Insufficient Incentives Research Articles

Does Relationship Lending Require Opaque (and Conservative) Financial Reporting?

For many private firms, relationship lending is the only viable form of outside financing. Relationship lending typically relies on intertemporal loan pricing: losses from early years are recovered by information rents in later years, which stem from the lender's private information regarding the firm's creditworthiness.Our model shows that overly transparent financial reporting reduces the relationship lender's information rent such that the lender has insufficient incentive to offer early stage financing as a result. During financial distress, private firms find it easier to obtain liquidity support from relationship lenders when financial reporting is sufficiently opaque. Conservative opacity enables relationship lending more effectively than aggressive reporting.This paper seeks to explain why private firm financial reporting is (conservatively) opaque and raises concerns regarding recent regulatory efforts that require private firms to engage in more transparent financial reporting because such efforts may result in undesirable side effects.

“There is nothing political in it”: triggers of local political leaders' engagement in climate adaptation

Local government is attributed a vital role in climate-change adaptation. Previous studies contend that conflicting priorities, insufficient institutional incentives and knowledge of risks, and inadequate resources all impede local climate adaptation. Though the importance of local political support in enabling climate adaptation is widely acknowledged, the views of local politicians have rarely been analysed. Drawing on semi-structured interviews with local politicians in Sweden, we explore what affects their engagement in climate adaptation. The study claims that climate adaptation contrary to mitigation is not viewed as political beyond directing attention and sanctioning guidelines set by officials. A limited number of interviewees claim a more strategic political role in adaptation. The combined effect of institutional incentives (e.g. fragmented national guidelines, unappealing goals, and lack of funding), relative weight in local politics, and ability to exercise political leadership (e.g. campaign value, public and media pressure, and lack of ideology) is perceived as too insignificant to trigger strong political engagement. In less-populous municipalities, adaptive measures were highly valued for demonstrating political action.

Environment Protection with Analysis of Relations between Independent Innovation and Development of the Green Economy

Independent innovation and the green economy is the two power of environment protection.In this article ,by analyzing meaning of independent innovation and green economy from environmental perspective, thus demonstrating dialectical interaction between them, then preparing context diagram about their relationship. Then discussing the existing problems of the independent innovation and the green economy development, such as: insufficient incentives for the development of green economy in independent innovation, insufficient supply capacity of independent innovation in green economy, promoting greening independent innovation slowly in traditional industries. Finally putting forward suggestions from the perspective of environment protection, such as: using national independent innovation as the keynote to overall green economic development, using industrial independent innovation as the bridge to construct green economic development, green incentive System of industrial independent innovation.

I Spy with my Little Eye ... A Banking Crisis - Early Warnings and Incentive Schemes in Banks

The severity and depth of the recent financial crisis hit many by surprise. Despite warning signs, the financial system seems to have been unable to aggregate existing information. As the events of Fall 2008 showed, many investors were caught off guard by the large number of banks collapsing worldwide. But what triggers an early warning, and what are the incentives to implement such a trigger? We construct a theoretical model of a bank that is financed with debt and equity, and a bank manager monitoring the bank’s loan portfolio. The manager must be incentivized to warn the board before a crisis. However, we show that the board may implement a contract with insufficient incentives to communicate a warning, as refinancing conditions deteriorate when lenders notice an upcoming crisis. We discuss policies to improve information efficiency and give conditions under which regulatory measures, such as capital and liquidity regulation, increase welfare.

I Spy with My Little Eye...A Banking Crisis -- Early Warnings and Incentive Schemes in Banks

The severity and depth of the recent financial crisis hit many by surprise. Despite warning signs, the financial system seems to have been unable to aggregate existing information. As the events of Fall 2008 showed, many investors were caught off guard by the large number of banks collapsing worldwide. But what triggers an early warning, and what are the incentives to implement such a trigger? We construct a theoretical model of a bank that is financed with debt and equity, and a bank manager monitoring the bank's loan portfolio. The manager must be incentivized to warn the board before a crisis. However, we show that the board may implement a contract with insufficient incentives to communicate a warning, as refinancing conditions deteriorate when lenders notice an upcoming crisis. We discuss policies to improve information efficiency and give conditions under which regulatory measures, such as capital and liquidity regulation, increase welfare.

Welfare-to-work isn't working

The Coalition government’s welfare-to-work policies are founded on the false assumptions that there are plenty of jobs available for the unemployed and that there are insufficient financial incentives to move into work. The services delivered by the Work Programme add little to employability. There needs to be a strategic re-think about the purposes of welfare-to-work and a new focus on addressing obstacles of poor skills and poor health.

