optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

collateral heterogeneity in risk attitude and the credit market equilibrium abstract this paper examines the argument that the availability of collateral rules out credit rationing a model of the credit market with ex ante asymmetric information and heterogeneous entrepreneurs attitudes toward risk is set up it is shown that due to the interplay between project choice and entrepreneurs preferences using collateral as a signal to screen safer projects may prove impossible instead a partially separating two contract equilibrium with rationing at one contract emerges contrary to previous theoretical research and consistently with conventional wisdom and systematic evidence the use of collateral is never negatively correlated with project risk

tariff preferences wto negotiations and the ldcs the case of the everything but arms initiative by assessing the impact of the recently adopted everything but arms eba initiative of the eu on the least developed countries ldcs and by showing how further multilateral trade liberalisations erode the eba preferences and impact the ldcs this paper attempts to uncover the ldcs difficult positions in the wto trade negotiations due to its limited product coverage and previous preferences granted by the eu welfare impacts of the eba on the ldcs are shown to be small and the bulk of these gains are associated with the sensitive products that are subject to gradual liberalisations moreover these small gains are likely to disappear if the eu conducts trade policy reforms in fulfilling its wto obligations resulting in an actually worse off situation for the ldcs extending the analysis to a multilateral trade liberalisation scenario reinforces the above results that the ldcs may well lose due to preference erosion and higher world market prices it concludes that other development assistance measures from developed countries should be made available to the ldcs to ease their dependency on trade preferences and to foster their supply capacities the ldcs themselves should attempt to integrate the duty and quota free market access status contained in the eba into a binding wto agreement to secure a stable trading environment but more importantly in order to solve the difficulties at the root these countries should actively engage in reforming their own trade policies

some aspects of trade between australia and pacific island countries australia and pacific island countries pics have maintained an ongoing trade and economic relationship for several years the determinants of trade between australia and pics are examined using a gravity model by utilising time series cross country data for the period 1981 to 2005 the empirical findings indicate that imports by pic from australia are significantly determined by pics population and their per capita gdp the results also suggest that pics exports are significantly determined by pics and australia s population pics infrastructure telecommunications and the distance to australia consistent with the findings of other studies using the gravity model distance is found to be a friction to pics exports to australia while this study identifies factors influencing pics trade with australia a more substantial issue for the governments and trade policy makers in pics is to look into the generally disappointing long term trade performance from a policy perspective pics would need to seriously look at increasing their export potential

a survey of agency models of organizations abstract in recent years neoclassical economists have begun to turn their attention to issues of firm organization stimulated in large part by methodological advances in the economics of incentives and incomplete information the paradigm on which much of this work is based views an organization as an agency relationship agency models incorporate two basic features of organizations incomplete information and goal conflict among members of the organization this essay characterizes and critiques the existing research on agency models of organizations in order to broaden the set of consumers of such models and to stimulate the production of new research

information and incentives the agency information problem this paper considers the use of imperfect information for risk sharing and incentive purposes when perfect observation of actions and outcomes is impossible making complete contracting infeasible the incentive insurance problem is defined to consist of two parts the choice of an information system and the design of a sharing rule based on the information system a generalized agency model is formulated to analyse this problem the agency models of ross 1973a b wilson 1968 stiglitz 1974 mirrlees 1976 harris and raviv 1979 holmstrom 1979 a o appear as special cases of the generalized model the analysis focuses on the value of information in the agency information problem the set of information systems which are valuable i e improve risk sharing and incentives in a pareto sense is characterized a problem independent ranking of information systems for the agency information problem is then characterized under the assumption that the agent s preferences are additive in money and actions the ranking may be viewed as a generalization of blackwell s ranking of information systems for decision problems to this particular game when the agent s risk preferences depend on his choice of action on the other hand it is shown that the blackwell ranking may be invalid randomized incentive schemes are shown to be efficient when the incentive effect of risk is positive and sufficiently large relative to the absolute risk aversion of the partners

