Strength Of Incentives Research Articles

Local Fiscal Health in Russia: An Achilles’ Heel of Fiscal Federalism?

ABSTRACT This article is the first attempt to systematically study local public finance in contemporary Russia. We document that local governments do not have sufficient own-source revenues, are increasingly more dependent on intergovernmental fiscal aid, lack access to market borrowing, and suffer from structural flaws in the design of intergovernmental fiscal relations. Additionally, we present the results of the modified Brown’s 10-point test to compare local fiscal health across the Russian regions. Finally, we assess the strength of local fiscal incentives in 2012–2021 and demonstrate that local governments in Russia lack capacity to foster local economic growth through the tax code.

Social Signaling and Childhood Immunization: A Field Experiment in Sierra Leone.

This article explores the use of social signaling as a policy tool to sustainably affect childhood immunization. In a 26-month field experiment with public clinics in Sierra Leone, I introduce a verifiable signal-in the form of color-coded bracelets-given to children upon timely completion of the first four or all five required vaccinations. Signals increase parents' belief in the visibility of their actions and knowledge of other children's vaccine status. The impact of signals varies significantly with the cost and perceived benefits of the action. There are no discernible effects on timely and complete immunization when the signal is linked to an easier-to-complete vaccine with low perceived benefits, and large positive effects when the signal is linked to a costlier-to-achieve vaccine with high perceived benefits. Parents adjust their behavior nine months before realizing the social image benefit, demonstrating the motivational strength of signaling incentives. Of substantive policy importance, bracelets increase full immunization at one year of age by 9 percentage points, with impacts persisting at two years of age. At a marginal cost of US$24.7 per fully immunized child, social signals can be as cost-effective as financial or in-kind incentives.

A real options approach to renewable energy module end-of-life decisions under multiple uncertainties: Application to PV and wind in China

The issue of large-scale retirements of renewable energy modules has attracted considerable attention from governments and the public worldwide. Using the Chinese wind and photovoltaic industries as examples, this paper, for the first time, employs a real options approach to explore the optimal time for energy firms to retire their power plants and to predict the future trend of renewable energy wastage from a bottom-up perspective. The results show that the optimal retirement time for the four subdivided categories ranges from 16 to 23 years. The later the investments are made, the earlier the decommissioning time comes and the lower the project returns. Furthermore, wind projects have been found to generate more revenue than PV projects for the same size, and the gap continues to widen. Offshore wind technology always has the longest optimal service life (18.62 years in 2022) and the greatest project returns (10.84 million CNY in 2022). Annual utilization hours, the renewable electricity price and the waste price can accelerate the retirement of plants and generate more revenue for energy companies, while the initial investment cost has a completely opposite effect. The first wave of PV retirements will occur in 2035 at 305.82 GW, while onshore wind will be in 2036 at 530.77 GW and offshore wind will not explode until 2040 at 65.84 GW. An assessment of potential policies suggests that for every 100 CNY increase in incentive strength, the retirement wave arrives 1 year earlier. In contrast, for every 100 CNY increase in the strength of penalties, the retirement wave is delayed by 1 year. In addition, we verify that the size of the plants does not affect the forecast of the retirement trend, indicating that the assumptions about installed capacity do not cause bias.

A STUDY ON THE ANTECEDENTS OF TRAVEL KNOWLEDGE SHARING BEHAVIOR IN MOBILE SOCIAL MEDIA BASED ON THE PERSPECTIVE OF SELF-DETERMINATION THEORY

This study constructed a research model of the antecedents of mobile social media travel knowledge sharing behavior using self-determination theory and collected data from 403 mobile social media users through online questionnaires. The structural equation modeling (SEM) method was used to test the research model. The aim was to explore the influence of autonomous motivation on the travel knowledge sharing intention and behavior of mobile social media knowledge content creators, as well as the moderating effect of platform incentives (controlled motivation) on the relationship between knowledge sharing intention and behavior. The study addressed the question of how travel knowledge sharing behavior among mobile social media knowledge content creators is generated. The results showed that the autonomous motivation of knowledge contributors is positively related to travel knowledge sharing intention and behavior, and the strength of platform incentives (controlled motivation) positively moderates the extent to which knowledge sharing intention translates into knowledge sharing behavior. The innovation of this study lies in its first attempt to measure the autonomous motivation of knowledge creators to share knowledge using a hierarchical user experience, expanding the measurement dimensions of autonomous motivation. Additionally, the finding that platform incentives (controlled motivation) have a positive moderating effect on the relationship between travel knowledge sharing intention and behavior differs from the majority of existing research perspectives.

