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In recent years, the investment-arbitration and anti-corruption regimes have been in tension. Investment tribunals have jurisdiction to arbitrate disputes between investors and host states under international treaties that provide substantive protections for private investments. But these tribunals will typically decline to exercise jurisdiction over a dispute if the host state asserts that corruption tainted the investment. When tribunals close their doors to ag-grieved investors, tribunals increase the risks for investors and thus raise the cost of international investment. At the same time, the decision to decline jurisdiction creates a perverse incentive for host states to turn a blind eye to corruption. Together, these distorted incentives hinder developmental goals and undermine the fight against corruption. To correct these problems, this Note proposes a framework to guide arbitral tribunals when faced with a corruption-tainted dispute. Specifically, this Note argues that when both parties participate in corruption, arbitral tribunals should invoke equitable estoppel to accept jurisdiction over the dispute. When considering the corruption claims, investment tribunals should use a contributory-fault approach that evaluates each party’s role in the corrupt act to determine the final award. This framework not only helps align the investment-arbitration and anticorruption regimes but also advances developmental objectives.

Analyzing data from a large, nationally distributed group of Japanese hospitals, we found a dramatic decline in both inpatient and outpatient volumes over the three waves of the COVID- 19 pandemic in Japan from February-December 2020. We identified three key reasons for this fall in patient demand. First, COVID-19-related hygiene measures and behavioral changes significantly reduced non-COVID-19 infectious diseases. Second, consultations relating to chronic diseases fell sharply. Third, certain medical investigations and interventions were postponed or cancelled. Despite the drop in hospital attendances and admissions, COVID-19 is said to have brought the Japanese health care system to the brink of collapse. In this context, we explore longstanding systematic issues, finding that Japans abundant supply of beds and current payment system may have introduced a perverse incentive to overprovide services, creating a mismatch between patient needs and the supply of health care resources. Poor coordination among health care providers and the highly decentralized governance of the health care system have also contributed to the crisis. In order to ensure the long-term sustainability of the Japanese health care system beyond COVID-19, it is essential to promote specialization and differentiation of medical functions among hospitals, to strengthen governance, and to introduce appropriate payment reform. O_TEXTBOXHighlights{blacksquare} Patient volumes in Japanese hospitals fell sharply due to the COVID-19 pandemic. {blacksquare}Behavioral changes and appointment cancellations contributed to the decline. {blacksquare}Japans health system reached breaking point due to longstanding systematic issues. {blacksquare}There is a mismatch between patient needs and the supply of health care resources. {blacksquare}Payment reform and stronger governance are needed to future-proof the health system. C_TEXTBOX

With the complexity and interdependency of modern software sharply rising, the impact of security vulnerabilities and thus the value of broadly available patches has increased drastically. Despite this, it is unclear if the current landscape supports the same level of patch discoverability as that of vulnerabilities --- raising questions about whether patches are simply scare or if they are just hard to find (i.e., are there a lot of "secret patches"), and, equally important, what kind of patches are they (e.g., are they micropatchable). We seek to assess the current state of patching by analyzing patches for a four-month period of recent Common Vulnerabilities and Exposures (CVEs). At first glance, the state of patching seems abysmal --- only one-fourth of CVEs have a labelled patch on the National Vulnerability Database (NVD). However, by searching for indicators on other popular security trackers (e.g., Debian's), we were able to find a lot more ``secret patches'', but the ratio of patched CVEs plateaued around fifty percent. Examining the discovered patches, we noticed that many were version updates, and less than one-tenth had machine accessible source-code micropatches. Using a custom tool that leverages contemporary version control, we were able to test the feasibility of automatically applying these micropatches to older versions of the software and found that approximately two-thirds of the patches can be applied to at least one old version. The failure cases were mostly due to lax practices pertaining to security fixes and general software development (e.g., releasing the fix along with other extraneous features). Reflecting on our investigations, we surmise that between existence, discoverability, and versatility of security patches, existence and discoverability are the bigger problems. As to why this is the case, we find that the answer may lie in the perverse incentive structures of the industry. We conclude with possible remediations and hope that our work at least raises public awareness of the current state of patching and encourages future work to improve the situation.

In a risk transfer and shifting financial systems, an interest rate based debt contract is an “impossible contract,” since, under the axioms of conventional economics, the borrower has an incentive not to repay the loan. Such impossible contract is made possible by creating a virtual world of certainty through mechanisms such as collateral requirements and an edifice of legal, administrative, policy incentive mechanisms that include positive and negative enforcements that protect the creditor. The society has to bear huge costs to make them possible. Risk sharing has the potential to enhance efficiency as each party to contracts has “skin-in-the-game”, thus eliminating or minimizing the principal-agent problem. Participants in a contract of an economic undertaking can choose higher risk-higher return projects thus increase the efficiency and productivity of the system. It can also create a reciprocal and trusting environment that strengthens social cohesion, promotes social mobility and reduces income inequality without perverse incentive effects.

Many developing countries have experienced large-scale capital flight at the same time as they were borrowing from external creditors. The dual phenomena of external debt and capital flight raise important questions. Why does capital flee developing countries even as foreign creditors continue to lend to them? Is there a link between inflows of borrowed money and outflows of capital flight? If so, what is the connection? Simultaneous external borrowing and capital flight reflect perverse incentive structures on both sides of the transactions that foster behaviour that is harmful from the standpoint of the borrowing country and, if the borrower ultimately cannot repay, from the standpoint of creditor institutions as well. Strategies to address the problem of capital flight must include mechanisms to curtail corruption, recover stolen assets, relieve the burdens of external debts, and promote transparency and due diligence in banks and other financial institutions. If well designed and rigorously implemented, such initiatives can curtail malfeasance, improve incentive structures, and contribute to a more efficient and equitable international financial architecture.

