Changes in the demand for private medical insurance following a shift in tax incentives

The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.

Incentives in university technology transfers

There are two main ways in which the knowledge created in universities has been transferred to firms: licensing agreements and the creation of spin-offs. In this paper, we describe the main steps in the transfer of university innovations, the main incentive issues that appear in this process, and the contractual solutions proposed to address them.

The determinants of university patenting: Do incentives matter?

In recent years various studies have examined the factors that may explain academic patents. Existing analyses have also underlined the substantial differences to be found in European countries in the institutional framework that defines property rights for academic patents. The objective of this study is to contribute to the empirical literature on the factors explaining academic patents and to determine whether the incentives that universities offer researchers contribute towards explaining the differences in academic patenting activity. The results of the econometric analysis for the Spanish universities point towards the conclusion that the principal factor determining the patents is funding of R&D while royalty incentives to researchers do not appear to be significant.

Decentralization and the Gains from Monitoring

This paper analyzes the delegation of contracting capacity in a moral hazard environment with sequential production in a project which involves a principal and two agents. The agent in charge of the …nal production can obtain soft information about the other agent's effort choice by investing in monitoring. I investigate the circumstances under which it is optimal for the principal to use a centralized organization in which she designs the contracts with both agents or to use a decentralized organization in which she contracts only one agent, and delegates the power to contract the other agent. It is shown that in this setting a decentralized organization can be superior to a centralized organization. This is because the principal is better off under monitoring and the incentives for an agent to invest in monitoring can be higher in a decentralized organization. The circumstances under which this is true are related to the monitoring costs and the importance of each agent for production. The results explain the recent application of the design-build method in public procurement. Journal of Economic Literature Classi…cation Numbers: D23, D82, L14, L22. Keywords: Decentralization of Contracting, Monitoring, Moral Hazard.

Longer-term impacts of mentoring, educational services, and incentives to learn: evidence from a randomized trial in the United States

This paper is the first to use a randomized trial in the US to analyze the short- and long-term educational and employment impacts of an afterschool program that offered disadvantaged high-school youth: mentoring, educational services, and financial rewards with the objective to improve high-school graduation and postsecondary schooling enrollment. The short-term hefty beneficial average impacts quickly faded away. Heterogeneity matters. While encouraging results are found for younger youth, and when the program is implemented in relatively small communities of 9th graders; detrimental longlived outcomes are found for males, and when case managers are partially compensated by incentive payments and students receive more regular reminders of incentives.

Mentoring, educational services, and economic incentives longer-term evidence on risky behaviors from a randomized trial

This paper is the first to use a randomized trial in the US to analyze the short- and long- term impacts of an afterschool program that offered disadvantaged high-school youth: mentoring, educational services, and financial rewards to attend program activities, complete high-school and enroll in post-secondary education on youths' engagement in risky behaviors, such as substance abuse, criminal activity, and teenage childbearing. Outcomes were measured at three different points in time, when youths were in their late-teens, and when they were in their early- and their latetwenties. Overall the program was unsuccessful at reducing risky behaviors. Heterogeneity matters in that perverse effects are concentrated among certain subgroups, such as males, older youths, and youths from sites where youths received higher amount of stipends. We claim that this evidence is consistent with different models of youths' behavioral response to economic incentives. In addition, beneficial effects found in those sites in which QOP youths represented a large fraction of the entering class of 9th graders provides hope for these type of programs when operated in small communities and supports the hypothesis of peer effects.

Cronyism in Business, Public Sector and Politics

This paper contrasts the incentives for cronyism in business, the public sector and politics within an agency problem model with moral hazard. The analysis is focused on the institutional differences between private, public and political organizations. In business, when facing a residual claimant contract, a chief manager ends up with a relatively moderate …rst-best level of cronyism within a …firm. The institutional framework of the public sector does not allow explicit contracting, which leads to a more severe cronyism problem within public organizations. Finally, it is shown that the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's re-election) together with implicit contracting makes political cronyism the most extreme case. JEL classifi…cation: D72, D73, D86. Keywords: Cronyism; Meritocracy; Manager; Bureaucrat; Politician.

Let's talk: how communication affects contract design

We study experimentally how the ability to communicate affects the frequency and effectiveness of flexible and inflexible contracts in a bilateral trade context where sellers can adjust trade quality after observing a post-contractual cost shock and a discretionary buyer transfer. In the absence of communication, we find that rigid contracts are more frequent and lead to higher earnings for both buyer and seller. By contrast, in the presence of communication, flexible contracts are much more frequent and considerably more productive, both for buyers and sellers. Also, both buyer and seller earn considerably more from flexible with communication than rigid without communication. Our results show quite strongly that communication, a normal feature in contracting, can remove the potential cost of flexibility (disagreements caused by conflicting perceptions). We offer an explanation based on social norms.

