Strategic Incentives in Teams: Implications of Returns to Scale

This article demonstrates the critical relationship between the characteristics of the production function and the strategic incentives in a team. Equilibrium effort increases in team size when substitutability is low relative to returns to scale. Effort levels are actually strategic complements when returns to scale exceed the substitutability of members' effort. Moreover, even with equal shares the well‐known problem is determined by returns to scale and becomes worse as returns increase. While a target scheme can support the optimal output level as an equilibrium, it does not completely deter free riding. A team member will accommodate shirking by increasing their own effort within a remarkably large “accommodation zone” where the additional effort cost is less than the bonus. This accommodation of shirking by others exists for different returns to scale and even for very low levels of substitutability.     

Ill‐Defined versus Precise Pre‐Play Communication in the Traveler's Dilemma

This article reports results from an experiment comparing the effects of vague versus precise pre‐play communication in a highly competitive two‐player game with conflicting interests. In the classic Traveler's Dilemma, non‐binding precise messages about intent of play are pure cheap talk. We conjecture that a form of imprecise pre‐play communication whereby subjects can submit ill‐defined messages may help foster cooperation because of their vagueness. Comparing behavior both across modes of communication and to a baseline case without communication, we find that cooperation is highest when players can communicate using precise numerical messages. When communication with ill‐defined messages is allowed, then conditional on receiving a message, subjects act more cooperatively than when no message is received. However, overall, the ability to exchange ill‐defined messages does not substantially improve cooperation.     

A stability property in social choice theory

A social choice function g is stable if whenever an alternative x is selected at profile u and then profile is constructed from u by only switching x with yfor one individual i who has y just below x at u, then rule g selects either x or y at and not some third alternative. Stability is strictly weaker than strategy‐proofness but strong enough to establish two kinds of impossibility theorems.     

A Laboratory Investigation of Verification and Reputation Formation in a Repeated Joint Investment Setting*

This paper describes an experiment in which subjects, acting as division managers, exchanged privately held information before making intrafirm investment decisions. Social efficiency required that managers honestly disclose their private information, but managers had individual incentives to send biased messages. These features of the model created an important role for ex post verification, the main manipulation in the experiment. The matching protocol was also manipulated, using both random and continuous matching of subjects. This second manipulation was intended to examine whether an important institutional attribute — the frequency of interaction — would affect the usefulness of verification. The results of the experiment indicate that verification significantly increased the relative frequency of honest messages and the level of social efficiency. However, the improvements from verification were greater in settings where subjects did not interact repeatedly. The data also indicate that, in the continuous matching treatments, responses depended on the history of behavior of the message sender. However, this behavior was not observed in the random matching treatments. Thus, both the efficacy of verification and the extent of reputation formation depended on the institutional setting.     

Role of Information on Consumers’ Willingness‐to‐pay for Genetically‐modified Rice with Health Benefits: An Application to China

Despite their potential health benefits, the controversial nature surrounding the use of GM technology in biofortified crops remains a subject of discussion. This paper investigates the role of information on willingness‐to‐pay for folate‐biofortified rice in a Chinese folate‐deficient region. We conducted second price auctions with 252 women of childbearing age, split up into two target groups based on street (n = 132, non‐student sample) or school auctions (n = 120, student sample). Notwithstanding a general positive effect of folate‐related information (i.e. content, benefits and regional situation), evidence reveals that the non‐student sample is less concerned about GM technology. The results also provide insight into serial position effects in conflicting GM information. Whereas participants in the non‐student sample are more prone to a primacy bias when receiving both positive and negative information, an alarmist reaction is observed in the student sample. This study highlights the need for segmented, targeted communication strategies on biofortification.     

Waiting for Signaling Quality

When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying until the next period, with the hope of learning the unknown quality. I analyze the monopolist's pricing and waiting strategies when consumers have strategic delay incentives. I show when the monopolist offers introductory low prices in pooling equilibria. I also find two types of separating equilibria: one where the high‐type monopolist signals its quality by choosing a different price than the low‐type monopolist in the first period and another where the high‐type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signaling; hence, the monopolist uses it as a signaling device.     

Shocks,Structural Change,and the Patterns of Income Diversification in Burkina Faso*

Abstract: This article investigates changes in income diversification patterns for the case of Burkina Faso between 1994 and 2003. Contrary to common beliefs, our empirical analysis shows that rural households are not increasingly diversifying their income portfolios. Beyond insuring against and coping with weather shocks, diversification behaviour reflects structural change. Higher returns to agricultural activities, in particular in the cotton and livestock sectors, appear to be the root cause for less non‐agricultural diversification and some of our findings hint at better opportunities in the non‐farm sector. Yet, average returns in the non‐farm sector appear to remain relatively low and migration increasingly turns into a desperation‐led strategy. Overall, structural change seems to be biased in favour of richer households. Regarding responses to droughts, we confirm earlier findings, especially that the poorest households are hit particularly hard, being forced to sell livestock, which is often their only asset.     

