Unemployment Duration, Incentives and Institutions - A Micro-Econometric Analysis Based on Scandinavian Data

Based on a combined register database for Norwegian and Swedish unemployment spells, we use the ‘between-countries-variation’ in the unemployment insurance systems to identify causal effects. The elasticity of the job hazard rate with respect to the benefit replacement ratio is around -1.0 in Norway and -0.5 in Sweden. The limited benefit duration period in Sweden has a large positive impact on the hazard rate, despite generous renewal options through participation in labour market programs. Compulsory program participation seems to operate as a ‘stick’, rather than a ‘carrot’, and is therefore an efficient tool for counteracting moral hazard problems in the benefit system.Unemployment spells; unemployment compensation; non-parametric duration analysis.

Participation, Incentives and Social Norms in Partnership Arrangements Among Farms in Sweden

In this study, farmers´ participation in partnership arrangements involving labour and machinery collaboration is analyzed. Potential gains from partnership arrangements include lower capital costs and increased possibilities for farmers to specialize in different tasks. A potential cost is the incentive to shirk in effort or to overuse or misuse shared inputs (the moral hazard problem). Factors that mitigate the problem of moral hazard in team production have been suggested in the literature and include peer pressure and social norms (Barron and Gjerde, 1997; Kandel and Lazear, 1992) and dynamics (Radner, 1982). In this study, a theoretical framework for analyzing partnerships among farmers developed by Allen and Lueck (1998) is extended to consider presence of social norms. It is illustrated that social norms imply higher exerted effort levels among the partners. When inputs are shared among farmers, it is shown that the incentive to misuse or overuse capital is reduced in the presence of social norms. Predictions from the theoretical models are analyzed using survey data for Swedish farms. Results from the empirical analysis suggest that perceived moral hazard problems are non-existing or very small and that there is a high degree of mutual trust in existing partnerships.Farm Management,

Optimal collective contract without peer information or peer monitoring

If entrepreneurs have private information about factors influencing the outcome of an investment, individual lending is inefficient. The literature typically offers solutions based on the assumption of full peer information to solve adverse selection problems and peer monitoring to solve moral hazard problems. In contrast, I show that it is possible to construct a simple budget-balanced mechanism that implements the efficient outcome even if each borrower knows only own type and effort, and has neither privileged knowledge about others nor monitoring ability. The mechanism satisfies participation incentives for all types, and is immune to the Rothschild–Stiglitz cream skimming problem despite using transfers from better types to worse types. The presence of some local information implies that the mechanism cannot be successfully used by formal lenders. Thus a local credit institution can emerge as an optimal response to the informational environment even without peer information or monitoring. Finally, I investigate the role of monitoring in this setting and show how costly monitoring can increase the scope of the mechanism

On Gender Gaps and Self-fulfilling Expectations: Theory, Policies and Some Empirical Evidence

This paper considers a simple model of self-fulfilling expectations that leads to a multiple equilibrium of gender gaps in wages and participation rates. Rather than resorting to moral hazard problems related to unobservable effort, like in most of the related literature, our model fully relies on statistical discrimination. If firms believe that women will quit their jobs more often than equally productive men when shocks affecting household chores take place, our model predicts that this belief will increase the wage gap in favour of men which, in turn, will exacerbate lower female participation in the labour market. Hence, both effects lead to a gendered equilibrium with large gaps, even though an ungendered equilibrium with no gaps is feasible. We examine the effects of gender-based and gender-neutral subsidies and find that the latter are more effective in removing the gendered equilibrium. Empirical analysis based on a time use survey for Spain is provided to test some implications of the model.gender gaps, self-fulfilling expectations, gender policies, time-use surveys

Reduction of Yield and Income Risk Under Alternative Crop Insurance and Disaster Assistance Plans

This study compares the effectiveness of five crop insurance/disaster assistance plans: an individual farm yield insurance plan similar to the current FCIC multi-peril program ; two area yield insurance plans; a farm yield disaster assistance plan; and an area yield disaster assistance plan. These methods are examined for reduction in yield and gross income variability with and without participation in the government deficiency payment programs using farm-level yield data from 98 dryland wheat farms and 38 dryland corn farms in Kansas . Although individual farm yield insurance is complex, suffers from moral hazard and adverse selection problems, and is likely to be the most expensive to administer , it provides more yield and gross income risk reduction than any of the alternative insurance/disaster assistance plans.Crop Insurance, Crop Disaster Assistance, Risk, Wheat, Corn, Risk and Uncertainty,

The FOIA and Public Procurement: Enhancing Accountability and Public Participation in Nigeria

This paper focuses on the impact of the Freedom of information Act (FOIA) enacted in 2011 on public procurement in Nigeria in terms of accountability and participation. As such, it employs the principal-agent methodology and concludes that the agency problems inherent in public procurement and some of the attendant consequences such as government failures and market failures can be addressed with the enforcement of the FOIA 2011. These corrective measures include (but not limited to) providing access to information, choice, fair market price, and the ability to enforce contracts; as well as electronic reporting, protection of whistle blowers, oversight functions, private public partnership, citizens report card, and efficient participation of the media and civil society organizations. Keywords: Adverse selection, Agency problem, Asymmetric information, FOIA, Market failure, Moral hazard, Principal-Agent methodology, Procurement

