MORAL HAZARD IN TEAMS WITH LIMITED PUNISHMENTS AND MULTIPLE OUTPUTS

This paper studies incentive provision with limited punishments. It revisits the moral hazard problem with risk neutral parties and solves for optimal compensation schemes in situations where agents' participation is implied by a limited liability constraint. Providing minimum cost incentives to teams or individuals requires awarding high bonuses only when extreme performances are observed. Even when the first-best is attainable, the principal may prefer to induce more (or less) effort than it is sociably desirable because she only cares about the marginal cost of motivation. With positive production externalities joint bonuses are optimal. With limited liability on the principal's side, the optimal scheme becomes a tournament---even in the absence of externalities. The paper also looks at conditions that favor one incentive scheme over another when agents adapt their strategies as information becomes available.

Is there a Social Contract between the Firm and Community: Revisiting the Philosophy of Corporate Social Responsibility

In this study, I demonstrated that there is a corporate social contract between firms and their host communities. The implication is that the idea of the social contract places corporate social responsibility (CSR) on a conditional pivot, whereby the host communities have to fulfil their own side of the contract in order to merit CSR projects. I examined the implication of the social contract for corrupt and unaccountable host communities. I based my analysis on two philosophical frameworks, namely: one, Constructive Approach CSR (CA-CSR), and two, Restorative Approach CSR (RA-CSR). CA-CSR is hinged on the deontological and utilitarian moral frameworks, while RA-CSR is based on the restorative justice framework. Further, I developed ‘CSR Calculus’ (V = f1+n + K) to determine the value of CSR-due for a host community, in response to Milton Friedman questions of arbitrariness in the formulation of CSR projects. I also demonstrated how the CSR Calculus can be applied to determine the value of CSR owed communities by Micro, Small and Medium scale Enterprises (MSMEs). Finally, I used the ethic ‘leave a better community’ derived from the Annang proverb – Assidsip ye Akwot-kwot ete yak mfin ami afon akan mkpong (Assidsip and Akwot-kwot say make today better than yesterday) to signpost the corporate social contract and demonstrated why it is essential for every firm to commission and decommission its operations in socially responsible manner such that it can bequeath a better future society

Social Norms and Economic Incentives in Firms

This paper studies the interplay between economic incentives and social norms in firms. We introduce a general framework to model social norms arguing that norms stem from agents’ desire for, or peer pressure towards, social efficiency. In a simple model of team production we examine the interplay of different types of contracts with social norms. We show that one and the same norm can be output-increasing, neutral, or output-decreasing depending on the incentive scheme. We also show how social norms can induce multiplicity of equilibria and how steeper economic incentives can reduce effort.social norms, incentives, contracts

Procurement in infrastructure : what does theory tell us ?

Infrastructure has particular challenges in public procurement, because it is highly complex and customized and often requires economic, political and social considerations from a long time horizon. To deliver public infrastructure services to citizens or taxpayers, there are a series of decisions that governments have to make. The paper provides a minimum package of important economic theories that could guide governments to wise decision-making at each stage. Theory suggests that in general it would be a good option to contract out infrastructure to the private sector under high-powered incentive mechanisms, such as fixed-price contracts. However, this holds under certain conditions. Theory also shows that ownership should be aligned with the ultimate responsibility for or objective of infrastructure provision. Public and private ownership have different advantages and can deal with different problems. It is also shown that it would be a better option to integrate more than one public task (for example, investment and operation) into the same ownership, whether public or private, if they exhibit positive externalities.Public Sector Economics&Finance,Debt Markets,Infrastructure Economics,Contract Law,Transport Economics Policy&Planning

Training provision and regulation: an analysis of the temporary help industry

This paper studies from an economic viewpoint the juridical rationality of mandatory training provisions on Temporary Help Agencies through the Spanish Law 14/94. No positive relationship is found between the improvement in Temporary Help Agencies' added value levels and their investments in temps' training. In analyzing this specific provision of Spanish Labor Law we adopt a positive focus with the aim of finding economic causes for its adoption and of explaining its effect on the functioning of the labour intermediation sector. The application of the non-market failure theory leads us to conclude that an efficient use of this legal prescription is limited. The investigated issue is of relevance in order to understand the economic effects of regulation from a Law and Economics perspective

Local Government Action and Antitrust Policy: An Economic Analysis

At least partly as a result of the Supreme Court decision in Community Communications Co. v. City of Boulder, cities are facing antitrust challenges to their rights to franchise cable television systems. Other municipal activities have been similarly challenged. The prospect of costly and uncertain antitrust litigation challenging local government actions will restrict the scope and extent of local regulatory activity. Such restrictions could, in turn, preempt city residents\u27 ability to choose, through their elected representatives, the goods and services they prefer. This Article proposes that as a mater of policy the burden of proving a municipal antitrust violation should be on those who seek to restrict municipal action. This Article discusses the merits behind the general case for municipal antitrust immunity and the specific circumstances in which cities might face liability under antitrust laws. Further, this Article sets out three criteria by which the potential for adverse effects of a city\u27s action may be determined, then assesses the leading state action cases using these criteria. Finally, this Article concludes by describing the appropriate policies for dealing with potentially inefficient city actions and makes specific recommendations consistent with the current case law

Setting Incentives for Collaboration Among Agricultural Scientists: Application of Principal-Agent Theory to Team Work

�The USDA is attempting to shift more research funds into competitive grants involving collaboration across disciplines on large projects. This type of research structure raises a host of information and incentive issues. The objective of this paper is to shed new light on principal-agent problems that are likely to arise in this new funding structure.incentives; Principal-agent model; team research; competitive grants; multi-disciplinary research

Business Groups in Emerging Markets-Financial Control & Sequential Investment

Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate.http://deepblue.lib.umich.edu/bitstream/2027.42/57210/1/wp830 .pd

Indicators of university-industry knowledge transfer performance and their implications for universities: evidence from the UK’s HE-BCI survey

Focusing on the measurement of universities’ performance in knowledge transfer, we outline some critical issues connected with the choice of appropriate indicators: in particular, we argue that, in order to allow universities to correctly represent their knowledge transfer performance, indicators should include a variety of knowledge transfer activities, reflect a variety of impacts, allow comparability between institutions, and avoid the creation of perverse behavioural incentives. To illustrate these issues empirically, we discuss the case of the United Kingdom’s Higher Education –Business and Community Interaction (HE-BCI) survey. We show that the indicators used to measure and reward universities’ engagement in knowledge transfer are not fully comprehensive, they are better suited to capture the impact of certain types of activities than others and they are influenced by institutional strategies and characteristics rather than simply reflecting different performances. The conclusions explore some promising directions to address some of these problems