Essays on behavioral aspects of the design and disclosure of compensation contracts

This thesis consists of four essays on the design and disclosure of compensation contracts. Essays 1, 2 and 3 focus on behavioral aspects of mandatory compensation disclosure rules and of contract negotiations in agency relationships. The three experimental studies develop psychology- based theory and present results that deviate from standard economic predictions. Furthermore, the results of Essay 1 and 2 also have implications for firms’ discretion in how to communicate their top management’s incentives to the capital market. Essay 4 analyzes the role of fairness perceptions for the evaluation of executive compensation. For this purpose, two surveys targeting representative eligible voters as well as investment professionals were conducted. Essay 1 investigates the role of the detailed ‘Compensation Discussion and Analysis’, which is part of the Security and Exchange Commission’s 2006 regulation, on investors’ evaluations of executive performance. Compensation disclosure complying with this regulation clarifies the relationship between realized reported compensation and the underlying performance measures and their target achievement levels. The experimental findings suggest that the salient presentation of executives’ incentives inherent in the ‘Compensation Discussion and Analysis’ makes investors’ performance evaluations less outcome dependent. Therefore, investors’ judgment and investment decisions might be less affected by noisy environmental factors that drive financial performance. The results also suggest that fairness perceptions of compensation contracts are essential for investors’ performance evaluations in that more transparent disclosure increases the perceived fairness of compensation and the performance evaluation of managers who are not responsible for a bad financial performance. These results have important practical implications as firms might choose to communicate their top management’s incentive compensation more transparently in order to benefit from less volatile expectations about their future performance. Similar to the first experiment, the experiment described in Essay 2 addresses the question of more transparent compensation disclosure. However, other than the first experiment, the second experiment does not analyze the effect of a more salient presentation of contract information but the informational effect of contract information itself. For this purpose, the experiment tests two conditions in which the assessment of the compensation contracts’ incentive compatibility, which determines executive effort, is either possible or not. On the one hand, the results suggest that the quality of investors’ expectations about executive effort is improved, but on the other hand investors might over-adjust their prior expectations about executive effort if being confronted with an unexpected financial performance and under-adjust if the financial performance confirms their prior expectations. Therefore, in the experiment, more transparent compensation disclosure does not lead to more correct overall judgments of executive effort and to even lower processing quality of outcome information. These results add to the literature on disclosure which predominantly advocates more transparency. The findings of the experiment however, identify decreased information processing quality as a relevant disclosure cost category. Firms might therefore carefully evaluate the additional costs and benefits of more transparent compensation disclosure. Together with the results from the experiment in Essay 1, the two experiments on compensation disclosure imply that firms should rather focus on their discretion how to present their compensation disclosure to benefit from investors’ improved fairness perceptions and their spill-over on performance evaluation. Essay 3 studies the behavioral effects of contextual factors in recruitment processes that do not affect the employer’s or the applicant’s bargaining power from a standard economic perspective. In particular, the experiment studies two common characteristics of recruitment processes: Pre-contractual competition among job applicants and job applicants’ non-binding effort announcements as they might be made during job interviews. Despite the standard economic irrelevance of these factors, the experiment develops theory regarding the behavioral effects on employees’ subsequent effort provision and the employers’ contract design choices. The experimental findings largely support the predictions. More specifically, the results suggest that firms can benefit from increased effort and, therefore, may generate higher profits. Further, firms may seize a larger share of the employment relationship’s profit by highlighting the competitive aspects of the recruitment process and by requiring applicants to make announcements about their future effort. Finally, Essay 4 studies the role of fairness perceptions for the public evaluation of executive compensation. Although economic criteria for the design of incentive compensation generally do not make restrictive recommendations with regard to the amount of compensation, fairness perceptions might be relevant from the perspective of firms and standard setters. This is because behavioral theory has identified fairness as an important determinant of individuals’ judgment and decisions. However, although fairness concerns about executive compensation are often stated in the popular media and even in the literature, evidence on the meaning of fairness in the context of executive compensation is scarce and ambiguous. In order to inform practitioners and standard setters whether fairness concerns are exclusive to non-professionals or relevant for investment professionals as well, the two surveys presented in Essay 4 aim to find commonalities in the opinions of representative eligible voters and investments professionals. The results suggest that fairness is an important criterion for both groups. Especially, exposure to risk in the form of the variable compensation share is an important criterion shared by both groups. The higher the assumed variable share, the higher is the compensation amount to be perceived as fair. However, to a large extent, opinions on executive compensation depend on personality characteristics, and to some extent, investment professionals’ perceptions deviate systematically from those of non-professionals. The findings imply that firms might benefit from emphasizing the riskiness of their managers’ variable pay components and, therefore, the findings are also in line with those of Essay 1.