Voluntary peer review is generally provided by researchers as a duty or service to their disciplines. They commit their expertise, knowledge and time freely without expecting rewards or compensation. Peer review can be perceived as a reciprocal mission that aims to safeguard the quality of publications by helping authors improve their manuscripts. While voluntary peer review adds value to research, rewarding the quantity or the volume of peer review is likely to lure academics into providing poor quality peer review. Consequently, the quantity of peer review may increase, but at the expense of quality, which may lead to unintended consequences and might negatively affect the quality of biomedical publications. This paper aims to present evidence that while voluntary peer review may aid researchers, pressurized peer review may create a perverse incentive that negatively affects the integrity of the biomedical research record. We closely examine one of the proposed models for rewarding peer review based on the quantity of peer review reports. This article also argues that peer review should remain a voluntary mission, and should not be prompted by the need to attain tenure or promotion.

The research findings presented in this volume demonstrate that any meaningful engagement with resilience building in Southeast Asia’s small and mid-sized cities needs to start from a vulnerability perspective if it is to bring about sustainable and equitable risk reduction. Urbanization and other socio economic as well as political transitions in the region have in many instances aggravated rather than mitigated the exposure and susceptibility of residents in these cities to disasters and climate-related shocks. In order to overcome these vulnerability effects, four governance issues need to be addressed. First, the findings show that unequal power relations and perverse incentive structures often shape development and risk-reduction decisions in ways that allocate benefits to elites and emerging middle classes while disproportionately allocating ecological and social costs to the urban poor and marginalized, such as through evictions. Second, local governments often have limited accountability to reduce climate risks of their economically and politically marginalized constituents. Third, incomplete decentralization has resulted in national governments giving the responsibility for climate risk reduction to local governments, but often without sufficient resources. Fourth, the inherent tension in planning policies and politics between the short-term pressures for development and growth, especially in second-tier cities, and the long-term requirements for disaster risk reduction and climate change adaptation has weakened the implementation of climate risks policies. Therefore, we conclude with a call for future research on urban climate resilience to address these governance challenges.

Quality metrics have a long history in the field of kidney transplantation. These metrics are highly visible, with significant ramifications to transplantation centers based on their use in regulatory review and other stakeholders. In this perspective, we review the history of quality metrics in this field, discuss the perceptions and empirical evidence evaluating the impact of metrics on care delivery, and summarize the current landscape of quality oversight. Based on the research findings and opinions of the transplantation community, we suggest that significant reforms are needed for the evaluation of quality in the field based on more appropriately aligning metrics with optimizing patient outcomes. Moreover, there are vast potential uses of the current data that should be emphasized in a learning environment rather than a highly punitive system. In our view, these reforms would enhance care delivery, improve patient care, and better align incentives for providers of care that treat transplantation patients.

This article develops a dynamic model of entry and exit to analyze quality choice and oligopoly market structure in the nursing home industry. I find significant heterogeneity in the competitive effects across market structures: Firms of similar quality levels compete more strongly than dissimilar firms. Sunken entry costs are extremely large, and quality adjustment behavior is governed by significant fixed adjustment costs. A proposal to eliminate low-quality nursing homes is found to cause a large supply-side shortage, and another proposal to lower entry costs has offered a perverse incentive to provide low quality of care

The scientific endeavor pivots on the accurate reporting of experimental and theoretical findings, and consequently scientific publication is immensely important. As the number of active scientists continues to increase, there is concern that rewarding scientists chiefly on publication creates a perverse incentive where careless and fraudulent research can thrive. This is compounded by the predisposition of top-tier journals towards novel or positive findings rather than negative results or investigations that merely confirm a null hypothesis, despite their intrinsic value, potentially compounding a reproducibility crisis in several fields. This is a serious problem for both science and public trust in scientific findings. To date, there has been comparatively little mathematical modeling on the factors that influence science trustworthiness, despite the importance of quantifying the problem. In this work, we present a simple phenomenological model with cohorts of diligent, careless and unethical scientists with funding allocated based on published outputs. The results of this analysis suggest that trustworthiness of published science in a given field is strongly influenced by the false positive rate and the pressures from journals for positive results, and that decreasing available funding has negative consequences for the resulting trustworthiness. We also examine strategies to combat propagation of irreproducible science, including increasing fraud detection and awarding diligence, discussing the implications of these findings.

Falling barriers to credit access have had some unexpected consequences. In the developing world, there is little evidence that the rapid expansion of microfinance has had a significant impact on poverty, but is instead increasingly associated with problematic multiple borrowing at high interest rates and high levels of debt and default. We develop a model that rationalizes these outcomes when the institutions supporting financial contracting are weak -- if entrepreneurs cannot commit to exclusive borrowing from a single lender, expanding financial access by introducing multiple sources of credit may severely backfire. Capital allocation can be distorted away from the most productive uses, generating a perverse incentive for micro-entrepreneurs to choose inefficient and limited-growth endeavors. These problems are exacerbated when borrowers have access to more lenders, providing an explanation of why increased access to finance does not always improve outcomes. Optimal policy in the model closely mirrors what was proposed and adopted following the recent microfinance repayment crisis in Andhra Pradesh, India.

