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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.

Measuring the merits of a scholarly article only by how often other articles or social media posts cite it creates a perverse incentive for authors to avoid citing potential rivals. To uphold established standards of scholarship, institutions should also consider one or more metrics of how appropriately an article cites relevant prior work. This paper describes the general characteristics of the FAIR Attribution to Indexed Reports (FAIR) family of metrics, which we have designed for this purpose. We formulate five FAIR metrics suitable for use with primary research articles. Two measure adherence to best practices: number of correctly attributed background statements and number of genuinely original claims. Three measure specific deviations from best practices: number of misattributed background statements, number of background statements with missing references, and number of claims falsely indicated as original. We conclude with a discussion of plans to implement a web application for calculating metric values of scholarly works described by records in Nexus-PORTAL-DOORS System (NPDS) servers.

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.

The Hospital Readmissions Reduction Program (HRRP), which levies financial penalties for excess readmissions after select medical and surgical admissions, has been as widely critiqued as it has been celebrated. On one hand, there have been clinically and statistically significant declines in readmission rates since the announcement of the HRRP in 2012, with the largest improvements occurring in hospitals receiving the largest penalties.1,2 On the other hand, penalties in the program have been disproportionately allocated to academic medical centers and hospitals serving vulnerable populations, leading to concerns about widening disparities in care.3 There has also been mixed evidence that the HRRP has increased the use of emergency departments and observation stays.1,4 But of the myriad effects from the HRRP, none have been as controversial as the effect on patient mortality. There has long been concern that penalties for readmissions might create a perverse incentive whereby patients would be denied appropriate and necessary hospital care, which would increase a patient’s risk of death. Initial evidence exploring this relationship exhibited a weak but statistically significant inverse association between hospital 30-day mortality and readmission rates for patients with congestive heart failure.5 Detecting a meaningful association between reduced readmissions and increased mortality would represent the worst-case scenario for the HRRP. Two recent studies exemplify this controversial topic. In July 2017, a study led by Dr Kumar Dharmarajan and Dr Harlan Krumholz demonstrated that although 30-day mortality rates for congestive heart failure increased overall between 2008 and 2014, the trends in mortality between 2010 and 2012—when readmission declines were the greatest—were comparable with other periods.6 Moreover, the authors found a direct but weak correlation between a hospital’s change in 30-day readmission rate from 2008 to 2014 to its change in 30-day mortality rate. Through traditional publication channels, …

Scientific publication is immensely important to the scientific endeavour. There is, however, concern that rewarding scientists chiefly on publication creates a perverse incentive, allowing careless and fraudulent conduct to thrive, compounded by the predisposition of top-tier journals towards novel, positive findings rather than investigations confirming null hypothesis. This potentially compounds a reproducibility crisis in several fields, and risks undermining science and public trust in scientific findings. To date, there has been comparatively little modelling on factors that influence science trustworthiness, despite the importance of quantifying the problem. We present a simple phenomenological model with cohorts of diligent, careless and unethical scientists, with funding allocated by published outputs. This analysis suggests that trustworthiness of published science in a given field is influenced by false positive rate, and pressures for positive results. We find decreasing available funding has negative consequences for resulting trustworthiness, and examine strategies to combat propagation of irreproducible science.

Efficacy of industry policy implementation is enhanced when governments expedite resolution of private sector uncertainty. This study reinforces the mechanism through which production outcomes improve, via program evaluation analysis from professional sports. An alternative determination rule for allocating picks in reverse-order drafts—fewest games played when eliminated from playoffs—is considered in comparison with the current standard (fewest wins at end-of-season). Elimination timing is estimated via Monte Carlo simulation. Using MLB and NBA data from 2005–2013, results from a quasi-natural experiment show that when a team’s perverse incentive to underperform is effectively removed prior to its final game of the season, its subsequent performance improves significantly.

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

Offsetting is emerging as an important but controversial approach for managing environment-development conflicts. Biodiversity offsets are designed to compensate for damage to biodiversity from development by providing biodiversity gains elsewhere. Here, we suggest how biodiversity offset policies can generate behaviours that exacerbate biodiversity decline, and identify four perverse incentives that could arise even from soundly designed policies. These include incentives for (i) entrenching or exacerbating baseline biodiversity declines, (ii) winding back non-offset conservation actions, (iii) crowding out of conservation volunteerism and (iv) false public confidence in environmental outcomes due to marketing offset actions as gains. Synthesis and applications. Despite its goal of improving biodiversity outcomes, there is potential for best-practice offsetting to achieve the opposite result. Reducing this risk requires coupling offset crediting baselines to measured trajectories of biodiversity change and understanding the potential interaction between offsetting and other environmental policies.