Monetary Policy Delegation, Contract Costs, and Contract Targets

We reconsider the optimal central banker contract derived in Walsh (1995). We show that if the government's objective function places weight (value) on the cost of the contract, then the optimal inflation contract does not completely neutralize the inflation bias. That is, a fraction of the inflation bias emerges in the resulting inflation rate after the central banker's monetary policy decision. Furthermore, the more concerned the government is about the cost of the contract or the less selfish (more benevolent) is the central banker, the smaller is the share of the inflation bias eliminated by the contract. No matter how concerned the government is about the cost of the contract or how unselfish (benevolent) the central banker is, the contract always reduces the inflationary bias by at least half. Finally, a central banker contract written in terms of output (i.e., incorporating an output target) can completely eradicate the inflationary bias, regardless of concerns about contract costs.

Risk, Transaction Costs, and Tax Assignment: Government Finance in the Ottoman Empire

Risk and transaction costs often provide competing explanations of institutional outcomes. In this paper we argue that they offer opposing predictions regarding the assignment of fixed and variable taxes in a multi-tiered governmental structure. While the central government can pool regional risks from variable taxes, local governments can measure variable tax bases more accurately. Evidence on tax assignment from the mid-sixteenth century Ottoman Empire supports the transaction cost explanation, suggesting that risk matters less because insurance can be obtained in a variety of ways.

David and Esther : from Julius Nathanson's production "David and Esther" ; a musical romance ; as sung by Julius Nathanson and Ola Lillith

music by Illia Trilling. Lyrics by Chaim Tauber. Libretto by Louis Freiman

Seroprevalence of toxoplasmosis and current thinking regarding screening in pregnancy: A review of the literature and case study discussion

The approach to the diagnosis and treatment of congenital toxoplasmosis has been one of flux and debate, fueled by lack of knowledge, lack of consensus, different methods of screening and different national policies for screening in different parts of the world. Countries with higher prevalence of disease such as in Europe and South America have a heightened awareness of the need to screen and treat for this parasitic infection during pregnancy. In contrast, in the United States, it is a condition scarcely discussed and has been largely ignored except in some large centers and by a few researchers. Policies and research strategies for any condition should start with obtaining good data. The aims of this thesis included a review of prevalence studies conducted in the United States, focused on the past 20 years, combined with a description of original research conducted by the author several years ago. The latter was a cross-sectional study performed in Houston, one of the largest American cities with a great ethnic mix. The study analyzed prevalence rates of Toxoplasma gondii IgG antibody in sera of women of reproductive age. Overall seroprevalence was 12.3%. In keeping with other studies, higher prevalence correlated with lower socioeconomic status, Black and Hispanic and Asian ethnicities, and increasing age. A literature search revealed only three prevalence studies performed in the United States over the past 20 years, with another four studies only referred to as personal communications or within a textbook, without further study detail available. The literature review also revealed a lack of consensus on whether or not to screen for toxoplasmosis in pregnancy, and even whether or not treatment in utero is worthwhile.^ Proponents of screening and treatment in pregnancy site studies both in the United States and France, emphasize that treatment reduces disease manifestations in infants. Opponents cite other studies that show only marginal benefits, together with potential side effects of medication regimens and generation of anxiety in parents. What is agreed on so far is the value of educating pregnant women on how to avoid contracting toxoplasmosis, and educating physicians on making the best use of reference laboratories before major treatment decisions are made. Further research to reevaluate the literature critically, review new treatment regimens and examine costs and benefits of screening and treatment of toxoplasmosis in pregnancy, bringing together European and American researchers, is needed.^

The Emergency Department: Rising wait times, costs, and possible remedies

Emergency Departments (EDs) and Emergency Rooms (ERs) are designed to manage trauma, respond to disasters, and serve as the initial care for those with serious illnesses. However, because of many factors, the ED has become the doorway to the hospital and a “catch-all net” for patients including those with non-urgent needs. This increase in the population in the ED has lead to an increase in wait times for patients. It has been well documented that there has been a constant and consistent rise in the number of patients that frequent the ED (National Center for Health Statistics, 2002); the wait time for patients in the ED has increased (Pitts, Niska, Xu, & Burt, 2008); and the cost of the treatment in the ER has risen (Everett Clinic, 2008). Because the ED was designed to treat patients who need quick diagnoses and may be in potential life-threatening circumstances, management of time can be the ultimate enemy. If a system was implemented to decrease wait times in the ED, decrease the use of ED resources, and decrease costs endured by patients seeking care, better outcomes for patients and patient satisfaction could be achieved. The goal of this research was to explore potential changes and/or alternatives to relieve the burden endured by the ED. In order to explore these options, data was collected by conducting one-on-one interviews with seven physicians closely tied to a Level 1 ED (Emergency Room physicians, Trauma Surgeons and Primary Care physicians). A qualitative analysis was performed on the responses of one-on-one interviews with the aforementioned physicians. The interviews were standardized, open-ended questions that probe what makes an effective ED, possible solutions to improving patient care in the ED, potential remedies for the mounting problems that plague the ED, and the feasibility of bringing Primary Care Physicians to the ED to decrease the wait times experienced by the patient. From the responses, it is clear that there needs to be more research in this area, several areas need to be addressed, and a variety of solutions could be implemented. The most viable option seems to be making the ED its own entity (similar to the clinic or hospital) that includes urgent clinics as a part of the system, in which triage and better staffing would be the most integral part of its success.^