Health benefits of vehicle electrification through air pollution in Shanghai, China

Vehicle electrification has been recognized for its potential to reduce emissions of air pollutants and greenhouse gases in China. Several studies have estimated how national-level policies of electric vehicle (EV) adoption might bring very large environmental and public health benefits from improved air quality to China. However, large-scale adoption is very costly, some regions derive more benefits from large-scale EV adoption than others, and the benefits of replacing internal combustion engines in specific cities are less known. Therefore, it is important for policymakers to design incentives based on regional characteristics – especially for megacities like Shanghai – which typically suffer from worse air quality and where a larger population is exposed to emissions from vehicles. Over the past five years, Shanghai has offered substantial personal subsidies for passenger EVs to accelerate its electrification efforts. Still, it remains uncertain whether EV benefits justify the strength of incentives. The purpose of our study is to evaluate the health and climate benefits of replacing light-duty gasoline vehicles (ICEVs) with battery EVs in the city of Shanghai. We assess health impacts due to ICEV emissions of primary fine particulate matter, NOx, and volatile organic compounds, and to powerplant emissions of NOx and SO2 due to EV charging. We incorporate climate benefits from reduced greenhouse gas emissions based on existing research. We find that the benefit of replacing the average ICEV with an EV in Shanghai is US$6400 (2400-14,700), with health impacts of EVs about 20 times lower than the average ICEV. Larger benefits ensue if older ICEVs are replaced, but replacing newer China ICEVs also achieves positive health benefits. As Shanghai plans to stop providing personal subsidies for EV purchases in 2024, our results show that EVs achieve public health and climate benefits and can help inform policymaking strategies in Shanghai and other megacities.

Bringing in the New Votes: Turnout of Women after Enfranchisement

Under what conditions did newly enfranchised women turn out to vote at levels approaching men? This question is important because if women’s turnout lagged behind men’s, politicians’ incentives to advocate for women’s interests could remain weak even after suffrage. I argue that women’s turnout approached parity with men’s in localities with strong incentives to vote and to mobilize among the general population. This is because women faced barriers to voting and were, therefore, more likely to vote and be mobilized under the most favorable circumstances. I then propose that electoral competition determines the strength of voting and mobilization incentives and, therefore, the gender turnout gap. Using sex-separated turnout data in Norway, I demonstrate that the gap narrows in high-turnout competitive districts in systems with single-member districts and in high-turnout within-district strongholds in proportional systems. I probe generalizability of my findings in New Zealand, Austria, and Sweden.

Incentive Mechanism and Subsidy Design for Continuous Monitoring of Energy Consumption in Public Buildings (CMECPB): An Overview Based on Evolutionary Game Theory

Rapid urbanization and the continued expansion of buildings have resulted in a consistent rise in the energy consumption of buildings. At the same time, the monitoring of building energy consumption has to achieve the goals of an “Emission peak” and “Carbon neutrality”. Numerous energy consumption monitoring systems have been established in several types of public buildings. However, there is a need to ensure that the data are continuously acquired and of superior quality. Scholars have noted that the in-depth research connected to the continuous monitoring of energy consumption in public buildings (CMECPB) is currently sparse. As a result, additional precise quantitative studies targeting the behavior of various stakeholders are also lacking. Hence, there is a need to explore the definition of value and the dynamic benefits of relevant subjects in continuous energy consumption monitoring based on evolutionary game theory and to propose incentive policies. This paper constructs an evolutionary game model for CMECPB between an energy service company (ESCO) and its owner to study the dynamic evolution path of a game system and the evolutionarily stable strategy under market-based mechanisms. Furthermore, by introducing government actions, the incentive policies and subsidy strategy for different subjects of interest are probed in detail by developing a principal-agent model to explore the incentive strength. The following conclusions can be reached: (1) it is inefficient and risky to rely only on the owner and the ESCO in achieving the optimal Pareto equilibrium; (2) the optimal incentives are “fixed incentives” in the case of information symmetry and a “fixed incentive + variable incentive” in the case of information asymmetry; (3) the choice of optimal incentive strategy is also influenced by the cost effort coefficient, risk aversion, external uncertainty, and integrated value transformation coefficient; (4) the incentive intensity and subsidy should be determined by comprehensive analysis with multiple indicators based on the conventional value of a project and the external value of a particular project. An in-depth understanding of each component of the CMECPB pathway yields insights into overcoming the challenges of building energy saving. Furthermore, the results may be useful in developing targeted, effective incentive policies for different disciplines and promoting the continued progress of monitoring building energy consumption and building energy efficiency.

