To fight or not to fight?

Public Choice - This paper considers the players' behaviour in an asymmetric two-player contest. When do they decide to “struggle” and when to “subjugate”? Analysing...     

ROAD GRANTS, INTERGOVERNMENTAL COMPETITION AND THE BENEFITS OF DUPLICATION

Abstract: This article argues that direct commonwealth involvement in road funding and road policy has benefited the states and local government. Although inefficiencies and friction are evident as a result of joint funding, the benefits of multiple accountability outweigh the costs. A competitive dynamic underlies the involvement of all three levels of government, producing outcomes that no single government dominates, but which reflect in part the responses of each to their respective constituencies. The commonwealth has been driven to more intrusive forms of intervention as existing controls failed to achieve the commonwealth's objectives, and to expanding its financial contributions to counter the diversion of funds by state governments. Its commitment to funding the road program is likely to be highest when its specific purpose grants can be identified closely with the provision of roads in particular regions and localities. In sum, joint funding of the road program produces a system that is responsive to competing conceptions and interests, and the commonwealth's "voluntary vacancy" from all but "national" roads is on balance likely to be detrimental to the program.     

Medicaid's Role in Moves Toward Universal Health Care

This paper considers the problems currently facing the Medical Assistance (Medicaid) program in light of the major problems confronting the American health care system. Actual and proposed Medicaid reforms are reviewed, their merits noted and their shortcomings detailed. It is argued that substantial Medicaid reform can take place only in the context of radical reform of the entire U.S. health care system. Similarly, Medicaid should be incorporated into any plan aimed at providing universal health care coverage.     

More on moral hazard in organizations: Reply

The paper by Thomas Hammond and Gary Miller is an insightful comment on the relevance of budget-breaking incentive schemes to real world organizations. They have made a valuable contribution in considering this line of research within a broader context. Nonetheless, they have not established the invalidity of my theoretical arguments. Therefore, my basic point still holds: that is, theoretically it is possible to show that a bonus-penalty incentive scheme of the sort proposed by Holmström is feasible, despite the principal's incentive to cheat. Regardless, all of this debate may beg the question, since compensation arrangements observed in the real world are rarely of the bonus-penalty type. Linear incentives are far more common, and many compensation schemes do not appear to incorporate optimal incentives. At this point we need more empirical research on the determinants of incentives in organizations. In order to make further advances in this area, a better understanding of the incentive mechanisms actually used in organizations is required.Thanks are due to Richard Frank for helpful comments. The usual caveat applies.     

THE TRIUMPH OF ECONOMIC RATIONALISM: THE TREASURY AND THE MARKET ECONOMY

The 1980s have seen the triumph of economic rationalism. Greater efficiency has become a sacred goal. Increased competition and the unlocking of market forces, we are told, are the key means to obtain it. Proponents of economic rationalism insist that the public sector is riddled with inefficiencies. The private sector, by contrast, is self-evidently superior. To the extent that the private sector often operates less than optimally, a major reason is the plethora of perverse governmental regulations which hamper its efficiency. Despite the problems, the public sector needs to model itself wherever possible on the private. And where public sector activities can be or are being done in the private sector, then the public sector should surrender such activities. The inevitable result will be an increase in net economic welfare: the economy will become more dynamic and scarce resources will be allocated more efficiently. Such is the rhetoric of the economic rationalists.     

The presence of moral hazard in budget breaking

It is possible that a budget breaking incentive scheme may not solve the problem of moral hazard in team production, due to an incentive for a principal to cheat on such an agreement. This is a problem common to incentive schemes which result in an unbalanced budget, which include among them processes designed to reveal demand for public goods. This paper shows the conditions under which cheating is possible, and designs a payment scheme for the principal which is free of any cheating incentive.     

The Roles a “Civil Society” Can Play in International Dispute Resolution

Since its very inception, the United Nations has worked with NGOs (non-governmental organizations) or, to use the contemporary term, a "civil society." In fact, every single U.N. department now has an NGO liaison. As the world becomes increasingly smaller, the role and influence of NGOs will continue to be significant in international negotiations.