This research attempts to provide a better understanding about the role of the European Union Emission Trading System (EU-ETS) as private environmental investment promoter. It explores the macroeconomic behavior of private environmental investments before and after the implementation of EU-ETS in 2005 until the end of Phase I of the mechanism. Also, private environmental investments are contrasted with variables like: economic growth, interest rates, and energy prices (gas and electricity) in order to quantify the impact of these on private environmental decisions and evaluate the level of impact (slow, moderate and strong) of all these variables together with the EUETS implementation on private environmental investment decisions. For this purpose it is used a statistical approach through multiple linear regressions for the cases of Germany, Spain, France and The Netherlands and a single panel estimation with data information of all the countries mentioned. The results show that the signature of Kyoto Protocol in year 1997 - as a preamble of EU-ETS - provided a perverse incentive on private environmental investments until 2004. During Phase I (2005 – 2007) of the EU-ETS mechanism, private environmental investments showed an important positive recovery that was not enough to reach pre Kyoto Protocol levels. Finally, it is analyzed the investment in developing countries through CDM projects. Instituto de Investigaciones Socio - Economicas; IISEC

Process-driven performance targets were used in the English NHS in the late 1990s and early 2000's to drive improvement. There have been clear successes, and well-documented instances of perverse incentives leading to negative behaviours, such as data manipulation and resource diversion. Recently, policy in England has moved away from targets, focusing more on locally-negotiated metrics. The literature was searched for relevant materials, from a broad social science perspective. Probative work from all disciplines was brought together to give an overview of targets, perverse incentives and the routes to minimising such unintended consequences, and to enable conclusions to be drawn. The consequences of targets are well-documented, but less well understood. Routes are available to mitigate the potential for perverse incentives, within the design and interpretation phases and also in terms of sanctions for gamers. These have largely not been followed, rather the political fashion has moved away from targets altogether. It is hypothesised that this will lead to an increase in waiting times, although this has yet to fully manifest. While targets may swing in and out of fashion, the psychological drivers remain: wherever a measure is imposed that carries with it a consequence, there will be a perverse incentive. Process-driven targets in healthcare have supporters and critics. Their heyday in the English National Health Service was primarily during the New Labour Government of the late 1990s and early 2000s, with the combination of process-heavy targets and high levels of incentive leading to not only high levels of compliance and improvement, but also well-documented instances of gaming behaviour. Proponents of the use of targets point to notable successes in the reduction of waiting times where key targets were introduced (such as ambulance Category A (life-threatening cases) response times). Opponents raise a number of issues around the negative behaviours that targets give rise to, for example the diversion of resource to the measured area and the distortion of clinical priorities. Recently, it would appear that health policy has moved away from targets as a measurement system; in this paper we argue that if it is hoped that this will prevent perverse incentives and gaming arising, then this is unlikely to succeed: wherever performance or quality are measured, then there will be an incentive to manipulate the data or circumstances to give the appearance of compliance. We conclude with a consideration of the strategies available to reduce or mitigate gaming through how measures are designed, interpreted and how gaming is perceived.

The self-correcting nature of psychological and educational science has been seriously questioned. Recent special issues of Perspectives on Psychological Science and Psychology of Aesthetics, Creativity, and the Arts have roundly condemned current organizational models of research and dissemination and have criticized the perverse incentive structure that tempts researchers into generating and publishing false positive findings. At the same time, replications are rarely attempted, allowing untruths to persist in the literature unchallenged. In this article, the editors of the Journal of Advanced Academics consider this situation and announce new policies for quantitative submissions. They are (a) an explicit call for replication studies; (b) new instructions directing reviewers to base their evaluation of a study’s merit on the quality of the research design, execution, and written description, rather than on the statistical significance of its results; and (c) an invitation to omit statistical hypothesis tests in favor of reporting effect sizes and their confidence limits.

DOI 10.1515/cjpp-2013-0010 Calif. J. Politics Policy 2013; 5(2): 139–145 Franklin E. Zimring* The Death Penalty’s Dirty Little Secret Abstract: Why is it that the rate of executions per 100 death sentences is vastly higher in states like Texas than in places like California? This essay argues that part of the answer is that states must provide capital defendants who are indi- gent (virtually all of them) with a legal defense, but providing less skilled lawyers and inadequate resources creates a fast track to execution while better lawyers and more resources can lead to more delay. This creates a “perverse incentive” to restrict effective defenses which can only be restrained if federal courts aggres- sively enforce the effectiveness of state-provided defenses. The data suggests that the current system does not provide sufficient protections. Keywords: capital punishment; defense lawyers; effective assistance of counsel; execution risk; perverse incentive *Corresponding author: Franklin E. Zimring, William G. Simon Professor of Law and Wolfen Distinguished Scholar, School of Law, University of California, 383 Boalt Hall, Berkeley, CA 94720-7200, USA, Tel.: +510-642-0854, Fax: +510-643-2698, e-mail: fzimring@law.berkeley.edu 1 Introduction The recent history of American capital punishment includes one “natural experi- ment” in the variation of state experience that warns us of dangerous dysfunc- tions in the legal controls of state killing. On January 1, 1995, the two largest states in the federal union had almost exactly the same number of prisoners under what the scorekeepers in such matters call “active sentence of death.” As Figure 1 shows, Texas had a total of 391 condemned prisoners and California had 386. Figure 1 also shows that the risk of execution over the 6 years beginning in 1995 was very different for the 391 Texas condemned. From January 1, 1995 to December 31, 2000, Texas executed a total of 154 persons while California executed a total of six persons, a ratio of about 26 to 1. Assuming that all of the 1995–2000 executions were drawn from the 1995 death row residents, the odds of a Texas condemned prisoner being executed over the 6 years after the beginning of 1995 were > 1 in 3. The chance of a California condemned prisoner being executed in that same period was < 1 in 64. Why was a California condemned prisoner more than 20

