Voluntary Contracts Research Articles

An economic analysis of ecological monitoring

A large number of schemes exist around the world to conserve or establish target natural vegetation communities. These include voluntary agri-environmental contracts, which aim to establish a target vegetation community by compensating farmers to reduce stocking rates. These contracts initiate a stochastic vegetation succession which increases the probability of establishing the target vegetation community. To ensure the scheme is achieving its objectives, regulators monitor the vegetation succession and decide whether a contract should stop or continue. If vegetation succession can be represented by a Markov chain, the regulator's problem of when to monitor, the best monitoring method and when to stop or continue a contract can be solved by a partially observed Markov decision process (POMDP). The results, for the conservation and restoration of heather Moorland in the Cambrian Mountains of Wales, show that the frequency and quality of monitoring depends upon monitoring costs and the regulators prior probabilities for the vegetation state.

Who Controls the Budget: The Legislature or the Executive?

Country-specific factors prevent a strong linear relationship between the legislature's budgetary powers and the extent of its separation from the executive. Electoral and voting systems, bicameralism, constitutional and legal constraints, voluntary contracts of political parties, and long-standing traditions all influence the relative budgetary powers of executives and legislatures. Differences in the legislature's budgetary authority in twenty-eight countries with five different forms of government are examined. It is concluded that differences in budgetary powers within a particular form of government are as great as those between different forms of government.

A Mathematical Introduction to Property Theory: The Fundamental Theorem and Duality Theory for Penalties

There is an invisible hand mechanism in the property system that underlies the invisible hand mechanism in the price system. In the life-cycle of property rights, initiation-transfers-termination, the invisible judge imputes the initial rights and terminal liabilities according to the public part of the life-cycle, the contractual transfers. If the legal system does not intervene, then the invisible judge laissez-faire imputes the termination of a property right to the last buyer and the initiation of a right to the first seller. When the legal system does intervene to hold a trial, it attempts to implement the principle of imputing de jure responsibility in accordance with de facto responsibility (the juridical version of the Lockean fruits of one's labor principle). Hence the natural question is: under what conditions does the invisible judge satisfy the responsibility principle? Hume emphasized two basic conditions: that all transfers in property be voluntary contracts and that all contracts be fulfilled. The fundamental theorem for the invisible hand mechanism in the property system is that if Hume's conditions are satisfied, then the invisible judge imputes in accordance with the Lockean responsibility principle. The paper mathematically formulates and proves the theorem using vector flows on graphs. The penalties used to enforce Hume's conditions have a duality theory which is outlined as a limiting case of price-theoretic duality.

Translatio versus Concessio: Retrieving the debate about contracts of alienation with an application to today's employment contract

Liberal thought is based on the fundamental question of consent versus coercion. The autocracies and slavery systems of the past were based on coercion whereas today's democracy in the political sphere and employment system in the economy are based on consent. This paper retrieves an almost forgotten contractarian tradition, dating from at least the Middle Ages, that based political autocracy and economic slavery on explicit or implicit voluntary contracts. Hence the democratic and antislavery movements had to hammer out arguments not simply in favor of consent and against coercion, but arguments based on the distinction between contracts to alienate (translatio) sovereignty versus contracts to only delegate (concessio) self-governance rights. They argued that the alienation contracts were in a certain sense inherently invalid so that those basic rights were inalienable even with consent. These inalienable rights arguments from the democratic and antislavery movements are also retrieved, arguments that liberal thought neglects when the basic question is simplistically posed as consent versus coercion. Finally, it is noted that the basic inalienable rights argument - that a de facto person cannot fit the de jure role of a thing even with consent - applies equally well to the employment contract which can be seen collectively as a contract for the employees to alienate management rights over their work to the employer or individually as the contract to rent oneself to the employer for limited periods rather than to sell oneself as in the self-enslavement contract. In conclusion, the paper considers various paths to get from the employment relation in a firm to a democratic firm where the members are the people working in the firm.

Conservation contracts in habitat protection in southern Finland

Abstract Demands for additional conservation of forests have been strong in Finland where a remarkable number of threatened species need wooded lands. In the southern half of the country the proportion of strictly protected forestland is as low as 1.1% and three quarters of forests are owned by private individuals and families. In order to promote forest protection on private lands the possibilities of landowners to participate in decision making should be improved. To assess the role of voluntary or incentive-based conservation contracts in protection of privately owned forestlands two existing conservation practices were studied: (1) voluntary establishment of permanent nature reserves and (2) payment of environmental grants that are appropriated for fixed-periods and that compensate for statutory preservation of woodland key habitats. Mean areas and compensation sums associated with sites protected using these two practices were simply compared to each other. Nature reserves were on average larger than key habitat sites. However, in the long run fixed-period environmental grants paid for key habitats provide landowners with higher compensation than that paid for establishing permanent nature reserves. These results are assessed in the light of international discussion on social, economic and ecological factors related to protection of private lands.

