Production Externalities and Two-Way Distortion in Principal-Multi-Agent Problems.

This paper studies an otherwise standard principal-agent problem with hidden information, but whether there are positive production externalities between agents: the output of any agent depends positively on the effort expended by the other agents. It is shown that the optimal contract for the principal exhibits two-way distortion: the effort of any agent is oversupplied (relative to the first-best) when his marginal cost effort is low, and undersupplied his marginal cost of effort is high. This pattern of distortion cannot otherwise arise in optimal single- or multi-agent incentive contracts, unless there are countervailing incentives. However, unlike the countervailing incentives case, the pattern of distortion is robust to the precise form of the externality.INFORMATION ; EXTERNALITIES

Distributive Politics and the Benefits of Decentralization.

This paper integrates the distributive politics literature with the literature on decentralization by incorporating inter-regional project externalities into a standard model of distributive policy. A key finding is that the degree of uniformity (or "universalism") of the provision of regional projects is endogenous, and depends on the strength of the externality. The welfare benefits of decentralization, and the performance of "constitutional rules" (such as majority voting) which may be used to choose between decentralization and centralization, are then discussed in this framework.DECENTRALIZATION ; PUBLIC POLICY ; INCOME REDISTRIBUTION

Gradualism and Irreversibility.

This paper considers a class of two-player dynamic games in which each player controls a one-dimensional variable which we interpret as a level of cooperation. In the base model, there is an irreversibility constraint stating that this variable can never be reduced, only increased. It otherwise satisfies the usual discounted repeated game assumptions.GAMES ; PUBLIC GOODS ; COOPERATION

Asset Ownership and Investment Incentives Revisited.

Previous work on the property rights theory of the firm suggests that in the presence of outside options, asset ownership may demotivate managers. This paper shows that this conclusion relies on the assumption that a manager's outside option only depends on her own investment.PROPERTY RIGHTS ; MANAGEMENT ; INVESTMENTS

Border controls and tax competition in a customs union

Foreign Trade;Fiscal Policy

Do Elections Always Motivate Incumbents?.

This paper studies a principal-agent model of the relationship between office-holders and the electorate, where the office-holder is initially uninformed about herability (following Holmström, 1999). If office-holder effort and ability interact in the "production function" that determines performance in office, then an office-holder has an incentive to experiment, i.e. raise effort so that performance becomes a more accurate signal of her ability.ELECTIONS ; BUSINESS CYCLES ; PRODUCTION

De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution

The prominent but unproven intuition that preference heterogeneity reduces re-distribution in a standard optimal tax model is shown to hold under the plausible condition that the distribution of preferences for consumption relative to leisure rises, in terms of first-order stochastic dominance, with income. Given mainstream functional form assumptions on utility and the distributions of ability and preferences, a simple statistic for the effect of preference heterogeneity on marginal tax rates is derived. Numerical simulations and suggestive empirical evidence demonstrate the link between this potentially measurable statistic and the quantitative implications of preference heterogeneity for policy.

Monitoring solar-type stars for luminosity variations

Since 1984, researchers have made more than 1500 differential photometric b (471 nm) and y (551 nm) measurements of three dozen solar-like lower main sequence stars whose chromospheric activity was previosly studied by O. C. Wilson. Here, researchers describe their methodology and the statistical tests used to distinguish intrinsic stellar variability from observational and instrument errors. The incidence of detected variability among the program and comparison stars is summarized. Among the 100 plus pairs of stars measured differentially, only a dozen were found that were unusually constant, with peak-to-peak amplitudes of seasonal mean brightness smaller than 0.3 percent (0.003 mag) over a two-to-three-year interval

Ground effects related to landing of airplanes with low-aspect-ratio wings

Influence of ground induced aerodynamic effects on landing maneuver of aircraft with low aspect ratio wing

Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions

Calculating the welfare implications of changes to economic policy or shocks to the economy requires economists to decide on a normative criterion. One way to make that decision is to elicit the relevant moral criteria from real-world policy choices, converting a normative decision into a positive inference exercise as in, for example, the recent surge of so-called “inverse-optimum” research. We find that capitalizing on the potential of this approach is not as straightforward as we might hope. We perform the inverse- optimum inference on U.S. tax policy from 1979 through 2010 and identify two broad explanations for its evolution. These explanations, however, either undermine the reliability of the inference exercise's conclusions or challenge conventional assumptions upon which economists routinely rely when performing welfare evaluations. We emphasize the need for better evidence on society's positive and normative judgments in order to resolve the questions these findings raise