James Buchanan and Gordon Tullock’s The Calculus of Consent offers a contractarian case for substantial limits on government powers. How could such limits be justified if public political deliberation allowed majorities to select the best policies? My goal in this paper is to show that there is no fundamental inconsistency between the ideal of deliberative democracy and the normative assumptions of The Calculus of Consent. In doing so, I will also show how the line of argument deployed in The Calculus of Consent both inspired my own work on deliberative democracy and is reinforced by it. The remedy for our political maladies is not so much better politicians but rather better constitutions—that is a major moral of The Calculus of Consent. Politicians predictably will fail to implement mutually advantageous policies unless the structure of incentives under which politicians behave—the constitution—undergoes significant changes. Indeed, Buchanan and Tullock’s book naturally can be taken to suggest that no widespread ideal of justice can be implemented under current institutional constraints. If, for instance, decisions on redistributive taxation and regulation of economic activities are made by majority vote, then we should expect legislation to be sensitive to competitive advantages in rent seeking, which depend on organizational costs, membership (concentrated interests tend to prevail over the dispersed interests of taxpayers and consumers), and money—that is, factors that do not seem to track any attractive ideal of justice.1 A constitutional change is needed to alter the perverse incentive structure that induces politicians and other politically relevant actors to fall short of those ideals. Other thinkers offer a very different treatment for curing our political maladies. They argue that we could have better policies if citizens participated more in politics, especially

Two recent discussions concerning punishment of the socially deprived reach conflicting conclusions. Andrew von Hirsch and Andrew Ashworth argue that we should sympathize with the predicament of the poor and therefore mitigate their sentences. Peter Chau disputes von Hirsch and Ashworth’s conclusion, contending that having to face strong temptations is not an appropriate ground for reducing anyone’s punishment for their crimes. I argue that neither von Hirsch and Ashworth’s account nor Chau’s critique of it is persuasive. I then take up the challenge of showing why social deprivation renders punishment problematic. I contend that it establishes a perverse incentive structure that is persistent and powerful, requiring the disadvantaged to exercise self-control on an ongoing basis. Repeated acts of self-control are difficult, especially for youths whose skills at it are not yet fully developed. Also, in a variety of more and less subtle ways, social deprivation reduces the incentives for self-control and may work to stunt its development. In closing, I briefly consider the options for responding to the crimes of the chronically disadvantaged.

For many decades, the top generation of social pensioners, mainly older women, have represented the main income earners for poor South African households whose working-age members cannot find emplo...

In this article we outline research since 1995 on the impact of various financing strategies on access to health services or health outcomes in low income countries. The limited evidence available suggests, in general, that user fees deterred utilisation. Prepayment or insurance schemes offered potential for improving access, but are very limited in scope. Conditional cash payments showed promise for improving uptake of interventions, but could also create a perverse incentive. The largely African origin of the reports of user fees, and the evidence from Latin America on conditional cash transfers, demonstrate the importance of the context in which studies are done. There is a need for improved quality of research in this area. Larger scale, upfront funding for evaluation of health financing initiatives is necessary to ensure an evidence base that corresponds to the importance of this issue for achieving development goals.

India has a huge stock of canal irrigationsystems that suffer from poor maintenanceand reduced performance. The root of themaintenance problems are structural andrelate to perverse incentive structures andpoor management. In 1997, the state ofAndhra Pradesh initiated a bold experimentaimed at restructuring irrigation operationand maintenance (O&M) across the state. Under the strong leadership of the state'scharismatic chief minister, a newirrigation law was passed and 10,000 wateruser associations (WUAs) created. WUAsreceived control over a portion of themaintenance budget and power to prioritizeand supervise small-scale maintenance worksin their areas. These steps changedradically the service relationships andgovernance mechanisms which controlmaintenance service provision. Accordingto one evaluation, the changes resulted ina significant expansion in irrigated area,reduced flooding losses and an earliercropping calendar as a result of improveddrainage, and higher paddy yields. However, the reforms did not establishclear accountability linkages between WUAsand O&M engineers in the public irrigationagency and failed to specify measures topermanently reduce the size of the state'sirrigation bureaucracy.

In current academic systems professors are forced to publish as much as possible because they are evaluated and ranked according to the number of their publications and citations in scientific journals. This “publish or perish”-principle results in the publication of more and more nonsense. This tendency can only be stopped by abolishing the currently pervasive competition for publication. In the past, researchers who had nothing to say were not incentivized to publish but nowadays they also have to publish continually. Non-performance has been replaced by the performance of nonsense. This is worse because it results in an increasing difficulty to find truly interesting research among the mass of irrelevant publications.

