Moral Hazard in Partnerships

In this paper, we investigate incentive structures within partnerships. Partnerships provide a classic example of the tradeoff between risk spreading and moral hazard. The degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences, for which data are typically unavailable. We are able to overcome this difficulty due to the existence of a unique data set on a prominent form of professional partnership; medical group practice. We consider a two-stage model in which agents choose effort in response to incentives and in which the firm can choose two different instruments to affect incentives and to spread risk: the compensation method and the number of members. There are two new theoretical results. First, relative to the compensation method or group size which would be chosen in the absence of risk or risk aversion, the best compensation method will be one which sacrifices efficiency incentives in order to spread risk, and the best membership size will exceed the first best size for the same reasons. Second, a further increase in risk or risk aversion leads the firm to sacrifice more efficiency incentives in order to spread more risk. Hence, firms who are more risk averse or face greater uncertainty pay larger risk premiums in terms of sacrificed output due to shirking. The empirical results are striking and consistent with the theory. Firms which report more risk aversion have greater departures from first-best organizational incentive structures. Specifically, increased risk aversion leads to compensation arrangements which spread more risk through greater sharing of output and to decreased group size in order to counteract diminished incentives. We also find that compensation arrangements that have greater degrees of sharing of output across physicians significantly reduce each physician's productivity, whereas reductions in group size significantly increase productivity. The estimated premium associated with risk aversion accounts for almost eleven percent of gross income, comparing the most risk averse to the least risk averse physicians in the sample.

The Evolution of Antisocial Punishment in Optional Public Goods Games

Cooperation, where one individual incurs a cost to help another, is a fundamental building block of the natural world and human society. It has been suggested that costly punishment can promote the evolution of cooperation, with the threat of punishment deterring free-riders. Recent experiments, however, have revealed the existence of 'antisocial' punishment, where non-cooperators punish cooperators. While various theoretical models find that punishment can promote the evolution of cooperation, these models a priori exclude the possibility of antisocial punishment. Here we extend the standard theory of optional public goods games to include the full set of punishment strategies. We find that punishment no longer increases cooperation, and that selection favours substantial levels of antisocial punishment for a wide range of parameters. Furthermore, we conduct behavioural experiments, showing results consistent with our model predictions. As opposed to an altruistic act that promotes cooperation, punishment is mostly a self-interested tool for protecting oneself against potential competitors.MathematicsPsycholog

Positive Interactions Promote Public Cooperation

The public goods game is the classic laboratory paradigm for studying collective action problems. Each participant chooses how much to contribute to a common pool that returns benefits to all participants equally. The ideal outcome occurs if everybody contributes the maximum amount, but the self-interested strategy is not to contribute anything. Most previous studies have found punishment to be more effective than reward for maintaining cooperation in public goods games. The typical design of these studies, however, represses future consequences for today’s actions. In an experimental setting, we compare public goods games followed by punishment, reward, or both in the setting of truly repeated games, in which player identities persist from round to round. We show that reward is as effective as punishment for maintaining public cooperation and leads to higher total earnings. Moreover, when both options are available, reward leads to increased contributions and payoff, whereas punishment has no effect on contributions and leads to lower payoff. We conclude that reward outperforms punishment in repeated public goods games and that human cooperation in such repeated settings is best supported by positive interactions with others.EconomicsMathematicsOrganismic and Evolutionary Biolog