Personal Federal Tax Issues And The Affordable Care Act: Can Tax Penalties And Subsidized Premiums Provide Sufficient Incentives For Health Insurance Purchases

The Patient Protection and Affordable Care Act of 2010 (ACA) includes many changes to the U.S. Federal Tax Code. The tax penalty imposed on individuals who choose to remain uninsured received extraordinary attention while the Supreme Court determined the constitutionality of the ACA. Now, the more relevant question is what impact the penalty may have on individual behavior. This paper presents information that suggests the tax penalty may provide insufficient incentive for many individuals to purchase insurance, even with premium tax credits to reduce the cost for households earning up to 400% of the federal poverty limit. The ACA also reduces the tax benefit from themedical expense deduction by increasing the threshold amount from 7.5% of adjusted gross income to 10% of adjusted gross income. This may increase the after-tax cost of purchasing health insurance, especially for healthier individuals whose medical expenses (excluding insurance premiums) are below the threshold amount, increasing the incentive to forego the purchase of health insurance and to pay the penalty instead. An approach more consistent with the aims of the ACA is to eliminate the threshold amount but limit the deduction to lower-income taxpayers.

Technology utilisation in elementary schools in Turkey’s capital: a case study

A case study was conducted to explore teachers’ current technology use in elementary schools in Ankara, the capital of Turkey. The data were collected through a survey, and participants included 1030 classroom teachers across eight districts. The present study results revealed that significant challenges remain with regard to technology use in the classroom, even in the capital of Turkey, where teachers have advantages in terms of technology access and use compared to rural areas. The participant teachers used technologies most frequently for lesson preparation activities, rather than for delivering instruction. Although the teachers felt that school principals and colleagues were usually supportive of technology use in lessons, they complained about insufficient professional development activities and incentives. Representing a snapshot of teachers’ technology use in elementary school settings, this study sheds light on essential factors that should be considered in any technology integration process in schools. The study findings offer valuable insight for policy-makers and school leaders on how to support the technology integration process and allocate money for technology initiatives.

The Case for Tailoring Patent Awards Based on the Time-to-Market of Inventions

One of the hallmarks of our patent system is that it provides a one-size-fits-all reward for innovation. The uniform patent laws offer insufficient incentives to develop some socially valuable inventions, and offer excessive rewards for other inventions that impose an unnecessary tax on consumers and subsequent innovators. If the government could adequately tailor patent awards to account for differences in inventions’ need for protection and the likelihood that patents will stifle subsequent innovation, it could spur additional innovation while avoiding the social costs of excessive patent protection. However, although we may know which economic determinants are relevant to a socially optimal patent strength, we lack a reliable way to directly measure and synthesize this information into a usable framework. Absent a principled and administrable system to determine which inventions need more protection than others, the uniform patent system is our best option. This Article identifies a readily observable, cross-industry indication of optimal patent strength for different technologies — inventions’ time-to-market. Some inventions take much longer to develop than others, and there is tremendous variation in the average time-to-market across industries. This Article first shows that there is a strong, positive correlation between the amount of time needed to complete an R&D project and the amount of patent protection (if any) necessary to motivate investment in that R&D project. A longer time-to-market for inventions is associated with higher out-of-pocket R&D costs, greater risk of failure, increased opportunity costs of R&D investments, and diminished value of future revenue streams from the developed invention because of discounting. Moreover, because imitators frequently avoid much of the increased R&D costs and uncertainty associated with a longer time-to-market, lengthier R&D times also usually correspond to a greater vulnerability to free riding. Second, this Article shows that a longer time-to-market is associated with a reduced likelihood of patents stifling subsequent innovation. Inventions with a longer time-to-market usually have longer commercial lifespans (product life cycles) because the inventions that ultimately replace them in the market also generally take longer to develop. The slower rate of product turnover in these markets reduces the need for patent licensing between early and later innovators, and offers more time to negotiate licenses, which diminishes the likelihood that patents granted on earlier inventions will stifle later improvements to those technologies. Similarly, because inventions with a lengthy time-to-market have higher total R&D costs, fields in which inventions typically have a lengthy time-to-market have higher entry costs. Those higher costs diminish the number of entrants in these markets, and encourage later innovators to develop inventions that are more differentiated from earlier inventions. The reduced entry and greater product differentiation once again decreases the need for patent licensing, thereby lessening the potential harm from patents stifling subsequent innovation.Since a longer time-to-market is indicative of a greater need for patent protection and a lower risk of patents stifling subsequent innovation, time-to-market is likely a uniquely powerful indicator of the optimal patent strength for different types of inventions. Moreover, because time-to-market is relatively observable, it can be used to create a framework for a principled and administrable system of tailored patent awards. Such a system would enable the government to strike a better balance between the benefits of promoting innovation with temporary monopoly rights and the social costs of restricting access to inventions.