Protected forests in Europe approaches-harmonising the definitions for international comparison and forest policy making

Comparison of forest protection between regions in Europe is extremely difficult, because there is such wide variation of strategies, procedures and constraints; the way forests have been used historically and their present closeness to nature also varies, and furthermore so does the definition of what constitutes a forest. For the European Ministerial Conference on the Protection of Forests in Europe (MCPFE) in 2003, forest protection has been harmonised into three categories for the sake of comparison: protection to safeguard biodiversity, protection of landscape and specific natural features, and protective forest functions. There is no single, uniform and universal model and no internationally agreed target with respect to the percentage of forests which should be protected. What is more important than a fixed percentage level of forested area (e.g. 5 or 10%) is that the protection network should be biogeographically and ecologically representative and accordingly distributed on a regional basis. Long-term practical experience and research have proved that conservation of different species of organisms can be assured by appropriate silvicultural management of multifunctional production forests. Consequently, the focus of debate in Europe appears to shift more and more from total protection in segregated areas to ‘precision protection’ and to combining protection and timber production in the holistic, integrated concept of modern management of forest areas. Advances in regional ecological planning and the growing adoption of naturalistic forest management practices have slowed the decline of the biological diversity in the multifunctional production forests. However, this fact is not yet widely and sufficiently acknowledged and appreciated. There is consequently a political and scientific need for continued study of the effects of naturalistic silvicultural management on the biodiversity of forests. Information from such research is crucially needed before new and additional protection networks and schemes are set up on a large-scale. Protection by voluntary contracts between parties is a workable model concept for European forestry based on private forest ownership. In small private forests, patches of forest worth protecting are often small and located within production forests. Forest certification can contribute to the efforts of maintaining biodiversity in multifunctional production forests and offers an instrument of independently monitoring and verifying that forests are managed according to the agreed criteria. Forest certification is not an alternative or a means of increasing forest protection, because as a voluntary process it cannot guarantee the permanence of protected areas or deal with issues of finance and compensation.

The environmental supply of farm households : a flexible willingness to accept model

The purpose of the paper is toanalyse farmers' participation inenvironmental schemes, which are gaining agrowing importance within the Europeanagricultural policy. These schemes areimplemented through voluntary contracts thatpay farmers for the provision of environmentalservices. The microeconomic model that isdeveloped is a farm household model thatincorporates the producer and consumerbehaviour of the farmer to optimise hisenvironmental supply considering that theenvironmental service that he is supplying alsohas the characteristics of a public good. Defined as the difference between the profitloss in providing the environmental service andthe willingness to pay to consume this service,the household's “willingness to accept” (WTA)is compared with two flexible WTA measures thataccount for the technological flexibility ofthe environmental supply. Data come from asurvey of an agri-environmental schemeimplemented in the Walloon region of Belgiumsince 1995 and intended to protect the nestingof some endangered bird species. Econometricresults show that contingent valuation is areliable method to reveal the behaviours offarmers facing the invitation to participate inthis scheme. They also confirm that farmerbehaviour is also influenced by environmental preference.

The Economic Evolution of Petroleum Property Rights in the United States

We examine Harold Demsetz’s prediction that property rights emerge as the benefits of doing so exceed the costs in the context of oil and gas resources in the United States. Familiar influences on the development of petroleum property rights, technology, market demand, and politics provide support for the hypothesis. Our primary contribution is to demonstrate the important role of a less familiar factor, the presence in the reservoir of both oil and gas with differentially volatile prices. This factor has affected the nature of the property rights assigned with unitization, an institutional arrangement to internalize the common‐pool externality. Information asymmetries and conflicting price expectations have resulted in unit agreements that would not have been predicted in a strict neoclassical sense. Our analysis provides new insights into the nature of voluntary unitization contracts, inherent limits to producers’ ability to internalize externalities, and the welfare implications of compulsory unitization.

