Excessive Incentives Research Articles

Are incentives excessive or insufficient? The impact of R&D fiscal policies on R&D inefficiency in China

The extant literature on evaluating the influence of R&D fiscal policies primarily focused on the advantages of the input or output additionality, neglecting that excessive incentives caused by R&D fiscal policies may lead to R&D inefficiency. From the perspective of resource misallocation, this paper divides R&D inefficiency into input redundancy and output insufficiency, then further measures the impact of three typical R&D fiscal policies on R&D inefficiency based on the firm-level sample of Zhongguancun Science Park in China. A two-step empirical analytical framework is constructed in this paper, namely, the inefficiency measurement step and the influence assessment step. The results prove that R&D fiscal policies may lead to resource misallocation and aggravate R&D inefficiency, and the heterogeneous conclusions cross three policies are found. Specifically, the subsidy policy significantly promotes the increase of R&D inefficiency, which primarily reflects in the rise of input redundancy. The pre-tax additional deduction policy does not show a significant impact on the R&D inefficiency but increases the input redundancy. On the contrary, the preferential tax rate for high-tech enterprises policy effectively inhibits the inefficiency. This paper not only attempts to reveal the formation of R&D inefficiency theoretically from the perspective of resource misallocation, but also takes China as an empirical sample to provide evidence for guiding the design of more effective R&D fiscal policies.

ECONOMIC ANALYSIS OF SMALL VALUE DISPUTES IN THE REPUBLIC OF SERBIA

Small value disputes in the Republic of Serbia represent a great burden on the efficient working of the civil courts. Based on the setting of different expectations model, the economic analysis of small value claims shows tendency to initiate frivolous litigation, large disproportion between litigation costs and the value of a small claim, uneconomical litigation, excessive incentives for litigation and too established high threshold value. The paper analyses the economic effects of the planned changes in civil procedural rules of small value disputes. Based on the proposed changes, it is expected: the reduction of litigation costs, especially the attorney's fees the more economical litigation procedure and that lowering the threshold value of small dispute, will be more harmonized with the average monthly salary and GDP. Based on the set model of settlement, it's expected that the lowering the threshold value of a small dispute should lead to a higher settlement rate, as well as that any increase in court fees and reduction of the opposing party’s optimism can lead to higher probability of settlement. The paper presents concrete proposals for improving the efficiency of resolving small value disputes.

A Trusted Paradigm of Data Management for Blockchain-Enabled Internet of Vehicles in Smart Cities

Internet of Vehicles(IoV) enables vehicles to generate and share messages to improve transportation safety and efficiency, especially in a smart city scenario where modern communication technology is utilized. The current IoV, however, faces three main issues: (1) existing frameworks fail to build a complete data management system, (2) received messages in an untrusted environment are challenging to assess for credibility, and (3) the centralized ways to store data are causing severe security and efficiency problems. Blockchain-enabled IoV (BIoV) provides an opportunity for addressing these issues. This paper proposes a trusted paradigm of data management based on a vehicle–road–cloud architecture. A few-shot learning model, Wasserstein Generative Adversarial Network (WGAN) with Synthetic Minority Oversampling Technique (SMOTE) sampling is designed to evaluate whether the uploading message is malicious. This paper also proposes the novel group-weighted-decay Practical Byzantine Fault Tolerance (PBFT) consensus algorithm, an improved version of PBFT to store data, and provides a comprehensive review of its viability and data management procedures. By employing the joint gwd-PBFT and Proof of Trust (PoT) consensus, the method mitigates the issue of excessive incentives. According to simulation results, the system's overall efficiency can be increased while retaining security and availability.

The Turing Trap: The Promise & Peril of Human-Like Artificial Intelligence

Abstract In 1950, Alan Turing proposed a test of whether a machine was intelligent: could a machine imitate a human so well that its answers to questions were indistinguishable from a human's? Ever since, creating intelligence that matches human intelligence has implicitly or explicitly been the goal of thousands of researchers, engineers, and entrepreneurs. The benefits of human-like artificial intelligence (HLAI) include soaring productivity, increased leisure, and perhaps most profoundly a better understanding of our own minds. But not all types of AI are human-like-in fact, many of the most powerful systems are very different from humans-and an excessive focus on developing and deploying HLAI can lead us into a trap. As machines become better substitutes for human labor, workers lose economic and political bargaining power and become increasingly dependent on those who control the technology. In contrast, when AI is focused on augmenting humans rather than mimicking them, humans retain the power to insist on a share of the value created. What is more, augmentation creates new capabilities and new products and services, ultimately generating far more value than merely human-like AI. While both types of AI can be enormously beneficial, there are currently excess incentives for automation rather than augmentation among technologists, business executives, and policy-makers.

