a review of steven shavell s foundations of economic analysis of law steven shavell s foundations of economic analysis of law harvard university press 2004 is a major theoretical contribution to law and economics the applied field of economics that studies the economic properties and consequences of legal doctrines and institutions it is a field of immense practical importance but unfamiliar to many economists a situation that shavell s book bids fair to rectify this review essay situates shavell s book in the history of economic scholarship about law and uses the book as a springboard for speculation about new directions in that scholarship

the new institutional economics this outstanding book presents new original contributions from some of the world s leading economists including ronald coase douglass c north masahiko aoki oliver e williamson and harold demsetz it demonstrates the extent and depth of the new institutional economics research programme which is having a worldwide impact on the economics profession

executive incentives and the horizon problem an empirical investigation abstract this paper investigates the hypothesis that ceos in their final years of office manage discretionary investment expenditures to improve short term earnings performance we examine the behavior of r d expenditures for a sample of firms in industries that have significant ongoing r d activities the results suggest that ceos spend less on r d during their final years in office however we find the reductions in r d expenditures are mitigated through ceo stock ownership there is no evidence that the reduced r d expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes

the neoclassical maximization hypothesis reply bruce caldwell has chided me for ignoring the contributions of modem philosophers in my 1981 article supposedly if i were to appreciate the contributions of the logical empiricists since the mid 1930 s i would see the error of my ways caldwell chooses to focus on my view of criticism namely that for any criticism to be successful it must be decisive or as he says logically compelling he feels this concept is overly narrow i understand him to be saying that there are other concepts which are less narrow and thus my concept is only a special case he recommends a more liberal concept of criticism which he calls appraisal my reply is that he is exactly wrong the idea that criticism must be logically compelling is not narrow but instead the broadest possible and worse his concept of criticism is completely inadequate the implication that we should avoid logically compelling criticism in favor of a weaker line of argument which he calls appraisal is merely an expression of caldwell s advocacy of the commonly promoted but logically inadequate methodology which philosophers today call conventionalism

rational choice a survey of contributions from economics and philosophy this paper looks at the philosophical foundations of rational choice theory it is argued that l savage s expected utility axioms cannot be defended as requirements of instrumental rationality in part because of their implications for the description of consequences then it is argued that common knowledge of rationality does not imply that rational game players must be in nash equilibrium and for some games is an incoherent concept finally the suggestion that rational choice theory is self defeating is examined in relation to coordination games where the theory cannot explain the role of salience and the concept of resolute choice copyright 1991 by royal economic society

how control system design influences performance misreporting this paper investigates reporting honesty when managers have monetary incentives to overstate their performance we argue that managers who report about their performance will take into account how their report affects their peers i e other managers at the same hierarchical level this effect depends on the design of the organization s control system in particular on the reward structure and the information policy regarding individual performance reports the reward structure determines if peers monetary payoff is increased or decreased when managers claim a higher level of performance the information policy determines if managers will be able to link individual peers to their reports and affects the nonmonetary costs of breaking social norms we present the results of a laboratory experiment as predicted we find that participants are more likely to overstate their performance if this increases the monetary payoff of others than if their reported performance decreases others monetary gains in addition overstatements are lower under an open information policy where each individual s reported performance is made public compared to a closed information policy where participants only learn the average performance of the other participants our findings have several important implications for management accounting research and practice

an analysis of the use of accounting and market measures of performance in executive compensation contracts prior research has provided useful insights into the structure of compensation plans and their incentive effects however one important limitation of these studies is the virtual absence of any cross sectional analyses of the attributes of compensation contracts 2 this absence is related in part to the problems associated with controlling for other factors that affect compensation that is compensation contracts are

foundations of decision analysis along the way this paper offers a personal perspective on the development of decision theory and related subjects during the past half century it first reviews six milestones in the foundations of decision analysis that are associated with frank p ramsey john von neumann and oskar morgenstern leonard j savage maurice allais and ward edwards west churchman and russell ackoff and kenneth arrow it then gives a personal account of further developments over the past 30 years in linear utility theory subjective probability and ambiguity nonlinear preference and utility stochastic dominance and inequality analysis multiattribute utility theory and the theory of social choice the paper could be viewed as a supplement to my extensive review of utility theory in management science some 20 years ago however it makes no claim of completeness since its main aim is to recall important debts and describe what it has been like to be a part of the development of decision analysis in the past few decades

retrospectives on the definition of economics modern economists do not subscribe to a homogeneous definition of their subject surveying definitions of economics from contemporary principles of economics textbooks we find that economics is the study of the economy the study of the coordination process the study of the effects of scarcity the science of choice and the study of human behavior at a time when economists are tackling subjects as diverse as growth auctions crime and religion with a methodological toolkit that includes real analysis econometrics laboratory experiments and historical case studies and when they are debating the explanatory roles of rationality and behavioral norms any concise definition of economics is likely to be inadequate this lack of agreement on a definition does not necessarily pose a problem for the subject economists are generally guided by pragmatic considerations of what works or by methodological views emanating from various sources not by formal definitions to repeat the comment attributed to jacob viner economics is what economists do however the way the definition of economics has evolved is more than a historical curiosity at times definitions are used to justify what economists are doing definitions can also reflect the direction in which their authors want to see the subject move and can even influence practice

