Optimal accident compensation schemes

This paper considers the way in which accident compensation is offered as insurance against personal injury due to accidents. We begin by setting up a simple microeconomic model in which accident compensation schemes can be studied. Using this model, the accident compensation scheme that maximizes the expected utility of the insured for a given expected outlay of the scheme (that is, for a budget constraint for the insurer) is characterized. We show that, in order for the optimal schedule of indemnities to be increasing (more severe accidents lead to greater compensation) then, contrary to what has been assumed in the literature, the marginal utility of wealth must be decreasing in health. In particular, if the marginal utility of wealth is non-decreasing in health, then an optimal indemnity schedule cannot provide full compensation, in the sense that utility in each state is a constant. Financial support from Secretaría de Estado de Universidades e Investigación del Ministerio de Educación y Ciencia is gratefully acknowledged by F. J. Vázquez.     

Input versus output incentive schemes

Previous analyses have modeled income tax evasion as a ‘portfolio problem’, deriving the optimal consumption of the ‘risky asset’ (unreported income) assuming a fixed probability of detection. We compare an alternative audit policy to the standard random audit policy. We focus on an ‘audit cutoff’ policy, in which an agent triggers an audit if reported income is ‘too low’, and is not audited if reported income is ‘sufficiently high’. We find that random audit rules are weakly dominated by audit cutoff rules. Given lump-sum taxes and fines, audit cutoff rules are the least-cost policies which induce truthful reporting of income.     

Optimal payment schemes for physicians

Increasingly, physicians payment schemes are being reformed to enhance performance and to ensure an optimal allocation of scarce medical resources. The empirical evidence points towards the use of mixed payment schemes that appear better at achieving efficiency than either lump sum payments (such as capitation) or piece rates (fee for service). Yet, this alleged superiority remains to be established from a theoretical standpoint. The Principal-Agent model developed in this paper offers a contribution in this line, with a primary care physician as agent and a public regulator as principal. Alternative specifications of the principals objective function are considered in the model (efficiency versus fairness). Uncertainty is introduced by two random variables that represent the probability for an individual of being ill and his productivity parameter which determines the amount of resources (the physicians effort in particular) necessary to restore health. The relationship is characterised by information asymmetry since the physician is assumed to observe both variables after the contract has been signed, but before choosing his effort level. Both selection and moral hazard issues are addressed in the model and the results show that, under GP risk neutrality, mixed payment schemes fully correct for both types of information asymmetry.Received: June 2002, Accepted: May 2003, JEL Classification: I18, I11, D82Rosella Levaggi: Correspondence toThe authors would like to thank participants to the LEA Barcelona Workshop, November 2001, to the Second Health Economics Workshop, Lisbon, February 2002 and two anonymous referees for their helpful comments. The usual disclaimer applies.     

Payment schemes in infinite-horizon experimental games

We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last period payment is also robust under different attitudes toward risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. We further provide experimental evidence from infinitely repeated prisoners’ dilemma games that supports the above theoretical predictions.     

Dynamic scoring: Alternative financing schemes

Neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump-sum transfers are used to balance the government budget. This paper explores the consequences of bond-financed tax reductions that bring forth a range of possible offsetting policies, including future government consumption, capital tax rates, or labor tax rates. Through the resulting intertemporal distortions, current tax cuts can be expansionary or contractionary. The paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts.     

The eventual failure of price fixing schemes

This essay examines the feasibility of a government buffer stock program which attempts to fix a relative price over time. In the model, m risk averse agents with random endowments of two commodities maximize expected utility over an infinite horizon. It is shown that a price fixing scheme will fail with probability 1, regardless of the price set by the government and regardless of the initial level of buffer stocks. The proof of this proposition turns on some well-known properties of random walks.     

Alternative goods allocation schemes under repressed inflation

We incorporate endogenous production into Sah's analysis of alternative schemes for distributing a deficit good. The model is interpreted as applying to a socialist economy suffering from repressed inflation. Sah's results are robust to this generalisation provided production is linear. Also, amending Sah's assumptions, we suppose all individuals own equal shares in the means of production. If production is linear, a low-wage worker (particularly defined) prefers goods to be sold at a free-market price to the alternatives of (equal) nonconvertible rationing or a queuing system. Without linearity, the results are less clear-cut.I am grateful to Ben Lockwood and Lynn Mainwaring for helpful discussions, and to anonymous referees for constructive comments.     

Pricing in debit and credit card schemes

This paper presents a model of a debit or credit card payment scheme, providing a simple determination of the socially optimal structure of fees between those charged to cardholders and those charged to merchants.     