Is there anything more pervasive in society today and yet more reviled than bureaucracy? Moreover, most of this animosity is hurled at government bureaucracy. Despite periodic bouts to reform, “reinvent,” or replace it, however, it survives. No better means for coordinating large-scale organizations exists than the conventional “monocratic” or hierarchical organization. Yet, as noted repeatedly in chapter 3, many question whether we have reached the limits of our competency in addressing today’s and tomorrow’s public problems using the bureaucratic model. And going beyond these instrumental concerns of bureaucratic administration, at the heart of today’s governance challenges, choices, and opportunities for you in the public sector is figuring out how best to reconcile bureaucracy with democracy to meet today’s and tomorrow’s complex policy problems.

This paper makes the case for development in the standards by which financial restructurings are assessed in the UK, but argues that this should be achieved by an increased focus on the role of the administrator, and on applicable regulatory standards, rather than further development in the role of the court and in the common law. In the 1990s large financial restructurings were typically negotiated by reference to the market conventions of the day, reflected in a set of principles known as The London Approach. As some scholars predicted at the start of the last decade, the London Approach has failed to survive rapid changes in the credit markets and the parties to a large UK financial restructuring now negotiate by reference to their strict legal rights. No legal procedure exists in the UK which has been developed solely to achieve a financial restructuring (unlike Chapter 11 in the US). Adaptation of existing procedures to take the place of out-of-court, market based restructurings has led to a focus on the price the business and assets of the company will fetch in the market as the benchmark for assessing the proposed restructuring terms. This paper argues that this tilts the balance of negotiating power in favour of senior creditors and may offer them a perverse incentive to prefer a legal, rather than a negotiated, solution. However, if there is to be a move towards a more detailed examination of value, as currently occurs in the US, there is a significant risk that the balance of power will simply tilt the other way. Someone must therefore undertake the task of maintaining a level playing field between the parties. It is difficult to conclude that the courts have the expertise to judge complex valuation disputes. The administrator is much better placed to do so, provided regulatory standards provide sufficient guidance to steer behaviour and enhance confidence.

While MacAdam proposes a "national approach to home care#8221; the obstacles to this are well known and substantial. They are the likely cost and the limitations of the federal government s role in healthcare. Building on MacAdam's assessment, this paper outlines four problems embedded in the various home-care service delivery models in Canada: the lack of factual client outcome information to support decision-making, the limited client choice of provider, the perverse incentive of fee for service and the bias against the for-profit provider. The paper proposes that the assessment, classification and measurement of outcomes for every recipient of home-care services be standardized using a proven assessment instrument, such as OASIS-B or MDS-HC, by healthcare professionals certified in its use. The resulting information would be captured in a regional database and available for analysis and research. CIHI would be contracted to manage a national database and to fund the training and certification of assessors. The paper proposes a new service delivery and funding model, utilizing standard client outcome information, different roles for regional health authorities and service providers, and a prospective payment mechanism replacing fee for service. A national home care program may be an elusive dream, but that shouldn't stop experimentation, evaluation and improvement.

Joint Implementation’ (JI) is considered by many participants in the international negotiations on a climate protocol to be an important economic instrument for the implementation of greenhouse gas obligations. Apart from a wide range of problems that still have to be resolved on the project level, the institutional and procedural design of such a mechanism is of vital importance. Because JI has a ‘perverse incentive’ to overstate results achieved by individual projects, careful reporting, monitoring and verification procedures are essential. Furthermore, the institutional structure must reconcile the sometimes conflicting demands of overall effectiveness and cost-effectiveness. This paper explores the possible design of a future international mechanism for JI and makes recommendations with regard to the institutional and procedural requirements.

It is widely believed that the presence of a large informal sector increases the efficiency costs of social programs in developing countries. We develop a simple theoretical model of optimal unemployment insurance (UI) that specifies the efficiency-insurance tradeoff in the presence of informal job opportunities. We then combine the model with evidence drawn from 15 years of uniquely comprehensive administrative data to quantify the social costs of the UI program in Brazil. We first show that exogenous extensions of UI benefits led to falls in formal-sector reemployment rates due to offsetting rises in informal employment. However, because reemployment rates in the formal sector are low, most of the extra benefits were actually received by claimants who did not change their employment behavior. Consequently, only a fraction of the cost of UI extensions was due to perverse incentive effects and the efficiency costs were thus relatively small --- only 20% as large as in the US, for example. Using variation in the relative size of the formal sector across different regions and over time in Brazil, we then show that the efficiency costs of UI extensions are actually larger in regions with a larger formal sector. Finally, we show that UI exhaustees have relatively low levels of disposable income, suggesting that the insurance value of longer benefits in Brazil may be sizeable. In sum, the results overturn the conventional wisdom, and indicate that efficiency considerations may in fact become more relevant as the formal sector expands.

