Individual versus group strategy-proofness: when do they coincide?

A social choice function is group strategy-proof on a domain if no group of agents can manipulate its final outcome to their own benefit by declaring false preferences on that domain. Group strategy-proofness is a very attractive requirement of incentive compatibility. But in many cases it is hard or impossible to find nontrivial social choice functions satisfying even the weakest condition of individual strategy-proofness. However, there are a number of economically significant domains where interesting rules satisfying individual strategy-proofness can be defined, and for some of them, all these rules turn out to also satisfy the stronger requirement of group strategy-proofness. This is the case, for example, when preferences are single-peaked or single-dipped. In other cases, this equivalence does not hold. We provide sufficient conditions defining domains of preferences guaranteeing that individual and group strategy-proofness are equivalent for all rules defined on the

Limited liability and mechanism design in procurement

In the presence of cost uncertainty, limited liability introduces the possibility of default in procurement with its associated bank-ruptcy costs. When financial soundness is not perfectly observable, we show that incentive compatibility implies that financially less sound contractors are selected with higher probability in any feasible mechanism. Informational rents are associated with unsound financial situations. By selecting the financially weakest contractor, stronger price competition (auctions) may not only increase the probability of default but also expected rents. Thus, weak conditions are suffcient for auctions to be suboptimal. In particular, we show that pooling firms with higher assets may reduce the cost of procurement even when default is costless for the sponsor.

Optimal second-degree price discrimination and arbitrage: On the role of asymetric information among buyers

The traditional theory of monopolistic screening tackles individualself-selection but does not address the possibility that buyers couldform a coalition to coordinate their purchases and to reallocate thegoods. In this paper, we design the optimal sale mechanism which takesinto account both individual and coalition incentive compatibilityfocusing on the role of asymmetric information among buyers. We showthat when a coalition of buyers is formed under asymmetric information,the monopolist can do as well as when there is no coalition. Although inthe optimal sale mechanism marginal rates of substitution are notequalized across buyers (hence there exists room for arbitrage), theyfail to realize the gains from arbitrage because of the transaction costsin coalition formation generated by asymmetric information.

A dual characterization of incentive efficiency

We show that incentive efficient allocations in economies with adverse selection and moral hazard can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima. Our dual analysis identifies welfare effects associated with the incentives of the agents to truthfully reveal their private information. Because these welfare effects may generate non-convexities, incentive efficient allocations may involve randomization. Other properties of incentive efficient allocations are also derived.

Assessment of current anglo-saxon proposals about criminal justice and the justification of legal punishment: Moore, Duff and Finnis on retribution, and the challenging compatibility with the up-and-coming Restorative Justice

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On the valuation and incentive effects of executive cash bonus contracts

Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and, potentially, empirically distortive. In this paper, we propose an option-based framework for ex-ante valuation of cash bonus contracts. After obtaining closed-form expressions for ex-ante values of several frequently used types of bonus contracts, we utilize them to explore the e¤ects that the shape of a bonus contract has on the executive s attitude toward risk-taking. We, also, study pay-performance sensitivity of such contracts. We show that the terms of a bonus contract can dramatically impact both risk-taking behavior as well as pay-performance incentives. Several testable predictions are made, and venues of future research outlined.

An experimental test of loss aversion and scale compatibility

This paper studies two important reasons why people violate procedure invariance, loss aversion and scale compatibility. The paper extends previous research on loss aversion and scale compatibility by studying loss aversion and scale compatibility simultaneously, by looking at a new decision domain, medical decision analysis, and by examining the effect of loss aversion and scale compatibility on "well-contemplated preferences." We find significant evidence both of loss aversion and scale compatibility. However, the sizes of the biases due to loss aversion and scale compatibility vary over trade-offs and most participants do not behave consistently according to loss aversion or scale compatibility. In particular, the effect of loss aversion in medical trade-offs decreases with duration. These findings are encouraging for utility measurement and prescriptive decision analysis. There appear to exist decision contexts in which the effects of loss aversion and scale compatibility can be minimized and utilities can be measured that do not suffer from these distorting factors.

On the (in)compatibility of rationality, monotonicity and consistency for cooperative games

On the domain of cooperative transferable utility games, we investigate if there are single valued solutions that reconcile rationality, consistency and monotonicity (with respect to the worth of the grand coalition) properties. This paper collects some impossibility results on the combination of core selection with either complement or projected consistency, and core selection, max consistency and monotonicity. By contrast, possibility results show up when combining individual rationality, projected consistency and monotonicity.

