Credible Cost Research Articles

Criminal Lying, Prosecutorial Power, and Social Meaning

This article concerns the prosecution of defensive dishonesty in the course of federal investigations. It sketches a conceptual framework for violations of 18 U.S.C. § 1001 and related false-statement charges, distinguishes between harmful deception and the typical investigative interaction, and describes the range of lies that fall within the wide margins of the offense. It then places these cases in a socio-legal context, suggesting that some false-statement charges function as penalties for defendants’ refusal to expedite investigations into their own wrongdoing. In those instances, the government positions itself as the victim of the lying offense and reasserts its authority through prosecution. Enforcement decisions in marginal criminal lying cases are driven by efficiency rather than accuracy goals, which may produce unintended consequences. Using false-statement charges as pretexts for other harms can diminish transparency and mute signals to comply. Accountability also suffers when prosecutors can effectively create offenses, and when it is the interaction with the government itself rather than conduct with freestanding illegality that forms the core violation. The disjunction between prosecutions and social norms about defensive dishonesty may also result in significant credibility costs and cause some erosion of voluntary compliance. Animating the materiality requirement in the statute with attention to the harm caused or risked by particular false statements could mitigate these distortions. An inquiry into the objective impact of a false statement might account for the nature of the underlying conduct under investigation, whether the questioning at issue is pretextual, whether the lie is induced, and whether the deception succeeds or could succeed in harming the investigation. By taking materiality seriously, courts could curtail prosecutorial discretion and narrow application of the statute to cases where prosecution harmonizes with social norms.

Breaking the Fetters: Why Did Countries Exit the Interwar Gold Standard?

The slow demise of the interwar gold standard figures prominently in explanations of the spread and depth of the Great Depression. The reluctance of some countries to shed their golden fetters is puzzling in the face of the visible gains enjoyed by early quitters. We explore four hypotheses explaining these divergent choices by countries, focusing on different economic shocks, differences in the perceived credibility costs of exiting, different domestic political considerations and mentality and network effects. In a panel dataset comprising both core and periphery countries, we find support for all four explanations.

Mechanisms for dividing labor and sharing revenue in joint ventures

Organizing the productive efforts of firms participating in a joint venture involves assigning firms to tasks according to abilities. A multidimensional incentive problem arises when abilities are private information. In any equilibrium, it is better to be a firm who is a specialist rather than a generalist. However, generalists can expect to receive a larger allocation of revenue. If at least one firm is decisive to the profitability of the joint venture (i.e., if it can make a credible cost announcement that implies the joint venture earns zero profit), then the joint venture will not be able to implement a profit maximizing or cost minimizing production plan.

Credibility costs in the monetary integration game*

AbstractEuro candidates are expected to maintain the value of their currency within the fluctuation band of the new exchange rate mechanism for at least two years. This paper highlights some unpleasant macroeconomic effects that could occur during this interval. The problem is cast as a two‐stage sequential game between private agents and the government of the applicant country. The policy‐maker decides whether to devaluate the domestic currency or not at two distinct dates; it makes a last choice just before accession to the monetary union. Under an assumption of incomplete information of private agents about the government's priorities on inflation and economic activity, the game presents a hybrid perfect Bayesian equilibrium. In the pooling configuration, an initial policy of zero devaluation does not signal the final devaluation decision. As private agents cannot completely rule out the risk of a ‘last devaluation’, a premium adds to interest rates and entails a systematic output loss.

Long Cheap Talk

With talk, more can be achieved by long conversations than by a single message—even when one side is strictly better informed than the other. (Cheap means plain conversation—unmediated, nonbinding, and payoff-irrelevant.) This work characterizes the equilibrium payoffs for all two-person games in which one side is bet- ter informed than the other and talk is permitted. STRATEGIC INFORMATION TRANSMISSION has been studied in economic the- ory for over a quarter of a century. Most formal models in this area allow for at most one message from each player. Yet in practice, as in negotiation or bargaining, protracted exchanges of messages are often observed. Does this make economic sense? Can a long exchange convey substantive information that cannot be conveyed by a single message? Here we examine this question in the context of cheap The answer is yes: Long talk may lead to outcomes preferred by all players to those achievable with single messages. We will characterize all the equilibrium outcomes to which it can lead, in any two-person game in which one player is initially better informed than the other. Cheap talk is just that: cheap—neither costly nor binding; and talk— not some roundabout form of communication, like mediation. Unlike sig- nalling, 2 talk—plain conversation—is payoff-irrelevant; there is no cost. The players don't strike, don't get educated, and don't issue guarantees; they simply talk. They may or may not tell the truth, and may or may not believe each other. To be sure, that there is no credibility cost does not mean that there is no credibility; depending on the circumstances, the talk may itself create positive motivation for the players to believe each other (Examples 2.1 and 2.2 below). It is this motivation that forms the crux of our analysis.

