Heterogeneity,impatience, and dynamic private provision of a discrete public good

We analyze dynamic private provision of a discrete public good by heterogeneous agents, who differ in terms of their levels of impatience, in a differential game framework. In contrast to the strategic complementarity result for homogeneous individuals, we show that an asymmetric completion Markov perfect equilibrium exists, where the individual contributions and the strategic behaviors depend crucially on an impatience differential: the difference in rates of time preference across groups of individuals. When this differential is insignificant, contributions of both types of individuals are strategic complements. On the other hand, when this impatience differential exceeds a threshold, the contributions of impatient individuals become strategic substitutes, whereas the contributions of patient individuals remain strategic complements. We show that group size has an interesting role to play in the strategic behavior: increasing the number of patient individuals aggravates the incentives to free‐ride by the impatient agents. We also derive a condition under which all the socially beneficial projects get completed in the equilibrium.     

Getting the Ball Rolling: Voluntary Contributions to a Large-Scale Public Project

This paper examines dynamic voluntary contributions to a large‐scale project. In equilibrium, contributions are influenced by the interplay of two opposing incentives. While agents prefer to free ride on others for contributions, they also prefer to encourage others to contribute by increasing their own. Main findings of the paper are that (1) agents increase their contributions as the project moves forward; (2) as additional agents join the group, existing agents increase their contributions in the initial stages of the project while reducing them in the stages close to completion; (3) groups that are formed by more patient agents and that undertake larger projects tend to be larger; and (4) groups that rely on voluntary contributions tend to be too small compared to the social optimum. The empirical evidence on contributions to open‐source software projects provides partial support for these findings.     

The good,the bad and the ugly: agent behavior and efficiency in open and closed organizations

Current literature has largely ignored the fact that some organizations are highly selective when admitting new agents while others are more open. In addition, some organizations audit or sort agent behavior within the organization more aggressively than others. One might expect a priori that closed, highly selective, organizations would always be more efficient because they screen out the worst types, which could lead to better agent behavior. We show that this is not the case. Specifically, when agent behavior in equilibrium is uniform across organizations (i.e., when the number of agents behaving the same way is identical), closed organizations are inefficient. However, when agent behavior varies across organizations, closed organizations may or may not be inefficient, depending on net payoffs to the organization and the agents. Our analysis implies that organizations should choose the open type when screening or sorting costs are high, when there is a high frequency of good agent types in the population, when agent misbehavior does not reduce output significantly, and when penalties for misbehavior are large. The paper has benefitted from useful comments by David Flath, Charles Knoeber, Claudio Mezzetti, two anonymous referees and participants of the Spring 2005 Midwest Economic Theory meetings at Vanderbilt University, the 2005 meetings of the Society for the Advancement of Economic Theory in Vigo, Spain, the 2005 conference on Research in Economic Theory and Econometrics in Syros, Greece, and workshops at North Carolina State University, Texas A&M University and McGill University.     

Coexistence of long-term and short-term contracts

We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is revealed during the relationship. The market dictates the trade-off between sorting and incentives. Short- and long-term contracts often coexist: The best firms always use short-term contracts to hire high-ability senior workers, firms with less profitable projects use short-term contracts to save on the cost of hiring junior workers, whereas intermediate firms use long-term agreements to provide better incentives to their workers. We relate our results to the optimal assignment literature that follows Becker (1973).     

Patterns of multi-agent land conservation: Crowding in/out,agglomeration, and policy

Private agents make large contributions to networks of conserved land, but little is known about how private agents’ decisions might be altered by government actions. This paper explores the impact of public conservation and public policy on the quantity and configuration of private land conservation and the extent to which the social optimum is reached. Because land conservation benefits often have thresholds and spatial characteristics, we consider the impact of different land conservation benefit functions on the patterns of conservation created by the interaction of private and public agents. We find that public conservation crowds private conservation in or out depending on whether marginal conservation benefits increase or decrease with total acreage, and crowding out is mitigated by the presence of budget constraints. We show how land conservation agents might interact strategically in space depending on preferences over fragmentation, and we explore that spatial strategic interaction in a case with a regional land trust and a case with hot-spot parcels. We identify when government policies, such as agglomeration bonuses and mitigating coordination costs, are most likely to increase the social benefits provided by private land conservation agents.     

