Incentive Aspects Research Articles

Implementation in production economies with increasing returns

In this paper, we investigate incentive aspects of a general price-setting equilibrium principle in production economies with increasing returns or more general types of non-convexities. We do so by introducing the notion of generalized mechanism. We allow preferences and individual endowments to be unknown to the planner. We present a simple generalized mechanism whose social equilibrium allocations coincide with pricing equilibrium allocations. The pricing equilibrium solutions are very general and include marginal pricing equilibrium, loss-free pricing equilibrium, average pricing equilibrium, and voluntary trading equilibrium as special cases. When a pricing equilibrium principle yields Pareto efficient allocations, the mechanism doubly implements the pricing equilibrium correspondence in social and strong social equilibria. Furthermore, the mechanisms work not only for three or more agents, but also for two-agent economies.

Preserved Sensitivity to Outcome Value after Lesions of the Basolateral Amygdala

Recent work (Blundell et al., 2001; Balleine et al., 2003) has suggested that the basolateral region of the amygdala (BLA) is important in the representation of the sensory and incentive aspects of motivationally significant events. In common with other theories of function of the BLA, this predicts that lesions of the BLA will interfere with reinforcer devaluation after appetitive Pavlovian or instrumental conditioning. However, this hypothesis also predicts that BLA lesions will be without effect on postconditioning changes in reinforcer value if initial learning is only about the sensory aspects of otherwise neutral events. This interpretation is supported by evidence for significant detrimental effects of BLA lesions on reinforcer devaluation in a Pavlovian autoshaping procedure, but no effect of postconditioning devaluation using a sensory preconditioning procedure. These results demonstrate that animals with BLA lesions can remain sensitive to post-training changes in the motivational value of outcomes.

Perceived career incentives and intent to leave

Turnover is a major concern of human resource (HR) managers working with information systems (IS) personnel. Aspects of career incentives, as perceived by the IS employees, are important in their d...

Perceived career incentives and intent to leave

Turnover is a major concern of human resource (HR) managers working with information systems (IS) personnel. Aspects of career incentives, as perceived by the IS employees, are important in their decisions to leave or stay with the organization. We utilize a framework of various job anchors to examine how a sample of IS personnel regard incentives provided by employers and the importance of these in assessing the employee’s intent to leave. Job security and a service incentive are most important in reducing this intent. Organizations must address their ability to provide such incentives in order to retain their IS employees.

Do China's State-Owned Enterprises Maximize Profit?

China's state enterprise reform is often believed to have made profit the most important goal of SOEs. Nonetheless the poor performance of SOEs relative to other forms of enterprises remains puzzling. We offer an explanation based on the incentive aspect of the reform, which complements the theory based on a soft budget constraint. Under certainty, the incentives of enterprise managers to maximize their own compensation are consistent with profit maximization with or without a soft budget constraint. Under uncertainty, however, the managers' incentives generally deviate from expected profit maximization. This deviation is dampened by, but still exists even without a soft budget constraint.

Implementation of balanced linear cost share equilibrium solution in Nash and strong Nash equilibria

This paper considers the incentive aspect of the Balanced Linear Cost Share Equilibrium (BLCSE), which yields an endogenous theory of profit distribution for public goods economies with convex production technologies. We do so by presenting an incentive compatible mechanism which doubly implements the BLCSE solution in Nash and strong Nash equilibria so that Nash allocations and strong Nash allocations coincide with BLCSE allocations. The mechanism presented here allows not only preferences and initial endowments, but also coalition patterns to be privately observed. In addition, it works not only for three or more agents, but also for two-agent economies.

The many meanings of deinsuring a health service: the case of in vitro fertilization in Ontario

There is currently much international interest in principles and processes for determining which services should qualify for health insurance packages. However, there has yet been little analysis of the implications of actual deinsurance decisions made by such priority-setting exercises. This paper reports experience from the case of in vitro fertilization (IVF) deinsurance in Ontario, Canada. The analysis addresses some of the more social aspects of financial incentives by characterizing funding structures as means of communicating complex policy objectives, rather than mechanistic reward-penalty systems. Deinsuring IVF was intended to support several policy goals, including: controlling public expenditures, restricting public coverage to ‘medically necessary’ services, applying evidence of effectiveness as a criterion for medical necessity and implementing part of a policy program to control new reproductive technologies. It may seem a modest step to remove one dubious service from public insurance coverage. Nevertheless, as interpreted by stakeholders, deinsurance of IVF may inadvertently promote the opposite of what policy makers intended. This case suggests that priority-setting decisions based on incomplete information, inconsistently applied principles and too little attention to health system dynamics (perhaps the norm in ‘real-world’ priority-setting) can have the perverse effect of undermining progress toward health reform goals of improved health, reduced expenditures and more rigorously evaluated services. The case of IVF in Ontario offers several lessons for other jurisdictions engaged in priority-setting and service deinsurance: (1) individual services interact with the rest of the system and cannot be removed without systemic effects, (2) inconsistent use of coverage principles can undermine legitimacy of both priority-setting principles and processes and (3) ‘evidence-based’ decisions can founder on differing stakeholder ideas about appropriate evidence and on the inconsistent message given by commercializing ineffective or unproven care.

