Individual Economic Incentives Research Articles

(In)visible Sanctions: Micro-level Evidence on Compulsory Activation for Young Welfare Recipients

Abstract Since the early years of activation and workfare in the 1990s, the use of welfare conditionality and benefit sanctions has been proposed among the necessary solutions to ensure the efficiency of welfare policy by reinforcing individual economic incentives. Using rich administrative registers from Norway, we produce micro-level quantitative evidence on compulsory activation for young recipients of social assistance. The empirical challenge is that activation through the threat of benefit sanctions is not a feature that unambiguously emerges from observational data, except for when sanctions indeed take place and benefits are reduced. To overcome this barrier, we introduce a novel methodology to identify individual-level effects of activation on young welfare recipients, exploiting municipal variation in the introduction of compulsory activation. More precisely, we study whether individuals who are residents in municipalities that have introduced compulsory activation display a stronger relationship between their labor market status (activation) and their benefit size (because sanctions being in place) compared to individuals residing in municipalities where activation has not been made compulsory. Our results show that there is no different relationship between social assistance benefits and passive labor market status for individuals living in municipalities that practice activation compared with individuals residing in municipalities in which activation is not yet mandatory. In other words, there is no visible effect of sanctions for passive recipients.

Winning Without a Champion: Ecosystem Emergence Under Distributed Agency

The emergence process, through which actors construe the value creation, value capture, and coordination functions of an ecosystem, has recently sparked considerable scholarly interest. To date, most studies have focused on the central role of “champions”, actors controlling key resources, in constructing the ecosystem. However, many ecosystems emerge under conditions of distributed agency, in which initiative and key resources are spread across multiple nominally independent actors. We investigate the processes along which the three canonical functions of an ecosystem tend to emerge when champions are lacking. We conduct an in-depth, historically embedded study of the emergence of the Dutch ornamental crop breeding industry, a globally leading ecosystem that has been built under conditions of distributed agency. Our process model shows that distributed-agency ecosystems tend to emerge through various phases, in which the simultaneous construction of the value creation and value capture functions often leads to frictions between the individual economic incentives and the normative values that are collectively held by all actors in the ecosystem. Due to the property of distributed agency, actors must act collectively in self-enforcing institutions or appeal to third parties to resolve these frictions. We find that these coordinating institutions engage in three types of work: values work to advocate and enforce a set of normative values, friction-resolving work to stimulate collective value creation and to impose legal and moral boundaries on value capture rule structures, and sedimentation work to harmonize the new elements and the persisting old structures of the ecosystem.

Collective Management of Water Resources in Coastal Bangladesh: Formal and Substantive Approaches

We examine the processes of collective management of water resources for agriculture within the wider context of environmental change in a coastal region of Bangladesh. We argue that while the formal propositions of rational-actor theories (such as the Institutional Analysis and Design Framework) help to identify the potential constraints to collective action (e.g., the free rider problem), these propositions need to be seen in the substantive social context of any given case. Findings show that the pattern of collective water management is crucially dependent on the individual economic incentives for participation as well as the social structures and norms that influence the behaviour of different classes of actor, including those with conflicting economic incentives. By examining the substantive processes of negotiation and decision-making around specific problems of water management, we are able to identify the contingent set of factors that shape the responses of different actors, enabling or constraining desirable collective outcomes.

On the emergence of semantic agreement among rational agents

Today’s complex online applications often require the interaction of multiple (web) services that belong to potentially different business entities. Interoperability is a core element of such an environment, yet not a straightforward one due to the lack of common data semantics. The problem is often approached by means of standardization procedures in a top-down manner with limited adoption in practice. (De facto) standards for semantic interoperability most commonly emerge in a bottom-up approach, i.e., involving the interaction and information exchange among self-interested industrial agents. In this paper, we argue that the emergence of semantic interoperability can be seen as an economic process among rational agents and, although interoperability can be mutually beneficial for the involved parties, it may also be costly and might fail to emerge. As a sample scenario, we consider the emergence of semantic interoperability among rational web service agents in service-oriented architectures (SOAs), and we analyze their individual economic incentives with respect to utility, risk and cost. We model this process as a positive-sum game and study its equilibrium and evolutionary dynamics. According to our analysis, which is also experimentally verified, certain conditions on the communication cost, the cost of technological adaptation, the expected mutual benefit from interoperability, as well as the expected loss from isolation, drive the process.

