Promises in contract design

In this paper, we propose a new channel of contract design to boost efficiency. If deviating from one's own words induces a self-imposed moral burden, the optimal contracting procedure with regard to cheap talk shall assign the responsibility for installing the nonbinding promise in the contract to whoever has the residual right to break such promise, in the spirit of Grossman and Hart (1986) and Hart and Moore (1990). To study whether a worker's own promise of effort level governs his real choice of effort in a gift exchange game, we implement four treatments in our experiments by varying two factors: (1) who (the firm or the worker) takes the position of the proposer to propose the contract and (2) whether the proposed contract includes a nonbinding specification of the worker's effort level. Our key finding is that when it is the worker who proposes the contract and the contract includes the worker's promised effort level, both the worker's actual effort choice and the aggregate profits are significantly higher than in each of the other three treatments (and there is little difference in worker effort otherwise).     

The effect of patient's asymmetric information problem on elderly use of medical care

It has been proposed that the patient's relative ignorance about medicine, ‘asymmetry of information between doctor and patient’, should place a patient in a disadvantaged position when purchasing medical care. Even if rapidly developing information technologies can enhance the patient's access to health information, a patient doesn’t have enough ability to understand, interpret and evaluate it. So, the doctor's effort at sincerely helping patient understand and utilize health information by effective communication with patient might improve the patient's asymmetric information problem and affect the patient's use of medical care by way of its being a source of patient's solid trust on doctor. This research seeks to determine whether a doctor's effort, mentioned earlier can affect the elderly use of medical care. This study used data from a survey sample of people aged more than 65 living in Seoul and Chuncheon, Korea. The results suggest the doctor's effort level has a statistically significant positive effect on the elderly use of medical care, which suggest a doctor's effort of effectively communicating with patient would ameliorate patient's information problem and it could be a source of patient's trust on doctor, so this trust would lead a patient to consume more medical care.     

ENHANCING EFFORT SUPPLY WITH PRIZE‐AUGMENTING ENTRY FEES: THEORY AND EXPERIMENTS

Entry fees are widely observed in contests. We study the effect of a prize‐augmenting entry fee on expected total effort in an all‐pay auction setting where the contestants' abilities are private information. An entry fee reduces equilibrium entry but can enhance the entrants' effort supply. Our theoretical model demonstrates that the optimal entry fee is strictly positive and finite. In a laboratory experiment, we empirically test the effect of entry fees on effort supply. Our results provide strong support for the notion that a principal can elicit higher effort using an appropriately set entry fee to augment the prize purse.     

Internal R&D effort,external imported technology and economic value added: empirical study of Taiwan's electronic industry

Technology innovation is a significant resource in the contemporary knowledge-based economy. The main sources of technology innovation are internal R&D effort and external imported technology. Two primary traditional production factors are physical capital and labour. The theoretical basis for this study is an evolutionary Cobb–Douglas production function explaining the effects of four resources (internal R&D effort, imported technology, physical capital and labour) on a firm's sales and economic value added (EVA). Time-series cross-section panel data from 219 Taiwan electronic manufacturers between 1990 and 2003 were employed for fixed effect model. Major empirical findings were observed in this study: first, Internal R&D effort can positively affect a firm's sales and EVA. Conversely, imported technology is found to have had no significant effect on sales and EVA. Second, although both physical capital and labour affect a firm's sales more than the effects of internal R&D and external imported technology, internal R&D effort contributes to a firm's EVA beyond the effects of imported technology, physical capital and labour. Third, External imported technology has neither a complementary nor a substitutive relationship with internal R&D effort.     

GRANTING AN EXIT OPTION TO CONDUCT AN AUDIT

We study a principal–agent relationship with auditing in which information from an audit is ‘soft’– by conducting an audit, the principal observes the agent's private information, but cannot obtain verifiable evidence on the information. Moreover, the principal's auditing effort is unverifiable in our model. Therefore, besides the agent's misreporting incentive, there is the principal's incentive to accuse the truthful agent even without auditing. If the principal's auditing effort is verifiable, granting no exit option to the agent is optimal although the principal can still accuse a truthful agent after the audit. We show that when the principal's auditing effort is unverifiable, granting an exit option to the agent and auditing are complementary. Without granting an exit option to the agent, no auditing is optimal, and the principal grants an exit option to conduct a sincere audit, which in turn mitigates the agent's misreporting incentive. Our analysis also reveals that, when the cost of auditing is sufficiently large, the principal conducts more sincere audits with a smaller amount of penalty.     