Counteracting incentive sensitization in severe alcohol dependence using deep brain stimulation of the nucleus accumbens: clinical and basic science aspects

The ventral striatum / nucleus accumbens has been implicated in the craving for drugs and alcohol which is a major reason for relapse of addicted people. Craving might be induced by drug-related cues. This suggests that disruption of craving-related neural activity in the nucleus accumbens may significantly reduce craving in alcohol-dependent patients. Here we report on preliminary clinical and neurophysiological evidence in three male patients who were treated with high frequency deep brain stimulation of the nucleus accumbens bilaterally. All three had been alcohol dependent for many years, unable to abstain from drinking, and had experienced repeated relapses prior to the stimulation. After the operation, craving was greatly reduced and all three patients were able to abstain from drinking for extended periods of time. Immediately after the operation but prior to connection of the stimulation electrodes to the stimulator, local field potentials were obtained from the externalized cables in two patients while they performed cognitive tasks addressing action monitoring and incentive salience of drug related cues. LFPs in the action monitoring task provided further evidence for a role of the nucleus accumbens in goal-directed behaviors. Importantly, alcohol related cue stimuli in the incentive salience task modulated LFPs even though these cues were presented outside of the attentional focus. This implies that cue-related craving involves the nucleus accumbens and is highly automatic.

Internal promotion versus external recruitment: evidence in industrial plants

An analysis is carried out in a sample of 738 industrial plants of the determining factors in the use of internal promotion of blue-collar workers to middle managers and skilled technicians as against their external recruitment. The use of internal promotion is positively correlated with variables indicative of the efforts made by plants to measure employees' skills, and to a lesser extent, with the level of specificity of investments in human capital made by blue-collar workers. Contrary to what was expected, variables related with the use and efficiency of other incentive systems have no significant influence on the increased or decreased use of internal promotion. These results are initial evidence that internal promotions are used to protect and favour specific investments, especially those made by firms in order to discover their workers' skills.

Access as a motivational device: implications for human resource management

This paper analyzes the employment relationship on the basis of the notion of access. We argue that the degree of access provided by a job is an incentive to activate the employee’s self-actualization needs. We investigate the effect of access on the workers’ performance through an agency model and provide a number of propositions with practical implications for personnel policies. Our results are consistent with the intuition emerged from the real business practice as well as with many of the arguments on the substitutive role between monetary and non-monetary incentives frequently reported in the literature.

Seniority-based pay: is it used as a motivation device?

The purpose of this article is to explain what factors determine the use of seniority-based pay for production workers in Spanish manufacturing industry. The data used in order to achieve these objectives was taken from 774 Spanish industrial plants. The estimation of several ordered probit models enabled us to see that in firms where it was more costly for management to engage in opportunistic behaviour, deferred payment shows a negative relation to the use of devices, like monitoring or incentive payment, designed to align workers’ objectives with those of the company.

It's what you say not what you pay

We study manager-employee interactions in experiments set in a corporate environment where payoffs depend on employees coordinating at high effort levels; the underlying game being played repeatedly by employees is a weak-link game. In the absence of managerial intervention subjects invariably slip into coordination failure. To overcome a history of coordination failure, managers have two instruments at their disposal, increasing employees' financial incentives to coordinate and communication with employees. We find that communication is a more effective tool than incentive changes for leading organizations out of performance traps. Examining the content of managers' communication, the most effective messages specifically request a high effort, point out the mutual benefits of high effort, and imply that employees are being paid well.

Manipulation via endowments in exchange markets with indivisible goods

We consider exchange markets with heterogeneous indivisible goods. We are interested in exchange rules that are efficient and immune to manipulations via endowments (either with respect to hiding or destroying part of the endowment or transferring part of the endowment to another trader). We consider three manipulability axioms: hiding-proofness, destruction-proofness, and transfer-proofness. We prove that no rule satisfying efficiency and hiding-proofness (which implies individual rationality) exists. For two-agent exchange markets with separable and responsive preferences, we show that efficient, individually rational, and destruction-proof rules exist. However, for separable preferences, no rule satisfies efficiency, individual rationality, and destruction-proofness. In the case of transfer-proofness the compatibility with efficiency and individual rationality for the two-agent case extends to the unrestricted domain. For exchange markets with separable preferences and more than two agents no rule satisfies efficiency, individual rationality, and transfer-proofness.

Sequencing lifeline repairs after an earthquake: an economic approach

Recoveries after recent earthquakes in the U.S. and Japan have shown that large welfare gains can be achieved by reshaping current emergency plans as incentive-compatible contracts. We apply tools from the mechanisms design literature to show ways to integrate economic incentives into the management of natural disasters and discuss issues related to the application to seismic event recovery. The focus is on restoring lifeline services such as the water, gas, transportation, and electric power networks. We put forward decisional procedures that an uninformed planner could employ to set repair priorities and help to coordinate lifeline firms in the post-earthquake reconstruction.