Die Notwendigkeit unabhängiger klinischer Studien aus der Sicht des Instituts für Qualität und Wirtschaftlichkeit im Gesundheitswesen

Die Ergebnisse klinischer, möglichst randomisierter kontrollierter Studien (RCT) bilden das Rückgrat von Entscheidungen zur Zulassung von Arzneimitteln und von Nutzenbewertungen medizinischer Methoden. Während Zulassungsstudien von Arzneimitteln häufig zumindest einige der für eine Nutzenbewertung relevanten Fragen beantworten, ist die Situation bei nichtmedikamentösen therapeutischen Methoden und diagnostischen Verfahren eine gänzlich andere, weil es hier keine vergleichbar hohen Anforderungen an eine Markteinführung gibt. Insgesamt muss festgestellt werden, dass es in der Vergangenheit für Hersteller oder Anbieter von medizinischen Methoden keine ausreichenden (finanziellen) Anreize gab und auch weiterhin nicht gibt, klinische Studien zum patientenrelevanten Nutzen durchzuführen, sowohl bei Arzneimitteln als auch insbesondere im nichtmedikamentösen Bereich. Daraus resultiert eine Lücke von Studien, die mit ausreichender Ergebnissicherheit in einem angemessenen Vergleich Daten zum patientenrelevanten Nutzen bzw. Zusatznutzen einer medizinischen Methode liefern. In diesem Zusammenhang ist es zweitrangig, ob es sich dabei um «unabhängige» Studien handelt, zumal «Abhängigkeiten» nie ausgeschlossen werden können und dort, wo sie nicht durch die Deklaration eines Sponsorings leicht erkennbar sind, besonders problematisch werden können. Das Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen (IQWiG) ist gerne bereit und dabei, zusammen mit Interessierten dafür zu werben, dass für wichtige Studienprojekte von klinischen Forschergruppen, die die Kriterien einer qualitativ hochwertigen patientenorientierten klinischen Studie zu einer relevanten Fragestellung erfüllen, angemessene Fördermöglichkeiten geschaffen werden.

The Role of Social Image Concerns in the Design of Legal Regimes

We consider situations where legal liability yields insufficient incentives for socially efficient behavior, e.g., individuals who cause harm are not always sued or are unable to pay fully for harm done. Some individuals nevertheless behave efficiently because of intrinsic prosocial concerns. Others have no such concerns but would like people to believe that they do. We show that fault-based liability is generally more effective than strict liability in harnessing social image concerns. This extends to the case where courts can make mistakes. The rules of proof then affect the inferences drawn from court decisions and therefore the stigma attached to an adverse judgment. If fault is a rare event, plaintiffs or prosecutors should bear the burden of proving the defendant’s fault; otherwise there are cases where defendants should prove compliance with the legal standard of behavior. Under either assignment of the burden of proof, incentives to comply are maximized by a standard of proof stronger than a mere preponderance of evidence.

Managers' Views on Environmental Management: An Examination of the Taiwanese Airline Industry

Air transport has made a major contribution to globalization and world economic growth. However, aircraft operations inevitably have a serious impact on the environment. Leading airlines have established policies, goals, and action plans on environmental management. This study uses a questionnaire survey to gain an understanding of the views and attitudes of airline managers in Taiwan toward environmental management. The results show that airline managers mostly have a positive and supportive attitude regarding environmental management, and believe that airlines can play an important role in environmental protection. The most important motivations for promoting environmental management are improving company image, reducing harm to the natural environment, and fulfilling corporate social responsibility, while the main obstacles to the development of environmental management are insufficient government grants, subsidies, and incentives, investment capital too high, and inadequate aviation environmental regulations. This study also reveals that the government should take a more proactive role in the development of Taiwanese airlines’ environmental management.