Hospitals throughout the country are experiencing patient flow issues. It is common for many emergency departments to be congested leading to patient flow issues. Although much efficiency has been gained in patient flow processes in the emergency departments, without bed availability on the medicine/surgery floor, it is very difficult to improve emergency department patient flow. One of the tools being trialed by hospitals is the concept of “discharge before noon”. This premise is based on the assumption that hospital patient flow on the medicine surgery floors can be made more efficient if an increased number of patients being discharged are sent home earlier in the day. The concept of discharge before noon seems like a very logical premise, but there may be some structural process issues with this premise. This article will discuss the premise and possible structural process faults associated with the discharge before noon construct.

NHS England is to introduce a new Commissioning for Quality and Innovation to reduce delayed discharges from adult critical care to ward-level care. A delayed discharge is greater than 4 h, this occurred in 64.2% of patients in the critical care minimum data set database from Intensive Care National Audit & Research Centre from the last five years; 46.3% were delayed between 4 and 24 h and 17.9% were delayed more than 24 h. For those who had a delay in their discharge of greater than 24 h, the data suggests that “sicker” patients ultimately do better, since there was a reduction in expected mortality of 5892 patients to an actual mortality of 5201 patients over the five years. More in depth analysis of this data is necessary to try to identify which patients are more likely to benefit from extending their critical care stay once the need for organ support has abated. The current Commissioning for Quality and Innovation offers a slightly perverse incentive against this cohort of patients.

This chapter explores biodiversity offsetting as a tool used to achieve “no net loss” of biodiversity. Unfortunately, no-net-loss offsetting can be—and often is—unintentionally designed in a way that inevitably results in ongoing biodiversity decline. Credit for offset sites is given in proportion to the assumed loss that would happen at those sites if not protected, and this requires clear baselines and good estimates of the risk of loss. This crediting calculation also creates a perverse incentive to overstate—or even genuinely increase—the threat to biodiversity at potential offset sites, in order to generate more offset “credit” that can then be exchanged for damaging actions elsewhere. The phrase “no net loss,” when used without an explicit frame of reference and quantified counterfactual scenario, is meaningless, and potentially misleading. Conservation scientists have a core role in interpreting, communicating, and improving the robustness of offset policy.

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.

Consumer profiling has become one of the most common practices on online trading platforms. Many platforms strive to obtain and implement technological innovations that allow them to understand and identify consumers’ needs, and, thereafter, monetize this capability by charging sellers to present and/ or sell their products or services based on consumers’ interests. However, an interesting and relevant question arises in this context: Does the platform have an incentive to profile its buyers as accurately as possible? This paper develops and analyzes a parsimonious game-theoretic model to answer this research question. We find that, surprisingly, platforms that charge sellers for discoveries have a perverse incentive to deviate from accurate buyer profiling. However, such a perverse incentive does not exist for platforms that charge sellers for transactions. As a result, with such a perverse incentive, social welfare under discovery-based pricing is lower than that under transaction-based pricing.

The importance of publication metrics, such as the h-index [9], has increased dramatically in recent years. Unfortunately, as Goodhart [7] already remarked: “when a measure becomes a target, it ceases to be a good measure”. And indeed: hiring, grants and tenure decisions depend more and more on performing well in publication metrics. This leads to a perverse incentive for individual researchers and journals to “optimise” their perfomance. However, such behaviour undermines the utility of the measure itself, in the extreme case nullifying its value. The underlying cause is that besides the functional requirements on a measurement, there are also security requirements on them. As is often the case, these security objectives remain implicit. In this paper, we provide a much-needed security perspective on publication metrics.

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 chapter argues that risk-sharing finance’s features of anti-fragility and a de-leveraged economy would lead to a stable financial system that would lead to just and equitable allocation and distribution of resources in an economy. Risk-sharing finance has the potential to enhance efficiency as each party to contracts has “skin-in-the-game,” thus eliminating or minimizing the principal–agent problem. In doing so, it can minimize monitoring, supervisory, and disciplinary costs, leading to efficiency gains. As a result, participants in a contract of an economic undertaking can choose higher risk–higher return projects and thus increase the efficiency and productivity of the system. Risk sharing can also create a reciprocal and trusting environment that strengthens social cohesion, promotes social mobility, and reduces income inequality without perverse incentive effects and resentments.