Salience Bias and Overwork

In this study, we enrich a standard principal–agent model with hidden action by introducing salience-biased perception on the agent’s side. The agent’s misguided focus on salient payoffs, which leads the agent’s and the principal’s probability assessments to diverge, has two effects: First, the agent focuses too much on obtaining a bonus, which facilitates incentive provision. Second, the principal may exploit the diverging probability assessments to relax participation. We show that salience bias can reverse the nature of the inefficiency arising from moral hazard; i.e., the principal does not necessarily provide insufficient incentives that result in inefficiently low effort but instead may well provide excessive incentives that result in inefficiently high effort.

Incentive and Supervisory Contract between Special Committees and CEO Based on the Evolutionary Game Model

The process of CEO incentive and supervision, in which the special committee plays an important role, has always been a hard problem to solve in modern corporate governance. Considering the conflicts of interest between the compensation committee, audit committee, and the CEO, this paper constructed a game model of incentive and supervision within the board of directors and analysed the strategic choices of all three and the influencing mechanisms in different contexts. The results show that there is no totally stable strategy point in the system and that there are different strategy choices in different situations; the CEO’s strategy choice is influenced by both the compensation committee and the audit committee, the incentive strategy of the compensation committee will promote the CEO’s self-interested behaviour, and the supervision strategy of the audit committee is inhibitive. The function of the special committee is dependent on its initial intention and the intensity of action. In the situation of excessive incentive by the compensation committee, the strategy choice of audit committee has periodicity, and the CEO and audit committee have periodic discretionary choice game. This study provides insight into the internal governance of the board of directors, particularly special committees, which create the incentive and supervisory contracts.

ANALYSIS OF NON-EQUILIBRIUM STATES OF MILK-RAW MATERIAL MARKET IN THE CONTEXT OF EFFECTIVE REGIONAL AGRARIAN POLICY IMPLEMENTATION

In order to analyze non-equilibrium states in the regional markets of milk-raw materials, a model of "estimated price" has been developed. That model is a function of two factors, an indicator opposite to the supply elasticity, the role of which is to assess the efficiency of the price stimulus and resource efficiency, acting as an indicator of the balanced state of the market. Four types of non-equilibrium market state were identified based on that model and tested on the example of individual markets of the VRO (Volga Region Okrug). Thus it is possible to classify markets according to two characteristics: surplus or deficit and positive or negative reaction of milk sales volume to price incentive. These parameters are determined by the structural characteristics of the market and, above all, by the level of development of the collective sector - agricultural organizations. In regions with low level of development of the collective sector there is a significant shortage in the market of milk-raw materials and a weak reaction of agricultural organizations to the price incentive. At the same time, the actual price of milk sales came close to the upper limit of the price range of the "estimated price," which as a matter offact indicates that there is a limit for further price incentives. However, even under these conditions, the structural position ofprocessors in the market is stronger and incapable of solving the deficit problem. Regions with a high level of development of the collective sector are characterized by two situations - either surplus or slight deficit with the possibility of transition to balance in the market and excessive price incentive. Here, the actual price turns out to be much higher than the "estimated price," which shows the presence of a complementary price, - an investment instrument for the development of dairy cattle breeding. The application of the "estimated price" tool allows to synthesize the methodology of several approaches. In particular the decomposition of the price factor of 1 ton of milk by two factors: full costs and profit from the sale of 1 ton of milk, allowed to link the provisions of the concept of supply elasticity and the theory of reproduction.

The agency costs of on-the-job search

This paper studies how workers' on-the-job search influences optimal incentives in organizations. We analyze a principal-agent model in which the agent multitasks between working for the principal and searching for other job opportunities. The agent partly uses on-the-job search to improve his bargaining position within the relationship. We show that the optimal contract may feature both excessive performance bonuses as well as efficiency wages. Both measures reduce the agent's search incentives, but do not completely eliminate rent-seeking under the optimal contract. On-the-job search therefore generates agency costs. The model suggests a new rational for excessive incentive pay and efficiency wages.

