We present a model of large-scale economic reforms, modeled on the transition process in Eastern Europe, with aggregate and individual uncertainty concerning the outcome of reforms. The government is assumed to choose the speed and sequencing of reforms. We compare big-bang strategies with gradualist reform packages. We show that (i) gradualist reform packages may be easier to get started, (ii) optimal sequencing of reforms should aim at creating constituencies for further reforms, and (iii) gradualism may generate a higher investment response because of a lower option value of waiting than would a big-bang approach.

The paper analyzes contracts as means of strategic commitment, that is, commitment against outside parties to the agreement. It considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry. It assumes away the possibility for the parties to precommit not to make Pareto-improving renegotiations of the agreement once entry has taken place. Under symmetric information, the contract is thus found to be useless for entry deterrence. If the incumbent firm or workers possess some private information, excessive post-entry production levels can however be sustained ex post, since output reductions may not be incentive compatible. While information asymmetries are usually welfare-decreasing when the goal is optimal risk sharing, they can thus be welfare-improving for the contracting parties when commitment against outsiders is the goal of the contract. The role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper, and the general relevance of strategic contractual commitment is discussed.

The paper analyzes the issue of commitment in Grossman and Hart's model of optimal labor contracts under asymmetric information about firm profitability. We extend their framework by allowing employment to vary over time, at equidistant intervals. When both parties can precommit ex ante not to renegotiate the contract, this replicates the Grossman-Hart outcome each subperiod. When precommitment is not possible, information revealed through the contract can create Pareto-improving renegotiation opportunities, and the issue of optimal information revelation arises. The paper analyzes the impact of ex post Pareto-improving renegotiations on the optimal contract.

Scholars and civil society have argued that competition erodes supplier morality. This paper establishes a robust irrelevance result, whereby intense market competition does not crowd out consequentialist ethics; it thereby issues a strong warning against the wholesale moral condemnation of markets and procompetitive institutions. Intense competition, while not altering the behavior of profitable suppliers, may, however, reduce the standards of highly ethical suppliers or not-for-profits, raising the potential need to protect the latter in the marketplace.

The paper develops a theory of costly communication in which the sender’s and receiver’s motivations and abilities endogenously determine the communication mode and the transfer of knowledge. Communication is modeled as a problem of moral hazard in teams, in which the sender and receiver select persuasion and message elaboration efforts. The model is shown to provide a rich set of insights concerning (i) the impact of incentive alignment on communication strategies, (ii) the relative influence and the complementarity/substitutability between issue‐relevant communication and cues (information that relates to the credibility of the sender rather than to the issue at stake), and (iii) the path dependency of communication.

The paper's main contribution is to provide a rational for advocacy. After observing that many organizations (corporations, judiciary, and the executive and legislative branches of government) use competition among enfranchised advocates of special interests to improve policy making, it argues that advocacy has two major benefits. First, the advocates' rewards closely track their pursuing several conflicting causes at one time. Second, advocacy enhances the integrity of decision making by creating strong incentives to appeal in case of an abusive decision. The paper also analyzes the costs of advocacy in terms of manipulation and garbling of information. It further shows that it may be costly for both the organization and interested parties themselves to let these parties plead their own causes instead of being represented. The paper concludes with two applications to comparative legal systems and to the organization of Congress and with suggestions for future research.

The paper uses a simple multitask career concern model in order to analyse the incentives of government agencies' officials. Incentives are impaired by the agency pursuing multiple missions. A lack of focus is even more problematic in the case of fuzzy missions, that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency. Consequently agencies pursuing multiple missions receive less autonomy. The paper further shows that professionalization creates a sense of mission for the agency, and that the specialization of officials raises their incentives. Last, the paper compares its predictions with the stylized facts on Government bureaucracies.

Many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns. This paper models career concerns through agents trying to manipulate the market assessment of their future productivity. The information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives. Improved information may either increase or reduce incentives. The impact of information provides a major distinction between the explicit and implicit incentives model. The paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal-agent model: sufficient statistic, impact of a Blackwell garbling, comparison of inclusive information structures.

This paper develops a general equilibrium model of technological adoption in an economy populated by 'satisficing' entrepreneurs whose main objective is to minimise innovative effort while keeping the firm alive. In such an economy, product market competition is shown to have a stimulating effect on growth. Indeed, by reducing the amount of slack a manager can afford while keeping his firm alive, competition, combined with the threat of liquidation acts as a disciplinary device which fosters technology adoption and therefore growth. We then investigate how the existence of financial markets affects the importance of this growth-enhancing effect of competition.(This abstract was borrowed from another version of this item.)

The authors present a model of large-scale economic reforms, modeled on the transition process in Eastern Europe, with aggregate and individual uncertainty concerning the outcome of reforms. The government is assumed to choose the speed and sequencing of reforms. The authors compare big-bang strategies with gradualist reform packages. They show that gradualist reform packages may be easier to get started, optimal sequencing of reforms should aim at creating constituencies for further reforms, and gradualism may generate a higher investment response because of a lower option value of waiting than would a big-bang approach. Copyright 1995 by American Economic Association.