Risk aversion, moral hazard, and the principal's loss

Summary. In their seminal paper on the principal-agent model with moral hazard, Grossman and Hart (1983) show that if the agent's utility function is , then the loss to the principal from being unable to observe the agent's action is increasing in the agent's degree of absolute risk aversion. Their proof is restricted to the case where the number of observable outcomes is equal to two, and it uses an argument that is specific to that case. In this note, we provide an alternative proof that generalizes their result to any (finite) number of outcomes. Received: March 21, 2001; revised version: June 21, 2001     

Individual Performance in Turbulent Environments: The Role of Organizational Learning Capability and Employee Flexibility

Organizational learning capability (OLC) and employee flexibility help firms navigate the challenges faced by organizations operating in turbulent environments. OLC includes dimensions such as experimentation, risk taking, openness, dialogue, and participative decision making. Employee flexibility is considered a crucial tool for strategic human resource management in tackling environmental turbulence. Accordingly, we pose the following research question: how, and to what extent, is individual performance enhanced by OLC and employee flexibility in turbulent environments? The major impact that environmental turbulence has on change and flexibility requirements suggests that employee flexibility plays an important role in the impact OLC has on individual performance. However, we found no prior studies that explicitly analyzed this mediating function of employee flexibility. In this study, we tested three hypotheses that link OLC and individual performance, OLC and employee flexibility, and employee flexibility and individual performance. We applied a structural equation methodology, using partial least squares path modeling, to a sample of 174 academics at a Latin American university (a highly turbulent context). Our results show employee flexibility fully mediates the relation between OLC and individual performance given the presence of environmental turbulence. © 2015 Wiley Periodicals, Inc.     

Some Useful Concepts for Development Economics in the Tradition of Latin American Structuralism

The aim of this article is to provide a selective account of some of the most important conceptual contributions of the Latin American structuralist tradition to the area of development economics. We argue that this account may help modern development economics theory overcome visible limitations and develop in a more fruitful way. We trace back the origin of these conceptualizations and identify some recent and scant efforts to incorporate them into the mainstream economic development literature. We try to clarify the meaning of the concepts and amplify their current economic significance for developing countries. The constructs selected are: (1) structural change, (2) structural disequilibrium, (3) bottlenecks, (4) structural heterogeneity, (5) endogenous nucleus of technological dynamization, (6) social disarticulation, and (7) conflict‐led instability.     

Use of a Markov decision process model for treatment selection in an asymptomatic disease with consideration of risk sensitivity

Some potentially dangerous diseases are completely asymptomatic. Their diagnosis as incidental findings of ever-more-sensitive medical imaging can leave patients and physicians in something of a quandary. The patient feels well, and potential interventions to stave off long-term deterioration or death bring with them immediate risks. We discuss the use of a Markov Decision Process (MDP) model (rather than Monte Carlo simulation of a Markov Model) to create a tool for analyzing individual treatment decisions for asymptomatic chronic diseases where a patient’s condition cannot improve. We formulate a finite-horizon MDP model to determine optimal treatment plans and discuss three distinct optimality criteria: (a) maximizing expected quality-adjusted-life years with and without discounting, (b) maximizing the expected number of life years in good health, and (c) maximizing the expected utility for number of years in good health. In (c) we assume exponential utility and consider different risk aversion factors reported in the medical literature. We illustrate the model’s use by considering asymptomatic intracranial aneurysm. Our model builds on a simulation model [19] created to examine treatment recommendations based on cost-effectiveness. We demonstrate that incorporating risk aversion leads to “no treatment” recommendations for some types of aneurysm. Furthermore, the use of alternate patient-selected criteria leads to recommendations that vary from [19] in several scenarios. We also discuss the use of the software as a decision support tool to help make individualized treatment recommendations and demonstrate that the computational performance of the algorithm makes its use feasible during a short office visit.     

Exporting,demand for skills and skill mismatch: Evidence from employers' hiring practices

We exploit information from a classification of occupations to identify separately formal qualification requirements linked to a job and formal qualifications of a worker who filled the job for the universe of firms in Slovenia. We find that exporters were more likely to hire over‐qualified workers than they did prior to becoming exporters even though they did not change the qualification requirements of their vacancies. Firms were more likely to demand other skills (leadership, knowledge of foreign languages) once they began to export. These findings suggest that skill upgrading by exporters reflects differences in terms of skill demand as well as the way workers match to jobs. This distinction is blurred in existing studies on skill upgrading by exporters because these studies rely solely on the information about the qualifications of hired workers. Our findings are consistent with a framework in which firms become more productive and offer higher wages once they start to export, workers' qualifications and firms' productivity are complementary inputs, and search is costly.     

IAS/IFRS and financial reporting quality: Lessons from the European experience

This paper discusses the effects of the adoption of IAS/IFRS in Europe on the quality of financial reporting. In doing so, it adopts the perspective of stock market investors and focuses on value-relevance research. The adoption of IAS/IFRS in Europe is an example of accounting standardization among countries with different institutional frameworks and enforcement rules. This allows investigating whether, and to what extent, accounting regulation per se can affect the quality of financial reporting and leads to convergence in financial reporting. This is a key issue for standard setting purposes as IAS/IFRS have been adopted in very diverse countries all over the world, and many others are likely to adopt them in the near future.     

What is the Message of ‘Understanding the Process of Economic Change’ for Economic Historians?

This paper addresses Douglas North's latest book in the light of his intellectual lifework. North's original insistence upon the role of transaction costs did not require a departure from the neoclassical framework as clear-cut as the one required by North's latest emphasis on the role of intentionality. North's recent interest in the cognitive premises of institutional constraints to rational choice considerably expands the scope of the economic analysis of change. However, North still considers institutions supporting homo oeconomicus to be the most important progressive element in history. The paper argues that North's message goes beyond what he would be willing to transfer into the practice of economic historians. In particular, North's new conceptual framework should open the way to the acknowledgment that a plurality of progress-oriented institutions are possible, and that individualism itself could be seen as a multi-dimensional concept.     

Service quality dimensions and superior customer perceived value in retail banks: An empirical study on Mexican consumers

This study concerns the service quality topic in the retail bank sector. A sample of 209 retail bank clients was taken, measuring the performance of service quality attributes of their principle retail bank. Behavioral performance variables such as satisfaction, loyalty and customer perceived value were also measured. In a factor analyses the attributes were separated into three factors. These three independent factors explain a considerable amount of variability of a satisfaction–loyalty factor. On the other hand, they could not explain the superior perceived value; and no differences between the service quality performances of the bank brands were found. In conclusion, regardless of the degree of satisfaction and loyalty, the customer is not willing to pay more for banking services at his regular bank than he would at other brands. This implies that superior perceived value is not being achieved via service quality, which suggests a lack of differentiation between brands in this sector.