Régulation School and environment: Theoretical proposals and avenues of research

The article explores the relevance of a particular approach of the institutionalist movement, régulation theory, to deal with the relationship between the economy and the environment. Régulation theory, which appeared in France at the end of the 1970s, is mainly interested in macroeconomic issues. In contrast, until now it has tended to neglect environmental questions. By taking several key concepts of this theory (accumulation regime, mode of régulation, institutional forms), we have sought to assess its significance vis-à-vis the environmental field. More precisely, from the perspective of establishing an environmental regulationist theory, we propose considering the economic relation to the environment as the articulation of three forms: a transhistorical form, a general capitalist form and a specific capitalist form, the latter being variable in capitalist time and space. We give several illustrations of the variability of the relation to the environment, depending on the different accumulation regimes and the different modes of régulation. Two principal avenues of research are proposed: historical analyses for given economic areas, and comparative analyses relating in particular to different capitalist areas.     

On partial contracting

This paper investigates contracting situations where giving away some control rights enhances both the donor's and the receiver's incentives to cooperate in the future. We define a partial contracting framework with nonverifiable actions for which either control is contractible (contractible control actions) or the right to transfer control ex post to another party is contractible (transferable control actions). Under incomplete information, when control over particular actions is transferable but not contractible, it can be optimal to give one party the right to transfer control over a particular action to the other party, in order for that party to build a reputation regarding her willingness to cooperate in the future.     

When is multidimensional screening a convex program?

A principal wishes to transact business with a multidimensional distribution of agents whose preferences are known only in the aggregate. Assuming a twist (= generalized Spence-Mirrlees single-crossing) hypothesis, quasi-linear utilities, and that agents can choose only pure strategies, we identify a structural condition on the value b(x,y) of product type y to agent type x — and on the principal?s costs c(y) — which is necessary and sufficient for reducing the profit maximization problem faced by the principal to a convex program. This is a key step toward making the principal?s problem theoretically and computationally tractable; in particular, it allows us to derive uniqueness and stability of the principal?s optimal strategy — and similarly of the strategy maximizing the expected welfare of the agents when the principal?s profitability is constrained. We call this condition non-negative cross-curvature: it is also (i) necessary and sufficient to guarantee convexity of the set of b-convex functions, (ii) invariant under reparametrization of agent and/or product types by diffeomorphisms, and (iii) a strengthening of Ma, Trudinger and Wang?s necessary and sufficient condition (A3w) for continuity of the correspondence between an exogenously prescribed distribution of agents and of products. We derive the persistence of economic effects such as the desirability for a monopoly to establish prices so high they effectively exclude a positive fraction of its potential customers, in nearly the full range of non-negatively cross-curved models.     

Incentive compatible contractible information

Summary. The paper seeks to characterize what information is always available for contracting, independent of the form of the contract and the probabilities of different states of nature. The paper denotes such information as contractible. It is established that it is possible to speak uniquely of maximal contractible information. Several characterizations are exhibited. In particular, it is shown that if either (a) punishments are bounded everywhere, or (b) deviations from truth-telling are either always or never detected, then maximum contractible information coincides with where is the information partition of agent j. An argument is given for why (b) may be expected to hold. Received: August 7, 2000; revised version: December 21, 2001 RID="*" ID="*" I thank Michael Chwe, Douglas Diamond, Lars Stole, Robert Townsend, Nicholas Yannelis and an anonymous referee for helpful comments.     

INTERNATIONAL FINANCIAL ASSISTANCE: A LOAN MECHANISM-DESIGN APPROACH

International Financial Institutions (IFIs) tie resource transfers to capital-scarce countries to improvements in their economic policies and institutions. The objective of this assistance is twofold: to augment the recipient's capital base and to improve its allocation of resources. This paper offers a political-economy explanation for the limited success of some of these loan programs. In our model, governments select policies under the influence of interest groups. Their capacity to absorb IFI loans and their reform efforts are both unobservable to the IFI. An optimally designed loan mechanism must create sufficient incentives – in the form of rewards and punishments – to counter the influence of interest groups on economic policy choices. The loan mechanism is, however, constrained in two ways: it cannot punish a country so severely as to threaten its political stability and it must remain affordable to the IFI. Whenever reform incentives are inadequate, a government will accept the loan but cheat on the implementation of reforms. If, on the other hand, the mechanism design is optimal, it might be so costly to the IFI that a well-entrenched interest group can block the reform program. Nonetheless, the availability of properly designed loan mechanisms will push governments to implement partial reforms even if the optimal mechanism is too costly for the IFI.     

