A Theory of Authority in Bilateral Contracting

Two players are involved in a joint project during which a decision must be reached. Each player has private information about future profits. Authority gives one player the right to decide first in a pre-defined set of alternatives. In this framework, I show that (partial) authority should be assigned to the player who gets the highest share of the total surplus. This organizational architecture replicates the performance of an optimal revelation mechanism without the cost of hiring a third party acting as a principal.Contract, asymmetric information, control rights, limited liability, hidden information

Electricity Production with Intermittent Sources

The paper analyzes the interaction between a reliable source of electricity production and intermittent sources such as wind or solar power. We first characterize the first-best dispatch and investment in the two types of energy. We put the accent on the availability of the intermittent source as a major parameter of optimal capacity investment. We then analyze decentralization through competitive market mechanisms. We show that decentralizing first best requires to price electricity contingently on wind or solar availability. By contrast, traditional meters impose a second-best uniform pricing, which distorts the optimal mix of energy sources. Decentralizing the either cross-subsidy from the intermittent source to the reliable source of energy or structural integration of the two types of technology.

Roscas as Financial Agreements to Cope with Social Pressure

In developing countries, traditional social obligations often press rich individuals to share their income. In this paper, we posit a "model of social pressure" in which people can sign binding financial agreements amongst themselves, thereby forming coalitions. These financial agreements may help them to alleviate their social obligations with respect to income sharing. In the above context, we show that there exists a stable structure of coalitions in which people form rotating savings and credit associations (roscas). We therefore provide a rationale for one of the most prevalent and puzzling financial institutions.Roscas, Social pressure, Stability, Contract, Credit

Can Environmental Regulations be Good for Business? an Assessment of the Porter Hypothesis

The Porter hypothesis asserts polluting firms can benefit from environmental policies, arguing that well-designed environmental regulations stimulate innovation, which by increasing either productivity or product value, leads to private benefits. As a consequence, environmental regulations would benefit both society and regulated firms. This point of view has found a receptive audience among policy makers and the popular press but has been severely criticized by economists. In this paper, we present some of the arguments in this debate and review the empirical evidence available so far in the economic literature.Porter Hypothesis, Environmental Regulations, Competitiveness

When and why does it pay to be green?

Environmental policy; innovation; Porter hypothesis; environmental regulation; pollution; capital market; green products.