Mechanisms for Dividing Labor and Sharing Revenue in Joint Ventures

Organizing the productive efforts of firms participating in a joint venture involves assigning firms to tasks according to abilities. A multidimensional incentive problem arises when abilities are private information. In any equilibrium, it is better to be a firm who is a specialist rather than a generalist. However, generalists can expect to receive a larger allocation of revenue. If at least one firm is decisive to the profitability of the joint venture (i.e., if it can make a credible cost announcement that implies the joint venture earns zero profit), then the joint venture will not be able to implement a profit maximizing or cost minimizing production plan.

The Cost of Credibility: Explaining Resistance to Interstate Dispute Resolution Mechanisms

Abstract This paper explains why the use of mandatory dispute resolution clauses is the exception rather than the rule in international agreements. On one hand, these clauses increase the sanction for violation of the agreement and thereby increase the probability that the parties will comply. On the other hand, dispute resolution clauses impose a loss on the parties when violations occur. States, therefore, must balance the credibility and compliance benefits of a mandatory dispute resolution provision against the joint costs imposed by those provisions in the event of a violation. The paper develops a series of predictive and normative results based on the trade‐off. For example, dispute resolution clauses are more likely in low‐stakes than high‐stakes agreements, in multilateral rather than bilateral agreements, and when tribunals are more accurate. The paper also offers support for the view that money damages (or other zero‐sum transfers) should be encouraged in international dispute resolution.

The Cost of Credibility: Explaining Resistance to Inter-State Dispute Resolution Mechanisms

When states enter into an agreement the credibility of their commitment is undermined by the weakness of the international enforcement system. Including a mandatory dispute resolution provision in the agreement is one of the available strategies to improve the binding nature of an agreement and, therefore, increase the credibility and value of the agreement. As a matter of practice, however, states typically do not include mandatory dispute resolution provisions in their treaties and other agreements. International law scholars have long known this fact, but have not offered an explanation for this behavior that is consistent with what we know about contract and bargaining theory. This paper explains why the use of mandatory dispute resolution provisions is the exception rather than the rule in inter-state agreements. When states violate an international commitment, they face a loss in the form of direct sanctions or a reputational loss. These sanctions can be increased through the use of a dispute resolution clause. Both direct and reputational sanctions represent a joint loss for the parties to an agreement. In the event of a breach, therefore, the parties are better off without a dispute resolution provision. On the other hand, by increasing the sanction for a violation of international law, a dispute resolution clause increases the likelihood of compliance. States, therefore, must balance the credibility and compliance benefits of a mandatory dispute resolution provision against the joint costs imposed by those provisions in the event of a violation. The analysis generates a series of results. It is shown that dispute resolution clauses are more likely when rates of compliance are high even in the absence of such clauses, when the marginal impact of the clause on compliance is large, and when the parties to the agreement face similar ex ante probabilities of breach. Dispute resolution clauses are also more likely in low stakes agreements than in high stakes ones, and in multilateral agreements rather than bilateral ones. On the normative side, the paper demonstrates that increasing the accuracy of tribunals will increase the use of dispute resolution clauses, even if the parties are risk neutral. It also offers support for the view that money damages (or other damages that take the form of transfers between the parties) should be encouraged.

Macroeconomic implications of voucher privatization in a model with incomplete information

Voucher privatization implies a significant wealth transfer from state to private agents who, in turn, would increase consumption. This paper investigates the consequences of this wealth effect on the macroeconomic equilibrium in a high unemployment economy. The model builds on a two-stage sequential game between the government and private agents. We verify the existence of a pooling equilibrium in which private agents cannot guess whether a policy of fast privatization will be continued in the future or not. This configuration presents an endogenous probability of privatization slowdown; as a consequence, the wealth effect is moderated and the genuine fast privatizer government bears an “undue” credibility cost in terms of employment

