Using Normative Markov Decision Processes for Evaluating Electronic Contracts: A Case Study in a Simulated Aerospace Aftermarket

Before signing electronic contracts, a rational agent should estimate the expected utilities of these contracts and calculate the violation risks related to them. In order to perform such pre-signing procedures, this agent has to be capable of computing a policy taking into account the norms and sanctions in the contracts. In relation to this, the contribution of this work is threefold. First, we present the Normative Markov Decision Process, an extension of the Markov Decision Process for explicitly representing norms. In order to illustrate the usage of our framework, we model an example in a simulated aerospace aftermarket. Second, we specify an algorithm for identifying the states of the process which characterize the violation of norms. Finally, we show how to compute policies with our framework and how to calculate the risk of violating the norms in the contracts by adopting a particular policy.

February 2009: Tax Time

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Organizational design and incentive provision

We model the trade-off between the balance and the strength of incentives implicit in the choice between hierarchical and matrix or- ganizational structures. We show that managerial biases determine which structure is optimal: hierarchical forms are preferred when biases are low, while matrix structures are preferred when biases are high. Moreover, the results show that there is always a level of bias for which matrix design can achieve the expected profit obtained by shareholders if they could directly control the firm. We also show that the main trade-off, i.e., hierarchical versus matrix structure is preserved under asymmetric levels of bias among managers and when low-level workers perceive activities with complementary efforts.

Education, preferences for leisure, and the optimal income tax schedule

Recent advances in dynamic Mirrlees economies have incorporated the treatment of human capital investments as an important dimension of government policy. This paper adds to this literature by considering a two period economy where agents are di erentiated by their preferences for leisure and their productivity, both private information. The fact that productivity is only learnt later in an agent's life introduces uncertainty to agent's savings and human capital choices and makes optimal the use of multi-period tie-ins in the mechanism that characterizes the government policy. We show that optimal policies are often interim ine cient and that the introduction of these ine ciencies may take the form of marginal tax rates on labor income of varying sign and educational policies that include the discouragement of human capital acquisition. With regards to implementation, state-dependent linear taxes implement optimal savings, while human capital policies may require labor income taxes that depend directly on agents' schooling.

Análise econômica das políticas de incentivos à cultura no Brasil

O Brasil conta hoje com uma legislação que o coloca seguramente entre os melhores países, senão o melhor, para se realizar projetos culturais. Ao menos na teoria. Essa dissertação tem como objetivo trilhar o caminho das leis de incentivo, desde a sua criação, com a Lei Sarney até a Lei Rouanet, analisando inclusive as leis estaduais e municipais, que também surgiram como respostas a descontinuidades no processo. O mercado cultural brasileiro é caracterizado por externalidades que dificultam sua viabilidade, fazendo necessária a intervenção governamental. A política cultural brasileira tem como principal instrumento as leis de incentivo à cultura, que utilizam a renúncia fiscal para atrair o capital privado. São formalizadas parcerias onde as empresas privadas patrocinam projetos de interesse do governo e, como contrapartida, recebem o direito de deduzir esse valor, integral ou parcialmente, de seus impostos. Contudo, esse modelo de contrato de parceria é mal formulado, e traz perdas para a sociedade. O risco é assumido integralmente pelo Estado, o que acarreta problemas sérios de Moral Hazard. Além disso, devido às diferentes características dos projetos, o modelo acaba também por gerar problemas de Seleção Adversa. Para uma melhor comparação e análise da política cultural brasileira, foram levantados casos internacionais - Estados Unidos, Inglaterra, Portugal e Espanha. Levando-se em conta as análises e críticas levantadas, serão sugeridas alternativas para o modelo de contrato adotado pelo governo para incentivo à cultura, e formas alternativas de financiamento ao setor cultural, de forma a assegurar um melhor retorno para a sociedade sem deixar de cumprir o papel de fomentar o setor e corrigir as externalidades presentes.

Large economies with differential information but without free disposal

We consider exchange economies with a continuum of agents and differential information about finitely many states of nature. It was proved in Einy, Moreno and Shitovitz (2001) that if we allow for free disposal in the market clearing (feasibility) constraints then an irreducible economy has a competitive (or Walrasian expectations) equilibrium, and moreover, the set of competitive equilibrium allocations coincides with the private core. However when feasibility is defined with free disposal, competitive equilibrium allocations may not be incentive compatible and contracts may not be enforceable (see e.g. Glycopantis, Muir and Yannelis (2002)). This is the main motivation for considering equilibrium solutions with exact feasibility. We first prove that the results in Einy et al. (2001) are still valid without freedisposal. Then we define an incentive compatibility property motivated by the issue of contracts’ execution and we prove that every Pareto optimal exact feasible allocation is incentive compatible, implying that contracts of competitive or core allocations are enforceable.

