted out to private providers but are private contractors better at providing these services we use a randomized experiment to empirically assess the effectiveness of contracting out employment services to private placement agencies our results show that unemployed at private placement agencies have a closer interaction with their case worker than unemployed at the public employment service pes e g they receive more assistance in improving their job search technology we do not find any overall difference in the chances of finding employment between private placement agencies and the pes but this hides important heterogeneities across different types of unemployed in particular private providers are better at providing employment services to immigrants whereas they may be worse for adolescents any effects tend to fade away over time

moonlighting public service and private practice we study job incentives in moonlighting when public service physicians may refer patients to their private practices some doctors in the public system are dedicated and behave sincerely but others the moonlighters are utility maximizers allowing moonlighting always enhances aggregate consumer welfare but equilibrium public care quality may increase or decrease if quality increases moonlighting improves each consumer s expected utility unregulated moonlighting may reduce consumer welfare as a result of adverse behavioral reactions such as moonlighters shirking more and dedicated doctors abandoning their sincere behavior price regulation in the private market limits such adverse behaviors in the public system and improves consumer welfare

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

discontinuous system of allowances the response of prosocial health care professionals abstract this paper examines the unintended strategic effects of non linear incentives in public policies a system of health care subsidies structured into discrete intervals may lead to strategic behaviour we provide new evidence on this issue focusing on a case where strategic actions are taken by healthcare providers hcps we show that hcps adjust the score of claimants in long term care needs assessments allowing claimants to access higher levels of care benefits this adjustment does not bring any pecuniary gain for hcps in a quasi natural experimental setting the implementation of spanish long term care ltc we show that the distribution of the claimants needs includes kinks around the thresholds set for the ltc system these kinks reveal that healthcare providers adopt prosocial behaviour helping claimants jump to a higher level of benefits without discriminating by health status residence or gender by developing a new non parametric estimator we prove that these adjustments increase the public ltc spending which is equivalent to moving thresholds to the left the additional cost per adjusted claimant per annum is approximately 1000 euro on average finally we also explore empirically whether the number of thresholds could affect such behaviour by exploiting a reform that eliminated some thresholds we find that the lower number of thresholds is associated with an increase of adjustment around the thresholds that remain

traveling agents political change and bureaucratic turnover in india abstract we develop a framework to empirically examine how politicians with electoral pressures control bureaucrats with career concerns and the consequent implications for bureaucrats career investments unique microlevel data on indian bureaucrats support our key predictions politicians use frequent reassignments transfers across posts of varying importance to control bureaucrats high skilled bureaucrats face less frequent political transfers and lower variability in the importance of their posts we find evidence of two alternative paths to career success officers of higher initial ability are more likely to invest in skill but caste affinity to the politician s party base also helps secure important positions

identity and schooling some lessons for the economics of education abstract this review culls noneconomic literature on education by sociologists anthropologists and practitioners to present a new economic theory of students and schools this theory elaborates two themes that have eluded economic analysis first is the student as decision maker whose primary motivation is her identity second is a conception of the school as a social institution this framework suggests a new perspective on questions such as resource allocation and school reform it explains why some educational policies succeed and others fail we show how sociological variables may affect outcomes and suggest ways economists can incorporate them into theoretical and empirical research

individual preferences organization and competition in a model of r d incentive provision abstract understanding the organization of rd 2 knowledge is not perfectly appropriable 3 scientists are responsive to both monetary and non monetary incentives and 4 firms compete on the product market we show that both knowledge spillovers and market competition affect the incentives given to scientists and these effects interact first high knowledge spillovers lead firms to soften incentives when product market competition is high and to strengthen incentives when competition is low second the relationship between the intensity of competition and the power of incentives is u shaped with the exact shape depending on the degree of knowledge spillovers we also show that the performance contingent pay for both applied and basic research increases with the non pecuniary benefits that scientists obtain from research while the fixed component decreases we relate our findings to the existing empirical evidence and also discuss their implications for management and public policy

managerial contracting and corporate social responsibility abstract this paper presents a theory of corporate social responsibility in the form of the private provision of public goods and private redistribution by a firm these social expenditures are determined by a manager operating under a compensation contract chosen by shareholders in a capital market that prices social expenditures the theory incorporates three explanations for compensation systems that encompass social performance first consumers may reward the firm for its social expenditures second managers may have personal preferences for contributing to social causes and third the shareholder clientele a firm attracts may prefer social expenditures social incentives are higher powered the more consumers reward the firm and the stronger are shareholders warm glow preferences for social expenditures profit incentives are higher powered the more consumers reward the firm but are independent of shareholder preferences when consumers reward the firm for its social expenditures firms with higher ability managers have both higher operating profits and higher social expenditures when times are good so a positive correlation is predicted in bad times however the correlation is negative except for firms with very low ability managers in very bad times where the correlation is zero

the making of economic policy a transaction cost politics perspective economic policymaking as a political process the normative approach to policy analysis the positive view of political economy a synthesis the policy process in real time a theme transaction costs the transaction cost politics framework political outcomes and economic efficiency transaction cost analysis in politics mechanisms to cope with transaction costs in politics national differences two case studies to illustrate transaction cost politics tax and expenditure reform in the united states the gatt and national trade politics some reflections and suggestions some lessons for the policy process the role of the economist concluding comments appendix multiprincipal multitask agencies

paying for performance and motivation crowding out abstract we investigate how prices affect output when publicly funded providers differ in altruism and enjoy being perceived as good and not as greedy a higher price increases output for low and high altruism providers intermediate altruism providers do not respond or reduce output