Science Policy and the NASA Triana Mission

The recent events concerning the National Air and Space Administration's (NASA's) Triana mission discussed in the News of the Week article “Endorsement for controversial satellite” (Andrew Lawler, 17 Mar., p. [1905][1]) raise some issues about the role of the National Research Council (NRC) in providing advice to Congress. Specifically, NRC program evaluations—like its review of the Triana mission—rarely provide a comprehensive perspective needed to effectively inform national science and space policies. In the case of Triana, by focusing exclusively on “scientific merit,” the NRC report neglected two important aspects of program evaluation: the cost-effectiveness and opportunity costs associated with the mission—which are particularly important given that no recently published NRC reports called for a mission such as Triana as part of the nation's remote sensing strategy ([1][2]). The opportunity costs of Triana go beyond those expressed in budgets to include research community time and focus, adherence to scientific goals, and ultimately scientific credibility. To provide two examples of questions that should have been addressed: Would national needs be better served if the resources devoted to Triana were instead focused on the widely supported goal of a synthetic aperture radar satellite mission? A series of successful Earth Science Enterprise satellite missions is providing a deluge of new data to the scientific community: Might national needs be better served by additional funds for analysis and applications of these data? But the NRC panel did not address such broader issues, stating that it “lacked the proper expertise, resources, and time to conduct a credible cost or cost-benefit analysis…or an analysis of the mission goals and objectives within the context of a limited NASA budget or relative to other Earth Science Enterprise missions” ([1][2]). It is exactly these issues that matter most in science and space policy decision-making. By focusing only on scientific merit, the NRC not only neglected the needs of decision-makers for a comprehensive perspective, but it provided an opportunity for the misuse of the report. Immediately after the NRC report was released, partisans were “spinning” it as an endorsement of the mission, misrepresenting the report's narrow focus on scientific merit under an assumption of successful implementation. Whether or not Triana makes sense as a component of the nation's remote sensing agenda would require consideration of the issues neglected by the NRC panel, including Triana's contributions to meeting its other rationales, such as education and space weather forecasting. Congress, the Administration, and the NRC should heed the words of Vice President Albert Gore, who wrote in his 1993 report on reinventing government that “If agencies are to set measurable goals for their programs, Congress must demand less and clarify priorities more.…In the private sector, leaders do not simply drop goals on their organizations from above. [They] involve their full workforces in identifying a few goals that have top priority.…This process enables the people directly responsible for meeting the goals to help set them. It also ensures that every part of an organization aims at the same goals, and that everyone understands where they fit in” ([2][3]). We have no reason to believe that Triana should not be a component of the nation's remote sensing infrastructure; however, the existing process has not shown why the mission should play such a role. The Triana experience provides a clear example of how the scientific community too often neglects asking and answering the difficult, but necessary, questions involved with effectively advising policy-makers on the nation's scientific priorities. Ultimately the soundness of the nation's scientific endeavors is at stake. 1. [↵][4]“Review of scientific aspects of NASA Triana Mission” (National Research Council, Washington, DC, 2000). 2. [↵][5]1. A. Gore , Creating a Government That Works Better and Costs Less: The Gore Report on Reinventing Government, Report of the National Performance Review (Times Books, New York, 1993), p. 74. [1]: /lookup/doi/10.1126/science.287.5460.1905 [2]: #ref-1 [3]: #ref-2 [4]: #xref-ref-1-1 View reference 1 in text [5]: #xref-ref-2-1 View reference 2 in text

Exchange Rate Credibility, the Agency Cost of Capital and Devaluation

When a country abandons a fixed, or target zone exchange regime it usually claims that the regime was fundamentally sound but that it was undermined by pernicious speculation. The validity of the claim is impossible to assess using only observable data-there always exists a future path of current account surpluses that would make the regime sound, and speculators' (investors'?) motives are unobservable. This paper analyzes the crucial role of imperfect credibility in a currency crisis with a stochastic dynamic rational expectations regime switch model. The exchange regime is sound, e.g., a currency board--the only market failure is that the Central Bank cannot make a credible commitment to maintain the regime. The paper has two innovations: (1) It specifies the cost of imperfect credibility, and (2) It quantifies the cost of imperfect credibility. Imperfect credibility generates small (but costly) average interest rate differentials. Imperfect credibility cannot generate large interest differentials, but a surprisingly small fundamental currency overvaluation added to the basic specification generates large interest rate differentials. The paper's main result--that a lack of credibility cannot generate large interest rate differentials in a sound regime--is robust. The model in the paper is stylized, but the results are rich. The policy maker (Central Bank) and investors optimize. Investors fear devaluation and the Bank cannot make a credible commitment to allay their fears. Investors demand an agency currency premium. There is no pernicious speculation--the premium fairly prices the country's assets but it increases the country's cost of capital. The Bank abandons the regime when the expected present value of the agency cost of capital outweighs the expected present value of the benefit from remaining in the regime. The model generates multiple rational expectations equilibria and a variety of patterns linking the exchange rate to the interest rate differential. I parameterized the model using estimates of the exchange rate process for Hong Kong. The model generated agency currency premiums average 1/2%. The model generated interest rate differentials are consistent with the interest differentials in Hong Kong before the Asian financial crisis in July of 1997. After July 1997 a lack of credibility is not sufficient to explain the observed interest rate differentials of 4-6%.

