Use it or lose it

We examine the optimality of budget policies imposed by a funding authority on a bureaucrat who operates under a fixed budget. In particular, we study a “use‐it‐or‐lose‐it” (UILI) policy under which the bureaucrat has to return any unspent budget without being able to “roll over” any part to the next period. Instead of returning the unspent budget, the bureaucrat can go on a spending spree and engage in policy drift, which is inversely related to his motivation. The bureaucrat's motivation represents how well matched he is with the bureaucracy's mission. We show that a UILI policy is complementary to motivation as it has stronger ex ante positive incentive effects on more motivated bureaucrats. Such ex ante positive effects can overcome the ex post inefficiency of the policy and make a UILI policy optimal when the bureaucrat is well matched with the bureaucracy's mission or when its budget is large.     

Sustainability: I know it when I see it

Anyone trying to communicate and implement sustainable practices quickly runs into definitional difficulties, which translate into operational difficulties. Simply put, sustainability, and its predecessor term, sustainable development, mean different things to different people. How can we hope to achieve a shared vision when we're not certain what vision we are sharing? This is not simply a rhetorical question — businesses and other organizations require measurable, manageable objectives to achieve progress in this area of endeavor.The challenge of defining sustainability has already been noted by a number of writers. The most common definition, “development which meets the needs of the present without compromising the ability of future generations to meet their own needs” first appeared in the World Commission on Environment and Development's report, Our Common Future (World Commission on Environment and Development, 1987), but there are many, many more definitions and interpretations.This note takes a different approach. Rather than seeking or proposing yet another definition of sustainability, it uses Wordle, a web-based data visualization tool, to generate a “tag cloud” of the common elements in over one hundred previously-published definitions. The result is a visually-appealing menage of terms providing a composite picture of the essence of sustainability.     

Negotiation and take it or leave it in common agency

This paper contrasts models of common agency in which principals compete in incentive contracts (that is, they make take it or leave it offers) with models where principals offer agents menus of incentive contracts from which the final contract is negotiated. It is shown that pure strategy equilibria in incentive contracts are robust to the possibility that principals might offer menus. In addition, a no-externalities condition is given such that any pure strategy equilibrium allocation with menus can be supported with competition in incentive contracts. The no-externalities condition is restrictive, but it is shown that it applies in most well-known common agency problems, including, for example, the Bertrand pricing problem.     

Guiding it through

Some relatively little known Members of Congress and an even less visible group of aides are playing important behind-the-scenes roles in the health care reform debate.     

Technological Forecasting: Who does it and how useful is it?

This article reports on the results of a survey undertaken to estimate the extent of use of Technological Forecasting (TF) in U.S. industry. The results demonstrate that more firms use TF than eight years ago, and the perception of its importance has increased greatly. The emphasis on TF, the range of time horizons for the forecasts and the use to which TF is put differ according to the nature of the industry and the organizational level within the firm. Based on these results, the characteristics of firms that find TF crucial to their business, and those that find TF unimportant, are developed.     

When it Rains,it Pours: Estimating the Spatial Spillover Effect of Rainfall

Environmental and Resource Economics - A large fraction of the world’s poor rely on rain-fed agriculture, which makes them vulnerable to changes in rainfall patterns. In this paper, we...     

Physical productivity of new firms: it is not as high as it appears

This paper argues that the physical productivity of new firms is not as high as it is measured with conventional approaches. The overestimation is due to two reasons, both of which are related to the underestimation of production inputs of new firms. On the extensive margin, while conventional approaches implicitly assume the share of production costs in the total costs is the same for all firms, new firms spend a larger share of their costs on production. On the intensive margin, conventional approaches usually use capital stock as the proxy for capital input and tacitly assume a constant ratio between capital service and capital stock, whereas new firms tend to use their capital more intensively. Failure to incorporate the two facts leads to economically significant inflation in the measured physical productivity of new firms.     

When is it coevolution?

This paper evaluates the differences between Norgaard's and Winder et al.'s approach to socio-environmental coevolution. Winder et al. emphasize the evolutionary dynamics of coevolutionary change. These were omnipresent in Norgaard's work but they have not been adequately explored by other ecological economists. I argue that Winder et al.'s definition of coevolution is in essence the same as Norgaard's and that their real differences are, how they see coevolution applied and how far they are willing to draw a priori a line between evolutionary and non-evolutionary socio-environmental dynamics. My thesis is that at this stage a more open approach to evolutionary dynamics and coevolution a la Norgaard is a wiser strategy than Winder et al.'s narrower approach.     

Nodal pricing of electricity: how much does it cost to get it wrong?

Economists know how to calculate optimal prices for electricity transmission. These are rarely applied in practice. This paper develops a 13-node model of the transmission system in England and Wales, incorporating losses and transmission constraints. It is solved with optimal prices, and with uniform prices for demand and for generation, re-dispatching when needed to take account of transmission constraints. Moving from uniform prices to optimal nodal prices could raise welfare by 1.3% of the generators’ revenues, and would be less vulnerable to market power. It would also send better investment signals, but create politically sensitive regional gains and losses.      

Income security. Do it yourself

Washington--and Americans--are at a crossroads between the collective approach to social security and medicare and the corporate trend toward self-reliance. Workers may become more prudent consumers as they assume responsibility for retirement and health care costs, but the disadvantaged may find it difficult to provide for their own needs.