Contests with Alternative Public‐Good Prizes

I study contests in which a society of players compete, by expending irreversible effort, over which one of alternative prizes should be awarded to them by the decision maker. The prizes are public goods and/or public bads for the players. The players choose their effort levels simultaneously and independently. I define each player's valuation spread as the difference between his valuations for the two public‐good/public‐bad prizes. I establish that the players' equilibrium effort levels depend solely on their valuation spreads, and that the players never expend positive effort for both prizes in equilibrium. Further, I establish that in equilibrium only players with the widest positive valuation spread and players with the widest negative valuation spread expend positive effort. Finally, I establish that the equilibrium effort level expended for each prize and the equilibrium total effort level are determined only by the widest positive valuation spread and the widest negative valuation spread.     

After Van Gogh: The Geopolitics of the Tsunami Relief Effort in the Netherlands

The paper examines the Dutch humanitarian response to the 2004 Indian Ocean earthquake through the lens of geopolitics. It analyses the ways geopolitical representations shape non-state collective action, in this case the relief effort to help victims of the tsunami of 26 December 2004. Drawing on earlier work on geopolitical visions and national identity, the paper develops a framework to study people's geopolitics, the geopolitics of non-state collective actions. These insights are further explored through an examination of the Dutch tsunami relief effort. The paper discusses how the Dutch media framed this collective action as a national effort and articulated a sense of proximity and responsibility to mobilise people's generosity. Dutch geopolitical vision and national identity (water as a major threat to the national territory, the country's role as development aid donor, its relation to the regions affected) offer a frame to mobilise people. The tsunami is also analysed as a critical event for Dutch geopolitical representations and the tsunami relief effort as a peak experience providing a sense of recovered national identity in times when Dutch society was painfully divided between Muslims and non-Muslims after the murder of Theo van Gogh in November 2004. The concluding section discusses directions for further research into people's geopolitics.     

创业者的压力、情绪与创业努力——基于体验抽样法的实证研究

利用体验抽样法对78位创业者的压力、情绪和创业努力进行了持续一个月的跟踪调查。在使用多层线性模型分析软件对数据进行分析后发现:创业者感受到的时间压力会促进创业者做出更多努力,而创业者感受到的情境压力会减少创业者的努力;创业者感受到的压力不仅会带来消极情绪,而且会激发其积极情绪;创业者的积极情绪和消极情绪在创业者感受到的压力与创业努力之间存在部分中介作用。     

INCENTIVE CONTRACTS AND TOTAL FACTOR PRODUCTIVITY*

We propose a transactions cost theory of total factor productivity (TFP). In a world with asymmetric information and transactions costs, productivity must be induced by incentive schemes. Labor contracts trade off marginal benefits and costs of effort. The latter include, in addition to the workers' marginal disutility of effort, organizational costs and rents. As the economy grows, contracts change endogenously, inducing higher effort and productivity. Transactions costs are also affected by societal characteristics that determine the power of incentives. Differences in these characteristics may explain cross‐economy productivity differences. Numerical experiments demonstrate the model's consistency with time‐series and cross‐country observations.     

Career concerns and firm – sponsored general training

This article studies the provision of firm-sponsored general training in the presence of workers' career concerns. The model builds on the argument that the provision of general training reduces the employer's monopsony power. In this context, it is shown that the worker's implicit incentives to provide effort increase with the level of acquired general skills. The employer takes this reciprocal effect into account and becomes more willing to invest in general human capital. When the positive effect of training on worker's effort incentives is strong enough, the equilibrium outcome may involve overinvestment relative to the first-best. It is also shown that a sharper increase in worker's power associated with additional training may either strengthen or weaken the employer's investment incentives and can have either beneficial or detrimental effects on welfare.     

Could do better: The effectiveness of incentives and competition in schools

This paper studies the effects of incentive mechanisms and of the competitive environment on the interaction between schools and students, in a set-up where the students' educational attainment depends on their peer group, on their effort, and on the quality of the school's teaching. We show that increasing the power of the incentive scheme and the effectiveness of competition may have the counterintuitive effect of lowering the students' effort. In a simple dynamic set-up, where the reputation of the schools affects recruitment, we show that more powerful incentives and increased competition lead to segregation of pupils by ability, and may also determine lower attainment in some schools.     

市场不确定性下的电影保底发行模式抉择机制探究

随着近年来不断增大的社交网络影响,电影市场中影片发行方式开始显现出其规避风险的特性.基于市场不确定性所带来的收益风险,在保底发行模式下考虑了一个电影制片方及一个影片发行方的多阶段博弈模型.研究发现,相较于传统的分账发行模式而言,保底发行模式牺牲了制片方的部分期望收益,但能够有效降低其市场风险.部分市场风险通过保底发行模式被转嫁给发行方,但同时,该模式为发行方带来更高的期望收益.此外,市场不确定性的提高会打击制片方的运营信心并使其降低前期努力投入,但是会促使发行方增加其努力投入以提高影片的最终票房.     