A Proposal to Improve U.S. Housing Market Incentives: A Response to the Federal Reserve White Paper of January 2012

The U.S. housing finance market has not yet recovered from the housing price bubble that peaked in late 2006. Even though prices have fallen significantly, there are still problems in clearing the market. For the last few years, a group of financial economists and practitioners who are part of the Financial Management Association's Practitioner Demand Driven Academic Research Initiative (PDDARI) have been studying the collapse of the housing market and have concluded that many market participants still have insufficient (and in some cases the wrong) incentives to take actions that would help restore the market's health.In January 2012, Ben Bernanke, Chairman of the Federal Reserve Board, released a white paper that reviewed current housing market conditions and created a framework for policy analysis designed to help reestablish the health of the U.S. housing market as part of the broader effort to foster economic recovery. Using this framework as its starting point, the PDDARI group has come up with a set of proposals whose centerpiece is an “incentive‐compatible” mortgage that encourages homeowners to rebuild their home equity as an essential step to a housing recovery. By incorporating “price appreciation rights” that would provide stronger inducements for lenders or mortgage owners to make loan modifications (particularly, forgiveness of principal), the PDDARI mortgage structure could allow more homeowners to remain in their homes and avoid foreclosures and the large associated deadweight costs (as much as 40% of a home's assessed value). Additionally, the government‐sponsored enterprises, including Fannie Mae and Freddie Mac, are also in need of radical reform, and a transition toward greater private market participation would promote the long‐term health of the mortgage market.

From the ‘urban heat island’ to the ‘green island’? A preliminary investigation into the potential of retrofitting green roofs in Mongkok district of Hong Kong

Like many densely populated metropolises in the world, Hong Kong is suffering from urban heat island (UHI) effects due to rapid urbanisation. This study provides a preliminary investigation into the green roof retrofit potential in the densely occupied old urban district of Mongkok in Hong Kong. Results of focus groups discussions indicate that adequate exposure to sunlight and the longevity of the rooftop structures of the existing buildings are considered as critical enabling factors for the green roof retrofit. Key barriers to green roof retrofit included the availability of adequate roof space, the appreciation by the industry and the general public, insufficient incentive programmes and movements from government. The 3D simulation models developed in this study suggest that there are 17 rooftops (i.e. 5.8% of total area) in the region affected by overshadowing in winter and over 50% of the area of these rooftops fail to receive direct sunlight during the winter-spring time. The results further revealed that 16.3% of total roof areas in this region are covered by rooftop HVAC plant and equipment. This study offers a simple and low cost preliminary approach for designers and property managers to determine the potential of their stock for green roof retrofit.

Contracting for On-Time Delivery in the U.S. Influenza Vaccine Supply Chain

Although influenza vaccine shortage is often attributed to low supply, it has been observed that even with abundant supply, a major shortage can still occur due to late delivery. In this paper, motivated by the influenza vaccine industry, we study a supply chain contracting problem in the presence of uncertainties surrounding design, delivery, and demand of influenza vaccine. In this supply chain, a manufacturer has insufficient incentive to initiate at-risk early production prior to the design freeze because it is a retailer who reaps the most benefits from selling more vaccines delivered on time. Anticipating that late delivery will lead to potential loss in demand, the retailer tends to reduce the order size, which further discourages the manufacturer from making an effort to improve its delivery performance. To break this negative feedback loop, a supply contract needs to achieve two objectives: incentivize at-risk early production and eliminate double marginalization. We find that two commonly observed supply contracts in practice, the Delivery-time-dependent Quantity Flexibility (D-QF) contract and the Late-Rebate (LR) contract, may fail to coordinate the supply chain because of the tension between these two objectives. To resolve such a tension, we construct a Buyback-and-Late-Rebate (BLR) contract and show that a properly designed BLR contract can not only coordinate the supply chain but also can provide full flexibility of profit division between members of the supply chain. Numerical experiments further demonstrate that the BLR contract significantly improves supply chain efficiency compared to the contracts used in the industry.

Manual pit emptying as a sustainable livelihood in Ghana

On-plot sanitation is vital in many low-income country urban areas. Pit emptying is critical to its sustainability and small-scale manual emptiers play a key role in this. This paper investigates the sustainability of manual pit emptying as a livelihood option, focusing on the key sustainable livelihood factors relating to the human, social, physical and financial capitals of manual emptiers. These relate to: their role as emptiers; the employment systems and equipment; their health, well-being, social status and the acceptability of the job they do. The paper concludes that the current state of pit-emptying practice does not represent a sustainable long-term livelihood option for manual pit emptiers, as long as it continues with no improvements in technology, insufficient financial incentives and inadequate health and safety measures. Recommendations to improve sustainability include: improvements in emptying technology; provision of subsidies and free medical care; and health and safety education.