After nearly 20 years of effectiveness, the Federal Trademark Dilution Act (FTDA) remains as controversial as ever. What the 20 years of jurisprudence has taught us is that academics have been right all along. Dilution is either unconstitutional, inappropriate, or simply misguided legislation. This article calls for its repeal. A thorough literature review shows that most academics oppose dilution. A study of all trademark litigation demonstrates that the cause of action of pure dilution never appears in reported cases anymore. The existence of the FTDA gives trademark holders the perverse incentive to claim that all marks are famous as “fame” has become the trademark gold standard to which every much should aspire, rather than identifying the source of the good or service. This perverse incentive has led to the commodification of trademarks — seeing trademarks primarily as an asset to be bought, sold, and hypothecated rather than an identifier of source. As this perverse incentive is not contemplated by the Lanham Act, the Common Law of trademarks or even the Constitution, the FTDA ought to be repealed so that trademarks can focus on identifying source, the purpose of their creation.

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

This paper examines an under-explored unintended consequence of public reporting: the potential for demand rationing. Public reporting, although 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, although small in magnitude, are consistent with provider rationing of demand on the basis of profitability and underscore the important role of institutional details in designing effective public reporting systems for regulated industries. Copyright © 2014 John Wiley & Sons, Ltd.

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.

Schools in developing countries frequently offer for-profit tutoring to their own students. This potentially gives teachers a perverse incentive to teach less during school to increase demand for their tutoring. Through this mechanism, the market for tutoring can adversely affect student learning, especially for students who do not participate in tutoring. I model and present empirical evidence on these effects, using survey and test score data from Nepal. The evidence suggests that when schools offer for-profit tutoring, teachers teach less during the regular school day. As a consequence, performance on the national secondary-school exam appears to suffer among students with a low propensity to enroll in tutoring. An implication is that discouraging teachers from tutoring their own students or reducing entry barriers for third-party tutors could increase student achievement.

It can be argued that the intensity of monitoring of coastal marine environments lags behind the equivalent terrestrial environments. This results in a paucity of long-term time series of key environmental parameters such as turbidity. This lack of management information of the sources and sinks, and causes and impacts of stressors to the coastal marine environment, along with a lack of co-ordination of information collection is compromising the ability of environmental impact assessments of major coastal developments to discriminate between local and remote anthropogenic impacts, and natural or background processes. In particular, the quasi outsourcing of the collection of coastal information can lead to a perverse incentive whereby in many cases nobody is actively or consistently monitoring the coastal marine environment effectively. This is particularly the case with regards to the collection of long-term and whole-of-system scale data. This lack of effective monitoring can act to incentivise poor environmental performance.

Before the new round of healthcare reform in China, primary healthcare providers could obtain a fixed 15 % or greater mark-up of profits by prescribing and selling medicines. There were concerns that this perverse incentive was a key cause of irrational medicine use. China’s new Essential Medicines Program (EMP) was launched in 2009 as part of the national health sector reform initiatives. One of its core policies was to eliminate primary care providers’ economic incentives to overprescribe or prescribe unnecessarily expensive drugs, which were regarded as consequences of China’s traditional financing system for health institutions. The objective of the study was to measure changes in prescribing patterns in primary healthcare facilities after the removal of the economic incentives for physicians to overprescribe as a result of the implementation of the EMP. A comparison design was applied to 8,258 prescriptions in 2007 and 8,278 prescriptions in 2010, from 83 primary healthcare facilities nationwide. Indicators were adopted to evaluate medicine utilization, which included overall number of medicines, average number of Western and traditional Chinese medicines, pharmaceutical expenditure per outpatient prescription, and proportion of prescriptions that contained two or more antibiotics. We further assessed the use of medicines (antibiotics, infusion, hormones, and intravenous injection) per disease-specific prescription for hypertension, diabetes, coronary artery heart disease, bronchitis, upper respiratory tract infection, and gastritis. A difference-in-difference analysis was employed to evaluate the net policy effect. Overall changes in indicators were not found to be statistically significant between the 2 years. The results varied for different diseases. The number of Western drugs per outpatient prescription decreased while that of traditional Chinese medicines increased. Overuse of antibiotics remained an extensive problem in the treatment of many diseases, though there was some significant improvement in certain diseases, like diabetes in rural areas. Medicine expenditure per prescription also decreased. It seems that the removal of a perverse economic incentive alone would not lead to improvement of healthcare providers’ prescribing patterns. The rationality of the Essential Medicines List and the lack of payers’ and providers’ meaningful involvement in the development of the policy possibly contribute to the lack of significant changes in prescribing behaviors. It is suggested that China should adopt more comprehensive policies for healthcare facilities, physicians, patients, and payers, rather than just relying on economic incentives to improve rational use of medicines.