“No man but a blockhead ever wrote except for money,” Samuel Johnson said. On the other hand, according to the Thomson Reuters’ Journal Citation Reports®, journals published a total of 11,291 orthopaedic articles in 2010, and most of the authors, we can safely assume, were neither blockheads nor paid for the piece. Was Johnson wrong? Not necessarily. One could make the argument that authors were paid indirectly. Publication can lead to grant support or prompt a bonus from an academic department. Beyond that, there are nonpecuniary rewards, such as recognition in the media or, more valuably, earning the esteem of one’s colleagues. Even with those examples in mind, Johnson’s larger point — that writing requires incentives — still holds true. Therefore, it is reasonable to ask whether the incentives for academic writing are calibrated correctly. If the rewards are too meager, we face a deficit. If the rewards are too great, excesses abound. There are data to suggest a surplus of academic writing. Of those 11,291 orthopaedic articles written in 2010, more than one-third were not cited as of January 2013, according to the Thomson Reuters’ Journal Citation Reports®, there are other metrics of merit besides the number of times a researcher cites a paper, but that so many papers came up empty suggests a problem. The low rates of citation may reflect shortcomings of the peer review process: either too many lower quality papers pass the filter of peer review, or reviewers failed to wring out the high-quality essence from the manuscripts under consideration. And if the review process is coming up short, it is reasonable to circle back to Johnson’s point and ask whether the incentives for high-quality peer-review are sufficient. Perhaps no man but a blockhead would ever write a high quality peer review except for money (or other similarly powerful rewards). Of course reviewers are not blockhead; still I would argue that the incentives for quality peer review are inadequate to the task. Peer review is hard work. The reviewer must grapple with the soundness of the methods, the validity of the results, and the reasonableness of the conclusions. References must be checked and cited papers may need consultation. Thereafter, the reviewer must write a dispassionate critique, with empathy for the writer and future readers alike. This can be terribly taxing. In return for this work, the reviewer gets … nothing. Well, not exactly nothing. Reviewers can expect the gratitude of the editor; the satisfaction of doing their civic duty as scholars; the power of shaping the medical literature (thereby helping patients); and (one hopes) the inherent pleasure from a job well done. Still, that may not be enough. One way to create incentives for greater participation and better reviews would be to allow reviewers to sign their work, and to publish the review alongside the paper itself. This not only creates a system of accountability, it allows the reviewers to earn a publication credit as well. If an entry on the curriculum vitae motivates the authors, a similar incentive should motivate the reviewers, too. Additionally, these pieces of commentary are likely to be appreciated by the readers. In the end, though, a system of signed reviews is not apt to take root, for at least two reasons. First, taking away the veil of anonymity may take with it the brutal frankness the job requires. And if that were not enough (and I think it is), reviewers will not be “paid” with a publication unless and until the paper under review is published as well and that creates a perverse incentive for a reviewer to support the acceptance of the marginal manuscript. Another way to create incentives for greater participation and better reviews is to grant peer-reviewers continuing medical education (CME) credit for their work. CME credit is perfectly appropriate to the task. The close reading of a manuscript is much more of an educational endeavor than passive listening in a lecture hall, to say nothing of web-surfing in a lecture hall or kibitzing in the hallway outside the lecture hall — and CME credit has been earned for all of those. (Don’t ask me how I know). While providing CME credit may impose costs on the journal, it provides substantial value to the recipient, as most physicians are required to collect CME credits to maintain their state licenses. Along those lines, perhaps the American Board of Orthopaedic Surgery would be willing to deem a reviewer’s record as “Evidence of Professional Standing.” A new approach, in which CME credit is granted to peer reviewers, qualifies as what economists term a “Pareto improvement”: a change that helps some and harms no one. With the advent of new publishing models such as open access journals and Internet-based publications, we can expect a wave of more academic papers in the years to come. As such, the need for high-quality peer-reviewed papers will be even more acute. To help meet that rising demand, better incentives for peer-review may be needed. Providing CME credit for this work is a worthwhile first step.

Despite their expertise in patent law, the most litigious patent assertion entities (PAEs) frequently file dubious infringement claims on which they are ostensibly very unlikely to turn a profit. Thus one might conjecture that these PAEs are mistaken to follow through on their litigation threats when their chances of coming out ahead are so scant. To the contrary, this paper demonstrates that this is in fact a calculated strategy of predatory patent litigation: by following through on its threats of seemingly irrational litigation, the PAE develops a litigious reputation that convinces other producers that these threats are credible, leading them to accept licensing offers they would ordinarily rebuff. This allows the PAE to garner substantial licensing revenues using low quality patents that would otherwise be difficult or impossible to monetize. This paper develops a stylized dynamic model of patent assertion and reputation building by a PAE with low quality patents. The model has a unique equilibrium that involves predatory patent litigation, and in which the PAE intermittently forfeits and rebuilds its litigious reputation over time. Predatory patent litigation generates substantial social costs, and creates a perverse incentive for patent applicants to seek coverage of technologies so obvious or non-novel that they are likely to be widely unintentionally infringed by unsuspecting producers. Importantly, fee shifting will not solve the problem. Rather, it will lead predatory PAEs to focus their ire on small, vulnerable targets, such as technology startups, for whom litigation may be crippling even if attorney’s fees are ultimately recouped. Potential defendants could better deter predatory PAEs by entering a litigation cost-sharing agreement in which members jointly pay one another’s litigation costs and litigate all meritless claims to judgment. If properly limited in scope, such an arrangement is lawful and will not materially undermine meritorious infringement actions.

This paper examines an under-explored unintended consequence of public reporting: the potential for demand rationing. Public reporting, though intended to increase consumer access to high quality products, may have provided the perverse incentive for high-quality providers facing fixed capacity and administrative pricing to avoid less profitable types of residents. Using data from the nursing home industry before and after the implementation of the public reporting system in 2002, we find that high-quality nursing homes facing capacity constraints reduced admissions of less profitable Medicaid residents while increasing the more profitable Medicare and private-pay admissions, relative to low-quality nursing homes facing no capacity constraints. These effects, though small in magnitude, are consistent with provider rationing of demand based on profitability and underscore the important role of institutional details in designing effective public reporting systems for regulated industries.