Too much at stake to uphold sport integrity? High-performance athletes’ involvement in match-fixing

Non-betting-related match-fixing constitutes an important integrity issue in contemporary sports. With varied forms ranging from passive tanking to the purposeful, coercive, calculated bribing of others to gain advantages, non-betting-related match-fixing can be a form of corruption that deters sport development. This paper examines high-performance athletes’ involvement in non-betting-related match-fixing in South Korea. Drawing from survey data (n = 731), this paper describes and analyses the prevalence of match-fixing, its locales (i.e., levels of competition) and origins (i.e., who made the offer/approach). Results show that: (1) 74 athletes (10.12%) were approached to take part in match-fixing, while 33 of those athletes (4.51%) actually participated; and (2) the match-fixing offers were usually made ‘by coaches’, ‘at high school-level nationwide competitions’, ‘for the purpose of entering universities’. Finally, this paper concludes by suggesting that the excessive incentives (e.g., university admission) linked with elite sport development structures may account for the strong motive behind non-betting-related match-fixing, and its endangering of sport integrity.

The paraventricular thalamus is a critical mediator of top-down control of cue-motivated behavior in rats.

Cues in the environment can elicit complex emotional states, and thereby maladaptive behavior, as a function of their ascribed value. Here we capture individual variation in the propensity to attribute motivational value to reward-cues using the sign-tracker/goal-tracker animal model. Goal-trackers attribute predictive value to reward-cues, and sign-trackers attribute both predictive and incentive value. Using chemogenetics and microdialysis, we show that, in sign-trackers, stimulation of the neuronal pathway from the prelimbic cortex (PrL) to the paraventricular nucleus of the thalamus (PVT) decreases the incentive value of a reward-cue. In contrast, in goal-trackers, inhibition of the PrL-PVT pathway increases both the incentive value and dopamine levels in the nucleus accumbens shell. The PrL-PVT pathway, therefore, exerts top-down control over the dopamine-dependent process of incentive salience attribution. These results highlight PrL-PVT pathway as a potential target for treating psychopathologies associated with the attribution of excessive incentive value to reward-cues, including addiction.

Copyright's L Curve Problem

No one ever argues for copyright on the grounds that superstar artists and authors need more money, but what if that is all, or mostly all, that copyright does? This article presents newly available data on the distribution of players across the PC videogame market. This data reveals an L-shaped distribution of demand. A relative handful of games are extremely popular. The vast majority are not. In the face of an L curve, copyright overpays superstars, but does very little for the average author and for works at the margins of profitability. This makes copyright difficult to justify on either efficiency or fairness grounds. To remedy this, I propose two approaches. First, we should incorporate cost recoupment into the fourth fair use factor. Once a work has recouped its costs, any further use, whether for follow-on creativity or mere duplication, would be fair and non-infringing. Through such an interpretation of fair use, copyright would ensure every socially valuable work a reasonable opportunity to recoup its costs without lavishing socially costly excess incentives on the most popular. Second and alternatively, Congress can make copyright short, narrow, and relatively ineffective at preventing unauthorized copying. If we refuse to use fair use or other doctrines to tailor copyright’s protection on a work-by-work basis and insist that copyright provide generally uniform protection, then efficiency and fairness both require that that uniform protection be far shorter, much narrower, and generally less effective than it presently is.

A theory of the US innovation ecosystem: evolution and the social value of diversity

This article reviews evidence on the changing structure of the US innovation ecosystem and then develops a simple model of the rise and fall of the large corporate lab. We suggest that the growth of American universities allowed at first the formation of large corporate labs by training scientists to work in industrial labs. Subsequently, however, start-up invention spurred by university research provided an increasingly attractive alternative to internal research, leading to the demise of the large corporate lab. We use this model to assess whether the substitution of corporate research with start-up invention can result in insufficient variety in the innovation ecosystem. We find that, when levels of university research and start-up activity are high, large firms can have socially excessive incentives to focus on “open innovation.” Thus, despite its potential efficiency benefits, a division of innovative labor may reduce diversity in the innovation ecosystem by encouraging “me too” innovations.

Optimal Financial Contracting and Risk-Shifting

I study optimal financial contracting when neither cash flows nor the risk profile of project choices are verifiable. Using a contracting framework, I show the resulting two frictions (cash-diversion and asset-substitution) are intricately linked: to address the cash-diversion problem, an optimal contract resembles a debt contract, which in turn causes the asset-substitution problem. A key finding of this paper is that, due to the potential shift of control rights to the investor, the firm does not have an excessive risk-taking incentive; in fact, my model predicts that the firm may choose an excessively safe risk-profile. Also, my model highlights the role of the financial market structure (private vs. public debt): the asset substitution problem increases the cost of public debt, but lowers that of private debt. Strikingly, however, regardless of the market structure, the asset-substitution problem leads to a more efficient risk-profile choice.