Yet another reason to tax goods

The optimal taxation of goods, labor and capital income is considered in a two period model where: i) private information changes through time; ii) savings are not observed, and; iii) savings a§ect preferences conditional on the realization of types. The simultaneous appearance of these three elements cause optimal commodity taxes to depend on o§-equilibrium savings. As a consequence, separability no longer su¢ ces for the uniform taxation prescription of Atkinson and Stiglitz (AS) to obtain. If preferences are homothetic AS is partially restored: taxes are uniform within periods, however, future consumption is taxed at a higher rate than current consumption.

Biased managers, organizational design, and incentive provision

We model the tradeoff between the balance and the strength of incentives implicit in the choice between hierarchical and matrix organizational structures. We show that managerial biases determine which structure is optimal: hierarchical forms are preferred when biases are low, while matrix structures are preferred when biases are high.

Non-monotone insurance contracts and their empirical consequences

The goal of this paper is to show the possibility of a non-monotone relation between coverage ans risk which has been considered in the literature of insurance models since the work of Rothschild and Stiglitz (1976). We present an insurance model where the insured agents have heterogeneity in risk aversion and in lenience (a prevention cost parameter). Risk aversion is described by a continuous parameter which is correlated with lenience and for the sake of simplicity, we assume perfect correlation. In the case of positive correlation, the more risk averse agent has higher cosr of prevention leading to a higher demand for coverage. Equivalently, the single crossing property (SCP) is valid and iplies a positive correlation between overage and risk in equilibrium. On the other hand, if the correlation between risk aversion and lenience is negative, not only may the SCP be broken, but also the monotonocity of contracts, i.e., the prediction that high (low) risk averse types choose full (partial) insurance. In both cases riskiness is monotonic in risk aversion, but in the last case there are some coverage levels associated with two different risks (low and high), which implies that the ex-ante (with respect to the risk aversion distribution) correlation between coverage and riskiness may have every sign (even though the ex-post correlation is always positive). Moreover, using another instrument (a proxy for riskiness), we give a testable implication to desentangle single crossing ans non single croosing under an ex-post zero correlation result: the monotonicity of coverage as a function os riskiness. Since by controlling for risk aversion (no asymmetric information), coverage is monotone function of riskiness, this also fives a test for asymmetric information. Finally, we relate this theoretical results to empirical tests in the recent literature, specially the Dionne, Gouruéroux and Vanasse (2001) work. In particular, they found an empirical evidence that seems to be compatible with asymmetric information and non single crossing in our framework. More generally, we build a hidden information model showing how omitted variables (asymmetric information) can bias the sign of the correlation of equilibrium variables conditioning on all observable variables. We show that this may be the case when the omitted variables have a non-monotonic relation with the observable ones. Moreover, because this non-dimensional does not capture this deature. Hence, our main results is to point out the importance of the SPC in testing predictions of the hidden information models.

Ideological changes and tax structure: Latin American countries during the nineties

Sabatini (2002) and Roberts and Wibbles (1999) Pointed Out That Voters in Latin American Countries are no Longer Choosing According to Their Ideological Preferences. Ashworth and Heyndels (2002) Showed That the Tax Choice In Oecd Countries Does not Follow the Ideological Pattern of Party Preferences. the Most Robust Result of This Work Shows That the Tax Choice in Latin American Countries Still Depends on This Ideological Preference. We Also Verified That Changes in the Tax Structure Depend on Changes Both in the Tax Burden and the Openness of the Economy

The insurance function of contracts

One of the central problems in contract law is to define the frontier between legal and illegal breaches of promises. The distinction between good and bad faith is perhaps the conceptual tool most commonly used to tell one from the other. Lawyers spend a lot of energy trying to frame better definitions of the concepts of good and bad faith based on principles of ethics or justice, but often pay much less attention to theories dealing with the incentives that can engender good faith behavior in contractual relationships. By describing the economics of what Stiglitz defined as “explicit” and “implicit” insurance, I highlight the “insurance function” hidden in any promise with basically no mathematical notation. My aim is to render the subject intelligible and useful to lawyers with little familiarity with economics.