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

The obvious paradox within China's environmental politics is the big gap between the central government's policy and its implementation outcomes at local levels. Despite concerns about implementation at the local level, much about the role of central governments in China's local environmental politics is still poorly understood. This article examines how the incentive structure set by the central authorities affects the policy implementation gap at the local level. Drawing on fieldwork and document analysis, this article argues that the incentives set by the central government regarding environmental policy implementation at local levels are perversely structured, meaning that the central government provides much more incentive for local governments' non-implementation or poor implementation of its environmental policies than it provides for full implementation. The central government's failure to encourage—politically, financially, as well as morally—local government officials to appropriately implement ...

In engineered systems whose performance depends on user behavior, it is often desirable to influence behavior in an effort to achieve performance objectives. However, doing so naively can have unintended consequences; in the worst cases, a poorly-designed behavior-influencing mechanism can create a perverse incentive which encourages adverse user behavior. For example, in transportation networks, marginal-cost tolls have been studied as a means to incentivize low-congestion network routing, but have typically been analyzed under the assumption that all network users value their time equally. If this assumption is relaxed, marginal-cost tolls can create perverse incentives which increase network congestion above un-tolled levels. In this paper, we prove that if some network users are unresponsive to tolls, any taxation mechanism that does not depend on network structure can create perverse incentives. Thus, to systematically avoid perverse incentives, a taxation mechanism must be network-aware to some extent. On the other hand, we show that a small amount of additional information can mitigate this negative result; for example, we show that it is relatively easy to avoid perverse incentives on affine-cost parallel-path networks, and we fully characterize the taxation mechanisms that minimize congestion for worst-case user populations on such networks.

In the proposed Clean Power Rule, EPA was required to allocate the burden of reducing carbon emissions from electricity production among the States. EPA chose a novel approach that is quite different from that adopted in Kyoto or the EU — what we call a “Switching Costs” approach. Under this approach, each State is allocated reduction percentages in emissions rates or mass emissions that depend heavily on the State’s switching opportunities — its opportunities to switch from coal to natural gas and from fossil-fuel energy sources to renewable energy. One result of the Switching Costs approach is that increases in electricity rates in the State should be more similar, closer to equal, than they would be under an approach that required emissions reductions without regard to variations in the switching opportunities available to each State. In Part I, this paper reviews the allocation plans that have been tried so far on an international scale and why they have not succeeded. In Part II, the paper explains EPA’s Clean Power Rule and what we are calling the switching opportunities approach that is at least roughly suggested by the Rule. In Part III, the paper discusses the two different “cost-sensitive” approaches adopted by the EPA under the Clean Air Act so far, and in Part IV, the paper discusses the basis for using the Clean Power Plan as a model and the advantages and disadvantages of “scaling up” the switching opportunities approach to the international arena. Overall, we find considerable merit in the switching opportunities approach, especially when its possible perverse incentive effects are tempered in the institutional design of the relevant regulations.

The current approach for determining when courts should award injunctions in patent disputes involves a myopic focus on the hardships an injunction might impose on the litigants and the public. This article demonstrates, however, that courts sometimes could rely instead on a consideration far more relevant to the patent system's goal of promoting innovation: the extent to which the right to exclude was actually a necessary quid pro quo for the plaintiff's decision to bring its products to market. We illustrate the value of this approach with a critique of a recent Federal Circuit decision, Trebro Mfg. Inc. v. FireFly Equipment, LLC, which held that injunctive relief may be appropriate when a defendant infringes a patent that the plaintiff-competitor does not practice, and against which it lacked any legal protection when it entered the relevant downstream market. These circumstances — which are increasingly common in industries with rich markets for secondhand patents, result in the formation of what we refer to as a “diagonally integrated” nonpracticing entity (NPE) — a producer who owns a patent it does not practice, and who competes with downstream rivals who use (or would like to use) the patented technology. We develop a simple model showing that if such a firm acquired the unpracticed patent after entering the relevant product market, an injunction poses a threat to competition and consumer welfare that is not offset by any plausible benefit to innovation. Further, diagonally integrated NPEs have a perverse incentive to exclude or substantially limit all use of the patented technology, making them more likely to seek excessive licensing fees and aggressively seek injunctive relief than are conventional, “unintegrated” NPEs. This effort to foreclose all use of a technology is novel in the patent literature, but the spirit of this tactic is well known in antitrust: a dominant firm acquires patents that it has no intent to use simply in order to deny the technology to rivals, thus perpetuating its dominant position. The model’s implications also extend to a range of topics at the core of contemporary patent policy debates, including patent privateering, FRAND-encumbered patents, and preemptive patenting. It also suggests that in considering appropriate remedies the court should weigh competition concerns more seriously, particularly when there is little or no tradeoff with innovation concerns.