Voluntary agreements with emission trading options in climate policy

AbstractRecent political and corporate initiatives indicate that voluntary agreements and emission trading will play a crucial role in climate policy. We show that when emission trading is integrated as an option in voluntary agreement contracts, the overall efficiency of the use of flexible climate policy instruments is strongly increased. The emission trading option, formalized as a CO2 allowance call option contract that can be traded, provides clear incentives to overcomply with the target of the voluntary agreement. The option mechanism also delivers a market price for eventual non‐compliance, based on differences in abatement costs. With an example, we illustrate that the option mechanism can result in stimulating financial benefits for the firms that are most successful in reducing emissions. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment

CONTENTIOUS INSTITUTIONS

Welfare states in Western countries have shared similar goals, yet the choice of institutions to approach these shared goals has generated protracted power struggles among major interest groups and great cross-country variation in institutional structures. Relating recent debates on new institutionalism to earlier debates on power, this paper outlines an augmented rational-action approach to the explanation of the origins of welfare state institutions and of variations in their degree of path dependence. With a differentiated concept of power costs and the degree of power asymmetry among actors as a central variable, this augmented approach partly combines some salient characteristics of the rational-choice, historical, and sociological versions of new institutionalism. The augmented rational-action approach proves fruitful in understanding conflicts characterizing the emergence and change of major social insurance institutions in 18 rich Western countries since the late 19th century and up to the present. It complements rational-choice institutionalism focused on voluntary cooperation, contracts and conventions.

COMPETITION AND REGULATION IN THE U.K. ELECTRICITY INDUSTRY (WITH A BRIEF LOOK AT CALIFORNIA)

In this article, the U.K.'s Director General of Electricity Supply from 1989 to 1998 assesses the effects of deregulation and competition on the U.K. electricity industry after about a decade. Expansion of existing competitors, new entry, and further restructuring have reduced the aggregate share of the largest two generation companies from nearly 80% to 26%. Efficiency has improved and wholesale prices have fallen after an initial increase. Voluntary bilateral contracts markets are about to replace the mandatory “Pool,” with centralised control limited to physically balancing the system and settling contract imbalances. Retail supply competition has been active for large industrial customers since the beginning, and 80% of them now buy from another supplier. The market for residential customers opened in early 1999, and already nearly a quarter of them have chosen another supplier. Incentive price controls on transmission and distribution have stimulated increased efficiency and significantly reduced use‐of‐system charges. Overall, prices for all classes of customers have fallen by 25–35% in real terms since privatisation, and quality of service has improved.California has adopted a policy that is similar in many respects, but with very different results. The problems there have stemmed partly from less favourable demand and supply conditions, but also from significant policy differences, including barriers to building new capacity, obstacles to the use of long‐term supply (or hedging) contracts, retail price controls at untenable levels, and the requirement that (after a transition period) utilities pass through wholesale spot prices directly to their customers. Changes in such policies will eventually enable both producers and consumers in California to benefit from competition.

Autonomy, Slavery, and Mill's Critique of Paternalism

Critics have charged that John Stuart Mill's discussion as of paternalism in On Liberty is internally inconsistent, noting, for example, the numerous instances in which Mill explicitly endorses examples of paternalistic coercion. Similarly, commentators have noted an apparent contradiction between Mill's political liberalism – according to which the state should be neutral among competing conceptions of the good – and Mill's condemnation of non-autonomous ways of life, such as that of a servile wife. More generally, critics have argued that while Mill professes an allegiance to utilitarianism, he actually abandons it in favor of a view that values personal autonomy as the greatest intrinsic good. This paper presents an interpretation of Mill that provides a viable and consistent treatment of paternalism, thereby refuting each of the aforementioned critiques. Mill's views, it argues, are consistently utilitarian. Moreover, the interpretation accounts for all of Mill's departures from his otherwise blanket prohibition of paternalistic legislation. In particular, it explains his most notorious example, the condemnation of voluntary contracts for slavery. The interpretation emphasizes Mill's conceptual linkage between autonomy and utility, noting his implicit use of at least three different senses of the notion of autonomy.

Challenges and Options for the UK Agri‐Environment: Presidential Address

After fifteen years of agri‐environment policy it is now appropriate to take stock of these policies. This is important because these policies are scheduled to expand in the coming decade, their benefits are likely to continue growing and the demand for benefits is also likely to expand. This paper therefore reviews the current agri‐environmental situation, isolating some of the current challenges to the schemes implemented in the UK, and compares main options for their amelioration. Finally it focuses particularly on the “end of contract problem” arising from the weak sustainability of the policy benefits from short‐term voluntary contracts.

