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on Contract Theory and Applications |
| By: | Joseph McMurray (University of Rochester Economics Department, Harkness Hall, University of Rochester, Rochester, NY 14627) |
| Abstract: | In a common-values election with continuously distributed information quality, the incentive to pool private information conflicts with the swing voters curse. In equilibrium, therefore, some citizens abstain despite clear private opinions, and others vote despite having arbitrarily many peers with superior information. The dichotomy between one's own and others' information quality can explain the otherwise puzzling empirical relationship between education and turnout, and suggests the importance of relative information variables in explaining turnout, which I verify for U.S. primary elections. Though voluntary elections fail to utilize nonvoters' information, mandatory elections actually do worse; e¤orts to motivate turnout may actually reduce welfare. |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:roc:wallis:wp59&r=cta |
| By: | Gian Luca Clementi (New York University, USA and The Rimini Centre of Economic Analisys, Italy); Thomas Cooley (New York University and NBER, USA); Sonia Di Giannatale (Centro de Investigaci´on y Docencia Econ´omicas, M´exico) |
| Abstract: | We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter’s operations. The dynamics implied by the optimal incentive scheme is rich andquite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter keeps on growing, capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision becomes costlier as inside equity grows. In turn, this leads to a decline in the constrained–efficient level of effort and therefore to a drop in the return to investment. In the long run, the entrepreneur gains control of all cash–flow rights and the capital stock converges to a constant value. |
| Keywords: | Principal–Agent, Moral Hazard, Hidden Action, Incentives, Firm Dynamics. |
| JEL: | D82 D86 D92 G32 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:33-08&r=cta |
| By: | Cellini, Roberto; Lambertini, Luca; Sterlacchini, Alessandro |
| Abstract: | We study the product and process innovation choice of firms in which a managerial incentive à la Vickers (1985) is present. Taking a two-stage dynamic game approach, we show that managerial firms are led to over-invest in process innovation, as compared to standard profit-maximising firms, while they under-invest in product innovation. The reason is that process innovation allows to decrease cost, and this is consistent with a convenient increase in the production level. On the opposite, product innovation allows increasing price, which is in contrast with the taste for output expansion embodied in the objective function of firms run by managers. Preliminary empirical evidence on Italian companies suggests that in fact the managerial nature of firm associates with significantly smaller efforts in product innovation while the effect on process innovation is positive but non-significant. |
| Keywords: | Process innovation; Product innovation; R&D; Managerial incentive |
| JEL: | O32 O31 D43 C72 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12935&r=cta |