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It is a well known result in the literature of principal-agent relationships that if the principal has the possibility to monitor the agent’s action at some cost, his monitoring probability is a decreasing function in the level of outcome. Moreover, the principal will reward the agent, if he is found to have complied with his interests. The purpose of this article is to show that these results depend crucially on the assumption that the principal can commit to his monitoring device at the time of contracting. In fact, we show that in a situation in which the principal is not able to commit to his investment in his monitoring technology, (1) the principal’s investigation intensity is increasing in the level of outcome and, (2) the agent’s reward is lower in the case investigation reveals the agent’s action than it is in the case in which investigation is uninformative.
The economic analysis of trade-secret protection has traditionally focused on the interests of companies to conceal information from competitors in order to gain a competitive advantage through trade-secret law. This has neglected cases in which the interest is not in concealing information from competitors, but from trading partners. We investigate the social efficiency effects of trade-secret protection in such cases. Many results from economic theory state that asymmetric information (and therefore also its legal protection) is socially undesirable since it leads to inefficient trade. At the same time, protecting private information might create incentives for socially desirable investments. We model this trade-off in a simple buyer-seller model and
nd that, indeed, trade-secret protection has ambiguous welfare effects. However, a simple, informationally undemanding rule, conditioning the applicability of legal protection on a minimum investment by the informed party to conceal the information, helps to apply trade-secret protection only when it increases welfare. This rationalizes important features of current legal practice.
Linear demand formulations for price competition in horizontally differentiated products are sometimes used to compare situations where additional varieties become available, e.g. due to market entry of new firms. We derive a consistent demand system to analyze such situations and highlight potential problems that can arise from an inconsistent approach.
Research on strategic agenda building has traditionally emphasized individual agency, thereby neglecting organizational context. Developing a contextual model of strategic agenda building, we address this limitation. Based on the evolutionary framework we show that an organization’s core elements, that is, strategy, culture, structure and top management team, heavily influence what issues are considered in organizational agenda building processes. Moreover, the strategic agenda building process, apart from the role of capabilities and cognition, provides an alternative explanation for path dependency.
Inflation targeting matters!
(2008)
Proponents of inflation targeting argue that such a strategy directly influences expectation formation processes in financial markets. This paper provides a novel test for the evidence that financial market expectations are formed differently under inflation targeting regimes. Using forecasts for the short-term interest rate, the inflation rate, and output growth for ten emerging markets in Latin-America, central and eastern Europe out of which six economies are inflation targeting economies we estimate expected Taylor-type rules. We find evidence for differences in the expectation formation process in the sense that the well-known Taylor principle fairly holds for countries which adopt an inflation targeting system, while for the other countries it does not.
"Ex-ante" Taylor rules
(2008)
This paper addresses the question whether financial market participants apply the framework of Taylor-type rules in their forecasts for the G7 countries. Therefore, we use the Consensus Economic Forecast poll providing us a unique data set of inflation, interest and growth rate forecasts for the time period 1989 - 2007. We provide evidence that Taylor-type rules frameworks are present in forecasts of financial markets. Thus, the paper, uses ex-ante data for the estimation of Taylor rules. This is novel, since so far only ex-post (revised) or real-time data have been applied.
Airlines frequently use code-share agreements allowing each other to market seats on flights operated by partner airlines. Regulation may allow code-share agreements with antitrust immunity (cooperative price setting), or without antitrust immunity, or not at all. I compare relative welfare effects of these regulation regimes for complementary airline networks. A crucial point is that such agreements are used to identify and price discriminate interline passengers. I find that interline passengers always benefit from code-share agreements while non-interline passengers are worse off. Furthermore, I show that the second effect questions the overall usefulness of code-share agreements from a welfare perspective.