Intertemporal Permit Trading for the Control of Greenhouse Gas Emissions

This paper integrates two themes in the intertemporal permitliterature through the construction of an intertemporal bankingsystem for a pollutant that creates both stock and flow damages. A permit banking system for the special case of a pollutant thatonly causes stock damages is also developed. This latter,simpler case corresponds roughly to the greenhouse gas emissionreduction regime proposed by the U.S. Department of State as ameans of fulfilling the U.S. commitment to the FrameworkConvention on Climate Change. This paper shows that environmentalregulators can achieve the socially optimal level of emissionsand output through time by setting the correct total sum ofallowable emissions, and specifying the correct intertemporaltrading ratio for banking and borrowing. For the case ofgreenhouse gases, we show that the optimal growth rate of permitprices, and therefore the optimal intertemporal trading rate, hasthe closed-form solution equal to the ratio of current marginalstock damages to the discounted future value of marginal stockdamages less the decay rate of emissions in the atmosphere. Given a non-optimal negotiated emission path we then derive apermit banking system that has the potential to lower net socialcosts by adjusting the intertemporal trading ratio taking intoaccount the behavior of private agents. We use a simplenumerical simulation model to illustrate the potential gains fromvarious possible banking systems.     

Subjectivity in Professionals' Incentive Systems: Differences between Promotion‐ and Performance‐Based Assessments

We examine how managers assess performance and promotion prospects—that is, the ex ante likelihood of promotion—and the conditions under which these assessments diverge. We argue that managers apply different cognitive schemas when they make different assessments. To the extent that a signal provides different information about future versus current contributions, assessed performance and promotion prospects are likely to diverge. In two experiments, we manipulate professionals' promotion eligibility and level of consultative decision making. We find that experienced managers assess performance and promotion prospects differently, but only when professionals are promotion eligible. Specifically, more (as opposed to less) consultative decision making decreases promotion prospects while not affecting assessed performance (Experiment 1) or even improving it (Experiment 2). By contrast, more consultative decision making improves both assessments when professionals are not eligible for promotion. We shed light on the relations between subjective assessments, including that promotion is not necessarily the consequence of superior assessed performance.     

Status motives and agent-to-agent information sharing

Review of Accounting Studies - Although decision-making within firms improves when agents share information with one another, agents often have limited motivation to share because doing so takes...