Specialization, Multiskilling and Human Capital: Complementarity vs. Substitutability

The introduction of team-based flexible production system substantially enhanced productivity and product quality at some progressive plants which adopted them. Most of these plants adopted a bundle of human resource practices which are designed to encourage workers to acquire broad skills and share information, and delegate more responsibilities to production workers. The existing literature, however, has not fully explained why workers are better motivated under these high-performance workplace practices despite their seemingly higher responsibilities and weaker hold-up power. It also does not answer why firms delegate considerable decision rights to workers given the possibility that such delegation may increase the bargaining power of the workers more than the firms want. In order to answer these questions, we focus on an incentive aspect of the multiskilling practices and compare it with that of specialization in the traditional work systems. We discover that organizational forms significantly affect the workers' incentives to acquire firm-specific human capital and the optimal allocation of decision rights. Key is that information-sharing by multiskilled workers induces the workers' investments in firm-specific human capital to become strategic substitutes. In the traditional work systems, on the contrary, they are more likely to be strategic complements. Assuming worker-employer relationship with ex post bargaining based on skill acquisition rather than output-contingent contracts, the following basic results are derived: (1) workers' incentives to invest in firm-specific human capital tend to be stronger; and (2) the optimal level of delegation is typically higher, in organizations with multiskilling practices than in those with specialization. Other implications of human capital complementarity and substitutability for collusion, labor union formation and job design are also discussed.

Allocation of track capacity: Experimental evidence on the use of priority auctioning in the railway industry

Allocation of track capacity concerns multiple users facing demand indivisibilities, running trains over an inelastic supply of railway tracks. The paper suggests a Vickrey-type mechanism to handle incentive aspects of this technically complex optimisation task. Here, the price for operating a train will correspond to the bids foregone by other operators who are pushed off their preferred routes. The paper reports the results of 11 experimental markets using variations of this mechanism where each market includes up to 10 trading periods, and subjects bid for routes over a highly stylised railway network. The experiments generated solutions that capture 90–100% of potential benefits.

Agricultural Contracting in Roman Palestine: Risk Sharing or Moral Hazard?

In many contracts that deal with the division of future quantities, there is a tension between risk-sharing aspects and incentive aspects. Over the last twenty-five there has been relatively more attention paid to these incentive aspects, particularly moral hazard. In this paper, we point out that risk-sharing is, nevertheless, a very important part of such contracts. Furthermore, contract characteristics that seem to be motivated by moral hazard considerations may sometimes turn out to actually be motivated by risk-sharing needs. We investigate the economic rationale for a law pertaining to tenancy in Roman Palestine, found in a Jewish legal text. This law allows for risk-sharing (through rent reduction) between tenant and landlord when the macro-economic situation is severe (makas medina), but not if the particular rental plot has a bad harvest. We consider and reject the possibility that the restriction of risk-sharing to times of makas medina can be explained from a moral hazard perspective. We show, rather, that this feature of the rental contract can be explained as the optimal rental contract in an economy characterized by tenants whose income sources are diversified. We provide empirical evidence supporting this possibility.

Theory and practice of economic instruments for environmental protection: experience of the Czech Republic

Economists generally suggest that economic instruments for environmental protection are more efficient than alternative instruments. However, despite the prescriptions of economists, in practice environmental policies have overwhelmingly preferred administrative solutions such as the imposition of environmental standards. Economic instruments have generally been applied only as a source of fiscal revenue. This has mostly negated the incentive aspects of such charges. This article analyzes why traditional command and control regulation is more attractive for politicians and polluters and shows some practical drawbacks of market oriented solutions. At the same time, from practical experience with emission charges in the Czech Republic, the paper derives some assumptions which must be fulfilled if a system of economic instruments is to work successfully. © 1997 John Wiley & Sons, Ltd and ERP Environment.

Theory and practice of economic instruments for environmental protection: experience of the Czech Republic

Economists generally suggest that economic instruments for environmental protection are more efficient than alternative instruments. However, despite the prescriptions of economists, in practice environmental policies have overwhelmingly preferred administrative solutions such as the imposition of environmental standards. Economic instruments have generally been applied only as a source of fiscal revenue. This has mostly negated the incentive aspects of such charges. This article analyzes why traditional command and control regulation is more attractive for politicians and polluters and shows some practical drawbacks of market oriented solutions. At the same time, from practical experience with emission charges in the Czech Republic, the paper derives some assumptions which must be fulfilled if a system of economic instruments is to work successfully. © 1997 John Wiley & Sons, Ltd and ERP Environment.