Evolving Concepts of Emotion and Motivation.

This review takes a historical perspective on concepts in the psychology of motivation and emotion, and surveys recent developments, debates and applications. Old debates over emotion have recently risen again. For example, are emotions necessarily subjective feelings? Do animals have emotions? I review evidence that emotions exist as core psychological processes, which have objectively detectable features, and which can occur either with subjective feelings or without them. Evidence is offered also that studies of emotion in animals can give new insights into human emotions. Beyond emotion, motivation concepts have changed over decades too, and debates still continue. Motivation was once thought in terms of aversive drives, and reward was thought of in terms of drive reduction. Motivation-as-drive concepts were largely replaced by motivation-as-incentive concepts, yet aversive drive concepts still occasionally surface in reward neuroscience today. Among incentive concepts, incentive salience is a core motivation process, mediated by brain mesocorticolimbic systems (dopamine-related systems) and sometimes called ‘wanting’ (in quotation marks), to distinguish it from cognitive forms of desire (wanting without quotation marks). Incentive salience as ‘wanting’ is separable also from pleasure ‘liking’ for the same reward, which has important implications for several human clinical disorders. Ordinarily, incentive salience adds motivational urgency to cognitive desires, but ‘wanting’ and cognitive desires can dissociate in some conditions. Excessive incentive salience can cause addictions, in which excessive ‘wanting’ can diverge from cognitive desires. Conversely, lack of incentive salience may cause motivational forms of anhedonia in depression or schizophrenia, whereas a negatively-valenced form of ‘fearful salience’ may contribute to paranoia. Finally, negative ‘fear’ and ‘disgust’ have both partial overlap but also important neural differences.

Can lead farmers reveal the adoption potential of conservation agriculture? The case of Malawi

This paper assesses the adoption potential of conservation agriculture (CA) and related technologies in Malawi, where CA appears appropriate to protect against land degradation and climate risks (droughts and floods). Estimation of adoption rates and their determinants is complicated by the relatively recent introduction of some of these technologies and limited awareness of CA principles and practices among the general population of smallholder farmers. We propose and use a lead farmer promoter-adopter approach, which relies on the promoters having had sufficient exposure and access to the technologies, their interest to adopt CA not having been distorted by excessive incentives, and them not being overly different from other smallholders in the target population. These conditions are reasonably satisfied in our application with a sample of 175 lead farmers from four districts in central and southern Malawi. Conditional on lead farmers being familiar with the technologies, we find adoption rates of 56% for organic manure and crop rotation, 26% for minimum tillage, 30% for mulching, and 12% for herbicide application. Lead farmers recommend CA and supporting agricultural practices to their followers at rates of 66% for organic manure, 49% for crop rotation, 45% for minimum tillage, 27% for mulching, and 6% for herbicide application. Assuming the validity of the promoter-adopter approach, these findings together suggest that, in central and southern Malawi, organic manure and crop rotation (in central Malawi only) have the highest adoption potential, mulching and minimum tillage come next, and herbicide application has the lowest potential. Ninety-seven percent of the lead farmers had adopted three or less of these technologies, full adoption of CA is therefore unlikely and suggest other reasons than information constraints as major impediments to its full adoption.

Depressive statements prime goal-directed alcohol-seeking in individuals who report drinking to cope with negative affect

BackgroundMost variants of negative reinforcement theory predict that acute depressed mood can promote alcohol-seeking behaviour, but the precise mechanisms underpinning this effect remain contested. One possibility is that mood-induced alcohol-seeking is due to the formation of a stimulus-response (S-R) association, enabling depressed mood to elicit alcohol-seeking automatically. A second possibility is that depressed mood undergoes incentive learning, enabling it to enhance the expected value of alcohol and thus promote goal-directed alcohol-seeking.ObjectivesThese two explanations were distinguished using a human outcome-revaluation procedure.MethodsOne hundred and twenty-eight alcohol drinkers completed questionnaires of alcohol use disorder, drinking to cope with negative affect and depression symptoms. Participants then learned that two responses earned alcohol and food points respectively (baseline) in two alternative forced choice trials. At test, participants rated the valence of randomly sampled negative and positive mood statements and, after each statement, chose between the alcohol- and food-seeking responses in extinction.ResultsThe percentage of alcohol- versus food-seeking responses was increased significantly in trials containing negative statements compared to baseline and positive statement trials, in individuals who reported drinking to cope with negative affect (p = .004), but there was no such interaction with indices of alcohol use disorder (p = .87) or depression symptoms (p = .58).ConclusionsIndividuals who drink to cope with negative affect are more sensitive to the motivational impact of acute depressed mood statements priming goal-directed alcohol-seeking. Negative copers’ vulnerability to alcohol dependence may be better explained by excessive affective incentive learning than by S-R habit formation.