information competition and markets one of the dominant characteristics of modern capitalist economies is the important role played by competition not the peculiar static form of pure price competition embodied in the arrow debreu model but rather a dynamic competition more akin to the kind of competition represented by sports contests and other races including patent races in recent years there have been several attempts to explain why firms often base the pay of their workers and managers on relative performance see for example edward lazear and sherwin rosen 1981 such compensation schemes become desirable when three conditions are satisfied a the input effort of workers managers must not be directly observable at least without cost thus firms must either expend resources to monitor inputs or devise reward structures in which compensation is a function of variables such as output or profits which are themselves functions of inputs but are less costly to observe b the relationship between input and output must be stochastic so that by observing output one cannot perfectly infer what the input was c finally the stochastic disturbances which affect the relationship between input and output of different firms must be correlated by looking at the performance of one worker relative to that of others one can make better inferences about his effort than one can make without using this information not only can competition provide a basis of comparison which enables the design of reward structures that can simultaneously provide a high level of incentives with relatively low level risk but compensation schemes based on relative performance have the further advantage of automatically adjusting incentives to changes in the economic environment we refer to this as built in flexibility in a first best world with perfect information concerning the nature of the technology but where it is still costly to monitor individuals activities the compensation scheme would vary from time to time as the environment changed such changes in the compensation scheme are costly to implement and the information required to do so is seldom available when a task is easier the individual s rewards for performing the task should be reduced if pay is based on relative performance although all individuals perform better when they exert the same level of effort their compensation is automatically adjusted thus teachers frequently grade on the curve and a significant fraction of the pay of successful salesmen often consists of bonuses based on relative performance

discussion of a laboratory investigation of the moral hazard problem in an agency relationship the first question concerned the assumption of risk neutrality of both the principals and agents in the models specifically given this assumption it was not clear what element s in the modeling or experimental design precluded the principal s from simply selling or renting the firm to the agent s more important the risk neutrality assumption has a direct effect on the predictions of the models the experimental results and their interpretation finally it was suggested that new experimental techniques such as those developed by berg et al forthcoming might be used to induce specific risk preferences given a particular model to be tested and its attendant experimental design although these techniques have not been fully tested using them may reduce the need to make assumptions about subjects risk preferences and thereby overcome the kinds of questions raised on this issue a second issue dealt with why the experimental study of the moral hazard problem in the principal agent relationship was carried out in a market setting with several principals and agents rather than following

ex ante randomization in agency models we consider how a principal can use randomized strategies in designing optimal contracts in agency settings we distinguish between ex post randomization overfee schedulesfollowing act selection by the agent and ex ante randomization overfee schedules before act selection we show that ex ante randomization may be efficient in both full information and private information settings under certain assumptions regarding preferences and the production technology it is particularly significant that additive separability and concavity ofthe agent s utility function as well as concavity of the production function do not rule out efficient ex ante randomized contracts in private information settings although as is known they rule out ex post randomization

a revelation scheme for allocating organizational resources abstract efficient resource allocation in a hierarchical organization frequently requires top management to obtain information from division managers but division managers may place personal interests above those of the organization and communicate distorted information designing simple and robust optimal game theoretic revelation schemes is difficult instead of making another attempt at this we analyze a project valuation scheme actually used by several us government agencies under certain environments the scheme encourages managers to truthfully reveal the relative benefits of alternative projects while some aspects of these environments do not have nice mathematical properties we argue that they may well represent better characterizations of the way managers actually view their situation

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

the earnings of male immigrants in england evidence from the quarterly lfs in this paper we estimate earnings functions for native born and foreign born white and non white males in the english labour market using data from the quarterly labour force survey our results highlight the importance of distinguishing between native born and foreign born males when investigating the labour market experience of ethnic minorities furthermore the earnings performance amongst white immigrants varies considerably

the ethnic wage gap and employment differentials in the 1990s evidence for britain abstract it is twenty years since britain passed legislation to combat racial discrimination despite this britain s nonwhite ethnic minorities still appear to face substantial amounts of discrimination in the labour market unemployment is particularly severe

sweetening the transition in eu sugar preferences the case of fiji the european union grants preferential market access for sugar to a group of african caribbean and pacific acp countries sugar exported under these quotas receives between two and three times the world price these trade preferences are intended as a form of aid but they tend to stifle productivity growth in the recipient countries the european union could better assist acp countries by providing direct development assistance in place of sugar subsidies for example by investing the aid transfers into infrastructure or other essential public services this paper tests this proposition for the case of fiji using a computable general equilibrium model it is found that significant gains in economic performance can be achieved by employing such alternative strategies for aid these gains are particularly strong over the medium to long term when the aid funds are diverted to infrastructure development however there are issues of equity to consider since in the case of fiji the rural poor would be the losers if trade preferences were to be removed moreover the degree of benefit in alternative strategies such as infrastructure development will be contingent on the economy s flexibility which in turn depends upon the country s regulatory regime and education performance

eliciting subjective probabilities with binary lotteries abstract we evaluate a binary lottery procedure for inducing risk neutral behavior in a subjective belief elicitation task prior research has shown this procedure to robustly induce risk neutrality when subjects are given a single risk task defined over objective probabilities drawing a sample from the same subject population we find evidence that the binary lottery procedure also induces linear utility in a subjective probability elicitation task using the quadratic scoring rule we also show that the binary lottery procedure can induce direct revelation of subjective probabilities in subjects with popular non expected utility preference representations that satisfy weak conditions