Modelling the distribution of returns on higher education: A microsimulation approach

Cost-sharing policies for higher education have been implemented in several countries in various ways. We argue that to assess their appropriateness and facilitate their implementation it is necessary to develop statistical indicators of the distribution of returns. When starting a higher education programme, the return on a particular degree is uncertain, and risk-adverse students or those from low-income families may be reluctant to enrol if this means taking out a loan. These statistical indicators would therefore be natural inputs of cost-sharing policies intended to preserve the individual economic incentives to go to university and simultaneously provide an insurance role. We present a dynamic microsimulation model of individual lifetime educational output in the French labour market which uses econometric modelling of individual wages, labour market transitions, social security contributions and benefits. It relies largely on labour force survey data and mortality tables. In the standard internal rate of return framework, the model is used to compute the distribution of returns to higher education, for a given generation. The results show that the percentage of negative returns is close to 3.5%.

The Effects of Incentive System and Cognitive Orientation on Teams' Performance

ABSTRACT Organizations are adopting team-based structures to promote cooperation and coordination of actions and, thus, enhance performance (Libby and Thorne 2009; Chenhall 2008). However, team-based structures do not automatically improve performance. The economics literature suggests that working in teams may impair performance because of the potential conflict between individual and group incentives. In contrast, the organizational behavior literature argues that working in teams may enhance performance via members' collectivist cognitive orientation. This paper analyzes how both the economic incentive system and the team's predominant (individualist or collectivist) cognitive orientation affect team performance. We conduct an experiment with postgraduate students. Our results show that enhanced team performance is positively related to both individual economic incentives and predominately collectivist orientation in the team, and that the effectiveness of any incentive system design seems to be related to the team's predominant cognitive orientation.

The Impact of Third-Party Financing on Transnational Litigation

Third-party litigation finance is a growing industry. The practice, also termed “litigation lending,” allows funders with no other connection to the lawsuit to invest in a plaintiff’s claim in exchange for a share of the ultimate recovery. Most funding agreements have focused on domestic litigation in Australia, the United Kingdom, and the United States. However, the industry is poised for growth worldwide, and the recent environmental lawsuit brought by Ecuadorian plaintiffs against Chevron demonstrates that litigation funding is also beginning to play a role in transnational litigation. This article, prepared for a symposium on “International Law in Crisis,” speculates about how the growing litigation-finance industry may reshape transnational litigation in the coming decades. It argues that the individual economic incentives created by third-party financing will likely increase the number of transnational lawsuits filed, raise the settlement values of those lawsuits, and spread out the lawsuits among a larger number of countries than was typical in the past. It further hypothesizes that these individual choices about transnational litigation will lead countries to reassess their internal balance of litigation and regulation and will create pressure for greater international coordination of litigation procedure, including transnational forum choice and cross-border judgment enforcement.

Workers' compensation fraud and the physician

Some individuals in the health care system base their actions primarily on individual economic incentives rather than ethical and societal standards. These actions are considered fraudulent when they can be proven to have violated specific laws or statutes and can impact workers' compensation costs. Physicians and other health care providers involved in the management of workers' compensation claims may have little ability to affect employer or insurer fraud. Ethical and efficient practice style, in conjunction with the maintenance of clarity and objectivity in the evaluation of patient symptoms, can help to reduce the degree to which provider and patient fraud is allowed to develop and flourish. In understanding the factors that promote fraudulent behavior and being able to recognize and manage such behavior, health care providers may impact the perpetuation of fraud and its impact on the workers' compensation system.

The School Financial Context of State Policies Designed to Enhance the Teaching Profession

The Elementary School Journal Volume 86, Number 4 O 1986 by The University of Chicago. All rights reserved. 0013-5984/86/8604-0002$01.00 The policies most touted to improve the attractiveness of teaching primarily emphasize individual economic incentives, such as higher beginning salaries, acrossthe-board salary increases, pay-for-performance packages, career-ladder programs, improved benefit packages, and loans and scholarships for preservice training) These initiatives have obvious financial implications. However, analysts who study the lives of teachers and the reasons people leave teaching, as well as the most astute policymakers, realize that although the economic benefits of teaching are important, working conditions in schools and teachers' success in teaching students are also important-if not more important-determinants of attracting and retaining good teachers. School financial conditions at the

PRODUCTIVE EFFICIENCY, INCENTIVES AND EMPLOYEE PARTICIPATION: SOME PRELIMINARY RESULTS FOR WEST GERMANY

The effects of individual economic incentives are modified by social interactions among cooperating members of an organization such as the firm. An economic theory of such interaction, based on individual rationality or utility maximization, is briefly outlined, and various hypotheses on the effects of profit-sharing, piece-rates, and employee participation in decision-making are derived. These hypotheses are tested on data collected from smaller West German firms with various participation and profit-sharing schemes, independent of legal co-determination requirements. The predicted positive effect of participation, and of profit-sharing combined with participation on productivity is confirmed, in contrast to received theory.