Minimum payments and induced effort in moral hazard problems

Consider a moral hazard problem in which there is a constraint to pay the agent no less than some amount m. This paper studies the effect of changes in m on the effort that the principal chooses to induce from the agent. We present sufficient conditions on the informativeness of the signal observed by the principal and on the agentʼs utility under which when m increases, induced effort (and hence productivity) falls. We also study how the cost minimizing contract for any given effort level varies in m. We present an efficient algorithm for numerically calculating optimal contracts for given parameters and show that induced effort falls when m is increased in many cases even when our sufficient conditions fail.     

Risk-aversely efficient random variables: Characterization and an application to growth under uncertainty

Consider a problem of choice from a set R of multivariate random variables. Let us examine only efficient elements of R which are optimal choices of risk averse decision-makers (whose aim is to maximize expected utility over R). We obtain a price characteristic of all risk-aversely efficient random variables in R. This result has been applied to multi-sector optimal growth model to obtain a characterization by competitive prices of all risk-aversely efficient stationary consumption programs.     

Optimal punishments with detection lags

In this note we characterize optimal two-phase punishments in the presence of an n period detection lag, i.e. when cheating on an implicit agreement can be kept secret for a certain time period. Two simple applications are also provided.     

Incentive effects and overcrowding in tournaments: An experimental analysis

This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool. Electronic Supplementary Material Supplementary material is available in the online version of this article at . JEL Classification D8 · J3 · L2     

Core allocations and the dimension of the cone of efficiency price vectors

Let (R₁,…,R_k) be an arbitrary partition of the grand coalition in an atomless exchange economy with k “large enough.” We prove that an optimal allocation x belongs to the core if and only if x cannot be improved upon by any coalition that includes at least one of the R_i's. K is “large enough” if k ? r + 1, where r is the linear dimension of the cone P of the efficiency price vectors for x. Recall that it is always true that r ? n, when n is the number of commodities in the market, and that under differentiability and interiority r = 1; thus k can be chosen to be 2 (i.e., for any coalition R, an allocation x belongs to the core of the market if and only if x is not blocked by any coalition that either contains R or contains its complement).     

Intrinsic and Extrinsic Motivation

A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by an informed principal (manager, teacher, parent) can adversely impact an agent's (worker, child) perception of the task, or of his own abilities. Incentives are then only weak reinforcers in the short run, and negative reinforcers in the long run. We also study the effects of empowerment, help and excuses on motivation, as well as situations of ego bashing reflecting a battle for dominance within a relationship.     

Saddle points of Hamiltonian systems in convex Lagrange problems having a nonzero discount rate

Problems are studied in which an integral of the form ∫₀^+∞L(k(t),k(t))e^?ptdt is minimized over a class of arcs k: [0, +∞) → Rⁿ. It is assumed that L is a convex function on Rⁿ × Rⁿ and that the discount rate ? is positive. Optimality conditions are expressed in terms of a perturbed Hamiltonian differential system involving a Hamiltonian function H(k, q) which is concave in k and convex in q, but not necessarily differentiable. Conditions are given ensuring that, for ? sufficiently small, the system has a stationary point, in a neighborhood of which one has classical “saddle point” behavior. The optimal arcs of interest then correspond to the solutions of the system which tend to the stationary point as t → +∞. These results are motivated by questions in theoretical economics and extend previous work of the author for the case ? = 0. The case ? < 0 is also covered in part.     

