How Liable should an Exporter be? The Case of Trade in Hazardous Goods

This paper analyzes liability issues in the context of internationally traded goods like hazardous waste. If waste disposers of a small open economy are judgement-proof, then the extension of liability to waste exporters distorts the factor allocation and may reduce disposal care. Hence the optimal extension is partial at most. However, extending liability increases incentives of the waste importing country to hold domestic disposers liable. Interaction through the price system and through contracts that condition payments for disposal services on the occurrence of an accident yield identical outcomes if disposers are judgement-proof.extended liability, hazardous waste trade, externalities, moral hazard

Subsidizing Technological Innovations in the Presence of R&D Spillovers

We analyze a situation where a principal wants to induce firms to produce an output, e.g. electricity from renewable energy sources. Firms can undertake non-contractible investments to reduce production costs of the output. Parts of these investments spills over and also reduce production costs of the other firm. Comparing the general price subsidy and an innovation tournament, we find that the principal's expected cost of implementing a given expected output are always higher under the tournament, even though this scheme may lead to more innovation.R&D spillovers, tournaments, subsidies, moral hazard

Incentive Contracts and Efficient Unemployment Benefits

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the works position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated works affect this trade-off.unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalisation

Fair division with general equilibrium effects and international climate politics

This paper introduces a solution for the fair division of common property resources in production economies with multiple inputs and outputs. It is derived from complementing the Walrasian solution by welfare bounds, whose ethical justification rests on commonality of ownership. We then apply this solution to the question of burden sharing in the climate change regime, using an intertemporal computable general equilibrium model. For a wide range of initial allocations of CO2 emission rights, we find that developing countries should participate in emission reduction efforts in order to increase their global efficiency, but should also be fully compensated for their incremental abatement costs. --Fair division,climate change,common property resources,welfare bounds,CGE models

International Environmental Agreements: Incentive Contracts with Multilateral Externalities

We consider how one party can induce another party to join an inter- national emission compact given private information. Due to multilateral externalities the principal uses her own emissions besides subsidies to in- centivize the agent. This leads to a number of non-standard features: Optimal contracts can include a boundary part, which is not a copy of the no contract outcome. Compared to this, a contract can increase emis- sions of the principal for ine¢ cient types, and reduce his payo¤ for e¢ cient types. Subsidies can be constant or even decreasing and turn negative, i.e., the agent reduces emissions and pays the principal.private information, multilateral externalities, mecha- nism design, restricted contracts, environmental agreements

Coalition Governments and Policy Reform with Asymmetric Information

With ideological parties being better informed about the state of the world than voters, the true motivation of policy proposals is hard to judge for the electorate. However, if reform proposals have to be agreed upon by coalition parties, it may become possible for the government to signal to the voters its private information about the necessity of reforms. Therefore, in coalition governments reforms will be more in line with policy requirements than in single-party governments. This is usually beneficial for the coalition parties as well as for the voter.Asymmetric information, coalition governments, policy reform

Incentive Contracts and Efficient Unemployment Benefits

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher level of unemployment benefits improves the worker's position in wage bargaining, leading to stronger effort incentives and higher output. However, it also reduces incentives for labor market participation. Accordingly, there is a trade-off. We analyze how changes in the economic environment such as globalization and better educated workers affect this trade-off.Unemployment benefits, incentive contracts, Nash bargaining, moral hazard, globalisation

Distributive justice in international environmental policy - theoretical foundation and exemplary formulation

Questions of international distributive justice are certainly not new. We need only think of the demand made by the developing countries in the 1970s for a New World Economic Order, which aimed at a more equitable distribution of the benefits derived from the international division of labor. Demands were at that time raised for improved chances for exports to the industrialized countries, stepped-up financial and technology transfers, and a larger share in the decision-making processes in international institutions, above all in the World Bank and the International Monetary Fund. Even though these demands have remained largely unheard, and the debate on a New World Order is as good as over, there are, at the outset of the 21st century, a number of highly topical reasons why the issue of international distributive justice is again attracting more and more attention. Many of these reasons are bound up with the phenomenon of globalization. --

Output and Wages with Inequality Averse Agents

We analyze a two-task work environment with risk-neutral but inequality averse individuals. For the agent employed in task 2 effort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract which, due to his wealth constraint, leads to a rent that the other agent resents. We show that inequality aversion affects the optimal contracts of both agents. Greater inequality aversion reduces the effort, wage and payoff of agent 1, while the effects on the wage and effort of agent 2 depend on whether effort levels across tasks are substitutes or complements in the firm's output function. However, more inequality aversion unambiguously decreases total output and therefore average labor productivity.Inequality aversion, wage compression, moral hazard, incentives

Fair Division with General Equilibrium Effects and International Climate Politics

This paper introduces a solution for the fair division of common property resources in production economies with multiple inputs and outputs. It is derived from complementing the Walrasian solution by welfare bounds, whose ethical justification rests on commonality of ownership. We then apply this solution to the question of burden sharing in the climate change regime, using an intertemporal computable general equilibrium model. For a wide range of initial allocations of CO2 emission rights, we find that developing countries should participate in emission reduction efforts in order to increase their global efficiency, but should also be fully compensated for their incremental abatement costs