Knowledge that Transforms

A social exchange approach to voluntary cooperation is developed on the assumption that voluntary cooperative behavior is motivated by social approval, which is conceptualized as an emotional activity. The associated unique Nash equilibrium may have attractive welfare properties and provides an understanding of spontaneous norm emergence. Furthermore, the opening of a market or government intervention for the collective good is shown to affect voluntary cooperation negatively.

One question development economists are especially interested in, but so far left unanswered, is: how would the societal income distribution be affected by introducing a family-planning program to reduce the reproduction rate of the poor, which is usually high in developing countries? The purpose of this paper is to search for analytical answers to this question. We are able to make definite comparisons about some class of inequality measures of the steady-state societal income distributions, and these comparisons provide strong theoretical support in favor of the above-mentioned family-planning program.

It is often argued that efficiency considerations require society to freely permit insider trading. In this article, an opposing efficiency argument is formalized. The model incorporates an investment stage followed by a trading stage. If "outsiders" expect "insiders" to take advantage of them in trading, outsiders will reduce their investment. The insiders' loss from this diminished investor confidence may more than offset their trading gains. Consequently, a prohibition on insider trading may effect a Pareto improvement. Insiders are made better off if they can precommit not to trade on their privileged information; government regulation accomplishes exactly this.

Hierarchical organizations often perform poorly in inducing the adoption of innovations. We examine a principal offering contracts to agents who make unobservable effort and adoption-of-innovation choices (yielding moral hazard), who occupy jobs of differing, unobserved productivities (yielding adverse selection), and who engage in a repeated relationship with the principal (causing a ratchet effect to arise). Increasing the rate of adoption of an innovation in such an organization causes the incentive costs of adoption to increase at an increasing rate. Relatively low rates of adoption may then be a response to the prohibitive incentive costs of higher adoption rates.

The paper analyzes the optimal structure of government debt in a stochastic environment. In a model with distortionary taxes, the government should smooth tax rates over states of nature as well as over time. Government liabilities should be structured to hedge against macroeconomic shocks that affect the government budget. The optimal structure of government liabilities generally includes some "risky" securities which are state-contingent in real terms. The empirical part of the paper tests for tax smoothing and then studies state contingencies implemented by some specific securities including nominal debt, long-term bonds, equity, and foreign-currency debt.