The AAA Cotton Plow-Up Campaign in Arkansas

ON MARCH 4, 1933, FRANKLIN ROOSEVELT assumed the presidency and, thus responsibility for leading the nation through its darkest economic hour. The country was entering the fourth year of a severe depression that devastated all major sectors of the U.S. economy. Cotton farmers in Arkansas and elsewhere in the South had faced hard times for over ten years, beset by the post-World War One slump in prices and natural disasters. But bad went to worse after 1929. These farmers saw their incomes plummet as cotton prices fell from 18 cents per pound in April 1929 to 6.1 cents by April 1932. Continuing production of large amounts of cotton, a drastic drop in domestic and foreign consumption, and an ever-increasing carryover of unconsumed cotton combined to produce the great price decline.1 The situation looked to get even worse as 1933 wore on. All available evidence pointed to a bumper crop that would drive cotton prices to record lows, leading very possibly to vast farm foreclosures and tenant and sharecropper displacement. Not only cotton growers would be affected by this calamity. All those individuals who were tied into the trade through the financing, ginning, shipping, and marketing of the crop would also be in great financial trouble if the cotton market collapsed. In the early 1930s, this meant a significant portion of the population of Arkansas and other southern agricultural states. The response that Franklin Roosevelt's administration eventually developed to this crisis would epitomize the improvisational nature and complex legacy of the New Deal. The policies initiated with the 1933 plow-up of the crop would aid many Arkansas cotton growers but slighted and ultimately displaced large numbers of the state's tenant farmers and sharecroppers. In the three years preceding Roosevelt's inauguration, Herbert Hoover's administration had attempted to aid America's sluggish agricultural sector through the creation of so-called stabilization directed by the Federal Farm Board. These corporations were set up to purchase surpluses of various farm commodities in order to temporarily remove them from the market in hopes of stabilizing prices. The Farm Board eventually purchased some 3.4 million bales of cotton before its appropriations ran out. The Board's actions, however, succeeded only in temporarily holding prices. In the end, the Farm Board failed because no effort was made to control production beyond pleas for voluntary reductions in acreage. When the Farm Board began to liquidate some of its holdings and put more cotton back on the market prices declined even further.2 During the First Hundred Days of his presidency, Franklin Roosevelt's administration pushed through Congress a farm bill that included a provision creating the Agricultural Adjustment Administration (AAA-a new government agency placed within the Department of Agriculture. The AAA was charged with the responsibility of boosting farm prices by subsidizing decreased production.3 The AAA's chief weapon would be the Voluntary Domestic Allotment Plan perfected by Montana State College agricultural economics professor Milburn Lincoln M. L. Wilson. According to Wilson's plan, the government would enter into voluntary contracts with producers of numerous agricultural commodities to reduce production by decreasing acreage in cultivation. As an incentive to join the program, the government would compensate all cooperating producers who agreed to decrease their output.4 The AAA needed to act hurriedly to aid American farmers. Because Roosevelt was not inaugurated until early March, and Congress then took two long months to debate various details of the farm bill, the president did not sign the Agricultural Adjustment Act until May 12. This delay was an added burden on the AAA to quickly fill its bureaucratic positions and to develop a workable cotton reduction program for the South after most of the region's crop had already been planted. …

Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards

The paper brings together the abundant and somewhat anarchic literature on child labor, isolating its central findings and analytical insights. The investigation is especially directed at the micro economics of why child labor occurs and the sort of policy that is likely to succeed in eradicating it. The paper also outlines new directions for analyzing the dynamics of child labor, the possibility of “child-labor traps” and the circumstances in which voluntary contracts should be banned. Various arguments for and against declaring child labor illegal are examined. A final section explores the economics of international child labor standards.

Does Bound Labour Have To Be Coerced Labour?: The Case of Colonial Immigrant Servitude Versus Craft Apprenticeship and Life-Cycle Servitude-in-Husbandry

Why are some forms of bound labour more coercive than others? Specifically, why was European indentured servitude in America more coercive than craft apprenticeship or life-cycle servitude-in-husbandry, despite the close similarity and derivative nature of these institutions? Concepts recently advanced in labour economics offer some preliminary answers to these questions. This investigation is exploratory in nature and focuses on three types of voluntary long-term labour contracts. However, the arguments and conclusions presented here may have wider applications and be useful for future research on other forms of bound labour which involve consent and contract.

Contract Law in the Welfare State: A Defense of the Unconscionability Doctrine, Usury Laws, and Related Limitations on the Freedom to Contract

Conventional theories of contract law do not satisfactorily account for laws that restrict contractual freedom, such as usury laws, the unconscionability and related doctrines, and certain bankruptcy laws. Arguments that these laws protect consumers against fraud or that they redistribute wealth founder on a variety of well-known shoals. Indeed, economic theories agree that courts should enforce voluntary contracts, and wealth redistribution should occur through the welfare system. This article argues that this view overlooks distortions produced by the welfare system. The provision of welfare in a free market produces perverse incentives to take excessive credit risks, which both drive up the cost of the welfare system and undermine its goal of poverty reduction. The laws against usurious or unconscionable contracts are desirable because they deter this risky, socially costly behavior. The article also investigates evidence for the argument as a descriptive claim.