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

Cooling-off periods are universally employed in doorstep selling regimes. Paired with a right for consumers to withdraw from the contract, this legal instrument seeks to protect consumers against superior skilled and knowledgeable sellers thus restoring the balance of interests. According to prior literature, cooling-off periods also serve an economic function by moderating the abuse of market power, by mitigating problems of hidden characteristics, and by promoting consumer choice. If their drawbacks—mainly the creation of consumer moral hazard and shifting of risk to the seller—can be contained, cooling-off periods are hence supposed to yield efficiency gains. By thinking out of this box, the present paper showcases that cooling-off periods also establish the perverse incentive for the seller to increase consumer compliance to a level which outlasts the cooling-off period. I argue that inevitably occurring psychological factors and transaction costs from the cooling-off regime amplify each other, thus creating a hard-lock status-quo bias. Based on behavioural insights and transaction cost theory, I predict that an inefficiently high number of consumers will enter into a doorstep contract and that, at the same time, the number of cancelled contracts will be inefficiently low. Consequently, I propose to change the default inherent in current cooling-off regimes from presumed consent to presumed withdrawal in order to debias consumers’ withdrawal decision.

Occupational disease claims raise distinct challenges for the experience-rating model, demonstrating that it is not wholly effective in preventing occupational diseases or accurately attributing the claims costs of compensation or rehabilitation to employers. Experience rating is also incapable of effectively incentivising employers to manage most occupational disease claims, as there is likely to be a mismatch between the employer where exposure occurred, and the employer where the disease manifests itself. In fact, there may be a perverse incentive on employers, where employers may not be concerned about exposing workers to potential diseases as the employer is unlikely to be accountable for them.

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.

Falling information costs may give the perverse incentive to buy less information in equilibrium. Using a model similar to Admati and Pfleiderer (1988) but with a market that clears via an equilibrium condition, it is shown that passive investment may actually rise with lower information costs. This is consistent with the empirical observation that index investing has increased along with a decline in information costs. Also, in absence of such costs, no investor will hold index portfolios if at least some uninformed investors can condition on current prices. The existence of passive index investors may therefore be inconsistent with unrestricted observation of current prices.

PurposeThe purpose of this paper is to discuss implications of the global crisis for economic and financial research and policy.Design/methodology/approachThe paper reviews many recent studies on the crisis and offers the author's views on some of the most important lessons to be drawn from the crisisFindingsThe review counters views that the crisis reflected a basic failure of economics, but agrees that it undercuts some particular theories and approaches to economics. More attention needs to be given to imperfections in the operation of both markets and governments, drawing on insights from behavioral and neuro economics and finance and political economy analysis and recognizing the importance of limited information and uncertainty about correct models. The creation of perverse incentive structures explain a large part of the financial excesses that led to the crisis. Financial considerations need to be integrated much more closely with macroeconomic analysis and financial risk analysis needs to pay more attention to economic considerations. Useful insights can be drawn from many different theories and approaches and we should not expect any one theory to have all the answers. The excesses observed in the advanced economies do not imply that there are not enormous benefits to be gained from further financial liberalization in emerging market economies, but they do show that great care must be taken in establishing strong supervision of such liberalizations and highlight many of the dangers to look out for.Originality/valueThe paper offers a guide to the literature for those interested in learning more about the causes and effects of the crisis and policy responses and offers a number of suggestions for fruitful research topics and policy strategies.