We investigate the shortcomings of current day-ahead-market designs in eliciting socially optimal demand response and obtaining regulation service reserve offers from flexible loads. More specifically, we show that under the current day-ahead-market rules, individual flexible loads have the perverse incentive to self-schedule based on their estimate of market clearing price trajectories, rather than reveal their true utility. Furthermore, convergence of estimated market clearing prices to the socially optimal equilibrium, although theoretically feasible in a carefully designed iterative approach, is quite impractical for the application at hand. We propose modified market rules that remove the perverse incentives and allow the market to clear and discover the socially optimal equilibrium prices which are stable w.r.t. individual self-dispatch. We prove our claims and verify them with extensive numerical investigation.

This paper develops a dynamic model of entry and exit to analyze quality choice and oligopoly market structure in the nursing home industry. The model is estimated using a hybrid two-step estimator. I find significant heterogeneity in the competitive effects across market structures: firms of similar quality levels compete more strongly than dissimilar firms. Sunken entry costs are extremely large, and quality adjustment behavior is governed by significant fixed adjustment costs. The model is used to examine how a change in the economic environment affects nursing homes' quality decisions. It predicts that the overall quality of care deteriorates given an increase in the elderly population. A proposal to eliminate low-quality nursing homes is found to cause a large supply-side shortage. Another proposal to lower entry costs has offered a perverse incentive to provide low quality of care.

In the economic literature the reasons for recession during the transformation of a planned into a market economy are still debated. The following article sets the arguments in this debate against an interpretation of the stylised facts of the transformation process in Central Eastern Europe that is centred around the legacy of soft budget constraints for state owned enterprises. It is shown that deficient bankruptcy enforcement and a perverse incentive structure at the firm level can account for adjustment inertia in emerging market economies.

Bank privatization and tighter credit enforcement are believed indispensable to facilitate the Eastern European transition process. We analyze lending by value-maximizing banks, the only source of capital in the transition, faced by non-performing loans to the state-owned sector. We show that banks have a perverse incentive to fund former debtors, although less efficient and more risky than private firms, because they gain the potential repayment of previous debts. This leads to a lower productivity of investment and a greater concentration of risk; the expansion of more efficient private firms is delayed, leading to a slower recovery and a greater risk of financial crisis.

The very name ‘rebound effect’, and the metaphor it calls up, suggests something disconcerting and thwarting: you throw a ball, but it bounces back in your face, leaving you surprised, bruised — and back where you started in relation to what you were trying to achieve. Rebound is disconcerting because it undermines the common-sense assumption that if you pull a policy lever, things will move in the direction that you pull rather than the opposite — or, to put it a bit more formally, that the overall effects of a policy intervention will be consistent with its immediate effects.

This article presents some of the results obtained from the analysis performed to the health sector budget. The study focused the analysis in the city of Lima. The methodology not only looks for a discussion of resource allocation in the health sector, it goes further and makes an analysis applying a Public Expenditure Tracking Survey (PETS) methodology. The core objective is to discover institutional bottlenecks which make the health expenditures less effective.The novelty in this type of research is the construction of three main flows, which represent the budget execution process; these flows are related to the transfer process of money, goods and services, and salaries; besides these three flows there is an additional one related to information. The topics of analysis are multiple; this article prioritized aspects such as the management of own collected resources from tariffs, goods management (specifically pharmaceuticals), and finally the management of petty cash and budget transfers received by health facilities.The study concludes that a poor budget management causes costs to the health system, which sometimes are absorbed by the population and sometimes bythe same health staff. The latter is the origin of perverse incentive to the same personnel who even prefer the status quo. The latter allows them to receive part in their salary from tariffs (with bonus), rather than acquiring needed goods for their facility., El presente artículo recoge algunos de los resultados del análisis al proceso presupuestal del sector salud en la ciudad de Lima. La metodología no busca solamente discutir los niveles de asignación de recursos al sector, sino que va más lejos y hace un análisis aplicando la metodología del seguimiento del gasto PETS (Public Expenditure Tracking Survey). El objetivo es descubrir las limitaciones institucionales que causan que el gasto del sector salud sea menos efectivo.Lo novedoso de este estudio es la construcción de tres flujos que se construyenen el momento de ejecutar el presupuesto, relacionados con los flujos de efectivo, de bienes y de salarios, a los que se les sumó el flujo de información. Los temas de análisis son múltiples; para este artículo se privilegió aspectoscomo el manejo de los recursos propios provenientes de las tarifas, el manejo de los bienes (sobre todo el de medicamentos) y el manejo de caja chica y remesas que son enviadas a los establecimientos de salud.Se concluye que un mal manejo del presupuesto ocasiona costos al sistema, que en algunos casos son asumidos por la población, y, en otros, por el mismo personal de salud. Los costos se traducen en inequidades, pérdida de oportunidad por retrasos en la llegada de medicamentos y de insumos, y en la falta de transparencia del sector. Lo anterior hace que el sistema genere incentivos perversos en el personal de los establecimientos de salud, incluso mantener el statu quo privilegiando el nivel de sus ingresos frente a laposibilidad de adquirir más bienes.

Australia displays high vertical fiscal imbalance (VFI) for historical and constitutional reasons. It also attempts to achieve the highest degree of horizontal fiscal equalisation (HFE) to be found in any democratic federation. The Commonwealth Grants Commission (CGC), a nonpartisan body at arms length from politicians, oversees the regime. A report published shortly before I visited Australia in September 2002 to study the model (Garnaut and FitzGerald 2001, 2002) claims that equity, efficiency, and transparency would all improve if the regime were abolished. Such a change was politically unachievable, but it raised interesting issues in public finance and public administration, which carry over to other federations and union states, such as the United Kingdom.