Technical Efficiency in the Angolan Banking Sector with the B‐convexity Model

This paper analyses technical efficiency in Angolan banks from 2005 to 2010 with an innovative production frontier model, the model. The intermediate approach is adopted. It is observed that the efficiency increases over the observation period, according to the international experience, market share and local markets. Policy implications indicate that competition and governance should be promoted in order to increase efficiency.     

The Relation Between Earnings Management and Non‐GAAP Reporting

Managers have a variety of tools at their disposal to influence stakeholder perceptions. Earnings management and the strategic reporting of non‐GAAP earnings are just two of the available menu choices. We explore how real earnings management and accruals management influence the probability that a company will disclose a non‐GAAP adjusted earnings metric in its earnings press release and the likelihood that it will do so aggressively. We first investigate situations where managers already meet analysts’ expectations either based on strong operating performance or after employing real and accruals management. We find that when solid operating performance alone allows firms to meet expectations, managers do not employ earnings management or non‐GAAP reporting. However, when managers meet expectations using real and accruals management, they are significantly less likely to report a non‐GAAP earnings metric. Next, we explore scenarios where companies fall short of expectations. We find that when they just miss expectations after managing GAAP earnings, they are significantly more likely to employ non‐GAAP reporting, suggesting that the timing and relatively costless nature of non‐GAAP reporting allows managers to appear to meet expectations on a non‐GAAP basis when managed GAAP earnings fall short. Moreover, we find that companies are more likely to report non‐GAAP earnings (and to do so aggressively) when (i) they are unable to use real or accruals earnings management, (ii) are constrained by prior‐period accruals management, and (iii) their operating performance is poor. Taken together, our results are consistent with a substitute relation between non‐GAAP reporting and both real and accruals management.     

Rational stability of choice functions

Two independent approaches have been used to analyze choices. A prominent notion is rationalizability: individuals choose maximizing binary relations. An alternative is to analyze choices in terms of standards of behavior with the notion of von Neumann–Morgenstern (vNM)-stability. We introduce a new concept ($r-$stability) that in turn extends the notion of stability and rationality. Our main result establishes that every rationalizable choice function is $r-$stable and every vNM-stable choice has an $r-$stable selection. An appealing property of $r-$stability is that well-known solution concepts (top cycle, uncovered set, …) are $r-$stable, while they are neither rationalizable nor vNM-stable.     

International mixed duopoly and strategic commitments

This paper examines an international mixed model in which a social-welfare-maximizing domestic public firm competes against a profit-maximizing foreign private firm. First, the public firm can adopt either a lifetime employment contract or a wage-rise contract as strategic commitments. Second, the foreign private firm decides whether or not to enter the market. Third, if the foreign private firm enters, each firm independently chooses its actual output, while if the foreign private firm does not enter, the public firm acts as a monopolist. The paper shows the equilibrium of the international mixed model.

Reservation Values and Regret in Laboratory First‐Price Auctions: Context and Bidding Behavior

Recent articles hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first‐price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one‐to‐one relationship in the auction between winning and positive earnings and the ex post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first‐price auction environment in which these characteristics are not present, while leaving unchanged the expected‐earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects that are not essential to the auction environment.     

Japanese Company’s Cultural Shift for Gender Equality at Work

Abstract

The article provides an overview of Japanese Prime Minister Abe’s womanomics policy for gender equality (GD), and poses a question as to why despite a large amount of GD initiatives, Japan’s GD progress has been painfully slow. It then introduces an ethnography of the GD implementation by a Japanese multinational firm (2013–2017). It analyzes the firm’s pedagogical effort to correct the unconscious cultural bias to retool the existing habitus of managers and employees. The firm’s cultural strategies parallel its human resources (HR) reforms in its attempt to change organizational norms regarding how corporate men and women should work. Deploying theoretical perspectives of cultural neuroscience, semiotics, learning theory and interpretive anthropology, the author then identifies seven strategic foci for this firm’s cultural transformation, and terms this habitus-shifting program as MRS-PARC: M?=?magical messages and messengers; R?=?rites of passage and rituals; S?=?signs and symbols; P?=?rewarding and punishing task performances; A?=?clarifying alternatives and affordance; R?=?dealing with unexpected results, resistance and rear guards; and C?=?communication, complexity and continuity. Once MRS-PARC starts, corporate social drama and critical incidents lead the observer to the nexus of symbolic resistance and representation that in turn helps clarify how to modify the existing accommodation-and-redress mechanism for reform. MRS-PARC offers an empirically derived, action-oriented, process-based, analysis for those interested in moderating the people’s referential frameworks and cognitive/emotional orientations for organizational transformation.     

Small Enterprise Growth and the Rural Investment Climate: Evidence from Tanzania*

Abstract: This paper analyzes characteristics of nonfarm enterprises, their employment growth patterns, and constraints in doing business in rural Tanzania. Using unique survey data, we describe a low‐return sector struggling to compete in a challenging business environment. However, about one‐third of rural enterprises are growing fast. Most enterprises engage in agricultural trade. Due to a rapidly growing agricultural sector in recent years, limiting demand‐side constraints, rural enterprise constraints in Tanzania mainly operate from the supply‐side, suggesting that in particular access to finance, road infrastructure and rural cell phone communication is associated with employment growth. A major finding is that subjective and objective measurements of business constraints are broadly comparable. We discuss a number of factors that would help to unleash the full potential of private sector‐led growth in rural areas. Marginal improvements of the rural investment climate matter for growth.     