This paper reviews the challenges faced by unpaid family carers and the current support and services available to them. It argues that current carer support should be built on and presents the evidence for doing so, including evidence of the opportunities to make substantial savings in residential care costs. The paper suggests a new way in which proposed resource allocation and personal budget systems could be developed in order to sustain caring, avoiding the risk of a new perverse incentive to families to end caring roles. The paper provides some modelling of the costs and benefits of this approach.

The Australian Health Technology Assessment Review has the potential to have a major effect on the availability of new medical technology and the listing of associated medical procedures on the Medicare Benefits Schedule. Despite this, only about 15% of submissions to the Review came from "medical associations". Pharmaceutical and medical technologies are inherently different, and there are a number of difficulties associated with evaluating medical technology using the same process and evidence levels as those used for pharmaceuticals. The current sequential and lengthy processing of new medical technology and procedures is delaying access to beneficial medical technology and could be substantially reduced. There is currently no effective funding process for medical technology classified as capital equipment or consumables and disposables. This has created a perverse incentive in favour of using funded implantable prostheses based on access to funding rather than superior clinical effectiveness. The existing horizon scanning process could be better used to not only identify all potentially cost-effective new and emerging medical technology and procedures as early as possible, but also to identify gaps in the evidence.

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...

How public pension plan assets should be invested is an important but unsettled question. Alicia H. Munnell and Mauricio Soto (2007) find that the share of state and local (S&L) plan assets held in equities has grown over time, largely in parallel with private sector practices, from an average of about 40 percent in the late 1980s to about 70 percent in 2007. This exposure led to a loss of an estimated $1 trillion dollars following the decline of the stock market from October 2007 to October 2008 (Munnell, Kelly Haverstick, and Jean-Pierre Aubry 2008). Nevertheless, some observers endorse the standard practice of investing heavily in higher yielding but riskier equities, reasoning that the higher average returns will reduce future required tax receipts and also help to reduce underfunding over time. Others advocate a more conservative approach that reduces the volatility of funding levels and the likelihood of severe shortfalls during economic downturns when government resources are already constrained (e.g., Lawrence N. Bader and Jeremy Gold 2007). The accounting rules for public pensions create a perverse incentive to invest in stocks: since projected liabilities are discounted at the expected return on assets rather than at a rate that reflects the generally lower risk of liabilities, investing the assets in the stock market leads to

Poverty is by all standards a condition of deprivation that impedes human development. Given Nigeria's vast resource base, she ordinarily should have no business with poverty. In fact, she should rank among the richest countries of the world. Ironically, the reverse has so far been the case. This article critically engages the perennial problem of poverty in Nigeria with emphasis on its impacts on human development. The article argues that the pervasiveness and persistence of poverty in the country is a massive betrayal of her rich resource base. The failure of antipoverty initiatives, with its attendant negative implications, may not be unconnected with the pervasiveness of perverse incentive structures that engender and nourish opportunism at the expense of a fairly even distribution of income and wealth. If the new initiatives must yield dividends, the article contends that the democratization process must be energized, the role of the state in the developmental process revisited, community se...

Data collected in a nonprofit performance management system documents efforts and outputs as well as client outcomes. Used effectively, each of these pieces of information helps the nonprofit improve the lives of the people it serves. However, the same data is also of great value to a variety of other stakeholders, each with a different interest in the evolution of the nonprofit’s work: governments, businesses, academics, churches, philanthropies, and other nonprofits. This paper reviews factors that motivate the nonprofit’s decision to market itself using performance data. On the surface, the decision appears only to require a judgment by the nonprofit that marketing using performance data will help it better serve its clients, say because some donors give more when they believe their giving is effective. In practice, the decision also involves a careful weighing of the costs and benefits of revealing information about the nonprofit’s clients and its ability to serve them. Paradoxically, concern that a decision to withhold performance data will be interpreted as an indication of incompetence can motivate the nonprofit to sabotage its own performance management system. Fortunately, such a perverse incentive -- which harms the nonprofit’s clients -- can be almost entirely obviated by an alignment of stakeholder and nonprofit interests in the creation of something resembling a startup company. Within such a structure, performance management data finds a natural marketing role as the output of a learning process that has inherent value as a reducer of uncertainty.