Cost management in community-acquired lower respiratory tract infection

Pharmacoeconomic analysis must determine a credible cost model, including healthcare-related, non-healthcare-related, and intangible costs, and must identify important treatment outcomes. Outcomes can be ranked in terms of their sensitivity to different treatments or weighted in terms of cost. Two recent studies of community-acquired lower respiratory tract infection have shown that inadequate treatment is a frequent cause of repeat visits to the physician's office, involving extra costs that could presumably be avoided by more effective first-line treatment. When economic data are to be incorporated into clinical trials, it is important to collect data outside as well as within the trial center and to concentrate on data likely to be of significance to the decision makers the trial is designed to influence. The best way of achieving internal validity in such trials is through randomization, which minimizes bias, chance imbalance, and confounding factors. The three major determinants of the cost-effectiveness of treatment are efficacy, the value attached to preventing treatment failure, and the accuracy of diagnosis. The latter is important because a drug can only benefit patients if they have the disease for which it is an effective treatment.

The Dynamics of Optimal Gradual Stabilizations

Inflation inertia may be quite tenacious because of the simultaneous interaction between policy actions and inflationary expectations under imperfect credibility. This result is particularly relevant for understanding some of the failed efforts to stabilize inflation in South America. This article deals with the issue of inertia in the framework of imperfect information about the type of the policymaker and extends the existing models to an infinite horizon. Because policymakers do not have perfect control of inflation, a frivolous stabilizer may deviate from the policies of a serious stabilizer without necessarily being unmasked immediately. When the difference in the ability of strong and weak policymakers to control inflation is large, unexpected inflation may be persistently negative for quite a while, thus causing reduced economic activity and giving the indication that credibility is low. If the policymaker persists with the stabilization, this pattern gradually disappears as his reputation rises. But before this final stage the serious policymaker has to compromise his inflation objective in view of adverse expectation about this type and pay the cost of imperfect credibility.

Teaching about the arms race

If progress is to be made toward peace, public education on arms‐race issues is crucial both in the short run and for the long term. Because technical information is invariably essential to an understanding of issues, physicists can make a major contribution. However, educational efforts on the arms race face great difficulties, which we must first recognize if we are to overcome them:• Teaching about the arms race has in the past been a cyclical activity, rising and falling in parallel with public concern. These cycles are not all bad; the arms race is a real problem, not just an academic one, and hence it must be addressed whenever it surfaces in the political arena. But cycles tend to inject an aura of crisis into discussions, providing short‐term motivation at the cost of credibility and efficiency in the long run. The longer‐term approach has more educational implications. It means that arms‐race education must be general enough to be useful for analyzing unknown future issues. The danger with short‐term education is that by the time current educational efforts have roused public support for, say, a new round of arms control, the political need and opportunity may have passed.• The arms race presents interdisciplinary problems. Physicists may be unaware of contributions other disciplines can make to this issue and insensitive to their own biases.• There is little encouragement for physicists undertaking arms‐race educational efforts. Peer recognition for either research or teaching in the area is sparse. There is little financial support for this kind of work. The DOD looks for technical research of direct use to its missions, the Arms Control and Disarmament Agency is in disfavor within the government, the National Science Foundation has difficulty supporting anything involving the social sciences or science education and the Ford Foundation also appears to be decreasing its support for these activities.

An assessment of superconductive energy storage for Canadian freight railways

A superconductive wayside energy storage system (SM WESS) is assessed for technical feasibility and economic viability. The system, which would be used to store the braking energy of loaded freight trains in order to `peak shave' the subsequent power demand by an electrified railway is compared to a flywheel storage system. SM WESS implementation was considered for two iron-ore railways in Quebec, and the system specifications were taken to be 5.5 MWh (usable storage capacity) and 10 MW (charge peak power level). The technology of superconducting magnets is reviewed, and it is determined that the WESS magnet would be much larger than any yet built, but considerably smaller than magnets proposed for utility load levelling. After evaluating alternatives, a simple solenoid geometry and a 4.2K pool-boiling refrigeration system are selected. The conceptual designs of magnetic, cryogenic and electrical equipment were developed to provide credible cost estimates. The initial and annual costs were estimated to be $33.2 (±5) million and $270 thousand, respectively. While the superconductive system is technically feasible, the authors conclude that the magnitude of the initial cost is likely to preclude further development of the SM WESS concept.