Capital market equilibrium with moral hazard and flexible technology

(Magill, M., Quinzii, M., 2002. Capital market equilibrium with moral hazard. Journal of Mathematical Economics 38, 149-190) showed that, in a stockmarket economy with private information, the moral hazard problem may be resolved provided that a spanning overlap condition is satisfed. This result depends on the assumption that the technology is given by a stochastic production function with a single scalar input. The object of the present paper is to extend the analysis of Magill and Quinzii to the case of multiple inputs. We show that their main result extends to this general case if and only if, for each firm, the number of linearly independent combinations of securities having payoffs correlated with, but not dependent on, the firms output is equal to the number of degrees of freedom in the firm's production technology.

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.

Asian elephants as agricultural pests: Economics of control and compensation in Sri Lanka

Despite growing attention to crop and property damage caused by the Asian elephant, uncertainty exists about the magnitude of this problem. This article explores the nature and, Magnitude of this problem in Sri Lanka. An economic analysis of individual farmers'. decisions to control elephants is provided. Government policies to assist farmers in coping with the elephant pest problem are assessed. Appropriate compensation schemes for farmers are seen as potentially more effective for conserving elephants in Sri Lanka than legal prohibitions on the killing of elephants. The issues raised here have wider relevance than merely to Sri Lanka or Asian elephants.

Believing badly

This paper explores the grounds upon which moral judgment of a person's beliefs is properly made. The beliefs in question are non-moral beliefs and the objects of moral judgment are individual instances of believing. We argue that instances of believing may be morally wrong on any of three distinct grounds: (i) by constituting a moral hazard, (ii) by being the result of immoral inquiry, or (iii) by arising from vicious inner processes of belief formation. On this way of articulating the basis of moral judgment of belief it becomes clear that rational and epistemic norms do not exhaust the kinds of normative judgment properly made of a person's state of believing. We argue that there are instances of believing that are both rational and true and yet morally wrong.

Incentives and standards in agency contracts

This paper studies the structure of state-contingent contracts in the presence of moral hazard and multitasking. Necessary and sufficient conditions for the presence of multitasking to lead to fixed payments instead of incentive schemes are identified. It is shown that the primary determinant of whether multitasking leads to higher or lower powered incentives is the role that noncontractible outputs play in helping the agent deal with the production risk associated with the observable and contractible outputs. When the noncontractible outputs are risk substitutes and are socially undesirable, standards are never optimal. If the noncontractible outputs are socially desirable, standards are never optimal if the noncontractible outputs play a risk-complementary role.

Mindreading and moral awareness in popular and rejected preschoolers

This study sought to examine links among young children's peer relations, their moral understanding in terms of the ability to distinguish lies from mistakes, and their theory-of-mind development. Based on sociometric measures, 109 children with a mean age of 4.8 years were divided into groups of popular and rejected preschoolers. Rejected children who had a stable mutual friend scored higher on measures of moral understanding and theory of mind than did rejected children without such friendships. Similarly, popular children who had a stable mutual friendship outperformed other popular children on mindreading, although their moral understanding was no better than that of the popular group who lacked mutual friends. Hierarchical multiple regression analyses revealed that peer popularity was a significant independent predictor of children's moral understanding after any effects of verbal maturity, age and theory-of-mind were statistically controlled. Moreover, having a reciprocal stable friendship made a significant independent contribution to the explanation of individual differences in mindreading, over and above age and verbal maturity, which also contributed significantly. These results are discussed in terms of conversational, cognitive, and emotional processes in the development of social cognition.