Debt issuance incentives and creative accounting: Evidence from municipal mergers in Japan

Creative accounting has been a considerable problem in the field of governance and has caused serious economic issues. However, how governments determine the scale of creative accounting is unknown in the existing literature.We study whether a difference in the usage and the scale of creative accounting is determined by the intensity of the incentive to issue excessive debt. To study this, we focus on municipal mergers, a well-known setting wherein smaller merging municipalities have a stronger incentive to enjoy freeriding and issue debt since the debt burden will be shared and mainly owed by larger merging municipalities. This setting enables us to use the relative population size as a continuous treatment representing the strength of debt issuance incentives, whereas existing papers focused on binary treatments. Utilizing the data of Japanese municipal mergers, we find that governments with small relative populations, which have a strong debt issuance incentive, employed creative accounting more intensively than others. Moreover, we investigate how governments used the money obscured through creative accounting for the first time and find that it was not used to overcome financial difficulties nor increase politicians’ pecuniary gains but to increase resident welfare.

Monitoring versus Discounting in Repeated Games

We study how discounting and monitoring jointly determine whether cooperation is possible in repeated games with imperfect (public or private) monitoring. Our main result provides a simple bound on the strength of players' incentives as a function of discounting, monitoring precision, and on‐path payoff variance. We show that the bound is tight in the low‐discounting/low‐monitoring double limit, by establishing a public‐monitoring folk theorem where the discount factor and the monitoring structure can vary simultaneously.

Does Managerial Human Capital Shape Investment Strategy?

We build a model investigating how managerial human capital affects a firm's optimal choice of external investment vs. internal investment strategy. At the heart of the model is the idea that managers with more general skills have better outside opportunities and hence can command greater compensation from their employer. We show that this greater compensation will optimally take the form of stronger incentives, which in turn lead to higher managerial effort. In this case, it becomes optimal for the firm to engage in activities in which managerial effort is most valuable. To the extent that the success of external investment through acquisitions is more directly dependant on managerial effort than internal investment which is relatively more dependent other internal factors; then we should observe a positive effect of genera skills on firms' tendency to adopt external investment strategy. Moreover, this relationship should be more pronounced the greater the agency concerns and associated strength of incentives. Empirical analysis using U.S. data provides consistent support for the above model predictions. To address endogeneity concerns, we use variation in enforceability of non-compete agreements as an instrument for general managerial skills. The IV regressions suggests a causal and positive impact of general skills on external investment strategy.

Non-audit services and auditor independence in stable and unstable economic conditions

PurposeThe purpose of this study is to examine the association between non-audit service fees provided by the auditor and auditor independence in stable and unstable economic conditions. Further, this study investigates whether client importance impairs auditor independence in two different Australian economic environments.Design/methodology/approachThis study focuses on financially distressed firms listed on the Australian Stock Exchange from 2005 to 2014. The data is obtained from SIRCA and the Morning Star databases. The probit method is used as a baseline regression model, the two-stage least squares and the sensitivity of control variable tests are used to control for any endogeneity and self-selection bias concerns.FindingsThis study shows that in stable economic conditions, non-audit service fees provided by auditors impair auditor independence. This suggests that economic bonding between auditor and client serves as a threat to the auditor’s independence, perhaps because of the importance given to the larger clients. In contrast, the authors find no association between non-audit service fees and auditor independence in unstable (highly regulated) economic conditions largely because of higher litigation risk. The results of this study are robust to alternative model specifications and endogeneity concerns.Practical implicationsThis study provides an important implication to regulators that macro-economic conditions influence the strength of incentives related to non-audit services for auditors. Furthermore, this study enhances the understanding of regulators (Australian Security Investment Commission) and the strategies adopted by Australian auditors in response to economic incentives and market-based incentives.Originality/valueThe authors contribute to the existing literature by providing evidence that there is a tradeoff between market-based incentives (i.e. lower litigation costs) and economic incentives (i.e. non-audit services fees) with economic uncertainty influencing the importance of these incentives to auditors.

