A theory of incentives in procurement and regulation by Jean-Jacques Laffont

By Jean-Jacques Laffont

Extra then only a textbook, A idea of Incentives in Procurement and Regulation will advisor economists' examine on legislation for future years. It makes a tricky and massive literature of the hot regulatory economics obtainable to the common graduate pupil, whereas supplying insights into the theoretical principles and stratagems no longer to be had somewhere else. in response to their pathbreaking paintings within the software of principal-agent thought to questions of legislation, Laffont and Tirole improve a man-made procedure, with a specific, although no longer unique, specialise in the rules of common monopolies corresponding to army contractors, software businesses, and transportation experts. The book's transparent and logical association starts off with an creation that summarizes regulatory practices, recounts the heritage of suggestion that ended in the emergence of the recent regulatory economics, units up the elemental constitution of the version, and previews the commercial questions tackled within the subsequent seventeen chapters. The constitution of the version constructed within the introductory bankruptcy continues to be an identical all through next chapters, making sure either balance and consistency. The concluding bankruptcy discusses vital components for destiny paintings in regulatory economics. every one bankruptcy opens with a dialogue of the industrial matters, a casual description of the acceptable version, and an summary of the consequences and instinct. It then develops the formal research, together with adequate motives for people with little education in details economics or video game conception. Bibliographic notes supply a old viewpoint of advancements within the zone and an outline of complementary examine. certain proofs are given of all significant conclusions, making the publication useful as a resource of recent learn recommendations. there's a huge set of evaluate difficulties on the finish of the e-book. Jean-Jacques Laffont is Professor of Economics at Université des Sciences Sociales in Toulouse the place Jean Tirole is clinical Director on the Institut d'Economié Industrielle.

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If , any price pτ above e yields excess capacity at τ, implying a marginal cost of c and therefore a price above marginal cost. There often  < previous page page_22 next page > If you like this book, buy it! < previous page page_23 next page > Page 23 are several peak periods (periods in T2). In those periods price is a priori indeterminate between c and c0 + c, and it is chosen so as to equate supply K and demand Dτ(pτ); hence condition (2) prevails. Condition (3) is equivalent to the balanced budget, which results from A more natural way of viewing condition (3) would be from the perspective of optimal investment: One more unit of capacity accumulation costs c0 and allows one more unit of consumption, valued pτ at date τ, in each period where the capacity constraint binds.

Another example, still in Germany, is given by the use of cost-plus-proportional fee contracts for German defense contractors (see Reichelstein 1990). 18. 36 Scherer (1964, p. 142); the rest involves hybrid contracts. 37 19. For instance, Scherer (1964, p. " Â < previous page next page > page_12 If you like this book, buy it! 20 Later in this book we will relate the theory to these observations about the low power of actual incentive schemes and about the differences in power along the life cycle and across technologies.

S. DOD were sometimes proportional to realized costs or to costs initially estimated by the firm. Little knowledge of incentive theory is required to understand why such schemes gave rise to perverse incentives: The firm is rewarded rather than penalized for raising its costs. A more current example of such perverse incentives is found in Germany, where pharmacists make more money, the more expensive the drugs they sell. , drugs purchased cheaply in one country and sold at a higher price in another) have a low market share in Germany (The Economist, July 6, 1991, p.

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