Optimal voting schemes with costly information acquisition

A group of individuals with identical preferences must make a decision under uncertainty about which decision is best. Before the decision is made, each agent can privately acquire a costly and imperfect signal. We discuss how to design a mechanism for eliciting and aggregating the collected information so as to maximize ex-ante social welfare.We first show that, of all mechanisms, a sequential one is optimal and works as follows. At random, one agent at a time is selected to acquire information and report the resulting signal. Agents are informed of neither their position in the sequence nor of other reports. Acquiring information when called upon and reporting truthfully is an equilibrium.We next characterize the ex-ante optimal scheme among all ex-post efficient mechanisms. In this mechanism, a decision is made when the precision of the posterior exceeds a cut-off that decreases with each additional report. The restriction to ex-post efficiency is shown to be without loss when the available signals are sufficiently imprecise. On the other hand, ex-post efficient mechanisms are shown to be suboptimal when the cost of information acquisition is sufficiently small.     

Vision care: a compensation cornerstone

Vision care is a benefit that provides advantages for both employers and employees, and it has become an essential element of most competitive benefit packages. Well-designed vision care programs offer participants choice, options, self-help and value. An option that employers may want to consider is reduced prices on laser vision correction procedures.     

Debt, managerial compensation and learning

Using a dynamic model with uncertainty and asymmetric information, we study the impact of debt and bankruptcy on managerial compensation and learning. In this model, compensation has two roles to play—providing incentives to the manager and learning about his type. We show that debt, through bankruptcy, acts as a substitute of compensation in both dimensions and derive conditions under which debt lowers average compensation, pay-performance sensitivity and increases learning. We also examine the choice of debt and show that firm value can be increased due to debt's effect on managerial compensation, abstracting from other costs and benefits of debt. Finally, we conduct comparative statics with respect to the underlying parameters.     

Executive compensation: a calibration approach

Summary. We use a version of the Grossman and Hart principal-agent model with 10 actions and 10 states to produce quantitative predictions for executive compensation. Performance incentives derived from the model are compared with the performance incentives of 350 firms chosen from a survey by Michael Jensen and Kevin Murphy. The results suggest both that the model does a reasonable job of explaining the data and that actual incentives are close to the optimal incentives predicted by theory. Received: August 12, 1997; revised version: October 27, 1997     

Managerial compensation and the underinvestment problem

This paper studies the effect of managerial compensation terms on the well-known “underinvestment” incentive. We extend the Mauer and Ott (2000) real-option model of corporate expansion, and show that, when the manager maximizes the value of his compensation package (rather than equity value), the underinvestment problem can be substantially mitigated. Further, by designing an appropriate compensation contract, it is possible to eliminate the underinvestment incentive altogether. This managerial contract, consisting of fixed salary and equity ownership, is explicitly derived in the model. The equity ownership level is found to be an increasing function of the manager's fixed salary and the company's earnings growth rate, and a decreasing function of leverage ratio, earnings volatility, tax rate, bankruptcy costs, and the manager's severance pay at bankruptcy.     

Tax schemes in a class of differential games

This paper evaluates tax schemes in a class of differential games. The results indicate that there are many tax schemes that support efficient resource usage, but each may fail to implement the targeted resource because of the multiplicity of equilibria. Since all of the equilibria are subgame perfect, it is difficult to predict which specific one arises. Care must then be taken in using a tax scheme as a remedy for the “tragedy of the commons.” The advantages of other policy instruments (including command-and-control regulation and a tradable permit system) are also discussed. I am indebted to Gerhard Sorger, Koji Shimomura, and two anonymous referees for their helpful comments. The detailed suggestions of one of the referees in particular have markedly improved the paper. Any remaining errors are mine. Partial financial support from MEXT KAKENHI(11730017, 18078004) is also gratefully acknowledged.     

Decision making on pension schemes under rational expectations

In this paper the formation of expectations during decision making processes on pension schemes is the main focus. An overlapping generations model is used where politicians control the tax-transfer system and the young determine savings. No generation of decision makers is committed to previous decisions. It appears that the outcome in the stationary state depends on the efficiency of the tax-transfer system compared with savings and on the preferences of politicians relative to young individuals with respect to the division of endowments between young-age and old-age consumption. One of the main conclusions is that if the parameters of the system are constant the stationary state enters within a finite time interval. So, if the system is initially outside the stationary state, the decision makers can calculate the path of taxes and savings towards the stationary state. This feature is also used to determine the effects of a demographic change.Comments from Dieter Bös, Fons Groot, Lex Meijdam, Willem Thorbecke, and David Wildasin are gratefully acknowledged. All remaining errors are, of course, ours.     

生态补偿视角下的耕地保护

耕地具有经济价值、社会价值和生态价值.但是目前我国耕地保护工作比较注重对耕地经济价值和社会价值的保护,而忽视耕地生态价值的保护,这显然是不够的,也不利于耕地保护工作的开展.随着人们环保意识逐步提高,强调耕地生态价值的保护,建立耕地资源保护生态补偿机制显得十分必要.