EFFECTS OF ASYMMETRIC INFORMATION WITHIN A FIRM ON OLIGOPOLISTIC MARKET OUTCOMES

I analyze the implications of the Laffont–Tirole type agency problems on oligopolistic market outcomes. In the model, a firm's marginal cost is decreasing in managerial effort and is subject to an additive shock. Both managerial effort and the realization of the shock are a manager's private information. A firm first offers a menu of contract to its manager, and then competes in the product market. As in the model of single principal and single agent, the incentive contracts implement efforts that are distorted downward relative to full information. In this model, with multiple agency relationships, an additional source for upward distortion of effort emerges as a result of the interaction in the product market. The results are robust to whether firms compete in price or quantity.     

Disentangling managerial incentives from a dynamic perspective: The role of stock grants

We analyse the optimal contract between a risk‐averse manager and the initial shareholders in a two‐period model where the manager's investment effort, carried out in period 1, and his or her current effort, carried out in period 2, both impact the second‐period profit, so that it may be difficult to disentangle the incentives for these two types of effort. We show that stock grants play different roles according to whether the signal of investment effort is less noisy, or noisier, than that of current effort. We determine simultaneously the optimal stock grants and the optimal restrictions on sales of shares.     

基于节点企业努力水平的动态协调最优决策策略

为了确定基于节点企业努力水平的动态供应链系统最优协调策略,构造了节点企业努力水平与动态供应链系统利润的随机微分合作博弈模型,通过求解该模型获得各节点企业的最优协调策略,即最优决策策略;通过动态Shapley分配方案,给出了动态供应链系统的协调机制,获得了缩小其差距的最优协调策略。     

Incentives,pay, and performance: a study of Australian employees

The paper analyses the determinants of self-reported work effort using a 1988 survery of Australian employees. While controlling for the endogeneity of the firm's choice of incentives and pay, it is found that direct incentive schemes have predicted effects, and the efficiency wage hypothesis is supported: pay and work effort are positively correlated. Two efficiency wage models are tested: Akerlof's gift exchange model, and work discipline arguments regarding monitoring difficulties and threats of dismissal. The latter argument is broadly consistent with the data.     

Severance Payment: Incentive or Lethargy Effect?

The aim of the paper is to determine the impact of severance payment on the motivation of the worker to make an effort, when there is a risk for him to be dismissed once his effort was made. We highlight through a two‐stage model the various factors which influence the dismissal decision by the firm and the worker's effort, such as the initial wage, the litigation costs and the relative bargaining powers of the parties when the relationship ends or goes on. In this context, we show that the impact of the severance payment paid ex post in case of dismissal on the level of effort chosen by the worker ex ante may depend on such characteristics.     

On the Use of the Prisoners' Dilemma to Analyze the Relations Between Employment Security,Trust, And Effort

Sociologists and political scientists have argued that the explanatory adequacy of economics is undermined by unreasonable assumptions of rationality. Yet interpretations that make strong rationality assumptions remain common. Analyses of the effects of employment security on work effort provide one example. The iterated prisoners' dilemma has been used to deduce a positive effect of employment security on work effort. Several difficulties with this approach are identified, including that the cooperative solution to the iterated prisoners' dilemma game i) requires infinite play or uncertainty about the end of the repetitions of the game; ii) is made less likely where there are structural bases for divergent interests; iii) ignores the possibility that employers might choose to shift the game to another arena. In general, there is the difficulty that employer-employee relations involve three simultaneous prisoners' dilemmas. The paper concludes that the hyper-rational approach implied in the prisoners' dilemma is an unpromising route for the analysis of the effects of employment security.     

Immanuel Kant and Endogenous Growth Theory

Despite the modern origins of endogenous growth theory, we argue that the ‘Idea for a Universal History with a Cosmopolitan Aim’ written by Immanuel Kant in 1784 provides an early and coherent example of such a theory. Kant's endogenous growth mechanism is driven by the inherent rivalry that exists between agents which increases effort and strengthens the accumulation of knowledge, which in turn is carried through generations. In an exercise in ‘rational reconstruction’, we present a mathematical model of Kant's mechanism. We use the model to contribute to the contemporary policy debate as to whether ‘keeping up with the Joneses’ leads to excessive effort.     

Round‐Robin Tournaments with a Dominant Player

We analyze the subgame perfect equilibrium of the round‐robin tournament with one strong (dominant) and two weak players, and we compare this tournament and the one‐stage contest with respect to the players' expected payoffs, expected total effort, and their probabilities of winning. We find that if the contest designer's goal is to maximize the players' expected total effort, then – if the asymmetry between the players is relatively low – the one‐stage contest should be used. However, if the asymmetry is relatively high, then the round‐robin tournament should be used.