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Investment Incentives (investment + incentive)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	81%

Selected Abstracts

Corporate Investment Incentives and Accounting-Based Debt Covenants,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2003
Alan V. S. Douglas
Abstract This paper studies the conditions under which accounting-based debt covenants increase firm value in a setting that incorporates the conflicting incentives of shareholders, bondholders, and managers. We construct a model in which debt is needed to discipline managerial investment decisions despite endogenous compensation contracts. We show that accounting covenants increase value when (1) debt serves as a credible commitment to penalize poor investment decisions; (2) the firm faces other (exogenous) sources of uncertainty that can make debt risky despite good investment decisions; and (3) accounting information serves as a contractible proxy for firm's economic performance. In these circumstances, accounting covenants ensure that shareholders do not offer compensation schemes that would encourage bondholder wealth expropriation when the debt becomes risky. A covenant specifying a required level of accounting performance provides additional bondholder power when performance is low. An accounting-based dividend covenant allows a disbursement to maintain investment incentives when performance is high without allowing dividend-based expropriation. The optimal covenants depend on the reliability of accounting information, and the interaction between accounting performance and the different incentive conflicts provides new insight into the empirical literature on accounting-based covenants. [source]

Spillovers, Investment Incentives and the Property Rights Theory of the Firm

THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 2 2004
David de Meza
This paper examines the property rights theory of the firm when a manager's relationship-specific investment can be partially appropriated by the owner of an asset even if cooperation breaks down. The investments of non owners may then be devalued, but are seldom wholly lost to the owner. With such spillovers, the outside-option principle can be incorporated into the Grossman-Hart-Moore framework without implying that ownership demotivates. Enriched predictions on the determinants of integration emerge. [source]

Investment Incentives created by the Montreal Protocol and Fda Policy on Albuterol

THE JOURNAL OF WORLD INTELLECTUAL PROPERTY, Issue 6 2003
Richard P. Rozek
First page of article [source]

Corporate Investment Incentives and Accounting-Based Debt Covenants,

Parallel trade, price discrimination, investment and price caps

ECONOMIC POLICY, Issue 44 2005
Stefan Szymanski
SUMMARY Parallel trade Parallel trade is the resale of a product by a wholesaler in a market other than that intended by the manufacturer. One of its consequences is that manufacturers may be prevented from price discriminating between markets that have different willingness to pay for the product in question. Some legal regimes give the manufacturer the right to prohibit parallel trade, but others do not. We examine the policy implications of parallel trade in a world in which manufacturers invest in product quality, and have the possibility to develop different quality variants of their goods. We also consider the possibility that the authorities may impose price caps and compulsory licensing (as commonly occurs for some pharmaceutical products). We find that taking investment incentives into account makes parallel trade much less likely to enhance overall welfare, which implies that parallel trade in products intensive in R&D, such as pharmaceuticals, is less desirable than in fields such as branded consumer products. We also find that, somewhat surprisingly, the threat of parallel trade does not induce firms to market inferior versions of their products in poor countries. However, parallel trade is less likely to be detrimental to welfare when there are price caps, since compulsory licensing can mitigate the major cost of parallel trade (namely a refusal to supply a poor country market). , Stefan Szymanski and Tommaso Valletti [source]

The Optimal Timing of Procurement Decisions and Patent Allocations,

INTERNATIONAL ECONOMIC REVIEW, Issue 4 2002
Motty Perry
In a patent race, social incentives and private incentives may sometimes coincide and at other times diverge , too many researchers remain in the race. If the social planner cannot determine what stage the researchers have achieved, this informational constraint can result in a socially suboptimal outcome. We construct a mechanism in which a planner exploits the researchers' private information to determine when and to whom to allocate rights to pursue the final prize. This mechanism does not require any payments and, therefore, will not distort earlier investment incentives. It is solvable by the iterative elimination of dominated strategies. [source]

Options for Electricity Transmission Regulation in Australia

THE AUSTRALIAN ECONOMIC REVIEW, Issue 2 2000
Joshua S. Gans
The pricing of access to electricity transmission networks in Australia is currently under review. Several options have been proposed including those based on nodal pricing and the assignment of transmission rights contracts. As most of the marginal costs of transmission are recovered through wholesale electricity prices we focus on the key issue of regulation and investment incentives. We find that current options are unlikely to be adequate in terms of encouraging socially optimal levels and timing of new transmission investment. As an alternative, we propose a regulatory scheme, based on a related idea by Sappington and Sibley that can overcome this problem. Our scheme can potentially generate first best results and is readily applicable given the current institutional structure of electricity markets in Australia. [source]

Unionisation structures and innovation incentives*

THE ECONOMIC JOURNAL, Issue 494 2004
Justus Haucap
This paper examines how different unionisation structures affect firms' innovation incentives and industry employment. We distinguish three modes of unionisation with increasing degree of centralisation: (1) ,decentralisation' where wages are determined independently at the firm-level, (2) ,coordination' where one industry union sets individual wages for all firms and (3) ,centralisation' where an industry union sets a uniform wage rate for all firms. While firms' investment incentives are largest under ,centralisation', investment incentives are non-monotone in the degree of centralisation: ,decentralisation' carries higher investment incentives than ,coordination'. Labour market policy can spur innovation by decentralising unionisation structures or through non-discrimination rules. [source]

Property Right and Organizational Characteristics of Producer-owned Firms and Organizational Trust

ANNALS OF PUBLIC AND COOPERATIVE ECONOMICS, Issue 4 2005
by Harvey S. James Jr.
Our results indicate trust is correlated with property right and organizational structures previously identified in the literature as significant for cooperative performance. We find that the norm of equality and the homogeneity of member interests are key correlates of organizational trust in producer-owned firms. We also find that some property right structures that improve organizational trust are counterproductive for member investment incentives. [source]

COLONIALISM AND LONG-RUN GROWTH IN AUSTRALIA: AN EXAMINATION OF INSTITUTIONAL CHANGE IN VICTORIA'S WATER SECTOR DURING THE NINETEENTH CENTURY

AUSTRALIAN ECONOMIC HISTORY REVIEW, Issue 3 2008
Edwyna Harris
colonialism; democracy; economic growth; institutional efficiency; water rights Institutional change in water rights in the nineteenth century Australian colony of Victoria raised institutional efficiency, which contributed to long-run economic growth. High-quality human capital and the extension of voting rights (franchise) were crucial for efficient institutional change in the water sector. Quality human capital (literacy) appeared to increase the rural population's awareness of the economic impact of the existing structure of water rights that may have constrained growth in the agricultural sector and reduced investment incentives. Extension of the franchise allowed the rural population to exert political pressure for enactment of change in water rights, which resulted in efficiency-enhancing policies and efficient institutions. The findings show these two factors were more important than Victoria's British colonial heritage in determining whether growth-enhancing institutional change took place. [source]