The Economics of Agency. Pratt and R.
Azariadis, C. Implicit contracts and underemployment equilibria. Journal of Political Economy 83, — Bailey, M. Wages and employment under uncertain demand. Review of Economic Studies 41, 37— Bester, H. Screening versus rationing in credit markets with imperfect information. American Economic Review 75 4 , — Bhattacharya, S. Tournaments and incentives: heterogeneity and essentiality. Research Paper no. Caillaud, B.
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Contracts with adverse selection and moral hazard: the case of risk neutral partners. Calvo, G. Supervision, loss of control and the optimal size of the firm. Journal of Political Economy 86 5 , — Diamond, D. Financial intermediation and delegated monitoring. Review of Economic Studies 51 3 , — Fama, E.
A. The Disposition to Follow Norms
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Unpublished dissertation, Stanford University, July. Gjesdal, F. Information and incentives: the agency information problem. Review of Economic Studies 49, — Gordon, D. A neo-classical theory of Keynesian unemployment. Economic Inquiry 12, — Green, J. A comparison of tournaments and contracts. Journal of Political Economy 91, — Grossman, S.
An analysis of the principal-agent problem. Econometrica 51, 7— Implicit contracts under asymmetric information. Quarterly Journal of Economics , Supplement, 71, — Guesnerie, R.
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Hellwig, M. Some recent developments in the theory of competition in markets with adverse selection. Helpman, E. On moral hazard in general equilibrium theory. Journal of Economic Theory 10 1 , 8— Henriet, D.
The logic of bonus-penalty systems in automobile insurance. In the pool, children are splashing each other, shrieking, jumping in and out, and making a nuisance of themselves. Yakoubovich calls out to them:. The children run off and calm reigns around the pool. In a little while, Yakoubovich gets up, wraps himself in his bathrobe, and shuffles off. In the Yakoubovich syndrome, someone—typically, a political or financial operator—tells a lie or makes a fraudulent promise that is meant to earn him support. A significant part of his public is gullible and believes the lie. Seeing this, the perpetrator then comes to believe it himself and tries to act on it.
The end is disappointment for all. The space between the actual and the potential performance is, so to speak, wasted.
Essays in non-Gaussian economics - Graduate Institute of International and Development Studies
If actual production were to rise to its potential, untold billions could be distributed to worthy recipients, the wants of the needy could be met, and projects serving the public interest could be promoted. In his mighty effort to pull the Brazilian economy up by its bootstraps, President Kubitschek simply ordered all wages and salaries in the country to be doubled. Needless to say, prices doubled with wages, and production did not. Today, politicians in and out of government try to boost purchasing power by legislating higher minimum wages, more generous unemployment and retirement pay, and by inciting labor unions to make aggressive wage claims and bullying industry to meet the claims.
The implicit argument is that if industry paid higher wages, demand for its products would increase and allow the higher wages to be paid. However, if wage costs increase all round, it is prices that will increase, not output. Demand would then just suffice to purchase the old, unchanged level of output, but not a higher one. If this were not the case, it would be because the old level of output was not in equilibrium and would have increased anyway of its own accord. The idea that higher costs amount to greater purchasing power springs from confusing demand and output at current prices with demand and output in real terms.
But it is fraudulent in misrepresenting the resources involved. If they maintain their consumption and cut their investment instead, the poor can consume more only at the expense of fewer resources being devoted to investment. The actual result of the higher tax will no doubt be a reduction in both consumption and investment by the rich, with investment being cut more—not a result that would help the poor beyond the shortest of short runs.
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A corruption-laden form of the Yakoubovich syndrome is the advocacy of development aid. A small minority in the economics profession is acting as part-time consultant either to donors on matters of development aid or to the governments of the countries asking for such aid. Some quite prominent economists do this as a full-time business, even forming their own corporations to carry it on. Many are no doubt genuinely convinced. But all are interested in aid flows being maintained and increased.
Almost inevitably, for the simple reason that few people feel comfortable in pleading day in, day out something they know to be a lie, the interest in aid will in due course generate a belief that aid is in fact a good thing.
Both the recipient governments and the donors must be persuaded that the charade of submissions and project appraisals, leading to transfers of vast sums, will in fact yield the cookies and sweets of economic development. In convincing them, development economists convince themselves, too, and are more inclined to act on their wishes than on the evidence provided by the often sad or sordid history of development aid.
One special twist in this reciprocal make-believe calls for attention. Europe is getting seriously alarmed by the rising streams of illegal immigrants entering it by landing in Spain, Italy, and Greece and moving northward. Underdeveloped countries and their advocates now argue that if they were helped to grow out of poverty, their peoples would be content to stay at home and the threat of illegal immigration would ease or cease.
The idea is plausible over a time span of several decades, but implausible within our lifetime. Pumping in aid, notably into education, would induce some thousands to stay at home but make hundreds of thousands all the more eager to leave and reach more civilized shores. When the economic history of Europe in the last third of the twentieth century comes to be written, one of its most important threads will tell of the long series of battles in which governments fought against economic realities in order to satisfy the wishes and pander to the illusions of electoral majorities.
The period is one where government spending expanded relentlessly from under 40 to over 50 percent of gross national product in the largest countries of continental Europe. Last year, it reached Piece by intricate piece, the machinery of the welfare state was put together. Trade union power came to be based, not on workers recognizing that union membership may serve their interests, but on legislation, government sponsorship, and the patronage afforded by the immense administrative machinery of the various social insurance schemes.