Risk perceptions,voluntary contributions and environmental policy

This article studies the effect of uncertainty on agents’ voluntary contributions to environmental quality. There is uncertainty in future environmental quality and we consider a heterogeneity in individuals’ risk perception. In this context, the social optimum can be decentralized by means of tax-financed government subsidies to private provision. We distinguish the case of a government that represents perfectly agents’ preferences from the case of a government with its own risk preferences. In the two cases, we show that neutrality still holds.     

Asymmetric treatment of identical agents in teams

We investigate when identical agents will be treated asymmetrically in a simple team setting. Asymmetric treatment is optimal when the agents’ individual contributions to team performance are strategic complements. Symmetric treatment of identical agents is optimal when the agents’ contributions are strategic substitutes or when they are independent.     

International status seeking, trade, and growth leadership

Abstract .  We study a two-country endogenous growth model where the utility of agents in developing countries is affected by consumption gaps with advanced economies. International status seeking tends to revert growth differentials in favour of the developing country. Preferences with endogenous status desire generate convergence in growth rates in the presence of structural gaps and convergence in income levels if productivity differences disappear. This process is driven by declining terms of trade and faster capital accumulation of the status seeker. The model predictions are shown to be consistent with the stylized facts that characterized the growth performance of East Asian economies.     

On the architecture of complex organizations

We use results from information theory to show that the screening effectiveness of organizations which consist of many fallible agents can be arbitrarily improved, but only if organizational architecture is non-hierarchical. We also examine how any desired outcome may be implemented as a symmetric equilibrium, when agents are selfish.     

Inefficient Investment,Information Asymmetry,and Competition for Managers

We investigate the possible inefficiency of investment when the manager has better information than the principal. We assume that projects can be grouped into two categories based on their information characteristics of soft and hard information. We consider a case in which the manager faces competition for appointment at the end of term. We consider several cases in which the competitor's ability is known, or proxied by the performance of other managers, or is uncertain. We find that hard information projects are preferred to soft information projects and that the efficiency in project selection critically depends on the competitor's ability. Interestingly, information asymmetry may be socially beneficial, because it can provide the manager with incentives to select high‐quality hard‐information projects. Welfare improvement can be made by a budget change that is in the opposite direction to the optimum. Several empirical implications of the theory are discussed.     

Introduction to the Special Issue on Leadership,Altruism, and Social Organization

The objective of the conference on “Leadership, Altruism, and Social Organization” was to bring researchers together who were interested in exploring the functioning of the nonprofit sector. The conference and this special issue focus on three themes. First, what causes social and volunteer‐based organizations to successfully compete against a private enterprise? Second, why do individuals or organizations take the lead in providing or securing provision of public goods? Third, what are the consequences of having altruistically motivated agents, and how can such motives be sustained?     

Efficient political contributions with conditional Coasian contracts

The externalities associated with political contributions imply agents choose a socially inefficient level. A typical market solution to these externalities would involve Coase bargaining where agents form contracts with payments conditional on the actions of others. These contracts, however, are hard to enforce because political contributions can be unobservable or unmeasurable. In this study, we modify these Coasian contracts, making the payments conditional on the outcome of the political election. We show the agents that form these contracts contribute the socially efficient amount.     

Public sector performance measurement and stakeholder support

Over the past several decades there has been dramatically increased attention paid to measuring the performance of public sector and nonprofit organizations in the United States and elsewhere. Recent research has indicated that public sector and nonprofit organizations are responsive to performance measurement in both productive and unproductive ways. However, it is not yet known how stakeholders respond to this measurement. This paper makes use of a unique panel survey dataset of the population of elementary and middle schools in the state of Florida to directly investigate this question. We exploit the fact that Florida changed its school grading system in 2002 and study the degree to which private contributions to schools are responsive to the information contained in school grades. We find evidence that school grades can have substantial effects on a school's ability to obtain private contributions. We also observe that schools serving different clienteles are treated differently in response to changes in school grades.     

Skill acquisition,credit constraints,and trade

In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.     

