Optimal penalty and accounting policy

This study considers risky investment projects under adverse selection and examines optimal penalties for erroneous auditing reports to maximize social welfare. These penalties give firms an incentive to choose accounting policies that maximize social welfare. We characterize the optimal penalties such that efficient firms choose an aggressive accounting policy and inefficient firms choose a conservative accounting policy.     

Standards and the regulation of environmental risk

We study regulatory design for a pollution-generating firm who is better informed than the regulator regarding pollution mitigation possibilities, and who chooses an unobservable action when employing a particular mitigation plan. We distinguish among performance, process, and design standards, and study the relative merit of each type of regulatory instrument. Relative to previous work on standards design, we emphasize technology and process verification. An optimal performance standard is relatively strict when regulator and firm preferences are congruent, but the regulator may prefer no performance standard at all if verification costs are sufficiently high. A process standard unambiguously increases expected surplus (relative to no regulation) in some environments, and otherwise improves welfare only when it is unlikely to generate a “bad” technology choice by the firm. A design standard can improve welfare if the regulator is sufficiently well informed about the technological possibilities for pollution control, but only when the firm’s private benefits from technology choice are sufficiently small.     

市场结构、环境税与福利效应分析

运用短期局部均衡分析方法研究完全竞争市场和垄断市场条件下环境税对社会福利的影响.结果显示:在完全竞争市场条件下,对企业征收环境税可以增进社会福利.而在垄断市场条件下,环境税的福利效应具有不确定性,这取决于垄断造成的扭曲程度.如果垄断造成的扭曲较小,环境税仍然可以提高社会福利.但无论是增进抑或降低社会福利,对垄断企业征收环境税都不可能实现最优化,因为环境税在矫正污染外部性的同时,垄断造成产量水平下降导致福利损失增加,所以只能追求一个次优的结果,次优环境税低于完全竞争条件下的标准环境税.     

Welfare effects of competitive lobbying efforts in international oligopoly markets

Conventionally, rent-seeking activities have been considered to deteriorate social welfare and to distort resource allocation. This paper examines whether rent-seeking behavior can improve social welfare by focusing on the welfare effects of firms’ competitive lobbying efforts when governments can impose market entry regulation against foreign firms. We demonstrate that competitive lobbying efforts can improve social welfare when such lobbying efforts are directed to reduce market entry barriers. In addition, social welfare can be maximized when the government shows the maximum sensitivity to the foreign firm's political contributions while maintaining competitive market structure. Moreover, it is shown that the dominant strategy for a domestic firm is to allocate more resources to R&D sectors while it is optimal for foreign firms is to exert more efforts in lobbying to reduce the market entry barriers when a government makes political economic approach in market entry regulations.     

环境技术转移的最优社会福利选择——以发展中国家为视角

本文以发展中国家为视角,构建一个基本的双寡头Cournot模型,来分析环境技术从发达国家转移至发展中国家,对发展中国家商品生产和社会福利产生的影响.本文认为环境技术从发达国家无偿转移至发展中国家,对发展中国家社会福利的影响具有不确定性.通过引入福利函数并求解最优的社会福利,发现对发展中国家而言,最优的社会福利选择是:当国内企业生产成本等于国外企业生产成本与环境技术的产量溢出之差时,环境技术的完全转移才是发展中国家的最优社会福利选择.并据此推导出社会福利最优的环境技术转移路径.     

TIME, MONEY, AND OPTIMAL CRIMINAL PENALTIES

The economic approach to optimal criminal penalties measures the welfare effects of crime and punishment in dollar terms, ignoring differences in the marginal utility of money among people. This paper alternatively proposes using time as the unit of measure in determining optimal criminal penalties, measuring the costs and benefits of crime in hours or days instead of dollars. The policy implications differ substantially from those in the existing economic literature. Equal prison terms impose similar time costs on all individuals rather than being more costly for those with higher foregone earnings. Equal fines impose the same cost on all individuals in the dollar-based economic models but in a time-denominated system are costlier to those who require more time to earn the money to pay the fines. In principle, one can use either money or time in setting penalties. However, time-based penalties are more consistent with the fundamental and widely held principles of justice on which the U.S. legal system rests.     

The appeals process in principal–agent relationships

The appeals process is employed in many organizations including administrative agencies, regulatory authorities, sports organizations, and private companies. This paper examines the dual role of the appeals process in enhancing fairness and inducing performance in principal–agent relationships in the presence of imperfect performance evaluation. Some surprising results emerge. For example, the merit of the appeals process depends on the agent’s aversion to unfairness, and appeals may be optimally denied even if the appeals process is more accurate than the initial evaluation and is costless. An increase in the accuracy of the initial evaluation may reduce the principal’s welfare. Furthermore, the principal’s welfare can increase as the cost of the appeals process increases.     

