Mancur Olson, Jr.(2000)"Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor”

This is a study to explain why there is big difference between rich countries and poor ones.　In this paper, author adapt new or endogenous growth models feature externalities that increase with investment or with stocks of human or tangible capital and can readily explain why countries with high per capita incomes grow as fast or faster as low-income countries.

As an explanation for the fastest-growing countries are poor countries, it says poor countries on average have opportunities to grow faster than riches, but poor economic policy or institution prevent it.


Q What is endogenous model?

Douglass C.North(1991)”Institutions”

Institutions include formal(laws, constitutions) and informal(conventions, traditions). This paper shows relationship between economic development and institutional development, because in economic history, institutions are given.

In this paper, institutions made to make monopolistic situation first, because there is no authority and someone who has more skill and information get more power and for them, monopoly is the best way to keep profit. However, this monopolistic situation makes a gap between players. This emerge competition, evolution, incremental development. Less profitable player tries to get more profit to create better institution, and monopolistic situation will become weak because it is weakness of whole country in terms of national competition.

However, “good” institution depends on environment. If one institution is good in U.S., it does not mean it will work in Latin America.

Ross Levine(2005)"Law, Endowments and Property Rights”

This is a research to inspect historically-formed questions; Property rights are affected by law and endowments? Many researchers show property rights are crucial for personal welfare and economic development, but they did not show the reason for differences in property rights among countries.

In this paper, author test the relation between law and property rights, and endowments and property rights. Law means common law(British) and civil law(French). And common law has better property rights than civil one because latter was made to minimize jurisdiction. Endowments mean inequality of wealth. If there is inequality of wealth between people, elites made law to protect and exploit others. And if wealth are equal, law is made for equality.

In conclusion, historical hypothesis is proved.

David S. Lamdes(2006)”Why Europe and the West? Why not China”

This is a study to explain the reason why China lose westerners nevertheless it exceeded western before 19 century.

According to the paper, there were two chances to develop, but China failed. The reason is social system and value.

Chance 1: continuing technology
Lacked a free market and institutionalized property rights.
Lager value of society weights custom and consensus.
-in Europe, Judaeo-Christian respect for labor as religious value
-free market is self-development system because an enterprise is free and innovation worked and paid, that rulers and vested interests were narrowly constrained in what they could do to prevent or discourage innovation.

Chances 2:learn from western
One consequence was a prudent, almost instinctive, resistance to change
Another consequence was a plague of lies and misinformation: officials wrote and told their superiors what they wanted to hear: or what the subordinate thought the superior would want to hear.

Lecture 13: Coordination Problems

Today’s lecture was the last lecture. It was about coordination problems; matching players to achieve efficient outcomes. This is an area of incentive problems.

Multiple Payoff-equivalent Equilibria:
This is a kind of meet friend game(if they meet with each other in the same place, they will be happy otherwise, not. And the place is indifferent)
To attain coordination, we can use sequentially decision, communication, third-party recommendation, and convention.

Multiple Payoff-ranked Equilibria:
This is a kind of previous case, but one place is better than the other. In this case, pure strategy equilibria is same.

Payoff vs Risk(Stag hunt)
Consider previous game + Chicken(two same strategies’ pares are indifferent, and the others are only one player gets outcome).
There are two equilibriums. One is Pareto-dominant, the other is risk-dominant(because if one does not want to get Pareto-dominant equilibrium, one can make sure to get at least something slightly lower than Pareto-dominant equilibrium) there is two ways to attain coordination.
self-signaling:
action is an action chosen partly to secure good news about one’s traits or abilities, even when the action has no causal impact on these traits and abilities.
Self-commitment:
To show willingness to do something.

In this game, it is difficult to know what was perceived by other people.
Coordination on efficient outcomes is reached often with two-side communication, less often with one-sided communication, and very rarely without communication.

Without communication, if third party(public) suggestion is given, they can accept the suggestion if it is efficient equilibria, but otherwise, not.