A proposed convention for measuring the state of the art of products or processes

During 1980, The Futures Group performed a study under contract to the National Science Foundation to devise a convention for describing—in quantitative terms—technological state of the art of essential any technology. In designing this convention we hope that different analysts, working independently, would be able to arrive at a similar conclusion about the state of the art of a technology under study. With such a measure at hand, it would be possible, for example, to evaluate the effectiveness of investment in R&D by evaluating the improvement in the technological state of the art of a given technology, per unit investment.The form of the equation chosen for the state-of-the-art convention was SOA = K₁(P₁/P'₁ + K₂(P₂/P'₂) ? K_n(P_n/P'_n) where SOA = state of the art, K_n = the relative weight associated with each parameter describing the technology, P_n = the value of the particular parameter useful in describing the state of the art, and P'_n = a reference value of the parameter. Various approaches to the selection of the parameters and their weights were described. Of particular interest is a statistical approach which assumes that the state of the art, over time, is an S-shaped curve. In this instance it is possible to compute the value of the weights through an iterative numerical technique.The convention was applied to two technologies: computers and antibiotics, and state-of-the-art measures were developed for each. In the case of antibiotics, selected organism/antibiotic pairs were analyzed to identify the state of the art of a particular antibiotic as applied to the control of a particular microorganism, over time.     

Veto-based delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the veto-power principle: the principal can implement an optimal outcome through veto-based delegation with a properly chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: to design the default outcome and to ensure that she has almost no formal control over the agent's decisions.     

Uncertainty and optimal stabilization policy

The impact of uncertainty on optimal stabilization policies is examined in the context of a simple reduced form model. The major finding of the paper is that, in the presence of instrument costs, the dynamic effects of uncertainty can induce an optimal stochastic policy which is more vigorous than the optimal deterministic policy. This result contrasts with the well-known conclusion for static models that uncertainty typically generates optimal responses equally or less intense than deterministic ones.     

Optimal Growth Models with Bounded or Unbounded Returns: A Unifying Approach

In this paper we propose a unifying approach to the study of optimal growth models with bounded or unbounded returns (above-below). Following our approach, we prove the existence of optimal solutions and show, without using the contraction method, that the value function is the unique solution to the Bellman equation for a particular class of functions. The value function can be obtained by the usual algorithm defined by the operator provided by the Bellman equation. Moreover, following our approach we obtain the recent results of F. Alvarez and N. Stokey (1998, J. Econ. Theory82, 167-189) as well as the well-known results. Journal of Economic Literature Classification numbers: C61, 041.     

Environmental protection mechanisms and technological dynamics

The paper proposes a new financial mechanism that could be implemented to protect the environment of a tourist region. For this purpose, we investigate the potential consequences of two financial activities, issued by the local government (G) of a region R, which work like contracts between G and, respectively, visitors of R and firms operating in R. According to these contracts, agents who decide to visit R (firms that decide to adopt an environmental friendly technology) have to buy an option that entitle them to get a partial or total reimbursement if environmental quality in R turns out to be sufficiently low (high), namely, below (above) a given predetermined threshold level.     

Performance Standards and Incentive Pay in Agency Contracts

When the presence of limited liability restricts a principal from imposing monetary fines on an agent in case of poor performance, the principal might use other kinds of punishment threats to deter the agent from shirking. We show that under the optimal contract in this case, the principal sets a performance standard and punishes the agent if the standard is not met, but rewards the agent on a profit-sharing basis if the standard is significantly exceeded. The optimal choice of performance standards for such contracts is discussed. It is shown that punishment threats, although inefficient, often help the principal to discipline the agent.
JEL classification : D 82     

Stationary cardinal utility and optimal growth under uncertainty

In the literature on multiperiod planning under uncertainty, it is generally postulated that preferences may be represented by a von Neumann-Morgenstern utility index that is additive over time. This paper accomplishes two objectives: First, an axiomatic basis is provided for a more general class of non-additive utility indices defined over infinite consumption streams. Second, this class of utility functions is applied to extend existing results (J. Econ. Theory4 (1972), 479–513; J. Econ. Theory11 (1975), 329–339) on the nature of optimal growth under uncertainty. Of particular interest are the existence and stability of a stochastic steady state.