The Strategic Role of Business Insurance

The use of business insurance has been traditionally studied in a single-firm setting, but in reality preventing operational accidents involves the (unobservable) efforts of multiple firms. We show that, in a multifirm setting, insurance can be used strategically as a commitment mechanism to prevent excessive free riding by other firms. In the presence of wealth imbalances, contracts alone leave wealth-constrained firms with inefficiently low incentives to exert effort (because of limited liability) and firms with sufficient wealth with excessive incentives. Insurance allows the latter to credibly commit to lower effort, thereby mitigating the incentives of the wealth-constrained firms to free ride. This finding shows that insurance can improve the efficiency of risk management efforts by decreasing free-riding problems. This paper was accepted by Yossi Aviv, operations management.

Reexamination of risk-taking incentives in banking: Realign incentives and curtail future episodes of mismanagement

Abstract CEO incentive compensation, in particular the equity-based compensation, has been blamed for excessive risk-taking by bank CEOs in the recent financial crisis. This study reassesses the impacts of deregulation on the incentives provided to CEOs and examines how bank boards redesigned CEO compensation contracts during and after the crisis to assess if the government interventions are necessary to realign incentives between CEO and shareholders. Employing a multiple-equation model that allows for simultaneity among vega, delta, and bank investment, I found that banks provided high-vega contracts as incentives for bank CEOs to exploit post-deregulation growth opportunities and to shift from traditional on-balance sheet portfolio lending to nontraditional fee-generating activities. No evidence shows the relation between incentive compensation and risk-taking activities before deregulation. In the crisis and post-crisis period, compensation committees attempted to manage excessive risk-taking incentives at these banks by reducing vega and establishing complementarily high values of delta to align incentives between CEOs and shareholders. Especially in the post-crisis period, the value of vega has been decreased significantly, suggesting government intervention of bank’s CEO compensation works effectively to reduce bank risk.

How Powerful CFOs Camouflage and Exploit Equity-Based Incentive Compensation

While numerous studies have examined the impact that powerful CEOs have on their compensation and overall firm decisions, relatively little is known about how powerful CFOs influence their compensation and important firm financial reporting and operational outcomes. This is somewhat surprising given the critical role CFOs play in the financial reporting process of a firm. Using managerial power theory (Bebchuk and Fried in J Econ Perspect 17:71–92, 2003) and the theory of power and self-focus (Pitesa and Thau in Acad Manag J 56(3):635–658, 2013), we predict that powerful CFOs employ a two-part strategy to camouflage excessive incentive compensation above what efficient contracting would dictate. First, powerful CFOs use their power and influence to negotiate shorter incentive pay duration to maximize the present value of their performance—based compensation. Second, when their incentive equity compensation vests, we suggest that CFOs manage earnings to further enhance their personal income. Consistent with our theoretical expectations, we find higher levels of income-increasing accrual-based earnings management and real transactions management, a potentially unethical practice, in firms with powerful CFOs who have short pay durations. We discuss the implications of our analysis in the context of mitigating CFO power and managing the ethical environment “tone at the top.”

An Economic Analysis of Arbitration versus Litigation for Contractual Disputes

AbstractThis paper considers the efficiency of arbitration clauses when the firm can choose a degree of bias in the arbitration process and only some fraction of consumers can observe this bias. If the proportion of informed consumers is not too small, then there is an equilibrium at which all consumers trade, there is some pro-firm bias, and, as a result, there is excessive breach. The paper then compares the firm’s incentive to include an arbitration clause with the social incentive. The firm’s incentive does not mirror the socially optimal incentive: it could have either an excessive or insufficient incentive to include an arbitration clause, but under fairly broad conditions the firm will not choose an arbitration clause when court adjudication would be more efficient.