Massively Parallel Model of Extended Memory Use in Evolutionary Game Dynamics

To study the emergence of cooperative behavior, we have developed a scalable parallel framework for evolutionary game dynamics. This is a critical computational tool enabling large-scale agent simulation research. An important aspect is the amount of history, or memory steps, that each agent can keep. When six memory steps are taken into account, the strategy space spans $2^{4096}$ potential strategies, requiring large populations of agents. We introduce a multi-level decomposition method that allows us to exploit both multi-node and thread-level parallel scaling while minimizing communication overhead. We present the results of a production run modeling up to six memory steps for populations consisting of up to 1018 agents, making this study one of the largest yet undertaken. The high rate of mutation within the population results in a non-trivial parallel implementation. The strong and weak scaling studies provide insight into parallel scalability and programmability trade-offs for large-scale simulations, while exhibiting near perfect weak and strong scaling on 16,384 tasks on Blue Gene/Q. We further show 99% weak scaling up to 294,912 processors 82% strong scaling efficiency up to 262,144 processors of Blue Gene/P. Our framework marks an important step in the study of game dynamics with potential applications in fields ranging from biology to economics and sociology.Engineering and Applied Science

The Effects of euro Adoption on the Slovak Economy

In this study we assess the effects of euro adoption from an economic perspective. The benefits and disadvantages of Slovak entry to the euro area were discussed already when the euro adoption strategy was adopted. This analysis utilizes the latest information, using the set euro adoption date and the chosen euro adoption scenario. We attempt to quantify the most important effects, so that the costs and benefits can be compared. The costs and risks related to the euro area entry will depend on economic conditions and policies. Therefore we analyze the economic policies, which should support euro adoption, the issues of optimal timing of euro area entry and the impacts of euro adoption on citizens, businesses and the state administration.

Literatur-Rundschau

Harald Pawlowski: Die Zukunft liegt in jedem Augenblick (Michael Schmolke)Ron Brinitzer: Religion - eine institutionenökonomische Analyse (Steffen W. Hillebrecht)Willern Marie Speelmann: Liturgie in beeld: Over de identiteit van de rooms-katholieke liturgie in de elektronische media (Martin Gertler)Mirko Marr: Internetzugang und politische Informiertheit (Michael Harnischmacher)Peter Overbeck (Hg.): Musikjournalismus (Liane Rothenberger)Martin Sabrow/Ralph Jessen/Klaus Große Kracht (Hg.): Zeitgeschichte als Streitgeschichte (Michael Schmolke)Inge Kloepfer: Friede Springer (Ute Stenert)

Nothing is in the air

It has often been argued that “there is something in the air” which makes firms in high-density environments—such as cities or clusters—more innovative. The co-location of firms facilitates the emergence of serendipity and casual encounters which promote innovation in firms. We assess this hypothesis using data from a survey of Norwegian firms engaged in innovation partnerships. The results indicate that there may be “much less in the air” than is generally assumed in the literature. The relationships conducive to innovation by Norwegian firms emerged as a consequence of purpose-built searches and had little to do with chance, serendipity, or “being there.”acceptedVersio

Regional identity can add value to agricultural products

Regional identity creation is being recognized for its economic benefits and as a strategic resource for producer communities. A regional identity is not a brand; it is built through a complicated process of developing cohesion and sharing in the industry community and communicating outside the industry community to opinion-makers and consumers. The California fine wine industry has built successful regional identities and leveraged them to add value to their wines. As regional identities in the wine industry have strengthened, so has the industry, and a symbiotic relationship with other local value-added industries, such as tourism and hospitality, has emerged. Other agricultural producers can learn from the identity creation experiences in the wine industry. With the many challenges faced by California agriculture, identity formation may offer producers new ideas for adding value to their products and finding larger markets

The Threat of Capital Drain: A Rationale for Public Banks?

This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility

Collateral, Liquidity and Debt Sustainability

We study Markov‐perfect optimal fiscal policy in an economy with financial frictions and sovereign default in the form endogenously determined haircuts on outstanding debt. Government bonds facilitate tax smoothing but also provide collateral and liquidity services that mitigate financial frictions. A debt Laffer curve exists, which induces the government to issue bonds to a point where marginal debt has negative welfare effects. Debt positions in the order of magnitude of annual output remain sustainable despite the option to default. When default happens, liquidity on the bond market is impaired, which can trigger extended periods of recurrent haircuts