DIAGNOSTIC ANTIGENS FOR SCHISTOSOMIASIS MANSONI: PRODUCTION, CHARACTERIZATION AND PURIFICATION OF MONOCLONAL ANTIBODIES, AND AFFINITY PURIFICATION OF ANTIGENS

Attempts have been made in this dissertation to develop a purified antigen with high sensitivity and specificity for diagnosis of Schistosoma mansoni (Sm) infection by using the hybridoma technique.^ Spleen cells, obtained from mice immunized by infection with Sm and boosted by cercarial antigens, or by injection of circulating antigen (CA) in serum from infected mice, were fused with Sp2/0 myeloma cells. The active infection resulted a higher number of hybridomas (100%) than by CA (20%), and higher levels of antibody reactivity as measured by ELISA.^ The IgM and IgG monoclonal antibodies (MCAbs) were purified respectively by gel filtration, DE 52 ion exchange column and proteinase A affinity column. The cercarial and egg antigens were purified by affinity chromatography through MCAb/affi-gel column. The reactivity of the purified antigens were then monitored by ELISA, SDS-PAGE silver stain and EITB.^ The respective MCAbs recognized varying antigenic determinants (AD) present in adult, cercaria and egg stages. By EITB the MCAbs IgM and IgG, when reacted with nine antigens from the various stages, revealed identical bands, suggesting that the two MCAb classes originated from identical AD. By ELISA and COPT, the MCAbs from thirteen cell lines gave same results. But by CHR, two MCAbs showed negative results while eleven other MCAbs showed strong positive. It is assumed that the AD in the immunogen that ilicited the MCAbs were immunochemically closely related.^ One egg purified by immunoaffinity indicated that the epitopes recognized by MCAb were present on four antigenic components with molecular weights (Mr) of approximately 19, 25, 60 and >224 kd, respectively. By EITB the Mr 19 doublet appeared to be species specific; the Mr 25 kd genus specific. They reacted with mouse serum from 13-16 weeks after infection. In monkey serum Mr 19 doublet appeared 8-10 weeks after infection and disappeared at 8-12 weeks after Droncit treatment, paralleled to the disappearance of fecal egg. The Mr 60 and >224 kd bands were also demonstrated with S. japonicum, S. haematobium and Trichinella spiralis infection sera and may be the cause of cross-reaction in conventional serological test. ^

COSTS AND EFFECTS OF ARKANSAS' LONG-TERM CARE DEMONSTRATION PROJECT (MEDICAID, CHANELLING, COMMUNITY ASSESSMENT)

The purpose of this study was to assess the impact of the Arkansas Long-Term Care Demonstration Project upon Arkansas' Medicaid expenditures and upon the clients it serves. A Retrospective Medicaid expenditure study component used analyses of variance techniques to test for the Project's effects upon aggregated expenditures for 28 demonstration and control counties representing 25 percent of the State's population over four years, 1979-1982.^ A second approach to the study question utilized a 1982 prospective sample of 458 demonstration and control clients from the same 28 counties. The disability level or need for care of each patient was established a priori. The extent to which an individual's variation in Medicaid utilization and costs was explained by patient need, presence or absence of the channeling project's placement decision or some other patient characteristic was examined by multiple regression analysis. Long-term and acute care Medicaid, Medicare, third party, self-pay and the grand total of all Medicaid claims were analyzed for project effects and explanatory relationships.^ The main project effect was to increase personal care costs without reducing nursing home or acute care costs (Prospective Study). Expansion of clients appeared to occur in personal care (Prospective Study) and minimum care nursing home (Retrospective Study) for the project areas. Cost-shifting between Medicaid and Medicare in the project areas and two different patterns of utilization in the North and South projects tended to offset each other such that no differences in total costs between the project areas and demonstration areas occurred. The project was significant ((beta) = .22, p < .001) only for personal care costs. The explanatory power of this personal care regression model (R('2) = .36) was comparable to other reported health services utilization models. Other variables (Medicare buy-in, level of disability, Social Security Supplemental Income (SSI), net monthly income, North/South areas and age) explained more variation in the other twelve cost regression models. ^

PRODUCTION, DEGRADATION AND ACCUMULATION OF ORGANICS BY WASTE STABILIZATION POND MICROORGANISMS

The objectives of this research were: to determine the contribution of algae to commonly run water quality variables, to evaluate waste pond micoorganisms' capacity to degrade and accumulate ten EPA priority pollutants, and to determine the environmental fate of those compounds in a laboratory