A principal incentivizes a team of agents to work by privately offering them bonuses contingent on team success. We study the principal's optimal incentive scheme that implements work as a unique equilibrium. This scheme leverages rank uncertainty to address strategic uncertainty. Each agent is informed only of a ranking distribution and his own bonus, the latter making work dominant provided that higher-rank agents work. If agents are symmetric, their bonuses are identical. Thus, discrimination is strictly suboptimal, in sharp contrast with the case of public contracts (Winter 2004). We characterize how agents' ranking and compensation vary with asymmetric effort costs.
According to retrospective voting, a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting as discussed in Pástor and Veronesi (2020), high risk aversion favors the Democrats over the Republicans and vice versa. If high risk aversion is associated with a bad economy, then risk-aversion voting implies that a bad economy favors the Democrats and vice versa. The two theories thus have different implications for the Democrats. This paper tests both theories under the assumption that high risk aversion is associated with a bad economy. The results provide no support for risk-aversion voting under this assumption.
According to retrospective voting a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting a bad economy favors the Democrats over the Republicans and vice versa. This paper provides a test of both theories and rejects risk-aversion voting.
Wicksell (1896) and Lindahl (1919) analyzed the public provision of public goods through parliamentary negotiation. Roemer (2010, 2019) applied Kant’s (1785) categorical imperative to the private provision of public goods by voluntary contributions. They coincide in yielding efficient outcomes. Our focal equilibrium notions are the Multiplicative Kantian Equilibrium in the Kant-Roemer modelling and the Balanced Linear Cost Share Equilibrium for the Wicksell-Lindahl approach. It turns out that both are defined by the same individual optimization problem, and that costs are distributed according to marginal valuation, what we call the Lindahl Ratio. More general versions of the Wicksell-Lindahl and Kant-Roemer models depart from the Lindahl Ratio in ways that can be interpreted in terms of private property rights on the technology.
We study robust welfare comparisons of learning biases, i.e., deviations from correct Bayesian updating. Given a true signal distribution, we deem one bias more harmful than another if it yields lower objective expected payoffs in all decision problems. We characterize this ranking in static (one signal) and dynamic (many signals) settings. While the static characterization compares posteriors signal-by-signal, the dynamic characterization employs an “efficiency index” quantifying the speed of belief convergence. Our results yield welfare-founded quantifications of the severity of well-documented biases. Moreover, the static and dynamic rankings can disagree, and “smaller” biases can be worse in dynamic settings.
Recent literature suggests that both stock returns and economic growth are significantly higher under Democratic presidential administrations. This is a puzzle in that persistent differences in stock returns seem unlikely in efficient markets, and it is not obvious why Democrats should do better. Often these kinds of results go away upon further analysis or more data, and this appears to be true in the present case. In this paper the sample is extended to 27 administrations, from Wilson-1 through Trump. While the mean stock return under the Democrats is generally higher, none of the differences in means are significant at conventional significance levels. There is considerable variation in the mean return across administrations, which results in lack of significance. Similarly, while the mean output growth rate under the Democrats is larger, the difference is not significant. Again, there is considerable variation in output growth across administrations. Results are also presented with the ten administrations between Grant-2 and Taft added, a total of 37 administrations. While the added data are likely not as good, the conclusion is the same—no significant differences.