The new Basle Accord, internal ratings, and the incentives of banks

The Basle Accord of 1988 regulates how much equity banks must set aside as a cushion against the default risk. In its 1999 proposal for a new Accord, the Basle Committee seeks to introduce different equity ratios for customers of different risk levels. The proposal strongly favors external ratings as a means of risk determination. German banks, on the other hand, demand acknowledgement of their internal ratings.This paper shows that, even if assumed that banks have better diagnosis skill than external rating agencies, external ratings are better able to implement the goals of the Basle Committee than internal ratings. This is due to a lack of incentives to truthfully reveal their diagnosis results. These incentives may be provided by supervision of internal ratings, even if imperfect and only occasional. However, this requires that a fine be imposed if the supervising authority comes to a result different from the internal rating assigned by the bank.     

The Future of Social Policy in Scotland: Will Further Devolved Powers Lead to Better Social Policies for Disabled People?

Scotland has laid claim to being ‘different’ from the rest of the UK with regards to disability policy. This article examines the evidence for that with regard to long‐term and social care, and discusses the possibilities opened up by the devolution of disability benefits. It asks whether Scotland will demonstrate policy divergence from the rest of the UK, and whether that is likely to be beneficial for disabled people. It argues that Scotland has the potential to create better social policies for disabled people, but faces significant challenges in doing so.     

Efficient compensation for employees' inventions

We analyze a legal reform concerning employees' inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives even if litigation cost is zero. However, the new law (concerning university employees) and the pending reform proposal (concerning other employees) also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government's goal, an increase in the number of patents, is likely to be missed. A part of this research was done while I enjoyed the hospitality of the University of California in Santa Barbara (Economics Department) and Berkeley (Law School). Financial aid by the Thyssen Stiftung is gratefully acknowledged. classification K 12 . J 33 . C 72     

Judicial detection skill and contractual compliance

Mutually beneficial agreements might fail if the parties fear contractual opportunism. Litigation is supposed to be a remedy, but it gives scope for another kind of opportunistic behavior, which we call litigational opportunism: Even known that the opponent has fulfilled his obligations, a party might bring suit. We introduce a new concept, called judicial detection skill, and show that positive judicial detection skill is a prerequisite if the court system is to deter opportunistic suits and simultaneously induce bilateral contractual compliance. The traditional literature on litigation either assumes judges with zero detection skill, or simply neglects that opportunistic suits might be successful. We prove that those models are unable to provide an answer to the question of how to prevent both types of opportunism simultaneously.     

The Role of Group Identity and Personality Domains as Indicators of Self-Reported Delinquency

We investigated the impact of personality factors and group identity factors on self-reported delinquency among high school students. Respondents were 420 Australian youth with a mean age of 15.22 r yrs. The sample comprised 224 males and 196 females. The strongest predictors of delinquency among both males and females were Eysenck's Psychoticism factor and an identity with so-called "rebels". In addition, Extraversion (males) and low self-reported academic achievement (females) were also found to be important factors. It was further concluded that Psychoticism, Agreeableness and Conscientiousness have little in common in their prediction of delinquency. The results are discussed with reference to previous research on the role of personality and group identity factors, and some suggestions for future research are also made.     

Government Incentives when Pollution Permits are Durable Goods

This paper analyzes the incentive effects of pollution taxesversus pollution permits for a budget oriented Government.Pollution permits are analyzed as durable goods, and apollution tax is seen as being equivalent to leasing outpollution permits. First, a general model is developed, andthen four stylized types of Government are discussed (abenevolent dictator, a pure Leviathan, a green and a business-friendly Government). We show that all types of Governmentprefer a pollution tax system, but this regime is notnecessarily the best in social welfare terms. The intuition isthat a tax or leasing system makes it easier for theGovernment to credibly commit to the budget maximizing levelof pollution permits which is good for Government revenues,but not necessarily for social welfare.