Same‐sex relationship escalation with uncertain marriage legality: Theory and empirical implications

We develop a strategic model of same‐sex dating, cohabitation, and potential marriage with location‐specific marriage legality. With an initial illegal location, couples bargain over a relationship path that internalizes the probability of future legalization and potential migration‐for‐marriage. Our model generates testable, empirical implications on relationship hazard rates, migration, and utility due to changes in migration costs and legalization probabilities. Specifically, we show that decreased migration costs or increased legalization probabilities will increase relationship hazard rates (dissolution) for both daters and cohabitators. These changes will also decrease utility for an identifiable segment of the relationship quality distribution.     

A History of Australian Corporate Bonds

We compile a new unit‐record data set of Australian corporate bond issuance, which sheds light on developments in the bond market since the early twentieth century. Reflecting the evolution of the economy, privatisations, and changes in the regulatory landscape the following trends are noteworthy: (i) issuance today is largely by private entities whereas government‐owned corporations dominated historically; (ii) the issuer base has shifted away from non‐financial corporations towards banks, with corporations now raising a large share of funds offshore; and (iii) the investor base has shifted away from direct holdings by households towards holdings through superannuation/managed funds and holdings by non‐residents.     

Liberalisation and Financial Sector Competition: A Critical Contribution to the Empirics with an African Assessment

This paper investigates how financial, trade, institutional and political liberalisation policies have affected financial sector competition in Africa using updated data to appraise second‐generation reforms. The “freedom to trade” and “economic freedom” indices are employed. Hitherto, unexplored financial sector concepts of formalisation, semi‐formalisation, informalisation and non‐formalisation are also introduced. The following findings are established. First, relative to money supply, (i) with the exception of the economic freedom mechanism, liberalisation policies have generally decreased the growth of the formal financial sector to the benefit of other financial sectors; (ii) apart from the foreign direct investment and economic freedom channels, liberalisation policies have been fruitful for semi‐formal financial development at the cost of other financial sectors and; (iii) with the exception of economic freedom, both the informal and non‐formal sectors have developed owing to liberalisation to the detriment of the formal financial sector. Second, relative to gross domestic product, the semi‐formal, informal and/or non‐formal financial sectors have also generally improved as a result of liberalisation. Policy implications are discussed.     

Optimal economic institutions under rational overconfidence,with applications to the choice of exchange rate regime

We study the optimal choice of exchange rate regime when agents have beliefs that are mutually inconsistent. A general framework for identifying optimal policies in such situations is proposed and then used to compare fixed and floating exchange rate regimes. Agents are assumed to have diverse rational beliefs (rather than rational expectations), implying the prevalence of (rational) overconfidence. We argue that in such a situation, in comparing economic institutions, one should employ the concept of ex‐post optimality rather than that of Pareto optimality. Fixing the exchange rate is ex‐post optimal because it eliminates mistaken actions (based on mistaken beliefs).     

Non‐farm Income Diversification in Rural Ghana: Patterns and Determinants

Abstract: Evidence abounds in the rural livelihoods literature that rural households do not only receive a significant proportion of their incomes from non‐farm sources, but also it is a significant source of employment for rural folks. This paper examines the pattern and determinants of non‐farm income diversification in rural Ghana. Results show that off‐farm income constituted 43 percent of rural household income in 2005/6. Female‐headed households tend to have larger off‐farm income shares compared to male‐headed households. Non‐farm income shares followed the same gender pattern albeit less pronounced. Unlike in Latin America and Asia, in rural Ghana, non‐farm self‐employment income is more important than non‐farm wage‐employment income. Regression results show that the gender composition of households, age, education, and access to credit, electricity and markets are important determinants of multiple non‐farm activities and non‐farm income. The findings call for strategies that can help rural households maximize the benefits from income diversification.     

ECONOMIC EVALUATION OF THE PROPOSED ROAD BETWEEN GOBABIS AND GROOTFONTEIN,NAMIBIA

First, a cost‐benefit analysis is presented of reconstructing the existing road section between Gobabis and Otjinene in Namibia. Second, a cost‐benefit analysis is presented of constructing a new direct road link between Otjinene and Grootfontein, coupled with the above‐mentioned road upgrading between Gobabis and Otjinene as one project. The proposed link will shorten the existing route from Gobabis via Windhoek to Grootfontein by approximately 300 km. The following economic indicators are shown in the two cost‐benefit analyses: (i) Net Present Value, (ii) Benefit/Cost Ratio, and (iii) Internal Rate of Return. Third, the general economic impact that construction and operation of the entire road will have on non‐road users within Namibia is evaluated. This analysis is divided into two parts: The first part deals with the once‐off income‐multiplier effect triggered by the initial investment in the road, while the second part addresses the recurring income accelerator effect that usage of the road is expected to have within Namibia.