Wealth Accounting,Exhaustible Resources and Social Welfare

The empirical literature on natural resource accounting uses methods which implicitly or explicitly entail measuring changes in total resource asset value when an exhaustible resource is depleted. In contrast, the growth theoretic literature on saving, social welfare and sustainable development is built upon a central finding, that the change in real wealth (as measured by net or ‘genuine’ saving) is proportional to the change in social welfare. We show that the change in total wealth exceeds the change in real wealth in optimal and non-optimal models of resource-extracting economies. This suggests that the change in social welfare is over-estimated when the change in total resource asset value is used as the measure of depletion. A simple empirical exercise, using World Bank data on ‘adjusted net saving’, reinforces the results from theory.     

Tariffs and privatization policy in a bilateral trade with corporate social responsibility

Corporate social responsibility (CSR) has become a global business strategy and thus it provides significant welfare implications for designing optimal policies. This paper investigates the impact of CSR on policy interaction between tariffs and privatization in an international bilateral trade model. We find that CSR is closely related to the government's policy decisions on tariffs. In particular, we find that the strategic tariff for increasing domestic welfare is always higher (lower) than the efficient tariff for improving global welfare when the degree of CSR is low (high). We also show that a privatization policy raises tariff and worsens (improves) domestic welfare when the degree of CSR is low (high). Finally, we demonstrate that both countries choose a nationalization policy even though the privatization policy is globally optimal when the degree of CSR is high.     

Taxation,insurance, and precautionary labor

We examine optimal taxation and social insurance with adverse selection in competitive insurance markets. In a previous literature, it has been shown that, with perfect insurance markets, social insurance improves welfare since it is able to redistribute without creating distortions. This result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance. We show, however, that adverse selection can weaken the case for social insurance compared to a situation with perfect markets. Whenever social insurance mitigates private underinsurance, it also causes welfare-reducing effects by decreasing precautionary labor supply and hence tax revenue. In addition, adverse selection may reduce the redistributive potential of social insurance. We illustrate our general results using different equilibrium concepts for the insurance market. Notably, we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives.     

Investment Incentives of a Regulated Dominant Firm

We study the investment incentives of a regulated, incumbent firm in a deregulation process. The regulator cannot commit to a long-term regulatory policy, and investment decisions are taken before optimal regulatory policies are imposed. We characterize the regulated incumbent's incentive to invest when a deregulation process is initiated and an unregulated firm enters the market as a result. The change in the marginal return to investment depends on how the investment changes the firm's virtual cost—the sum of its physical production and information costs. When the marginal return to investment increases due to deregulation, social welfare increases as a result of higher investment and more competition. Otherwise, the change in social welfare depends on the total of the effects in the fall of investment and increased competition. We also present conditions under which deregulation enhances welfare.     

Can growth-enhanced monetary policy improve welfare when people seek social status?

This paper examines the growth and welfare effects from an increase in the rate of money supply in an Ak type growth model with a relative wealth-enhanced social status motive, production externalities, and liquidity constraints. When only consumption is constrained by liquidity, fast money supply can hasten output growth unless seigniorage revenue is wasted and production externalities do not exist. We find that even though money growth normally promotes economic growth, it does not improve welfare when capital stock is over-accumulated. In general, an optimal monetary policy minimizes seigniorage. Our results also conclude that the optimal monetary policy rarely follows the Friedman rule.     

银行监管中的最优市场约束研究

基于社会利润最大化的视角,本文研究了银行监管中的最优市场约束问题.研究发现:在银行监管中实施最优的市场约束不仅可以提高银行监管帕累托效率,而且可以给社会带来最大的利润;最优市场约束水平受到银行"额外价值",无市场约束时贷款失败的概率、贷款成功的收益、市场约束的成本弹性等因素的影响,且与这些因素呈正相关;最优市场约束水平对银行"额外价值"、贷款成功的收益这两个因素的变化敏感性较强,对无市场约束时贷款失败的概率的变化敏感性较弱,对市场约束的成本弹性的敏感性呈现出由强变弱的趋势.     