Uncertainty, electoral Incentives and political myopia

In this paper, we study the determinants of political myopia in a rational model of electoral accountability where the key elements are informational frictions and uncertainty. We build a framework where political ability is ex-ante unknown and policy choices are not perfectly observable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians invest too little in costly policies with future returns in an attempt to signal high ability and increase their reelection probability. Contrary to the conventional wisdom, uncertainty reduces political myopia and may, under some conditions, increase social welfare. We use the model to study how political rewards can be set so as to maximise social welfare and the desirability of imposing a one-term limit to governments. The predictions of our theory are consistent with a number of stylised facts and with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better ...scal discipline in a panel of 20 OECD countries.

Is ENP good news for the transfer of environmental norms? Incentives and socialization for Eastern neighbours

The launching of the European Neighbourhood Policy has created some expectations. Cooperation between the EU and its partners is expected to get deeper, to the point that neighbouring countries have been promised to share “everything but institutions” with the EU. Moreover, cooperation is also expected to be broader, as it has been presented as including more and more issue areas. In other words, the ENP has the vocation of being a universal instrument to promote the transfer of EU norms. This paper focuses on one single issue area, the environment, and one group of ENP partners, the Western Newly Independent States and the South Caucasus, to revise to what extent neighbourhood policy can provide the mechanisms to encourage rule transfer. Are incentives and disincentives powerful enough? Can the ENP promote the socialization of neighbours into EU environmental norms?

Tax incentives and direct support for R&D: What do firms use and why?

This paper studies whether firms' use of R&D subsidies and R&D tax incentives is correlated to two sources of underinvestment in R&D, financing constraints and appropriability. We find that financially constrained SMEs are less likely to use R&D tax credits and more likely to obtain subsidies. SMEs using legal methods to protect their intellectual property are more likely to use tax incentives. Results are ambiguous for large firms. For both having previous experience in R&D increases the likelihood of using tax incentives, while it reduces the likelihood of using exclusively subsidies, suggesting that the latter induce entry into R&D. Results imply that direct funding and tax credits do not have the same ability to address each source of R&D underinvestment, and that on average subsidies may be better suited than tax credits at least for SMEs. From a policy perspective these tools may be complements rather than substitutes.

How does ownership structure invfluence bank risk? Analyzing the role of managerial incentives

This paper analyzes how ownership concentration and managerial incentives influences bank risk for a large sample of US banks over the period 1997-2007. Using 2SLS simultaneous equations models, we show that ownership concentration has a positive total effect on bank risk. This is the result of a positive direct effect, which reflects monitoring and opportunistic behavior, and a negative indirect effect, which works through the design of managerial incentive contracts and reflects shareholder preferences toward risk. Large shareholders reduce bank risk by reducing the sensitivity of CEO wealth to stock volatility (Vega) and by increasing the CEO pay-performance sensitivity (Delta). In addition, we show that the direct and indirect effect of ownership concentration on bank risk depends on the type of the largest shareholder (a family, a bank, a corporation or an institutional investor), as well as, on the total shareholding held by each type as a group. Our results suggest that the positive relation between ownership concentration and risk is not the result of preferences towards more risk. Rather, they point at opportunistic behavior of large shareholders.

The Generational contract in the family : explaining regime differences in financial transfers from parents to children in Europe

The exchange of social and economic support between the generationsis one of the main pillars of both family life and welfare systems. Thedebate on how to reform the generational contract is still truncated, however, by focusing on its public dimension only, especially on pensions and health care provisions. For a full account, the transfer of resources between adult generations in the family needs to be included as well. In our previous research we have shown that intergenerationalexchange is more likely to take place but less intense in the Nordicwelfare regime than in the Continental and Southern ones. In thepresent paper we analyze the social mechanisms that create and explain this nexus between patterns of intergenerational transfers and welfare regimes. The notion that Southern European family support networksare stronger and more effective than those of Continental and Northern European countries is only partially confirmed. In Southern (and partly in Continental) countries, children are mostly supported by means of co-residence with their parents till their complete economicindependence. However, once they have left the parental home thereare fewer transfers; support tends to be restricted to children who have special needs (such as for the formation of their own family), and depends more on their parents’ resources. In the Nordic countries, in contrast, transfers are less driven by children’s needs and parentalresources.

Portfolio delegation under short-selling constraints

In this paper we study delegated portfolio management when themanager's ability to short-sell is restricted. Contrary to previousresults, we show that under moral hazard, linear performance-adjustedcontracts do provide portfolio managers with incentives to gatherinformation. The risk-averse manager's optimal effort is an increasingfunction of her share in the portfolio's return. This result affectsthe risk-averse investor's optimal contract decision. The first best,purely risk-sharing contract is proved to be suboptimal. Usingnumerical methods we show that the manager's share in the portfolioreturn is higher than the rst best share. Additionally, this deviationis shown to be: (i) increasing in the manager's risk aversion and (ii)larger for tighter short-selling restrictions. When the constraint isrelaxed the optimal contract converges towards the first best risksharing contract.