competitive markets without commitment in the presence of a time inconsistency problem with agency contracts we show that competitive markets can implement allocations that pareto dominate those achieved by a benevolent government and they induce more effort we analyze a model with moral hazard and a two sided lack of commitment after agents have chosen their work firms can modify contracts and agents can switch firms if the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals it is pareto superior to a government s allocation with a complete breakdown of incentives moreover competitive markets without commitment implement more effort in equilibrium under general conditions

resale price maintenance an economic assessment of the federal trade commission s case against the corning glass works this article examines the economic explanations for the use of resale price maintenance rpm by the corning glass works using empirical evidence developed from the federal trade commission s case challenging the practice three classes of rpm theories are tested the supplier and dealer anticompetitive theories and the class of principle agent theories the article uses both ex ante and ex post tests to distinguish the theories including tests based on structural evidence as well as data on sales advertising and stock market reactions for the company and its competitors around critical events in the case the evidence most convincingly rejects the anticompetitive theories and points toward a principle agent explanation in which rpm helped increase sales of corning s products the case is of interest in part because the simple products at issue in the case are not the types of products most often associated with potential efficiency explanations for rpm

should civil servants be restricted in wage bargaining a mixed duopoly approach abstract should civil servants employees in the public sector be allowed to bargain collectively to answer this question we construct a model of unionized mixed duopoly and examine the regulatory framework of public institutions especially focusing on a wage regulation imposed on the public firm the wage regulation turns out to yield critical welfare implications as it gives rise to two opposing strategic effects the wage regulation intensifies downstream market competition while it loosens upstream market competition the overall welfare effect is ambiguous depending crucially on the degree of product differentiation between the firms we also show that in contrast to the popular belief granting the right to bargain collectively to civil servants would not necessarily help them because they tend to demand excessively high wages when they are allowed to bargain collectively finally we briefly discuss a new perspective on the role of profit motives in public institutions when the wages are determined endogenously

managerial talent motivation and self selection into public management the quality of public management is a recurrent concern in many countries calls to attract the economy s best and brightest managers to the public sector abound this paper studies self selection into managerial and non managerial positions in the public and private sector using a model of a perfectly competitive economy where people differ in managerial ability and in public service motivation we find that if demand for public sector output is not too high the equilibrium return to managerial ability is always highest in the private sector as a result relatively many of the more able managers self select into the private sector since this outcome is efficient our analysis implies that attracting a more able managerial workforce to the public sector by increasing remuneration to private sector levels is not cost efficient

designing credit agent incentives to prevent mission drift in pro poor microfinance institutions abstract credit agents in microfinance institutions mfis must be given incentives to acquire information on potential borrowers and select them in accordance with the mfi s objectives we show that while giving incentives has no cost in for profit mfis it is costly in pro poor mfis when repayment and wealth are positively correlated a pro poor mfi cannot obtain the selection of poor clients in the proportion it wishes with incentives based solely on repayment it then becomes necessary to audit the share of very poor borrowers selected by an agent in order to provide the latter with adequate incentives when audit costs are large pro poor mfis may have to forego selection on wealth and use other targeting devices such as working in impoverished geographical locations driven by donor concerns with mission drift away from the poor audits on the wealth status of clients have been introduced at the level of mfis we show that introducing pro poor incentives requires extending such audits to the level of credit agents

competition and decentralisation in government bureaucracies abstract recent reforms to the provision of welfare services by the public sector have transferred control rights in production from politicians to managers and simultaneously introduced competition between public sector suppliers we derive conditions under which a self interested politician will introduce either competition and or managerial control for services where quality matters we show that both competition and managerial control give incentives for greater managerial effort however the cost of competition is higher taxes and the cost of decentralisation is a loss of political benefits the politician will introduce these reforms if the political benefits from higher value service outweigh these costs

sorting with motivated agents implications for school competition and teacher incentives this paper proposes a simple framework to study incentives and matching in the market for teachers the framework is used to investigate the consequences of introducing incentive pay for teachers when contracts have both a matching and an incentive effect our analysis suggests that school competition and teacher incentives cannot be studied in isolation from one another jel d73 i20 j45 l31

free riding and sales strategies for the internet for many products internet sales can free ride oi of the promotional eiort exerted by brick and mortar retailers leading manufacturers to attempt to control the availability and pricing of their products over the internet we examine three categories of products fragrances dvd players and side by side refrigerators our evidence suggests that manufacturers that limit distribution in the physical world use various mechanisms to limit distribution online in particular these manufacturers generally prevent the sale of their products by internet retailers that oier deep discounts furthermore manufacturer websites tend to charge high prices suggesting that manufacturers may internalize free rider issues i introduction while internet sales total only about 1 0 of all retail sales in the united states 1 the rapid growth of internet commerce suggests that this sales channel will become a signi cant factor for many goods managing channel con ict between brick and mortar retailers and internet retailers is an important and growing problem faced by many manufacturers of branded goods manufacturers of branded goods have placed a variety of restrictions on their brick and mortar retailers in an eiort to control freeriding on the sales and promotional eiorts of retailers the emergence of the internet as a new distribution channel requires manufacturers to develop restrictions on internet retailers to control free riding in this paper we investigate empirically the extent to which manufacturers of three types of branded goods appear to control the pricing and

sequential lending with dynamic joint liability in micro finance this paper develops a theory of sequential lending in groups in micro finance that centers on the notion of dynamic incentives in particular the simple idea that default incentives should be relatively uniformly distributed across time in a framework that allows project returns to accrue over time as well as strategic default we show that sequential lending can help resolve problems arising out of coordinated default thus improving project efficiency vis a vis individual lending inter alia we also provide a justification for the use of frequent repayment schemes as well as demonstrate that depending on how it is manifested social capital has implications for project efficiency and borrower default we next examine the optimal choices for the mfi and derive conditions for the optimality of the group lending arrangement our framework also provides for some plausible hypotheses as to why there has been a recent transition from group to individual lending