Partial privatization in mixed duopoly with price and quality competition

We analyze price and quality competition in a mixed duopoly in which a profit-maximizing private firm competes against a state-owned public firm. We first show that the welfare-maximizing public firm provides a lower quality product than the private firm when they are equally efficient. In order to maximize social welfare, government manipulates the objective of the public firm that is given by a convex combination of profits and social welfare. It is demonstrated that an optimal incentive of the public firm is welfare maximization under the absence of quality competition, but it is neither welfare maximization nor profit maximization under the presence of quality competition. The result supports a completely mixed objective between welfare and profit maximizations or partial privatization of the public firm.      

Stackelberg竞争结构中质量提高型创新技术授权和企业兼并

本文基于Stackelberg双头垄断竞争模型,分析比较了质量提高型创新技术拥有企业的技术授权策略和企业兼并。研究结果表明:不论技术拥有企业是市场先行者还是跟随者,其总是偏向于企业兼并,而不会选择固定费用授权方式;如果政府禁止企业的兼并行为,那么当技术拥有企业在市场中是产量跟随者时,其愿意以提成许可方式进行技术授权;从社会福利角度考虑,技术授权可提高社会福利,而企业兼并一般不利于社会福利的提高,只有当创新技术拥有企业是Stackelberg竞争结构中的产量跟随者且其创新规模较大时,企业兼并才可提高社会福利。     

Information design,externalities, and government interventions

We consider a model of Bayesian persuasion with spillovers. A sender provides information to persuade a receiver to take an action with external effects. We consider how government interventions, including corrective subsidy and tax, affect social welfare. In addition to internalizing externalities, government interventions affect social welfare through an informational channel. Subsidies to the sender's preferred action incentivize the sender to reveal less information, but taxes on the sender's preferred action incentivize the sender to reveal more information. Because of such an informational effect, the optimal subsidy and tax may be different from the size of the externalities. In some cases, social welfare is maximized with no government intervention.     

On Welfare Criteria and Optimality in an Endogenous Growth Model

In this paper, we explore the consequences for optimality of a social planner adopting two different welfare criteria. The framework of analysis is an overlapping generations model with physical and human capital. We first show that, when the social welfare function is a discounted sum of individual utilities defined over consumption per unit of natural labor, the precise cardinalization of the individual utility function becomes crucial for both the characterization of the social optimum and the policies that support it. Also, decentralizing the social optimum requires an education subsidy that is definitely positive, but its size depends in a determinant way on the aforementioned cardinalization. In contrast, when the social welfare function is a discounted sum of individual utilities defined over consumption per unit of efficient labor, the precise cardinalization of preferences becomes irrelevant. More strikingly, along the optimal growth path, the education subsidy is negative, i.e., the planner should tax rather than subsidize investments in human capital.     

Should refusal to sell be illegal?

We analyse a private firm's decision of whether to refuse to sell to a particular group of consumers whose interaction with other consumers generates negative externalities. The literature has rarely incorporated this motive directly into the firm's profit-maximisation problem. Discriminatory refusal-to-sell policies can increase profits and consumer utility among those affected by the negative externality. Of course it also reduces utility among consumers who are refused, raising the possibility of an indeterminate effect on social welfare. We obtain a stark and rather surprising result: The refusal-to-sell policy is socially optimal whenever it is individually optimal for a profit-maximising firm to adopt such a policy. No legislation or regulation is required from a social-welfare perspective (under the assumptions used in the specification of the social welfare function). We prove this result analytically for the case of linear demand functions. Numerical simulations show that the result also holds for constant-price-elasticity demand functions.     

FINANCIAL SAFETY NETS

We study the optimal design of financial safety nets under limited private credit, asking whether and when it is optimal to restrict ex ante the set of investors that can receive public liquidity support. When the government lacks commitment, we show that the optimally designed safety net covers only a subset of investors. Compared to an economy where all investors are protected, this results in more liquid portfolios, better social insurance, and higher welfare. Our results can rationalize the prevalence of limited safety nets as well as the coexistence of traditional and shadow banks.     

OPTIMAL EDUCATION POLICIES AND COMPARATIVE ADVANTAGE

We consider the optimal education policies of a small economy whose government has a limited budget. Initially, the economy is closed and the government chooses its education policy to maximize welfare under autarky. When the economy trades with the rest of the world the government chooses a new education policy that maximizes welfare under trade. Is it ever optimal for the government to choose its new policy so that it reverses the economy's comparative advantage? We find that if the budget stays fixed when it is optimal to ‘move up the skills chain’ it is not feasible. In such a case, a foreign loan is welfare improving. A move in the opposite direction can be optimal, and when it is optimal it is also feasible.