Governance by green taxes: making pollution prevention pay

Part 1 Environmental policy between market failure and state failure: government failure - the theory of state failure, bureaucracy industry complexes, technocratic iatrogensis strategies of government intervention - technological remedies, classical pollution control, modern environmental policy, the principle, the second stage of failure promoting clean technology through economic instruments economic instruments in and in practice economic instruments - another technical fix?. Part 2 Turning the invisible hand green - the Coase-Pigou controversy revisited: Pigou's externality taxation - welfare economics, the externality concept, taxation of externalities, intervention by public authorities Coase and property rights theory - property rights, transaction costs, institutional analysis, implications the limits of Coase - the compensation problem, the variations in property rights, the intertemporal externality problem the institutional problem reexamined the problem of earmarking. Part 3 How to approach the study of environmental policy: the ecological modernisation capacity theory a disputable relationship the analytical framework choice of research design - choice of cases, focus areas of the cases, presentation of case studies, measuring the dependent variable, control for intervening variables. Part 4 Denmark - consensus seeking as best available technology: context of water pollution control policy - environmental background, administrative background, historical background the Environmental Protection Act - the delegation principle, the consensus principle, the polluter-pays principle a first account - public sewage treatment, industrial effluents the policy instruments at work - the role of the municipalities, permits, planning and standards, the Environmental Board of Appeal, subsidies industry's response - the importance of policy instruments, technological responses. Part 5 France - river basin management: context of water pollution control policy - environmental background, administrative background, ministry of the environment, local authorities, historical background Loi de l'Eau - the Water Act - Agences Financieres de Bassin (AFB), the water pollution levies, standards and recipient quality planning a first account - public sewage treatment, industry the policy instruments at work - the permit and planning system, economic instruments, voluntary branch contracts, river contracts and city contracts, the 5-year plans of the River Basin Agencies, the role of the communes, summary technological responses. Part 6 Germany - the sector guideline approach: context of water pollution control - environmental background, administrative background, historical background the water pollution control laws - the water household act, the federal waste water levy act a first account - public treatment, industry. (Part contents).

Packaging effective community service delivery: the utility of mandates and contracts in obtaining administrative cooperation.

Voluntary agreements, mandates, and contracts integrate networks of social service organizations, allowing them to function as coordinated wholes. The author reviews the history of contracting and mandating in the public sector. It is hypothesized that contracted relationships formalize agreements between local organizations dependent on others. Mandated relationships are perceived to be important by policy-makers at a state or federal level. The differential acceptance and rejection of these relationships in the community is explored. Data from social service agencies are used to compare administrators' assessments of the effectiveness of mandated and contracted relationships used to coordinate a group of agencies delivering services to children. When a mandated relationship has been formalized into a contract by a local administrator the perceived effectiveness of that relationship is higher than any other relationship in the community. If the mandated relationship has not been formalized by a contract this relationship is perceived to be the least effective. Important mandated inter-organizational ties without monetary incentives are less likely to work. Local administrators having developed the contracted ties see these ties as producing a higher level of performance.

A proposal for the use of advance directives in the treatment of incompetent mentally ill persons.

[M]y question is how these patients while competent might be able to give their own informed consent to treatment, despite being both unwilling and incompetent to do so when treatment is to be begun, thereby reducing the need to relax the dangerousness criteria for involuntary commitment. It is uncontroversial that the dangerousness requirement would be too restrictive for all treatment of mental illness. When competent patients voluntarily seek and/or accept treatment for their mental illness, neither public policy nor medical practice restricts treatment to those patients judged to be dangerous. Instead, criteria should be and generally are comparable to those for the treatment of physical illness -- whether the patient is ill, in this case mentally ill, and likely to benefit from treatment. Through use of advance directives, it would be possible for mentally ill persons who are currently refusing treatment to give prior consent, while competent and with their disease in remission, to treatment at a later time when they are incompetent, have become noncompliant, and are refusing treatment. My proposal is certainly not entirely novel, since others have made similar proposals under the heading of Ulysses contracts and voluntary commitment contracts. Addressing briefly some of the criticisms of these earlier proposals will bring out one fundamental difference between them and my proposal here for a new use of advance directives -- whether the patient must then be incompetent when the contract or directive made earlier is later invoked -- a difference I shall argue strongly favors my proposal.