Incentive Effects of Rate-of-Return Regulation in Hong Kong

A recent paper published by this journal (Peles and Whittred 1996) discussed the regulatory arrangement of the Scheme of Control in Hong Kong. Instead of encouraging electric utilities to finance their assets proportionately more by equity as argued by the authors, the Scheme has in fact given them an incentive to rely on debt financing. A major incentive aspect of the Scheme lies in the formation of a development fund for making internal transfers. This development fund arrangement has provided an incentive for the two electric utilities to improve efficiency and has facilitated the expansion of the electric power industry.

Prenatal exposure to morphine affects juvenile play behavior and adult social behavior in rats

The effects of morphine exposure in utero on play behavior and social behavior were investigated in a longitudinal study. Wistar rat dams were SC injected daily with saline (control) or 10 mg/kg morphine from day 8 to day 21 of gestation. Play behavior of the offspring was measured at 3 and 4 weeks of age and social behavior at 3 months of age. Pinning, a measure for play behavior and social grooming of the morphine-treated offspring were significantly elevated compared to saline controls, especially on day 21. The onset-latency of pinning behavior was not changed. Furthermore, prenatal morphine treatment resulted in more social approach and less social avoidance behavior in adulthood, whereas changes in general locomotor activity were not observed. The results are discussed in relation to the effects of in utero exposure of morphine on the development of incentive aspects of play and social behavior.

Aspects of Contractual Incentives and its Application to Japanese Construction Industry

Contractual incentives are a useful tool by which an owner intends to reduce costs primarily. The use of incentives for construction contracts in our country has just begun by the Ministry of Construction through the implementation of value engineering program in bidding. However, there is a lack of understanding on the incentive theory to adopt this tool effectively. Furthermore, there are needs to develop different approaches that are applicable to Japanese construction industry.This research focuses on indirect costs that may significantly affect contractor's profit under current estimating and contract practices in the industry. This paper first shows an example cost analysis using actual cost-control data of a contractor to discuss potential of indirect costs for cost reduction. Then, the ideas of using incentives as an inducement for contractors to perform efficient risk management are discussed to achieve owner's goals.

Incentive aspects of Joint Implementation of greenhouse gas reduction

The costs of a national climate policy instruments can be reduced if a reduction of greenhouse gas emission achieved abroad can be credited to a national target. Reductions carried through by agents of one country in another country are called Joint Implementation and have been a major topic in the negotiations on the UN Framework Convention on Climate Change. The First Conference of the parties in Berlin decided that the concept shall be tested in a pilot phase without crediting. To induce private investments in Joint Implementation projects, primary instruments such as emission taxes, subsidies, tradeable emission rights or regulation are a necessary condition. Tax concessions, subsidies, additional emission rights or relaxation of regulation act as incentives. These must be proportional to the emission reduction achieved through the projects. Tax concessions and subsidies are preferable to other instruments for efficiency reasons.

Ratio-Lindahl equilibria and an informationally efficient and implementable mixed-ownership system

In this paper, we formalize an informationally efficient and implementable mixed-ownership economic institutional framework by using the Ratio-Lindahl equilibrium that yields Pareto-efficient and individually rational allocations for public goods economies with general variable returns. We consider the incentive aspects of the system by giving an “incentive-compatible,” informationally efficient, and “privacy preserving” mechanism whose Nash allocations coincide with Ratio-Lindahl allocations. Moreover, the mechanism is “well-behaved” in the sense that it uses an individually feasible, balanced, and continuous outcome function and further, has a message space of minimal dimension.

Incentive Aspects of Joint Implementation of Greenhouse Gas Reduction

Incentive Aspects of Joint Implementation of Greenhouse Gas Reduction

Implementation of Linear Cost Share Equilibrium Allocations

In this paper we investigate incentive aspects of the Linear Cost Share Equilibrium principle by designing mechanisms whose Nash allocations coincide with Linear Cost Share equilibrium allocations. The mechanisms presented here allow not only preferences but also initial indowments to be privately observed, a feature missing from much recent work in implementation theory. We give mechanisms for both cases of withholding and destruction of endowments. If one reinterprets the commodity space, our mechanisms also implements Walransian allocations to economics with purely private goods. Thus, our mechanisms are sufficiently general to cover Walrasian equilibria, Lindahl equilibria, and cost share equilibria. In other words, the mechanisms in this paper appear to represent "generic" mechanisms to implement competitive-type allocations in private and public goods economies. Journal of Economic Literature Classification Numbers: C72, D61, D78.

On informational efficiency and incentive aspects of generalized ratio equilibria

In this paper, we investigate the informational efficiency and incentive aspects of the Generalized Ratio Equilibrium (GRE) rule in public goods economies with general variable returns and by-product technologies. We extend Hurwicz's (1979a) results to the cases of non-constant returns and prove that any implementable social choice correspondence that selects Pareto efficient and autarkically individually rational allocations contains GRE allocations, and conversely, the set of GRE allocations contains the interior points of the correspondence. Moreover, we prove that the GRE process is informationally the most efficient process among informationally decentralized and Pareto efficient resource allocation processes and thus that the minimal message space needed for the GRE correspondence is never larger than that needed for the Lindahl correspondence, and that when by products technologies are present, it is smaller than that needed by the Lindahl correspondence.