Wages and Other Determinants of Corruption

Raising wages has commonly been viewed as an anticorruption policy by policymakers from both governments and multilateral development organizations. Conventional wisdom and recent theoretical work suggest that low wages encourage corruption. Nevertheless, the empirical studies done on the wage– corruption tradeoff are econometric estimates that find no conclusive support for the effectiveness of increasing wages as an anticorruption measure. The unique contributions of this paper are the application of an expected utility model to explain the emergence of corruption, and the use of comparative static results that are consistent with the empirical evidence and useful for the design of anticorruption policies. The most important result from the expected utility model is that anticorruption policies designed to increase the net income of potentially corrupt agents not only may be ineffective but may actually encourage corruption.     

The politics of special purpose trust funds

Over the last decades, bilateral donors of foreign aid have increased their use of special purpose trust funds to provide earmarked aid to multilateral organizations. This paper investigates the incentives and consequences underlying this recent shift toward country‐ or theme‐specific funding and away from bilateral and multilateral aid. We propose a game‐theoretic model with multiple principals and a multilateral agent to study how the interaction between donor preferences, voter concerns in the donor country, the voting rules at the multilateral organization, and the presence of special purpose trust funds influences aid allocation. We show that multilateral organizations with majority rules are more likely to receive discretion and thus voluntary core contributions than those with unanimity requirements and that the possibility of earmarking multilateral aid decreases donors’ contributions to the multilateral's discretionary core budget and the amount of bilateral aid. In contrast to much of the literature dealing with issues of delegation and bi‐ and multilateral aid, our model suggests non‐monotonic effects of preference heterogeneity on the choice of aid channel for some parameter combinations when contributions to special purpose trust funds are an option.     

A Case for Bundling Public Goods Contributions

We extend the model of voluntary contributions to multiple public goods by allowing for bundling of the public goods. Specifically, we study the case where agents contribute into a common pool which is then allocated toward the financing of two pure public goods. We explore the welfare implications of allowing for such bundling vis‐à‐vis a separate contributions scheme. We show that for high income inequality or for identical preferences among agents bundling leads to higher joint welfare. Interestingly, a welfare improvement can in some cases occur despite a decrease in total contributions. On the contrary, when agents are heterogenous, for low income inequality bundling can lead to lower total contributions and may decrease welfare compared to a separate contribution scheme. Our findings have implications for the design of charitable institutions and international aid agencies.     

Collective Organizations versus Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard

This paper studies collective economic organizations that share risk and mitigate moral hazard and compares them with relative performance contracts. Information-constrained optimal distributions of organizations and contracts are shown to be functions of the underlying primitives, in particular, the distribution of Pareto weights, and hence degree of inequality. Internal inequality of a potential, local group is a force for collective organization. That is, multi-agent organizations exist in order to extract wealth from some but not necessarily all members. The group organization is also shown to be information-constrained Pareto optimal at extremes of local wealth relative to an outsider. But the group organization is susceptible to both agents simultaneously deviating, colluding against the outsider, and this distortion makes an individualistic, relative performance contract an attractive alternative. More generally, organizations, contracts, and allocations are jointly determined. These implications could be distinguished in cross-sectional, time series data. Journal of Economic Literature Classification Numbers: D70, D82.     

Cultural Inertia and Uniformity in Organizations

We analyze aspects of the structure of organizational culture.We show that old and culturally uniform organizations are proneto cultural inertia, that is, they are reluctant to adopt adifferent culture in response to a change in the environment.Cultural uniformity can be beneficial because the associatedinertia ex post protects and therefore ex ante encourages culture-specificinvestments by agents. We also explore the model's implicationsfor such issues as cultural uniformity within an organization,cultural heterogeneity across organizations, the destabilizingeffect of growth and mergers, and the conflicts arising in themanagement of culture.     

Task assignment and organizational form

This paper shows that a firm prefers a process-based task assignment compared to a function-based one if the tasks are from functional areas which are neither too complementary nor too substitutable. We consider several projects (processes) with contributions from several functional areas. The organization can be structured along processes like product lines (M-form) or along functional areas like marketing or production (U-form). The U-form enables cost savings due to specialization or scale economies. The more effective incentives under the M-form might outweigh these savings if the functions are neither too complementary nor too substitutable.