Weak-Link Games:
Each player’s payoff is determined by the own choice and minimum of opponents’ choice.
For any number of players, there are 7 pure strategy equilibria(each player chooses same number in games)

Evidences:
By experiments, if number of player is increasing, the outcome become worse(because people think there are someone to choose 1).
Moreover, Increasing specialization(team size) can be dangerous. Raise team size only gradually, after having coordinated on a good outcome.

Organizational Languages:
Player: manager and workers
Rule: in 20 round, a manager teaches a worker a order of 8 of 16 pictures. And after that, half of workers join other managers’ pair and taught same thing as other workers do.

Result:
Over first 20 rounds, an efficient and relationship specific language develops (experienced workers are better than inexperienced)

It shows mergers lead to short-run loss of performance(of more than 25%), because of language mismatch.
We can say subjects overestimate value of mergers; they guessed that completion times would not decline so much.
Subjects attributed part of the decline to inefficient newcomers: workers rate new managers worse than old; managers rate new workers worse. Despite understanding that their task is harder (in this experiment, the work itself is same)

Multiple Efficient Equilibria;
“Battle of sexes”
(payoff matrix is like a chicken game, but two equilibriums are indifferent; one is good for one, another is good for another person), but if each of them choose same strategy, they get nothing.

In this game, one-side communication usually reach coordination.
Two-side communication, coordination achieved in 55% of cases if one round of communication; three round is 63%.
Without communication, coordination in 48% of cases.

Authority:
Formal authority: label(King, Boss)
Real authority is an equilibrium outcome

The label(boss, king) indicates that subordinates are supposed to play according to the authority’s directives, and to ignore competing massages from others(If players are given the role of king or servant, they can reach agreement easier than no role)

Remarks:
Labels only affect play if some convention(like the above) is attached.
A player has real authority if all others play the suggested equilibrium.
Formal authority is worthless absent real authority.
Authority only admits choice of equilibrium(do not affect strategy or payoff itself)

Absolute Authority:
The right a player can induce her preferred equilibrium.
If a player has absolute authority, efficient equilibrium is often not achieved because the player does not have credibility.

Divided Authority:
Magna Carta, and the Glorious Revolution gives king better position. Division of power can make everyone stronger by strengthening their commitment abilities.

Lecture12: Bounded Rationality

Today's subject was another type of economic psychological theory; bounded rationality. For bounded recall, the teacher told us relation of memory in Prisoners’ Dilemma, Tid-for-tat strategy, indirect reciprocity. As for Self-serving bias, he mentioned about some experiments and field study. Finally, he treated Time Inconsistency using three period models. What was interesting for me was he mentioned about similarity between economics and biology in the argument of “organization”. That was exactly what I thought!

Bounded recall:
This is a supplement of memory for game because memory is important for institutional solution to incentive problems. In fact, in the repeated two-player prisoners’ dilemma, needed memory is only one period.

Example: Sequential Prisoners’ Dilemma
Player: 1 and 2
Rules: choose C or D, repeatedly
Payoff: U(C,C) U(C,D) U(D,C) U(D,D)
Outcome: U(C,C)=a U(C,D)=b U(D,C)=c U(D,D)=d
C=cooperates, D=defets

Strategies:
Tit-for-tat(TFT): do always others do
TFT is stable when δ is sufficiently large, but it is vulnerable if there is some mistakes to choose. A better strategy is forgiving TFT. Even better is WSLS(Win-Stay Lose-Shift). This means first one sets a target of his payoff, and if the payoff is higher than the target, he stays. Otherwise, he change. If constant positive probability another round isδ>a/b, it is ESS(Evolutionary Stable
Strategy; the strategy to reach maximization without other hypothesis, and Nash equilibrium that can explain social evolution.)

Indirect Reciprocity:
When players switch partners often, with reputation across interactions, cooperation is sustainable. To consider (i) cooperate unless the opponent is known defector, (ii) always defect, necessary condition for cooperation in equilibrium is q>a/b). but of course, one-period memory of actions does not quite suffice because we do not see types, only behaviors.

