Optimal Incentives on Multiple Prosocial Activities when Reputation Matters*

In this paper, we present a signaling model in which individuals engage in socially beneficial but costly activities in order to convey information about their willingness to cooperate with other agents. When several activities are available, the inclusion of monetary compensations in any one of them affects the relative costs of undertaking each activity and, therefore, their informative value for agents. We find the subsidies that maximize social welfare, which are shown to depend critically on the reputation gained from each activity. Finally, we use comparative statics analysis to study the effects on optimal subsidies of changes in their determinants.     

The Role of Risk and Transaction Costs in Contract Design: Evidence from Farmland Lease Contracts in U.S. Agriculture

The objective of this article is to provide new empirical evidence on landlord-tenant choices of share versus cash-rent contracts in U.S. agriculture. The focus is on the contribution of explanatory variables that represent transaction costs, risk-sharing incentives, or both. An empirical model of contract choice is tested against the 1999 Agricultural Economics and Land Ownership Survey (AELOS) and finds mixed evidence for low transaction cost and risk-sharing-incentive motives for landlord-tenant choices of a share versus cash-rent contract. However, the behavior of landlords and tenants is consistent with them being risk averse. Although it is standard to control for the riskiness of the principal's task that is contracted, we find that other attributes of the landlord are an important part of a relatively complex story for U.S. land tenancy contacting. The latter results have generally been ignored in other published landlord-tenant contracting studies.     

The effectiveness of financial incentives in controlling the health care expenditures of seniors

This paper examines whether financial incentives imposed on health insurers are effective or not in containing the health care expenditures of seniors. Under the Japanese health care system, the degree of financial incentives to restrain the health care expenditures of seniors varied significantly among almost 5300 insurers. The extent to which the strength of financial incentives is related to the actual health care expenditures is analyzed. The results indicate that financial incentives do not appear to restrain expenditures significantly.     

Positioning Business Ethics in Relation to Management and Political Philosophy

This paper attempts to mediate between the extremes of a managerial conception of business ethics which subordinates it to management and a political conception which subordinates it to political philosophy. The mediated position arrived at sees the central focus of business ethics in the intersection of micro-managerial concerns with macro-political ones provided by the task of determining morally optimum forms of business. Involvement with the macro rules out subordination to management while, conversely, involvement with the micro rules out subordination to political philosophy. Moreover, such is the (increasing) social importance of business, that business ethics can have at least co-equal explanatory status with political philosophy as a discipline.     

Modelling the origins of managerial ability in agricultural production*

The efficiency of production from a farm’s land, labour and capital is critically dependent on the ability of the farm manager. Yet, while there are studies correlating a wide range of manager‐related variables with returns, and, therefore, probably ability, little understanding of the basic determinants of managerial ability exists. Questions such as ‘what is the importance of a farmer’s family experiences and training in determining the farmer’s managerial ability?’ need answering. The solution to this, and other, questions will enable determining ways of improving farmers’ inherent ability developed both in early, and later, life. In that most decisions on a farm are made intuitively, in contrast to the use of a formal analysis, improving farmers’ inherent ability will have a significant payoff. The research reported here uses data from a large stratified random survey of 740 developed farmers (29 per cent had tertiary education, 30 per cent had 4 or more years secondary education) to create a structural equation model of the determinants of managerial ability. The results suggest that a farmer’s exposure to experiences is a significant factor in ability, as is the farmer’s management style and the family influence on early life experience.     

Managerial Decision-Making on Moral Issues and the Effects of Teaching Ethics

This study uses judgment and decision-making (JDM) perspective with the help of framing and schema literature from cognitive psychology to evaluate how managers behave when problems with unethical overtones are presented to them in a managerial frame rather than an ethical frame. In the proposed managerial model, moral judgment of the situation is one of the inputs to managerial judgment, among several other inputs regarding costs and benefits of various alternatives. Managerial judgment results in managerial intent leading to managerial action. The model and the effects of taking an ethics course on ethical and managerial judgment and managerial intent were then indirectly tested in this study, wherein subjects judged the ethical wrongness, managerial badness, and the managerial intent regarding decisions made in a case. Forty-nine MBA students analyzed a case involving budget-based bonuses and production, in which the ethical issue evolved over three stages. It appears from the Path-analysis results that managerial judgment mediated between moral judgment and the judgment of managerial intent as suggested by the proposed model, and that taking an ethics course directly affected managerial judgment but did not affect the moral judgment. Additionally, in the first stage of decision-making (early stage of a developing “ethical slippery slope”), moral judgment did not significantly influence managerial judgment. However, students with ethics course still were more inclined to judge the decision as managerially bad as compared to others, indicating that they were more aware or sensitive to the moral issues involved.     

Corporate Finance, Incentives, and Strategy

This study reviews papers from the Eastern Finance Association's Symposium on Corporate Finance, Incentives, and Strategy. I identify the common themes underlying these papers and place the studies in the broader context of contemporary academic finance research. Further, I discuss new directions for future research in corporate finance that are suggested in these studies.     

Peer Pressure and Incentives

We study the effects of peer pressure on incentives. To this end, we extend a multiagent model with moral hazard and limited liability by introducing a peer pressure function. We show that the optimal incentive for the less productive agent is more high powered than that for the more productive agent in the case with peer pressure. Moreover, in comparison with the case without peer pressure, the optimal incentive for the less productive agent becomes more high powered, while the optimal incentive for the more productive agent becomes less high powered.     

Trade Credit Risk Management: The Role of Executive Risk‐Taking Incentives

In this study we investigate how executive equity incentives affect companies’ risk‐taking behavior in relationships with their customers. We hypothesize and find that executive risk‐taking incentives provided by options are positively related to the degree of trade credit riskiness measured both as the amount of total trade credit a firm extends to all its customers and as the amount of trade credit a firm extends to customers with a high probability of default. We also find that the measures of trade credit riskiness are positively related to the firm's future stock return volatility, suggesting that the customer default risk inherent in customer‐supplier trade credit relationships represents an important economic source of the overall supplier‐firm riskiness. The findings of the study provide insights into why firms facing financial difficulties are not denied trade credit.     

短生命周期产品供应链协调动态激励研究

为了解决短生命周期产品供应链协调的特殊性问题,文中采用博弈理论分析了供应链系统的多周期激励协调问题,从理论上给出了系统协调的最终结果:供应链系统最终处于平衡状态。应用马尔可夫决策过程建立了短生命周期产品供应链协调动态激励模型,实现了有限时段供应链系统多周期总体收益最大。通过数值分析,得到了供应链系统动态激励的帕累托最优策略。动态激励深入挖掘了供应链系统的潜能,在现有文献关注的激励内容的基础上,着重解决了激励过程,从而实现了供应链系统协调静态和动态激励的有机结合。