optimal multiperiod contracts and the gain from enduring relationships under private information informational asymmetries can play a key role in explaining the existence and nature of multiperiod contracts in an illustrative risk sharing model even relatively short two period contracts can be mutually beneficial if there is private information though one period contracts suffice otherwise further contracts which are pareto optimal relative to the environment and the information structure are defined and partially characterized an example illustrates how otherwise inefficient intertemporal tie ins can be used optimally to mitigate incentive problems the obvious borrowing lending schemes are not private information pareto optimal in these period by period actions are not sufficiently constrained discounting affects the form of the optimal contract but none of these qualitative conclusions

permanent labour and land tenancy contracts in agrarian economies an integrated analysis extending the existing models of land and labour contracts this study attempts to build a general model of long term agrarian contracts the model implies that where tenancy is an available option the fixed wage permanent labour contract will not be chosen if it is chosen under institutional constraints on tenancy contracts resulting resource allocations will be inefficient empirical relevance of the model is tested on data from the philippines

carrot or stick contract frame and use of decision influencing information in a principal agent setting a fundamental management accounting issue is how to incorporate decision influencing information e g an ex post state signal into employment contracts our experiment examines the effects of contract framing on such information use in a principal agent setting in each of 40 rounds participants as employer and worker negotiate a contract that specifies pay depending on an ex post state signal state signal pay is framed as either a bonus or a penalty over two groups the results show that the bonus frame facilitates information use because of worker loss aversion although both groups initially underweigh the state signal the bonus group quickly converges toward the optimal weight whereas the penalty group persistently underweighs the state signal

explaining organizational diseconomies of scale in r d agency problems and the allocation of engineering talent ideas and effort by firm size the comparative efficiency and success of small firms in r d remains largely unexplained this paper empirically examines scale diseconomies in offering employment contracts as an explanation for diseconomies of scale in r d the paper argues that small firms more efficiently resolve the severe agency problems of hidden information and hidden behavior in r d small firms more efficiently offer contracts that reward performance than large firms and consequently small firms attract and retain engineers with higher ability and skill further small firms through these more performance contingent contracts induce higher levels of effort than large firms the study tests and generally confirms these hypotheses using data collected from 912 current and former engineering employees of two large high technology companies

explaining the swollen middle why most transactions are a mix of market and hierarchy why are firms sometimes more efficient than markets at organizing transactions why are most transactions arrayed neither at the pure market nor at the pure hierarchy end of the continuum but rather in the swollen middle incorporating features of both market and hierarchy why don t firms make greater use of price incentives this paper addresses these three questions by developing a model of the choice of institution one key building block is the distinction between organizing methods hierarchy and the price system and institutions firms and markets hierarchy and the price system are two distinct methods for organizing transactions each with particular costs and benefits markets and firms are institutions which use one or both of these methods although markets predominantly use prices and firms rely principally on hierarchy there is not a one to one correspondence between prices and markets or between hierarchy and firms indeed the paper argues that it is generally more efficient to use a mix of both methods than to specialize in either the paper focuses on the enforcement properties of prices and hierarchy hierarchy controls individuals directly by constraining their behavior by imposing behavior constraints while prices do it indirectly by measuring their outputs through price constraints under hierarchy individuals receive a salary to do as told while self employed individuals governed by the price system are rewarded on the basis of their output each system has its own biases using prices maximizes effort minimizes shirking but incites individuals to inflate the price and or reduce the quality of their output it encourages cheating relying on hierarchy results in the opposite bias under hierarchy individuals are not paid in function of their output but instead are rewarded for following directives they have thus strong incentives to minimize effort to shirk unless properly supervised but being paid a fixed sum to follow orders they have few incentives to cheat hence the price system experiences low shirking but potentially high cheating costs while hierarchy faces low cheating but high shirking costs organizing costs are the sum of shirking and cheating costs any given transaction will be organized by the mix of price and hierarchy i e by the mix of price and behavior constraints that minimizes organizing costs a transaction will be organized within a firm if the reduction in cheating costs achieved by replacing price constraints by behavior constraints exceeds the resulting increase in shirking costs and by the market in the opposite case the paper shows that cheating and shirking costs increase more than proportionately as one concentrates in either pure price or behavior constraints hence using a mix of both methods generally minimizes the sum of cheating and shirking costs this explains why most transactions exhibit features of both markets and hierarchy the paper shows clearly the tradeoff involved between price and behavior constraints it explains the costs and benefits of using two types of price incentives in firms piecework and profit centers and predicts when they will be used