welfare maximization entices participation abstract we consider randomized public good mechanisms with optional participation preferences over lotteries are modeled using skew symmetric bilinear ssb utility functions a generalization of classic von neumann morgenstern utility functions we show that every welfare maximizing mechanism entices participation and that the converse holds under additional assumptions as a corollary we obtain a characterization of an attractive randomized voting rule that satisfies condorcet consistency and entices participation this stands in contrast to moulin s well known no show paradox j of econ theory 45 53 64 1988 which shows that no deterministic voting rule can satisfy both properties simultaneously

human development and economic sustainability abstract this paper attempts to integrate the concern for human development in the present with that in the future in arguing for sustainable human development it appeals to the notion of ethical universalism an elementary demand for impartiality of claims applied within and between generations economic sustainability is often seen as a matter of intergenerational equity but the specification of what is to be sustained is not always straightforward the addendum explores the relationship between distributional equity sustainable development optimal growth and pure time preference

the neoclassical maximization hypothesis comment in a recent paper in this review lawrence boland argues it is futile to criticize the neoclassical maximization hypothesis his argument is summarized as follows 1 there are only two types of criticism of any behavioral hypothesis once one has established its logical validity one can argue against the possibility of the hypothesized behavior or one can argue against the empirical truth of the premise of the hypothesis p 1031 boland hopes to show that neither of the two forms of criticism works against the maximization hypothesis 2 one cannot prove the logical impossibility of the maximization hypothesis attempts to do so fail for one of two reasons either one must assume that inductive proofs are necessary for true knowledge or one must assume that true knowledge is necessary for maximization see pp 1032 33 boland argues that neither assumption can be maintained 3 regarding empirical criticism the methodological problems of empirical refutations of economic theories are widely accepted p 1033 4 even were this not true the logical form of the maximization hypothesis an all and some statement makes it neither verifiable nor refutable e ven if one could prove that a consumer is not maximizing utility this would not constitute a refutation of the neoclassical hypothesis p 1034 because one can always claim that the consumer was maximizing something that is something other than utility 5 finally this does not imply that the hypothesis is necessarily a tautology the hypothesis is best considered an untestable metaphysical statement which is an essential component of the neoclassical research program points 3 and 5 above attributed to boland are acceptable as stated they are related points the empirical problems mentioned in point 3 are sufficient to establish the untestability of the maximization hypothesis which supports the conclusion in point 5 the purpose of this comment is to criticize points 1 2 and 4 specifically it is shown that though there are only two forms of logically compelling criticism many other forms of criticism that are useful exist and that given a broader interpretation of the term criticism boland s remarks about proofs of logical impossibility though correct miss the point of what critics of the maximization hypothesis tried to do an alternative to boland s characterization of the maximization hypothesis as an all and some statement one more consistent with well known developments in philosophy of science is also presented in the final section it is shown that boland s approach of necessity neglects some widely known and relevant developments in the methodological literature

determinants of performance measure choices in worker incentive plans this study examines the determinants of performance measure choices in worker incentive plans the results indicate that informativeness issues such as those addressed in economic theories have a significant effect on measurement choices however other reasons for adopting the plans such as upgrading the workforce and linking bonuses to the firm s ability to pay also influence measurement choices as do union representation and management participation in plan design moreover the factors influencing the use of specific measures vary suggesting that the aggregate performance measure classifications commonly used in compensation research provide somewhat misleading inferences regarding performance measurement choices

assessing empirical research in managerial accounting a value based management perspective this paper applies a value based management framework to critically review empirical research in managerial accounting this framework enables us to place the exceptionally diverse set of managerial accounting studies from the past several decades into an integrated structure our synthesis highlights the many consistent results in prior research identifies remaining gaps and inconsistencies discusses common methodological and econometric problems and suggests fruitful avenues for future managerial accounting research

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

the convoluted influence of robbins s thinking on the emergence of economics imperialism this article analyses the influence of robbins s thought on the subsequent development of economics imperialism first the analysis of some passages that have been overlooked up to the present in which the author explicitly expresses his disbelief in the omnipotence of the economic method makes it possible to argue that robbins did not share the confidence exhibited by the advocates of economics imperialism in the capacity of economics to explain non economic phenomena second this article shows that robbins describes the influence of real scarcity on human behaviour in terms of a static constrained maximization problem thereby confusing issues of method and scope in his writings this confusion facilitated the view that economics is a method without a proper subject matter and its later expansion into other fields in conclusion although robbins cannot be counted as an earlier promoter of economics imperialism the misunderstandings implicit in his writings paved the way for the emergence of this intellectual movement

two conceptions of economics and maximisation fil crespo ricardo fernando consejo nacional de investigaciones cientificas y tecnicas argentina universidad austral instituto de altos estudios argentina

probabilistic social choice based on simple voting comparisons a social choice procedure is developed for selecting an alternative from a finite set on the basis of paired comparison voting ballot data are used to construct a lottery on the alternatives that is socially as preferred as every other lottery the constructed lottery is then used to select a winner an axiomatization of social preferences among lotteries that justifies the procedure is included the procedure will always select a consensus majority alternative when one exists and it will never select an alternative that is pareto dominated by another alternative

nobel lecture the economic way of looking at behavior an important step in extending the traditional theory of individual rational choice to analyze social issues beyond those usually considered by economists is to incorporate into the theory a much richer class of attitudes preferences and calculations while this approach to behavior builds on an expanded theory of individual choice it is not mainly concerned with individuals it uses theory at the micro level as a powerful tool to derive implications at the group or macro level the lecture describes the approach and illustrates it with examples drawn from my past and current work