A state-contingent production approach to principal-agent problems with an application to point-source pollution control

Two basic representations of principal-agent relationships, the 'state-space' and 'parameterized distribution' formulations, have emerged. Although the state-space formulation appears more natural, analytical studies using this formulation have had limited success. This paper develops a state-space formulation of the moral-hazard problem using a general representation of production under uncertainty. A closed-form solution for the agency-cost problem is derived. Comparative-static results are deduced. Next we solve the principal's problem of selecting the optimal output given the agency-cost function. The analysis is applied to the problem of point-source pollution control. (C) 1998 Published by Elsevier Science S.A. All rights reserved.

Market failure in long-term private health insurance markets: a proposed solution

Recently, private health insurance rates have declined in many countries. In places requiring community rating in their health insurance premiums, a major cause is age-based adverse selection. However, even in countries without community rating, a de facto type of partial community rating tends to occur. In this note, a modified version of Pauly et al.'s guaranteed renewability model, which addresses the problem of age-based adverse selection (Pauly et al., 1995) is presented. Their model is extended from three to 35 periods. Also, probabilities are allowed to increase by age for low-risk types using actual age-based probabilities. This extension of their work shows that private health insurance contracts available stray far from optimal contracts that deal with age-based adverse selection. This suggests that government actions to affect private insurance options are warranted.

Lifetime Subsidies in Australian Private Health Insurance Markets with Community Rating

This paper considers the problem of inducing low-risk individuals of all ages to buy private health insurance in Australia. Our proposed subsidy scheme improves upon the age-based penalty scheme under the current "Australian Lifetime Cover" (LTC) scheme. We generate an alternative subsidy profile that obviates adverse selection in private health insurance markets with mandated, age-based, community rating. Our proposal is novel in that we generate subsidies that are both risk- and age-specific, based upon actual risk probabilities. The approach we take may prove useful in other jurisdictions where the extant law mandates community rating in private health insurance markets. Furthermore, our approach is useful in jurisdictions that seek to maintain private insurance to complement existing universal public systems.

The state-contingent approach to production under uncertainty

The central claim of this paper is that the state-contingent approach provides the best way to think about all problems in the economics of uncertainty, including problems of consumer choice, the theory of the firm, and principal-agent relationships. This claim is illustrated by recent developments in, and applications of, the state-contingent approach.

The role of management incentives in successful information systems development and implementation

Because organizations are making large investments in Information systems (IS), efficient IS project management has been found critical to success. This study examines how the use of incentives can improve the project success. Agency theory is used to: identify motivational factors of project success, help the IS owners to understand to what extent management incentives can improve IS development and implementation (ISD/I). The outcomes will help practitioners and researchers to build on theoretical model of project management elements which lead to project success. Given the principal-agent nature of most significant scale of IS development, insights that will allow for greater alignment of the agent’s goals with those of the principal through incentive contracts, will serve to make ISD/I both more efficient and more effective, leading to more successful IS projects.

Integrating runtime assertions with dynamic types: Structuring a derivation from an incomputable specification

An inherent incomputability in the specification of a functional language extension that combines assertions with dynamic type checking is isolated in an explicit derivation from mathematical specifications. The combination of types and assertions (into "dynamic assertion-types" - DATs) is a significant issue since, because the two are congruent means for program correctness, benefit arises from their better integration in contrast to the harm resulting from their unnecessary separation. However, projecting the "set membership" view of assertion-checking into dynamic types results in some incomputable combinations. Refinement of the specification of DAT checking into an implementation by rigorous application of mathematical identities becomes feasible through the addition of a "best-approximate" pseudo-equality that isolates the incomputable component of the specification. This formal treatment leads to an improved, more maintainable outcome with further development potential.

Some vocabulary and grammar for the analysis of multi-environment trials, as applied to the analysis of FPB and PPB trials

For the improvement of genetic material suitable for on farm use under low-input conditions, participatory and formal plant breeding strategies are frequently presented as competing options. A common frame of reference to phrase mechanisms and purposes related to breeding strategies will facilitate clearer descriptions of similarities and differences between participatory plant breeding and formal plant breeding. In this paper an attempt is made to develop such a common framework by means of a statistically inspired language that acknowledges the importance of both on farm trials and research centre trials as sources of information for on farm genetic improvement. Key concepts are the genetic correlation between environments, and the heterogeneity of phenotypic and genetic variance over environments. Classic selection response theory is taken as the starting point for the comparison of selection trials (on farm and research centre) with respect to the expected genetic improvement in a target environment (low-input farms). The variance-covariance parameters that form the input for selection response comparisons traditionally come from a mixed model fit to multi-environment trial data. In this paper we propose a recently developed class of mixed models, namely multiplicative mixed models, also called factor-analytic models, for modelling genetic variances and covariances (correlations). Mixed multiplicative models allow genetic variances and covariances to be dependent on quantitative descriptors of the environment, and confer a high flexibility in the choice of variance-covariance structure, without requiring the estimation of a prohibitively high number of parameters. As a result detailed considerations regarding selection response comparisons are facilitated. ne statistical machinery involved is illustrated on an example data set consisting of barley trials from the International Center for Agricultural Research in the Dry Areas (ICARDA). Analysis of the example data showed that participatory plant breeding and formal plant breeding are better interpreted as providing complementary rather than competing information.