This paper examines the decentralization process in Colombia, particularly as it relates to reforms embodied in the 1991 Constitution, and the bailouts of territorial entities that have occurred in subsequent years as a result of perverse incentive structures. The paper provides a summary of the basic features of the decentralization process in Colombia, including an analysis of revenue and expenditure assignments, the intergovernmental transfer system and recent developments in terms of territorial indebtedness. Specific case studies involve the determinants of three types of bailouts by the central government to territorial entities: the provision of soft loans to be used by departments to restructure their finances, the bailout of territorial entitities' education expenditures, and the Medellin Metro. The paper concludes with lessons learned and policy recommendations.

The government has two to three years in which to cut NHS waiting lists—a key measure of the impact of additional spending—before the next election. Success will depend on engaging key stakeholders in the redesign and reorganisation of services. The current policy to increase capacity in the NHS by employing overseas providers makes an interesting case study of the tension between achieving results and engaging professionals. The policy aims to use overseas doctors to tackle long waiting times, focusing particularly on ophthalmology and orthopaedics.1 Services will be provided within a financial framework that is guided by the current cost of NHS procedures and will be governed by the same quality standards. For policy makers the use of overseas doctors has the key advantage of avoiding the perverse incentive of “rewarding” consultants for undertaking private sector “initiative lists” on NHS patients with long waiting times. With the NHS as the core purchaser and raison d'etre of overseas services, cost and quality specifications can be tight. Furthermore, with workforce as a major constraint on …

[Figure][1] CREDIT: TOM KOCHEL Policies that offer incentives for individuals and institutions can unintentionally induce harmful behaviors. One such perverse incentive encourages U.S. universities, medical centers, and other research institutions to expand their research capacities indefinitely through funds derived from National Institutes of Health (NIH) research grants. A reliance on the NIH to pay not only the salaries of scientists but also the overhead (or indirect) costs of building construction and maintenance has become a way of life at many U.S. research institutions, with potential painful consequences. The current trajectory is unsustainable, threatening to produce a glut of laboratory facilities reminiscent of the real estate bust of 2008 and, worse, a host of exhausted scientists with no means of support. The NIH actually rewards institutions for paying faculty salaries with unguaranteed “soft money” from research grants by providing increased overhead payments. Amazingly, any institution that draws on its own finances to pay its professors is doubly disadvantaged: It must not only use its own funds but also loses the overhead on the salaries that it would otherwise accrue. In addition, the NIH will reimburse institutions for the cost of new research buildings, paid out as overhead charges on research grants as the building depreciates over several decades. The possibility that the NIH will ultimately pay for both new building costs and new staff enables the many advocates for expansion to effectively argue that the costs will eventually be borne in large part by the U.S. government. ![Figure][1] CREDIT: © BOJAN FATUR/ISTOCKPHOTO This type of argument has strongly encouraged a large number of institutions to expand “on spec,” taking out loans and gambling that they will win enough NIH research grants to pay for the expansion. There is a huge risk here. Because the NIH budget cannot increase at a high enough rate to pay for the ever-expanding U.S. biomedical research enterprise, each institution is betting that the faculty in its new facilities will outcompete those at other institutions for the limited research grants available. Institutions are thus pitted against each other in a process that resembles an arms race. The results are not pretty. With success rates for acquiring an NIH grant below 10% in some cases, achieving a stable research career now has elements of a lottery, with one's future depending on a chance ranking assigned through a peer-review process that is unable to discriminate adequately among a sea of research proposals. Biomedical scientists are spending far too much effort writing grant applications and reviewing those of others, leaving precious little time to do what they should be doing: reading the scientific literature and thinking deeply about their research and teaching. And I worry about the future of universities, given the incentives to overinvest in research at the expense of needed facilities and faculty for teaching. What can be done? NIH Director Francis Collins has boldly stated that “it is time for NIH to develop better models to guide decisions about the optimum size and nature of the U.S. workforce for biomedical research.”[*][2] I agree. One possibility is for the NIH to require that at least half of the salary of each principal investigator be paid by his or her institution, phasing in this requirement gradually over the next decade. Alternatively, the maximum amount of money that the NIH contributes to the salary of research faculty (its salary cap) could be sharply reduced over time, and/or an overhead cost penalty could be introduced in proportion to an institution's fraction of soft-money positions (replacing the overhead cost bonus that currently exists). Regardless of mechanism, here is my bottom line: A new NIH policy must make it unambiguously clear that expansion through laboratory building construction requires a substantial, nonreimbursable, long-term commitment of resources, including “hard-money” faculty support, by any institution that wants to increase its facilities and research staff. Although change will be painful, it is urgently needed to maintain a healthy biomedical research enterprise. [1]: pending:yes [2]: #fn-1

Fundamental land tenure reform in Yucatan has been characterized by declining productivity in the henequen ejidos (collectives), and the Banco Rural — which supervises and finances the ejidos — has sustained chronic, burgeoning operational losses. Several related causes account for the economic failure of the Reforma Agraria : (1) the disruption of the spatial unity and organizational integrity of the expropriated agroindustrial estates, (2) the perverse incentive structure facing the ejidatarios , the presumed ‘owners’ of the collective ejidos , (3) the debilitating corruption that has characterized the official bank's management of the ejidos , (4) the primacy of the federal government's and the official party's political/ social goals in the state over economic/market considerations.