Altruism, social norms, and incentive contract design

We study theoretically and empirically the relation between altruism and incentive contract design. Theoretically, we extend Fischer and Huddart (2008) to investigate how social norms reinforce managers’ altruistic preferences, thus affecting the optimal contract design related to incentive strength and performance measurement. Empirically, we draw on the notion of an organization’s work climate to capture managers’ altruistic preferences. Using data collected from a sample of 557 managers, we find that in a work climate where managers are mostly out for themselves, firms have lower pay-for-performance sensitivity and place a greater weight on aggregate performance measures. In addition, respondents report that they engage more in undesirable actions that are unproductive and costly to firm owners. In contrast, in a work climate where managers care about others (including peers in their organizational unit), firms place lower weights on aggregate performance measures. At the same time, respondents report that they supply more effort and engage less in undesirable actions.

The Strength of Performance Incentives, Pay Dispersion, and Lower-Paid Employee Effort

ABSTRACTThe strength of performance incentives differs for employees within an organization. We describe how differences in incentive strength can lead to pay dispersion because employees facing stronger incentives work harder and earn more pay than those facing weaker incentives. We then conduct four experiments examining how the lower-paid employees respond to such pay dispersion. Consistent with our hypothesis derived from referent cognitions theory, we find that such pay dispersion decreases the lower-paid employees' perceived fairness and thus their effort. These results hold whether the employees are assigned to or self-select into the job with weaker incentives and whether they have more explicit or less explicit information about the economic rationale for the difference in incentive strength. Our findings are inconsistent with conventional economic reasoning and refine the conclusions from prior pay dispersion studies. The robustness of our results demonstrates their generalizability to a range of actual employment settings.Data Availability: Data and experimental instruments are available upon request.JEL Classifications: M41; M52; M55.

Accountability and Collaboration for Intergovernmental Performance Management: Communicating Goals through the HUD Grantmaking Process

This paper presents an exploratory case study of a performance-based intergovernmental grant program, U.S. Department of Housing and Urban Development's (HUD) homeless assistance grants to local Continuums of Care (CoC). The goal is to illuminate the mechanisms by which a federal agency may communicate its priority goals to local grant recipients and seek to promote local actions that further those goals. The mixed-methods case study finds that meeting HUD performance targets does not lead to larger awards in the competitive grant process, casting doubt on the strength of incentives provided by the competitive grants. Nevertheless, the grant making process plays an important role in communicating federal priorities. The system performance metrics emphasized in the grant process coupled with targeted technical assistance appear to promote a focus on performance at the local level and play a role in system reform and capacity building.

DIRECTIONS OF IMPROVING THE EFFICIENCY OF THE SYSTEM OF STIMULATION OF AGRICULTURAL ENTERPRISE PERSONNEL

The purpose of the article is to substantiate the directions and means of improving the system of incentives for the staff of agricultural enterprises. It is shown that approaches to personnel management of enterprises are constantly improving, employees need new forms of incentives for their work, business processes of agricultural enterprises are developing, which necessitates new methodological and practical aspects of further improvement of personnel incentive systems, in particular in agriculture business, which is currently developing in Ukraine at almost the highest rate. The article emphasizes the urgency of the issue of effective personnel management of agribusiness enterprises - a key element of resource provision of the enterprise. It is shown that the effectiveness of labor motivation in the system of using staffing of enterprises (and in a broader sense - the intellectual and human capital of business) has perhaps the greatest impact on the formation of prerequisites for effective functioning and sustainable development of agribusiness. The applied significance of the research results is that an algorithm of the method of determining the strength of economic and social incentives of the employee and the staff of the agricultural enterprise has been developed. The system of directions and measures for increasing the efficiency of the system of motivation of the personnel of the agrarian enterprise is substantiated. The methodical algorithm of carrying out entrance and current attestation of the personnel for an estimation of its professional, educational and qualification qualities and establishment of their conformity to job requirements is offered. The scientific novelty of the research results lies in the further improvement of scientific-methodical and applied approaches to the development of tools and means to increase the motivation of employees of enterprises directly in the agricultural business.

