Anti-social welfare functions: a reply to Hansen et al [erratum appears in J Health Econ. 2005 Sep;24(5):1054]

We could reasonably expect society to give at least the same weight to the marginal utility of the poor as to the rich, and to the marginal utility of the ill as compared to the healthy. Whilst Hansen et al. [Journal of Health Economics (2004)], may be said to link CEA and CBA within a welfarist framework, the assumptions they require are inconsistent with these types of ethical preferences. Thus, the degree to which they employ a reasonable social welfare function is doubtful. This paper argues that any link between CEA and CBA will occur not within a welfarist framework but instead within a non-welfarist one in which it is unlikely that CBA results could be easily transformed into cost-effectiveness ratios

Christian Education and Worldview

What we believe as Christian educators is conveyed in many different ways to our students. The concept of worldview has been used in recent years to describe the comprehensive approach to reality that provides the foundation for how we understand the world and how we teach our students. Christians assert that worldview is a deeply religious concept, and that, particularly in education, we need to understand and critique our own worldviews to ensure that we are offering education that is faithful to our calling to celebrate the lordship of Christ over all of creation rather than an education that is an unconscious and culturally idolatrous adaptation of pagan norms for living that we have imbibed from the world around us. This paper offers a brief reflection upon the concept of worldview, suggests ways that unfaithful worldview concepts may have infiltrated our teaching, and suggests foundational perspectives that are biblically faithful which could be adopted as cultural shaping, God-honouring alternatives in our own lives and in our classrooms and lecture halls

Measuring the societal value of lifetime health

This paper considers two societal concerns in addition to health maximisation: first, concerns for the societal value of lifetime health for an individual; and second, concerns for the value of lifetime health across individuals. Health-related social welfare functions (HRSWFs) have addressed only the second concern. We propose a model that expresses the former in a metric – the adult healthy-year equivalent (AHYE) – that can be incorporated into standard HRSWFs. An empirical study based on this formulation shows that both factors matter: health losses in childhood are weighted more heavily than losses in adulthood and respondents wish to reduce inequalities in AHYEs

Measuring the societal value of lifetime health

This paper considers two societal concerns in addition to health maximisation: first, concerns for the societal value of lifetime health for an individual; and second, concerns for the value of lifetime health across individuals. Health-related social welfare functions (HRSWFs) have addressed only the second concern. We propose a model that expresses the former in a metric – the adult healthy-year equivalent (AHYE) – that can be incorporated into standard HRSWFs. An empirical study based on this formulation shows that both factors matter: health losses in childhood are weighted more heavily than losses in adulthood and respondents wish to reduce inequalities in AHYEs

Cadillac Contracts and Up-Front Payments: Efficient Investment Under Expectation Damages

This paper shows that up-front payments can play a crucial role in providing efficient investment incentives when contracts are incomplete. They can eliminate the overinvestment effect identified by Rogerson [1984] and Shavell [1980] when courts use an expectation damage remedy. This method extends to complex contracting situations if parties combine up-front payments with what we call 'Cadillac' contracts (contracts for a very high quality or quantity). This combination provides efficient investment incentives in complex contracting problems when an expectation damage remedy is accompanied by a broad duty to mitigate damages. This indicates that an expectation remedy is well-suited to multidimensional, but one-sided, investment problems, in contrast to specific performance, which Edlin and Reichelstein [1993] showed is well-suited to two-sided, but unidimensional, investment problems.

Optimal Penalties in Contracts

Contract law's liquidated damage rules prevent enforcement of contractual damage measures that require the promisor, if it breaches, to transfer to the promisee a sum that exceeds the net gain the promisee expected to make from performance; but these rules permit the promisor to transfer less than the promisee's expectation. We define a contractual damage multiplier as any number between zero and infinity by which the promisee's expected gain -- its expectation interest -- is multiplied. Multipliers of one or less thus comply with the liquidated damage rules while multipliers that exceed one do not; the high multipliers are unenforceable penalties. This paper shows that multipliers of any size can be efficient or inefficient, depending on the parties' purposes in creating them. For example, a multiplier that exceeds one will decrease welfare if used by a seller with market power to deter entry; but will increase welfare if used by parties to induce efficient relation specific investment. As a consequence, a court should inquire, not into the size of the multiplier, but into the purpose the multiplier serves for the parties.

The American Airlines Case: A Chance to Clarify Predation Policy

Predation occurs when a firm offers consumers favorable deals, usually in the short run, that get rid of competition and thereby harm consumers in the long run. Modern economic theory has shown how commitment or collective-action problems among consumers can lead to such paradoxical effects. But the paradox does signal danger. Too hawkish a policy might ban favorable deals that are not predatory. It would be ironic indeed if the standards for predatory pricing liability were so low that antitrust suits themselves became a tool for keeping prices high. Predation policy must therefore diagnose the unusual cases where favorable deals harm competition. To this end, courts and commentators have largely defined predation as sacrifice followed, at least plausibly, by recoupment at consumers' expense. The American Airlines case raises difficult questions about this approach.

Contract Renegotiation in Agency Problems

This paper studies the ability of an agent and a principal to achieve the first-best outcome when the agent invests in an asset that has greater value if owned by the principal than by the agent. When contracts can be renegotiated, a well-known danger is that the principal can hold up the agent, undermining the agent's investment incentives. We begin by identifying a countervailing effect: Investment by the agent can increase his value for the asset, thus improving his bargaining position in renegotiation. We show that option contracts will achieve the first best whenever this threat-point effect dominates the holdup effect. Otherwise, achieving the first best is difficult and, in many cases, impossible. In such cases, we show that if parties have an appropriate signal available, then the first best is still attainable for a wide class of bargaining procedures. A noisy signal, however, means that the optimal contract will involve terms that courts might view as punitive and so refuse to enforce.