Contingent Edis: a new contractual framework for minimizing the risk of incentive failures

Granting economic development incentives (or “EDIs”) has become commonplace throughout the United States, but the efficiency of these mechanisms is generally unwarranted. Both the politicians granting, and the companies seeking, EDIs have incentives to overestimate the EDIs benefits. For politicians, ribbon–cutting ceremonies can be the highly desirable opportunity to please political allies and financiers, and the same time that they demonstrate to the population that they are successful in promoting economic growth – even when the population would be better off otherwise. In turn, businesses are naturally prone to seek governmental aid. This explains in part why EDIs often “fail” (i.e. don’t pay–off). To increase transparency and mitigate the risk of EDI failure, local and state governments across the country have created a number of accountability mechanisms. The general trait of these accountability mechanisms is that they apply controls to some of the sub–risks that underlie the risk of EDI failure. These sub–risks include the companies receiving EDIs not generating the expected number of jobs, not investing enough in their local facilities, not attracting the expected additional businesses investments to the jurisdiction, etc. The problem with such schemes is that they tackle the problem of EDI failure very loosely. They are too narrow and leave multiplier effects uncontrolled. I propose novel contractual framework for implementing accountability mechanisms. My suggestion is to establish controls on the risk of EDI failure itself, leaving its underlying sub–risks uncontrolled. I call this mechanism “Contingent EDIs”, because the EDIs are made contingent on the government achieving a preset target that benchmarks the risk of EDI failure. If the target is met, the EDIs will ex post kick in; if not, then the EDIs never kick in.

REPETRO - Regime Aduaneiro Especial de Importação e Exportação de Bens Destinados à Pesquisa e Lavra de Petróleo e Gás: análise dos entraves e propostas de soluções

REPETRO, the special tax regime for importing and exporting goods for the exploration and drilling of oil and gas, aims at bringing foreign assets to Brazil enjoying a suspension or even an exemption of taxes, so that Brazilian industry may profit from about 8 billion American dollars in investments. The creation of normative devices as well as the management of the REPETRO model are under the exclusive responsibility of the Brazilian Internal Revenue Services. REPETRO was created in 1999 and is composed of the following customs treatments: importation of goods with suspension of taxes by use of the drawback special regime, suspension mode for national exporting industry; exportation with fictitious exit for the national industry; temporary admission of goods or assets used in oil exploration and production, attending to the needs of both the national and foreign market. Considering the inability of the Brazilian government in restructuring its foreign trade model so that a strong investment in technology could provide for the sector¿s needs, we must ask how we can change REPETRO to help the various companies in the oil business? The issue is very important for one of our main economic activities, though not enough studied. The energy sector has a strategic importance for the development and the economic independence of any country. The winds of globalization lead Brazil to open its economy in the last decade and the national policy for exploration and drilling (E&D) was altered. The government created a new agency dedicated to market control and energy policies, the National Agency for Oil and Biofuels (ANP). With the opening of the market, Petróleo Brasileiro S.A. - Petrobras, the Brazilian giant, lost the monopoly of the oil business. The P-50 Platform, with a capacity for 180,000 barrels per day, was imported based on REPETRO. When it began operating on April 21st, 2006, Brazil achieved self-sufficiency in oil production. The present work intends to estimate the main variables affecting the importation and exportation of goods and assets for E&D, showing how REPETRO works. We also intend to look at the results yielded by the REPETRO model for the development of the production of oil and gas in Brazil, as well as show proposals for its modernization. It has been established that even though since its implementation the REPETRO model has brought fiscal advantages through the reduction of tax costs relating to foreign commerce operations and the incentive of investments in the E&D area with the increase in the national oil production there remain the following limitations: lack of preparation and of knowledge of the model; lack of adjustement of the model to the reality of actitity of E&D of oil and gas; taxes over the pre-operational stage or investment in oil production stage; non-allowance of full access by the national industry to the supply of goods and products relating to the industrialization of goods allowed by REPETRO; other fiscal and administrative difficulties. We conclude that the REPETRO model is important for the development of the area of E&D of oil and gas, but not completely effective. It is necessary to change it or create a new model based on a new perspective of the customs treatment of the activities of exploration and production, minimizing administrative procedures relating to the operations of exportation and importation.

The effects of tax incentives for small firms on employment levels

This paper will examine the effects of tax incentives for small businesses on employment level evaluating a program with this purpose implemented in Brazil in the 1990s. We first develop a theoretical framework which guides both the de nition of the parameters of interest and their identi cation. Selection problems both into the treatment group and into the data sample are tackled by combining fixed effects methods and regression discontinuity design on alternative sub-samples of a longitudinal database of manufacturing firms. The results show that on the one hand the size composition of the treated fi rms may be changed due to the survival of some smaller firms that would have exited had it not been eligible to the program. On the other hand, the treated firms who do not depend on the program to survive do employ more workers.