Separating real incentives and accountability

In experimental investigations of the effect of real incentives, accountability—the implicit or explicit expectation of a decision maker that she may have to justify her decisions in front of somebody else—is often confounded with the incentives themselves. This confounding of accountability with incentives makes causal attributions of any effects found problematic. We separate accountability and incentives, and find different effects. Accountability is found to reduce preference reversals between frames, for which incentives have no effect. Incentives on the other hand are found to reduce risk seeking for losses, where accountability has no effect. In a choice task between simple and compound events, accountability increases the preference for the simple event, while incentives have a weaker effect going in the opposite direction. It is thus shown that the confounding of accountability and incentives is relevant for studies on the effect of the latter, and that existing conclusions on the effect of incentives need to be reconsidered in light of this issue.

Monitoring and incentives of executives in risky firms : a test of the association with firm performance

This study investigates the relationship between a firm's risk and the effectiveness of the firm's corporate governance practices. Previous research investigating the relationship between corporate controls and firm performance has been mixed and often weak. Therefore, this study sets out to determine the efficiency of monitoring and incentive contracts given certain characteristics of the firm. That is, the study sets out to determine whether risk firms with higher monitoring and levels of incentives are associated with higher firm performance.
The results of this study of 282 firms demonstrate how the relationship between firm risk and performance is associated with the monitoring and incentive contracts used by these firms. In particular, the results of this study showed that the negative association between risk and firm performance is weakened when firms have stronger monitoring and incentive mechanisms. The particular contribution of this study is to show that the role of corporate governance variables infirm performance should be evaluated in the context of the firm's risk.

Tax incentives for foreign direct investment part II : Design considerations

Part I of this article concluded that tax incentives for foreign direct investment (FDI) have become increasingly common over the past 10 years or so, especially among developing countries, and that there is substantial evidence to support the proposition that tax considerations now play an important role in many investment decisions. Countries seeking to attract FDI often feel compelled to offer tax inducements that are at least as attractive as those offered by their neighbours or competitors. Countries do so at a cost, however, and that cost may be substantial. Governments are thus placed in a dilemma - can they afford to cut taxes in order to attract investment, and can they afford not to? The second part of this article assumes that countries, and especially most developing countries, will continue to feel obliged to provide tax incentives. The aim of this part therefore is to examine ways in which those incentives can be made more effective and more efficient, thereby reducing their cost to the host country.

Tax incentives for foreign direct investment part I : Recent trends and countertrends

According to the conventional wisdom, tax incentives for investment - in particular for foreign direct investment (FDI) - are not recommended. That is the view held almost universally by theorists and by the international bodies that advise on tax matters.' Tax incentives are bad in theory and bad in practice. They are bad in theory principally because they cause distortions: investment decisions are made that would not have been made without the inducement of special tax concessions. They are bad in practice, being both ineffective and inefficient. They are ineffective in that tax considerations are only rarely a major determinant in FDI decisions; they are inefficient because their cost, in terms of tax revenue foregone, often far exceeds any benefits they may produce. Other criticisms are also frequently levelled against tax incentives for FDI - they are inequitable (since they benefit some investors but not others), they are difficult to administer and open to abuse, and they lack transparency. Thus, it is not surprising that ''the standard advice given by institutions like the World Bank and the lMF to developing countries is to refrain from offering tax incentives to foreign investors".2 The purpose of this article is not to question that advice or to challenge the conventional wisdom - except in one respect. Recent evidence does suggest that tax considerations are an increasingly important factor in investment decisions and that special tax incentives have become substantially more effective as instruments for attracting FDI than they were 10 or 20 years ago.3 The first part of this article, published here, examines some of that evidence, reviews some recent trends in national policies towards FDI, attempts to suggest why investment incentives have become more important and more effective, and looks at the pressures that are exerted on governments, especially in developing countries, to compete for FDI by offering special incentives. The second part of the article, to be published in the Bulletin next month, assumes that many countries will continue to offer tax incentives to investors regardless of the best advice, and considers how incentives might be designed in order to increase their effectiveness and efficiency.

Mustering consent: government-sponsored virtual communities and the incentives for buy-in

The global trend to electronic service delivery (ESD) by governments can include the sponsorship of virtual communities that create value and become places where people, content, and communication come together around a need, enabling government agencies to extend their traditional service-provision role. Implementation is sometimes problematic, however, and understanding the implementation process is crucial to the success of such virtual communities. This paper reports a case study of a virtual community (an on-line export-documentation system) that links government and business. The study employs Bijker's framework to conceptualize the process of defining the technical standard and implementing the documentation system. Diffusion effects shaped the implementation and influenced participant responses, illustrating Bijker's argument that an artifact or product demonstrates interpretive flexibility before it stabilizes.