repeated insurance contracts and learning this article considers a repeated insurance model with incomplete information in which the insurer and the consumer both learn over time about the unknown risk category of the consumer care choices by young consumers affect the informational value of the accident history under an optimal scheme of long term insurance contracts young consumers will always be subsidized by old consumers and consumers who are reassessed as low risk types are always subsidizers i e reverse experience ratings we compare this optimal scheme with the set of contracts that would emerge in a competitive market if only short term contracting were possible these sequentially competitive contracts can lead to over investment in care by both young and old consumers relative to the optimum in contrast to the underinvestment problem associated with moral hazard in insurance

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

regional trade agreements versus global trade liberalisation implications for a small island developing state this study undertakes an empirical investigation of the macroeconomic and sectoral impacts of two forms of regional trade agreements vis a vis global trade liberalisation on a small island country using fiji as a case study in order to capture the feedback effects of such a complex set of policies we employ a dynamic computable general equilibrium model of the fijian economy to investigate i the impact of the pacific island countries trade agreement picta ii the impact of picta the pacific agreement for closer economic relations pacer and the economic partnership agreements epas iii the impact of full tariff liberalisation i e tariff removal only and iv the impact of full trade liberalisation with removal of both tariff and non tariff barriers while picta consistently provides the least benefits across a range of macroeconomic indicators including real output welfare trade volumes and employment full trade liberalisation involving the removal of tariff and non tariff barriers provides the greatest benefits compared to the other scenarios in terms of real output however the latter scenario is outperformed by picta pacer the epas and full tariff liberalisation in terms of welfare effects trade volumes and employment the policy implications hold important lessons for developing countries considering trade liberalisation

crossroads the myth of a monolithic economics fundamental assumptions and the use of economic models in policy and strategy research in 1990 in the first issue of organization science paul hirsch and his co authors ray friedman and mitchell koza published a caveat to researchers about possible pitfalls of using economic models in behaviorally oriented strategy and policy research hirsch et al 1990 crossroads provides a context for a reply to this paper and todd zenger and william hesterly have taken the opportunity to do so they seek to clarify where economics stands with respect to fundamental assumptions about humans organizations markets and investors they concur with many of hirsch friedman and koza s 1990 warnings concerning the adoption of unrealistic assumptions but disagree that the assumptions they impute to economics are universally held by economic models particularly those models most often used by strategy and policy researchers zenger and hesterly show that there are significant differences among economic theories in their fundamental assumptions finally they suggest how strategy and policy researcher

unionization and shareholder interests drawing on agency theory this study examines union nonunion differences in the allocation of both firm profits and business risk to employees and shareholders using a sample of more than 1 000 large private sector firms the authors find that over the period 1970 81 shareholders in unionized firms assumed less of the firm s business risk than shareholders in nonunion firms this finding is interpreted as evidence that managers of unionized firms attempted to minimize agency costs by capitalizing on the incentive effects of risksharing in addition risk adjusted returns to shareholders were lower in unionized firms than in nonunion firms the authors view the relatively poor performance of union firms as a primary motivating factor behind the restructuring of the american industrial relations system during the period studied

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

controlling preferences for lotteries on units of experimental exchange in an experimental setting when outcomes are stochastically related to actions predictions of equilibrium behavior depend not only on the participants preference orderings of outcomes but also on their orderings of lotteries on outcomes as well we introduce and test a reward structure that can be utilized in any experimental setting to allow the experimenter to decree beforehand the subjects preferences for lotteries on experimental outcomes we show analytically that the proposed reward structure can induce subjects to behave as if they have the decreed preference function defined on experimental outcomes empirical tests using two different choice settings provide evidence to support this ability to control preferences

new firm survival institutional explanations for new franchisor mortality why do some new firms succeed and others fail economists argue that new firms fail because entrepreneurs inefficiently manage production and organizational design williamson 1985 sociologists e g granovetter 1985 have typically viewed this explanation as undersocialized and argue that institutional legitimacy must also be considered to explain the survival of new firms this paper examines the survival of 1292 new franchisors established in the united states from 1979 1996 the results show that institutional legitimacy adds to economic explanations for the survival of new franchisors and suggests the importance of a properly socialized explanation

an analysis of the male racial earnings differential in the uk using the general household survey 1986 an analysis of the male racial earnings differential in the uk using the general household survey applied economics vol 18 no 11 pp 1233 1242

decentralization decisions in bureaucracies as a principal agent problem abstract in this paper a positive theory of internal bureaucratic decision making is presented a model is formulated to explain why some decisions within a public bureaucracy are decentralized while others are not the explanation using the notions of principal agent theory involves such factors as different access to information and different objectives of central and decentral actors an empirical test of the model is carried out using data on decisions of local government in the netherlands on capacity reductions in hospitals

