Information Disclosure as Environmental Regulation: A Theoretical Analysis

Governments around the world are beginning to embrace a new form of environmental regulation – mandatory disclosure of information. While information disclosure programs appear to have an impact on subsequent firm behavior – often resulting in lower levels of pollution – little is known about the costs and benefits of these programs and whether or not they enhance social welfare. This paper presents a simple bargaining model where mandatory information disclosure is used to overcome a lack of information on the part of the public. We characterize the conditions under which information disclosure will lead to a reduction in emissions, and ultimately, the conditions under which it will enhance social welfare. Several extensions of the model are briefly explored, including the effect of two sources of pollution – only one of which is subject to information disclosure. This paper was prepared while V. Santhakumar was a Visiting Scholar at the Vanderbilt Center for Environmental Management Studies, Vanderbilt University.     

Clawbacks,Holdbacks, and CEO Contracting

“Clawbacks” are much discussed in the context of senior executive compensation, yet the discussion has largely ignored the presence of holdbacks that are already in place in many firms. Holdbacks are deferred compensation that is potentially foregone in the event that the CEO leaves the firm without good reason or they are dismissed for wrong‐doing. They are explicit or written features of a CEOs employment contract. Holdbacks are already in use at 70% of S&P 500 firms and average $18.4 million each. Firms with higher CEO replacement costs, greater information asymmetry, a recent bad experience (fraud, lawsuit, or restatement), or in more certain environments are more likely to have a holdback. In contrast, clawback adoptions are mainly driven by firms' bad experiences and external pressure from shareholders. Holdbacks and incentive‐based compensation are substitutes, as termination incentives can reduce the need for incentive compensation. As managers reasonably demand a premium for accepting risky compensation, a measure of abnormal compensation is positively associated with holdbacks, but there is no significant association between clawbacks and holdbacks. These findings suggest that the holdbacks many firms already have in place could help an “ex‐post settling up” in the event of financial misconduct, or even simply misstated financials. As companies have more control over the amounts held back ex‐ante, holdbacks are potentially more efficient.     

Consumption asset pricing and the term structure

We investigate the relationship between consumption and the term structure using U.K. interest rate data. We demonstrate that the term structure contains information about future economic activity as implied by the benchmark time separable power utility consumption based capital asset pricing model (C-CAPM) since the yield spread has forecasting power for future consumption growth. Further, we analyze the ability of this benchmark and two alternative models which adopt utility functions characterized by non-separability, namely, the extension to the habit formation model of Campbell and Cochrane (1999) proposed by Wachter (2006) and the housing C-CAPM proposed by Piazzesi, Schneider and Tuzel (2007). Our findings are supportive of the habit formation specification of Wachter (2006), other models fail to yield economically plausible parameter values.     

An agency theory perspective of the Israeli labor market segmentation: Past,present, and future

In this paper we use agency theory to present a process of the dichotomization of the Israeli workforce into two structures, each representing distinct organizational cultures. The first structure is the private sector, led by the high-tech industry; a model where the principal has strong control over the activities of the agent. The second is the public sector, an opposing model in which the principal has virtually no control over the activities of the agents and as a result, the effectiveness within this sector deteriorates. We argue that such conflicting systems cannot exist side by side without affecting each other and we suggest a role for human resource management (HRM) in future developments. Within the public sector it is the responsibility of the principal, the Israeli government, to gain more control over the agent and employ professional HRM systems for this purpose.     

Regulating Insider Trading In Betting Markets

Although trading in securities in conventional financial markets on the basis of inside information is restricted by law, the rules against such trading in betting markets are rather more ambiguous. It is argued in this paper that, since insider trading in betting markets imposes a cost on the great majority of bettors, tighter strictures against such trading would benefit all but the insiders. This case is supported by the use of empirical evidence which shows that betting markets which are characterized by tighter controls against insider activity are also characterized by a significantly lower incidence of such activity.     

Promoting Ethical Judgment in an Organisational Context

The essay argues that individual ethical judgment is a necessary ingredient in an organisation’s ethical performance. Attempts to systematise judgment, removing it from individual responsibility are not successful, and sometimes can even be counterproductive. Focus on systems of accountability can actually detract from the production of ethical behaviour. A number of examples are provided. Although it is much more difficult to produce, individual responsible decision-making and individual judgment should be the features that an organisation focuses on in its interest to promote ethical performance. Accountability systems are important; but they have very limited application toward production of an ethically excellent environment. The essay argues that there has been too much attention paid to accountability systems within organisations, and much too little paid toward the development and cultivation of individual ethical decision making and responsible behaviour.     

Bertrand versus Cournot revisited

Summary. Bertrand criticized Cournot's analysis of the competitive process, arguing that firms should be seen as playing a strategy of setting price below competitors' prices (henceforth, the Bertrand strategy) instead of a strategy of accepting the price needed to sell an optimal quantity (the Cournot strategy). We characterize Nash equilibria in a generalized model in which firms choose among Cournot and Bertrand strategies. Best responses always exist in this model. For the duopoly case, we show that iterated best responses converge under mild assumptions on initial states either to Cournot equilibrium or to an equilibrium in which only one firm plays the Bertrand strategy with price equal to marginal cost and that firm has zero sales. Received: December 11, 1995; revised version October 2, 1996     

Risk society and ecological modernisation alternative visions for post-industrial nations

Two prominent social theories have been shaping the discourse of environmental politics during recent years. Ulrich Beck's risk society theory contends that conventional definitions of social class are losing their significance in advanced nations due to the success of the welfare state in reducing economic scarcity. As societies transition toward late modernity new social cleavages based on the distribution of environmental and technological risks are gaining salience. Standing in contrast is the theory of ecological modernisation originally advanced by Joseph Huber outlining a hyper-rational strategy for correcting the ecological flaws of contemporary production and consumption practices. This paper introduces a typology that joins the two theories into a unified framework and suggests that the direction toward which a particular society progresses will be conditioned by its predisposition to scientific rationality. Due to increasing public endorsement of alternative epistemologies, most countries will likely encounter great difficulty achieving ecological modernisation.