Shaping climate policy in the housing sector in northern Chinese cities

What are relevant urban development investment strategies for improving building energy efficiency (BEE) and decarbonizing the urban district heating supply in rapidly urbanizing China? Different trajectories of BEE and energy supply technologies are compared in the urban context in a northern Chinese city. Vigorous improvement of BEE will significantly enhance the prospective financial capacity to facilitate deployment of backstop technologies (e.g. carbon capture and storage) in order to decarbonize the energy supply and achieve the long-term targets of low-carbon buildings. Carbon finance instruments should be used to facilitate public policy to accompany the necessary transition in the urban development process. The government-run efficiency procurement scheme will overcome the problem of insufficient incentive and high transaction costs associated with individual Clean Development Mechanism projects. Appropriate investment strategies (allocation of financial resources over the time frame) will allow local governments to harness the large potentials of carbon emissions mitigation while minimizing the risk of long-term technical lock-in in the built environment in Chinese cities.

A New Deal for Global Health R&D? The Recommendations of the Consultative Expert Working Group on Research and Development (CEWG)

A New Deal for Global Health R&D? The Recommendations of the Consultative Expert Working Group on Research and Development (CEWG)

Innovation and Access to Medicines for Neglected Populations: Could a Treaty Address a Broken Pharmaceutical R&D System?

Over the last two decades, recognition has grown that the current system for the research and development (R&D) of new medicines does not adequately meet the needs of the majority of the world's population [1]–[4], over 80% of which lives in low- and middle-income countries (LMICs) [5]. (We use the general term “medicines” to refer broadly to drugs, vaccines, diagnostics, and other medical products.) The clearest illustration of these shortcomings is the lack of new medicines for the “neglected diseases”—those that primarily affect populations with little purchasing power, and therefore offer an insufficient incentive for industry to invest in R&D. However, the problems with the existing system extend far beyond the narrow notion of neglected diseases. The challenge is better understood as one of “neglected populations”—that is, of ensuring that the global R&D system meets the needs of all, especially of the poorest and most vulnerable populations. Such needs include not only new treatments for neglected diseases, but also access to antimicrobials, affordable medicines for diseases with global incidence such as diabetes and cancer, and products well-adapted for use in resource-limited settings. Thus far, the existing system has largely failed to deliver on these objectives. These problems have prompted extensive international debate and proposals for reform. After a 2-year intergovernmental negotiation, in 2008 governments agreed upon the World Health Organization (WHO) Global Strategy and Plan of Action on Public Health, Innovation and Intellectual Property, which recognized that the current system fell short in meeting the needs of developing countries with respect to both communicable and non-communicable diseases [4]. In April 2012, the WHO Consultative Expert Working Group on R&D: Financing and Coordination (CEWG) recommended that governments begin negotiations over a global medical R&D convention to address some of these problems in a systematic way [6] (see Box 1). Why might a binding international convention be needed? Box 1. A Binding WHO Convention on R&D The idea of a binding international convention on RD carry stronger normative force, even in the absence of enforcement mechanisms; and can be more enforceable at national level [65]. An important precedent was set with the 2005 Framework Convention on Tobacco Control, the first public health treaty negotiated within WHO, which has contributed significantly to global tobacco control efforts [63],[66].

Combating cybercrime across the Taiwan Strait: investigation and prosecution issues

Reports have shown that Taiwan and China are attractive targets for cybercriminals. The special political situation between the two countries has encouraged numerous cyber-attacks across the Taiwan Strait. Establishing an efficient investigation and prosecution system is important to deter criminals from further exacerbating this unsatisfactory situation. This paper discusses issues of cybercrime investigation and prosecution across the Taiwan Strait. Based on interview data collected in 2008 and 2009, in both China and Taiwan, this paper concludes that the current manpower dedicated to cybercrime investigation is insufficient. In addition, there is insufficient incentive to attract investigators to devote their time to cybercrime investigation, and prosecutors and judges' knowledge of cybercrime and information security is lacking. Informal relations, such as Guan-xi and Mo-chi, may help in mutual cooperation between crime investigation agencies. However, these rely heavily on the political situation existing at any one time, and can only be effective when relations between Taiwan and China are not tense.