Ambiguity in dynamic contracts

We study a continuous-time principal-agent model in which the principal is ambiguity averse about the agent's effort cost. The robust contract generates a seemingly excessive pay-performance sensitivity. The worst-case effort cost is high after good performance, but low after bad performance, which leads to overcompensation and undercompensation respectively and provides a new rationale for performance-sensitive debt. We also characterize the agent's incentives when the contract is misspecified, i.e., he is offered the robust contract, but his true effort cost differs from the worst case. Then, termination can induce shirking, the strength of incentives is hump-shaped, and agents close to firing prefer riskier projects, while those close to getting paid prefer safer ones. This feature resembles careers in organizations, most notably risk-shifting and the quiet life.

Performance Target Difficulty and Fourth-quarter Performance

Prior studies often examine the association between performance and various measures of incentive strength. We argue that target difficulty is another important but often overlooked driver of managerial performance. Using data on earnings targets in annual bonus plans, we construct and validate an empirical measure of beginning-of-year target difficulty and find that it is negatively associated with environmental uncertainty, retention concerns, and CEO entrenchment. We also test and reject the null hypothesis that target difficulty has no effect on fourth-quarter performance. We find that beginning-of-year target difficulty is positively associated with target difficulty at the end of the third quarter which is in turn associated with abnormally strong fourth-quarter performance. We also provide evidence that abnormal performance in the third quarter reverses in the fourth quarter and that this reversal is stronger when targets are moderately challenging (neither too easy nor too difficult to achieve). Finally, we show that much of the reversal in abnormal performance associated with moderately challenging targets can be explained by reductions in fourth-quarter performance following abnormally favorable third-quarter performance.

Impacts of COVID-19 and fiscal stimuli on global emissions and the Paris Agreement

The global economy is facing a serious recession due to COVID-19, with implications for CO2 emissions. Here, using a global adaptive multiregional input–output model and scenarios of lockdown and fiscal counter measures, we show that global emissions from economic sectors will decrease by 3.9 to 5.6% in 5 years (2020 to 2024) compared with a no-pandemic baseline scenario (business as usual for economic growth and carbon intensity decline). Global economic interdependency via supply chains means that blocking one country’s economic activities causes the emissions of other countries to decrease even without lockdown policies. Supply-chain effects contributed 90.1% of emissions decline from power production in 2020 but only 13.6% of transport sector reductions. Simulations of follow-up fiscal stimuli in 41 major countries increase global 5-yr emissions by −6.6 to 23.2 Gt (−4.7 to 16.4%), depending on the strength and structure of incentives. Therefore, smart policy is needed to turn pandemic-related emission declines into firm climate action. Global emissions could decrease 3.9–5.6% over 5 years due to COVID-19, and the interconnected economy means lockdown-related declines reach beyond borders. As countries look to stimulate their economies, how fiscal incentives are allocated and invested will determine longer-term emission changes.

Reputational economies of scale

For many years, most scholars have assumed that the strength of reputational incentives is positively correlated with firm size. Firms that sell more products or services were thought more likely to be trustworthy than those that sell less because larger firms have more to lose if consumers decide they have behaved badly. That assumption has been called into question by recent work that shows that, under the standard infinitely repeated game model of reputation, reputational economies of scale will occur only under special conditions, such as monopoly, because larger firms not only have more to lose from behaving badly, but also more to gain. This article shows that reputational economies of scale exist even when there is competition and without other special conditions, if the probability that low quality is detected is positively correlated with the quantity of the good or service sold. It also shows that reputational economies of scale exist, under some circumstances, in a finite-horizon model of reputation. Reputational economies of scale help explain why law and accounting firms can act as gatekeepers, why mass market products are more likely to be safe, why firms are less likely to exploit one-sided contracts than consumers, and why manufacturers market new products under the umbrella of established trademarks.

In-group identification and motivation crowding

Group identity has been shown to be a powerful force. The crowding-out of intrinsic motivation is also a well-documented phenomenon in psychology and, increasingly, in economics. We conduct a field experiment (in which people do not know that they are in an experiment) to test for the effect of group identity on the crowding out of intrinsic motivation. We offer reimbursement for entry fees to people who bring consoles to video-game tournaments, varying the size of the entry fee. We find that contributions don't depend on the incentive strength. Results show no crowding out (in fact, the contribution rate is lower without any reimbursement incentive). In addition, the subgroup of individuals who identify strongly with the community are 27% more likely to contribute to the public good than the subgroup of individuals who don't identify strongly with the community.