Economics - Research Publications
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ItemRent seeking and judicial bias in weak legal systems( 2005-01)We model rent seeking in litigation in weak legal systems as a Tullochcontest in which litigators may seek to influence the court directly throughbribery as well as through the merit of the legal case that they bring. Ifthe local firm has a competitive advantage in influencing the court thenthere is a strategic asymmetry between the players: the local firm regardsexpenditure by the foreign firm as a strategic complement, but the for-eign firm regards local expenditure as a strategic substitute. This leads todifferent attitudes to commitment: the local firm would like to commit toa high level of effort to influence the court, the foreign firm to a low one.There is also an asymmetry in the commitment technology. It is not easyto commit to a low level of bribery, but it is feasible to commit to a highone: once a payment is made it cannot easily be recovered. We modelthe interaction as a two stage game: the players simultaneously committo a minimum level of effort, then they play a simultaneous Tulloch influ-ence game. We find a continuum of equilibria. An equilibrium selectionargument selects a unique equilibrium that is outcome equivalent to theStackelberg equilibrium of a simple Tulloch contest in which the local firmmoves first. We thus find an argument for endogenous timing: the localfirm moves first and secures a first mover advantage.
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ItemA general model of coexisting hidden action and hidden information( 2005-12)We consider a general agency model with coexisting hidden actionand hidden information. We prove that, with minor technical qualifications,independence of the production technology from the consumer type isnecessary and sufficient for welfare irrelevance of hidden action. Our resultclarifies and confirms the main conclusion drawn in the existing literatureon mixed models, that if the parties are risk neutral and the productiontechnology is not correlated with private information, then hidden action isirrelevant. However it makes it clear that even under risk neutrality this conclusiondoes not extend to the correlated case, which in practice occurs quitefrequently. We illustrate it with a realistic example where neither hiddenaction nor hidden information on their own lead to welfare losses, while theircombination does.Keywords and Phrases: hidden action, hidden information, Fredholmintegral equations of the first type.
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ItemMissing Environmental Markets and the Design of "Market Based Instruments"( 2003-12)Market failure is pervasive in the environmental sector, and naturally occurringmarkets are, in many cases, unlikely to produce socially optimal environmentaloutcomes. Despite this, the case for using market based instruments has recentlybecome popular in the Australian environmental policy debate. The purpose of thispaper is to survey some of the broad issues that arise in this debate. What do we meanby market based instruments, and what is the conceptual foundation for their use?What contribution can they make to Australian environmental policy? What needs tobe done to improve policy development and implementation, in order to use these newinstruments effectively?