With executive compensation in the limelight, the search for best practices has devolved into a drive toward common practices as cautious boards gravitate toward a safe norm. Are these trends in compensation structure as good for the shareholders as they are for the consultants who implement them? Until recently there has been little empirical research to answer such a question. This paper explores some of these trends, and derives some conclusions about their value based on examination of detailed data on executive plans for the S&P 500.This paper is not concerned with the reasons that compensation structures look the way they do (e.g., executive greed, board capture, market for talent, etc.), nor is it concerned with the issue of high CEO pay per se. Instead, it looks at how these structures as they are work for or against shareholder value creation. Against this standard the record is decidedly mixed.One key finding is that rewarding managers for (old-fashioned) profit growth produces higher stock price returns than the trend toward rewards based on multiple measures or balanced scorecards. Also, the trend toward adding long-term incentive plans to the compensation mix does not appear to improve long-term performance. Finally, the trend toward granting equity based on past year's performance rather than in annual fixed-value amounts appears to be good for shareholders both because of additional incentives created by performance-based grants as well as the elimination of the perverse incentive of rewarding poor stock price performance with more shares.

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.

Objectives: The objectives of this study were to give a review of the complex system of budgetary constraints to which the French health-care system has been committed since 1996 and to evaluate the consequences on drug policy and on efficient use of pharmaceuticals. Methods: Literature review, legal texts analysis, and interviews with policy makers and companies managers were performed. Results: The budgeting process applies to health insurance expenditures as a whole, but also to each of its components, especially hospital expenditures and pharmaceutical expenditures. Because the targets are set by reference to the gross domestic product growth while health-care expenditure is driven by demographic factors, technology, and expectations, there is inevitably a gap between the top-down budget and the bottom-up cost pressures. The pharmaceutical budget is achieved by a payback system that “taxes” companies when the growth target for aggregated pharmaceutical expenditure is exceeded. The government is now seeking to set more realistic overall global budgets and for pharmaceuticals in particular. It is also encouraging generics, delisting from reimbursement drugs of limited therapeutic value, making a special budget for new drug purchases available to hospitals, and replacing price control for innovative products with a more selective process of intervention in the expectation that companies will seek to price at a European level. Conclusion: The budgetary system produces a perverse incentive for companies to heavily promote new products in the knowledge that the budget overruns will be spread across all companies, as well as lacking incentives for using pharmaceuticals efficiently. Although the new drug policy will increase the efficiency of pharmaceutical expenditure, it is not apparent that they change the poor incentives facing doctors, hospitals, and insurers to use pharmaceuticals cost-effectively to achieve the optimal gain in health care. They will not remove “silo budgeting” at the national level for pharmaceuticals, which inhibits the efficient substitution of drug therapy for hospital treatment.

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.

Background This paper investigates the potential effects of a policy change in the funding of UK residential care. The White Paper Modernising Social Services (Cm 4169, 1998) outlined plans to change the distribution of the Residential Allowance (RA), payable in support of residents in independent residential or nursing home care, from a component of income support paid direct to establishments to a grant to local authorities. This change was intended to remove the perverse incentive in accessing independent residential care more favourably than local authority care. A further objective was to encourage local authorities to use the grant to support home-based alternatives to residential care. The policy rests on a model in which price signals dictate the choice of care for an older person. By, in effect, raising the price of independent residential and nursing home care, the policy provides an incentive for authorities to seek alternatives to institutional care. Methods Managers from 16 UK social services departments attended a focus group discussion, completed questionnaires and provided information to assist in calculating the potential diversionary effect of the policy. Results Managerial estimates indicated a small diversionary effect of the policy; A potential effect of 0.26 and 0.19 per 1000 older people diverted from residential and nursing care respectively. Conclusions The study indicated that wider organisational factors other than price are likely to play a greater role in deciding whether an older person is admitted to care. Changes in public funding alone do not reflect the complexities involved in decision-making concerning the residential placement of older people. Copyright © 2003 John Wiley & Sons, Ltd.

About ten years back, recipients of aid were relabelled ‘partners’ in development. Five years later, the term ‘national ownership’ gained prominence in the international development debate. In this article the author examine these two concepts. First, he argues that there is a trade-off between partnership and ownership. Strong recipient government ownership means less partnership the way donors generally define partnership in their policy documents. This has implications for how the international donor community should view its role in national policy development—such as national poverty strategies (PRSP). Second, he argues that national ownership and the basis of partnership are conditioned by the incentives that underpin the organisations on both sides. The recipient side needs to squarely address the problem that its organisations maximise receipt of aid rather than results, while at the donor side the pressure to spend creates a correspondingly perverse incentive. He argues that results-based aid man...