Teacher education for rural communities : a focus on 'incentives'

In Australia we face a national crisis in attracting and retaining teachers and other professionals with regard to rural areas. In response to this difficulty in ‘staffing the empty schoolhouse’ (Roberts 2004), the majority of state  education departments have initiated some form of rural incentive scheme designed to attract teachers to rural schools. This paper argues that such  schemes have little chance of success unless teachers taking up such  incentives have actually been prepared for teaching in nonmetropolitan   schools. Although many universities claim to prioritise rural and regional  education and community development as part of their vision statements, in reality relatively few education providers reflect this rhetoric in their practice  and only a handful have made direct links to such state-based schemes in  pre-service teacher education, or initiated their own rural incentives. A  preliminary study into pre-service preparation and rural incentive schemes, as part of a three-year ARC Discovery Grant, indicates that, nationally, the  majority of Faculties and Schools of Education have no easily accessible or  advertised incentive programs to encourage students to undertake a rural  practicum. Nor do many reflect rural education in their course-work.

This paper will introduce the ‘TERRAnova’ project, and then discuss findings of the preliminary work to date that has focussed on identifying incentives and their significance. Drawing on evidence collected from websites from   Australian Universities representing all pre-service teacher education programs in the nation, we argue that few Faculties and Schools appear to  see it necessary or desirable to provide students with links to information  about particular state-based rural funding opportunities. We show how some, either directly or indirectly, imply the importance of a rural practicum, and that  a few teacher education programs provide written advice to students who  are considering taking up a rural practicum. It is unclear, however, whether  follow-up advice is provided, so that the impact and effectiveness of such advice on students’ experiences and willingness to take rural education   seriously can be questioned. Our analysis so far indicates that it is the regional universities which are more likely to address rural education needs, and on this basis we question the metro-centricity of teacher education practice more broadly and suggest ways of expanding the options of teachers in their initial teaching appointments.

Motivational readiness for active commuting by university students : incentives and barriers

Issue addressed: Walking for transport can contribute significantly to health enhancing physical activity. We examined the associations of stages of motivational readiness for active transport with perceived barriers and incentives to walking to and from university among students. Methods: Mail-back surveys were completed by 781 students in a regional university in southeast Queensland. They identified one of eight options on motivational readiness for active commuting, which were then classified as: pre-contemplation; contemplation-preparation; or, action-maintenance. Open-ended questions were used to identify relevant barriers and incentives. Logistic regressions were used to examine the barriers and incentives that distinguished between those at different stages of motivational readiness. Results: Barriers most frequently reported were long travel distances, inconvenience and time constraints. Incentives most frequently reported were shorter travel distance, having more time, supportive infrastructure and better security. Those not considering active commuting (pre-contemplation) were significantly more likely to report shorter travel distance as an incentive compared to those in contemplation-preparation. Those in contemplation-preparation were significantly more likely to report lack of motivation, inadequate infrastructure, shorter travel distance and inconvenience as barriers; and, having more time, supportive infrastructure, social support and incentive programs as encouragement. Conclusions: Different barriers and incentives to walking to or from university exist for students in the different stages of motivational readiness for active commuting. Interventions targeted specifically to stage of motivational readiness may be potentially helpful in increasing activity levels, through active transport.

Financial inclusion and financial integrity : aligned incentives?

A large percentage of the population in developing countries saves, remits money or accesses credit using informal financial services. Financial inclusion initiatives aim to expand the reach and attractiveness of formal financial services. Recently, the Financial Action Task Force embraced financial inclusion as complementary to anti-money laundering and counter-terrorist financing as it enhances financial transparency. Analyzing preliminary data from FinScope surveys on eight African countries we argue that an increase in access to formal services does not automatically imply an immediate and corresponding reduction of usage of informal services, especially as many individuals use informal and formal services in parallel. We consider customer trade-offs regarding the use of formal and informal services especially considering transparency as a potential disincentive to use formal services. The alignment of financial inclusion and integrity will fail where customers are apprehensive about increased transparency.

Managerial share ownership and discretionary accruals in Australia : do independent and executive directors have different incentives?

We examine the relation between managerial share ownership (MSO) and discretionary accruals in Australia. We find a positive relation between MSO and discretionary accruals up to a certain level of MSO followed by a negative relation (inverse U-shaped). We suggest that these unique results are a result of certain Australian institutional features that are markedly different to those in the US and the UK and imply that the ownership-discretionary accruals relation is context specific with the wider corporate governance systems influencing the theorised incentive effects. We also posit that executive directors and independent directors have different ownership-discretionary accruals incentives and report results consistent with this proposition.

Managerial share ownership and operating performance : do independent and executive directors have different incentives?

We investigate the relationship between managerial share ownership (MSO) and earnings as a measure of operating performance in Australia. To mitigate potential earnings management, we also use discretionary accrual adjusted earnings as an alternative measure of performance. We document a negative relation between MSO and performance followed by a positive relation. We suggest that these unique results are an artefact of certain Australian institutional features and imply that the ownership–performance relation is context-specific, with the wider corporate governance systems influencing the theorised incentive effects. We also posit that executive directors and independent directors have different ownership–performance incentives. Our results are consistent with this proposition and suggest that independent directors may be immune to the theorised incentive alignment or entrenchment effects associated with share ownership.