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

economic and ecological trade offs of agricultural specialization at different spatial scales specialization in agricultural systems can lead to trade offs between economic gains and ecosystem functions we suggest and explore a conceptual framework in which economic gains can be maximized when production activities are specialized at increasingly broader scales from the household to the village region or above particularly when markets for outputs and inputs function well conversely more specialization likely reduces biodiversity and significantly limits ecosystem functions when agricultural specialization increases and moves to broader scales as a result of improved infrastructure and markets or other drivers ecosystem functions can also be endangered at broader spatial scales policies to improve agricultural incomes may influence the level of specialization at different scales and thus affect the severity of the trade offs this paper takes jambi province in indonesia a current hotspot of rubber and oil palm monoculture as a case study to illustrate these issues we empirically show that the level of specialization differs across scales with higher specialization at household and village levels and higher diversification towards the province level we discuss ways to resolve trade offs between economic gains and ecological costs including landscape design targeted policies and adoption of long term perspectives

gender race pay and promotion in the british nursing profession estimation of a generalized ordered probit model we analyse job grading within the uk national health service nursing profession using 1994 survey data we start from the ordered probit model for which we develop and apply appropriate specification tests threshold constancy and covariate exogeneity are rejected with important consequences for estimates of the influence of gender ethnicity training and career interruptions we find little evidence of disadvantage for females relative to males but significant differences in speed of promotion between ethnic groups implying non negligible differences in lifetime earnings copyright 2000 john wiley sons ltd

pressure and performance in accounting decision settings paradoxical effects of incentives feedback and justification this paper shows that the positive effects on decision making of financial incentives performance feedback and the requirement to justify one s decisions to others can be undermined or even reversed by the availability of a decision aid more specifically in the absence of a decision aid subjects achieved greater classification accuracy in a repetitive decision task when a monetary incentive was offered or when feedback about past performance was provided or when they were required to justify their choices relative to the absence of these three variables in contrast when a statistically valid decision aid was available the same incentive feedback and justification requirements resulted in lower classification accuracy again relative to the absence of these three variables these results are interpreted within a framework having two basic tenets first financial incentives performance feedback and a justifi

the employment of married women in the united kingdom 1970 83 the proportion of married women in employment in the united kingdom grew rapidly during the 1970s rising from around 50 to 60 per cent the paper investigates this change using a time series of cross sections from the family expenditure survey an attempt is made to assess how much of the change was due to trends in the observable characteristics of the population and what part was played by changes in behavioural and other factors reflected in the coefficients of the model a technique of growth accounting is proposed and used to this purpose excerpt

risk aversion and rent seeking an extension and some experimental evidence theoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent seeking activities following this line of investigation we extend hillman and katz s work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

stochastic monitoring and moral hazard the phenomenon of monitoring subordinates actions and local environments so commonly observed in large firms is an attempt to alleviate the moral hazard problem induced by central managers principals being unable to costlessly observe subordinates agents actions and the state of their environment these monitoring activities take many forms and are generally performed in a stochastic manner for example supervisors make surprise checks on workers and investigations are often triggered by standard cost variance reports the information gathered from monitoring activities is used to penalize or reward subordinates agents thus altering their incentives and behavior it is intuitively clear that the monitoring policy that will be employed depends upon the contract to be enforced in a sense every type of contract has both benefits and associated monitoring costs the purpose of this paper is to study the simultaneous optimal choice of contracts and stochastic monitoring policies in a single period principal agent paradigm townsend 1979 first studied monitoring or verification in the context of a simple trading economy where the endowments of consumers were stochastic and known only to themselves however in townsend s analysis verification policies were constrained to be deterministic that is states were verified with probability one or not at all with deterministic verification townsend found that in the nondegenerate case unfavorable outcomes were verified and more favorable outcomes were

a north american free trade agreement analytical issues and a computational assessment abstractthe following sections are included introductionissues in analyzing the economic impact of the naftathe computational modelcomputational resultsconclusionsstudy questionsreferencessuggested further reading this abstract was borrowed from another version of this item

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them

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

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

black white male earnings and employment prospects in the 1970s and 1980s evidence for britain abstract using a sample of around 80 000 whites and 2500 blacks the paper highlights not just the economic disadvantage of blacks but also that this disadvantage worsened in the 1980s in britain