Lifetime cover in private insurance markets

In the last few decades, private health insurance rates have declined in many countries. In countries and states with community rating, a major cause is adverse selection. In order to address age-based adverse selection, Australia has recently begun a novel approach which imposes stiff penalties for buying private insurance later in life, when expected costs are higher. In this paper, we analyze Australiarsquos Lifetime Cover in the context of a modified version of the Rothschild-Stiglitz insurance model (Rothschild and Stiglitz, 1976). We allow empirically-based probabilities to increase by age for low-risk types. The model highlights the shortcomings of the Australian plan. Based on empirically-based probabilities of illness, we predict that Lifetime Cover will not arrest adverse selection. The model has many policy implications for government regulation encouraging long-term health coverage.

The application of adaptive partitioned random search in feature selection problem

Feature selection is one of important and frequently used techniques in data preprocessing. It can improve the efficiency and the effectiveness of data mining by reducing the dimensions of feature space and removing the irrelevant and redundant information. Feature selection can be viewed as a global optimization problem of finding a minimum set of M relevant features that describes the dataset as well as the original N attributes. In this paper, we apply the adaptive partitioned random search strategy into our feature selection algorithm. Under this search strategy, the partition structure and evaluation function is proposed for feature selection problem. This algorithm ensures the global optimal solution in theory and avoids complete randomness in search direction. The good property of our algorithm is shown through the theoretical analysis.

Critical Temperature of a Trapped Bose Gas: Comparison of Theory and Experiment

We apply the projected Gross-Pitaevskii equation (PGPE) formalism to the experimental problem of the shift in critical temperature T-c of a harmonically confined Bose gas as reported in Gerbier , Phys. Rev. Lett. 92, 030405 (2004). The PGPE method includes critical fluctuations and we find the results differ from various mean-field theories, and are in best agreement with experimental data. To unequivocally observe beyond mean-field effects, however, the experimental precision must either improve by an order of magnitude, or consider more strongly interacting systems. This is the first application of a classical field method to make quantitative comparison with experiment.

What is the Problem of Ad Hoc Hypotheses?

The received view of an ad hoc hypothesis is that it accounts for only the observation(s) it was designed to account for, and so non-adhocness is generally held to be necessary or important for an introduced hypothesis or modification to a theory. Attempts by Popper and several others to convincingly explicate this view, however, prove to be unsuccessful or of doubtful value, and familiar and firmer criteria for evaluating the hypotheses or modified theories so classified are characteristically available. These points are obscured largely because the received view fails to adequately separate psychology from methodology or to recognise ambiguities in the use of 'ad hoc'.

Odorant-induced currents in intact patches from rat olfactory receptor neurons: Theory and experiment

Odorant-induced currents in mammalian olfactory receptor neurons have proved difficult to obtain reliably using conventional whole-cell recording. By using a mathematical model of the electrical circuit of the patch and rest-of-cell, we demonstrate how cell-attached patch measurements can be used to quantitatively analyze responses to odorants or a high (100 mM) K+ solution. High K+ induced an immediate current flux from cell to pipette, which was modeled as a depolarization of similar to 52 mV, close to that expected from the Nernst equation (56 mV), and no change in the patch conductance. By contrast, a cocktail of cAMP-stimulating odorants induced a current flux from pipette into cell following a significant (4-10 s) delay. This was modeled as an average patch conductance increase of 36 pS and a depolarization of 13 mV, Odorant-induced single channels had a conductance of 16 pS. In cells bathed with no Mg2+ and 0.25 mM Ca2+, odorants induced a current flow from cell to pipette, which was modeled as a patch conductance increase of similar to 115 pS and depolarization of similar to 32 mV, All these results are consistent with cAMP-gated cation channels dominating the odorant response, This approach, which provides useful estimates of odorant-induced voltage and conductance changes, is applicable to similar measurements in any small cells.

Growth of a Bose-Einstein condensate: a detailed comparison of theory and experiment

We extend the earlier model of condensate growth of Davis et at (Davis M J, Gardiner C W and Ballagh R J 2000 Phys. Rev. A 62 063608) to include the effect of gravity in a magnetic trap. We carry out calculations to model the experiment reported by Kohl et al (Kohl M, Davis M J, Gardiner C W, Hansch T and Esslinger T 2001 Preprint cond-mat/0106642) who study the formation of a rubidium Bose-Einstein condensate for a range of evaporative cooling parameters. We find that, in the regime where our model is valid, the theoretical curves agree with all the experimental data with no fitting parameters. However, for the slowest cooling of the gas the theoretical curve deviates significantly from the experimental curves. It is possible that this discrepancy may be related to the formation of a quasicondensate.