PERFORMANCE-BASED VOLUNTARY GROUP CONTRACTS FOR NONPOINT SOURCE POLLUTION

Pollution from nonpoint sources (NPS), and agriculture in particular, remains as one of the largest sources of water quality impairments in the United States. As is well known in the literature, there are many difficulties with designing regulations for reducing nonpoint source pollution (i.e., Tomasi, Segerson, and Braden, 1994). Uncertainty and asymmetric information are the key regulatory difficulties in the control of NPS. The main goal of this paper is to describe a potential incentive scheme that can be applied in limited information situations. The incentive scheme involves a contract written between a point source of pollution and a small group of other nonpoint polluters in the watershed to reduce a specific load of pollution. The contract allows the nonpoint sources to enter the contract voluntarily. To handle the incentive problems typical in many principal agent problems, it incorporates joint liability, and peer pressure/monitoring to induce the nonpoint sources of pollution to meet their contractual obligations. For this paper, we propose a group contract built upon the ideas of Stiglitz (1990) and Varian (1990), and originally applied to micro-lending arrangements in developing countries. As we hypothesize with nonpoint source pollution, joint liability contracts for micro-lending assume that individuals have more information about each other than the principal has about them, and they take advantage of joint liability and peer monitoring concepts to eliminate or reduce the moral hazard problem. Joint liability contracts have been shown to be successfully applied in practice in several situations (Ghatak and Guinnane, 1999; Van Tassel, 1999). The contract proposed for this paper assumes that a principal (a point source of pollution) offers a contract that specifies a price for each ton of pollution abated by individuals who participate. The contract is offered to individual farmers in a specified sub-watershed upstream from the discharge point. Farmers in the watershed decide whether or not to participate, and if they decide to participate, they bid into the contract the level of abatement services they will provide. The principal will form the group from these bidders, and will agree to pay the total amount if they meet the target. Given the fixed price for the contract, the bids determine the sharing rule for payments at the end of the season. With this basic idea, this paper explores the implications of moral hazard under several contractual arrangements. In particular, we are interested in the trade-offs between participation in the contract and shirking. At one extreme, existing voluntary incentive programs involve fixed payments with no requirements for performance. They will thus lead to high levels of participation, but likely to large levels of shirking as well. For example, in a typical year all of the money available for existing federal conservation programs is used by farmers, but there is little evidence available to prove that pollution declines as a result. At the other extreme, one could write a contract that specifies that payments will only be made if the target is met, following Holmstrom (1982) or Segerson (1988). Such an extreme, nonlinear contract such as this likely would eliminate most shirking, but it may lead to little participation among farmers. This paper thus explores the relationship between the participation constraint in principal agent problems and moral hazard with a simple theoretical model and numerical simulations. First, we propose a contract with a fixed initial payment and a bonus payment if the farmers meet the agreed upon target. The effects of the fixed payments upon the participation constraint and the consequent implications for shirking are shown theoretically and numerically. Fixed payments enhance the likelihood that individual farmers join the group, but fixed payments can also induce incentives to shirk. Second, we hypothesize that farmers can engage in other nonpecuniary penalties to punish farmers who shirk their responsibilities. For example, if someone in the group shirks, we assume that the group members can figure out whom, and take appropriate action to punish him or her. The numerical simulations show how the success of the proposed mechanism depends crucially on size of the fixed and bonus payments, group structure (i.e. ability and willingness to monitor each other) and group size. While not having any direct penalty in the contract, and having fixed payment plus bonus can increase the participation for the program, it can also increase free-riding problems in the group. Group size is also important, in that groups that are too large cannot take advantage of nonpecuniary penalties. Regions that have strong social ties are the most promising candidates for this kind of group contracts. They can be better able to apply social pressure on potential shirkers (Prescott, 1997). In addition to showing a theoretical model, and numerical simulations, we provide some results from recent focus groups providing data from actual farmers on their willingness to participate in the types of contracts proposed in this paper.Environmental Economics and Policy,

On transparency in organizations

Non-transparency both in the form of incomplete information disclosure and in the form of coarse feedback disclosure is optimal in virtual all organizational arrangements of interest. Speci�cally, in moral hazard interactions, some form of non-transparency is always desirable, as soon as the dimensionality of the problem exceeds the dimensionality of the action spaces of the various agents

The German banking system and its impacts on corporate finance and governance

The task of this Paper as originally described in the outline of the current project was to compare the German banking System, as one type of relationship banking , with the Japanese main bank System. This was, of course, not simply meant in the sense of a mere description and comparison of different institutions. A meaningful contribution rather has to look at the functions of a given banking System as a provider of capital or other financial Services to their client firms, has to ask in what respect the one or the other System might be superior or less efficient, and has to analyze the reasons for this. Such a thorough analysis would have to answer questions like, for instance, to what extent investment is financed by (lang or short term-)bank loans, whether German banks have, because of specific institutional arrangements like own equity holdings, seats on Company boards or other links with their borrowers, informational or other advantages that make bank finance eheaper or easier available; how such banks behave with respect to financial distress and bankruptcy of their client firms, and what their exact role in corporate governance is. While preparing this Paper I found that in Order to give reliable answers to these questions there had to be several other conferences comparable to the present one that had to focus exclusively on our domestic System. Hence what this Paper only tan provide for at this moment is a short overview of the German banking System and its special t r a i t s ( Universalbankensystem and Group Banking ; part I), describe and analyse some aspects of bank lending to firms (Part II), and the role of German banks as delegated monitors in widely held firms (Part Ill). A description of the historical development of the specific links between banks and industry and their impact on the economic growth of Germany during the period of the industrialization and later on would be specifically interesting within the framework of a Conference that discusses the lessons and relevante of banking Systems for developing market economies and for transforming socialist economies. However, historical remarks had to be omitted completely, not least because of lack of own knowledge, time and space, but also because this history is already well documented and available in English publications, too