The justification of government:
According to David Hume, the reasons for needs of government are:
(i) People do not have impartial view
(ii) People cannot plan for long time
(iii) There are public goods

Self-serving Bias:
Agents may have self-serving interpretations of fairness.

Tort Case Experiment:
Self-biased leads disagreement, and if they know each other the rate of impasses become smaller.

A field study:
Public school teacher’s negotiation.
Both employers and teachers use wages in comparison districts as argument, but the comparison is biased. Incidence of strikes is related difference in comparison group. A solution is to add some teacher to board, or to adapt job rotation.

Time inconsistency:
Even a single person may have problems making credible commitments to herself:
The reason for prohibitions is for the merit of a person who wants to do such things.

Time inconsistent model:
U=u(c0)+βΣδu(ct) (if δ<1, the agent is time inconsistent. And δ=1, it is the same as conventional model: U=Σδu(ct))

If taken three period model, Utility is
U= In c1 + βδInc2 +βδ2Inc3
Total income is Y. Suppose interest rate is zero, then
C1+c2+c3-Y=0

Case(i); Full Commitment
Optimization through three period
Case(ii): No Commitment
Consider c3*=Y-c1-c2, c2+c3=Y-c1, and solve c1* to maximize period 1.

If there is no commitment, consumption is higher in Period 2 and lower in Period 3. and if the agents cannot commit, he is worse off. Suppose if politician propose a compulsory pension scheme forcing people to consume less in period 2 and more in period 3. Politician will be elected because they want someone to force them save money for period 3.

Another implications:
1. Why people save illiquid assets:
People want something force them to save money
2. Why they borrow and save simultaneously
People want something force them to save money
3. Why consumption drops heavily at retirement
People views spot time utility optimization
4. Why people agree to ban drugs and prostitution
People thinks it is good for themselves even if they want to do so.
5. Xenical and Antabus
People want to diet or be healthy even if they do not try

Dual Process Mind?
Ambiguity aversion and loss aversion.
There are two ways to decide: instinctive and cognitive
Analyzing dual-self model: long-run/short-run self: period 1 is much and 2 and 3 is less.

Luigi Guiso, Paola Sapienza and Luigi Zingales(2006)”Does Culture Affect Economic Outcomes?”

This is a application economical analysis to culture. In recent years, some research about relation between cultures and economic outcomes emerged through better techniques of cultural analysis. This paper summarizes these approach and achievements.

In this paper, authors define culture as “those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation”, and affect society through prior beliefs and values or preferences.

First, it shows direct impact of culture on expectation and preferences. Second it describes the fact that beliefs and preferences have an impact on economic outcomes. And last, it demonstrates interaction between culture and economics. But it also takes the thought that culture changes slowly and therefore culture is given for people in the culture.


In conclusion, it shows culture affects economical outcomes, and even a culture which was made when it was useful becomes a constraint for another situation, it remains.

Questions:
What is basic logic for effectiveness of culture to beliefs and preferences?

C.K.Prahalad,"The Innovation Sandbox”

This is the paper to promote business in developing countries through innovation to make it possible for poor to access. It describes some successful organization in India, and extracts principles of innovation.

For innovation, key of action is followings:
1. Specialization(=focus on niche)
2. Pricing(=low)
3. Capital Intensity(=Scale merit)
4. Talent Leverage(=specialization of HR)
5. Workflow(=management)
6. Customer Acquisition(=customer driven)
7. Value and Organziation(=Culture)

It is resembles industry structure analysis such as Porter’s five forces. Ultimately, the principle of success of business is same in any situation.

Barry R. Weingast(2005)”The Constitutional Dilemma of Economic Liberty”

This is an application of game theory to constitution problem. In developing countries, there are still no good governance even if they have constitution. This paper approaches with view of self-enforcing from simple government to emergence of constitution. And it shows some implication to make good constitution for developing countries.

In conclusion, it shows two things. First is need of shock to improve constitution because sometime constitutions in developing countries do not match the situations in the countries. Second is adjustment; to remake and add more regulation to meet people’s demand.

Questions:
What is the model for constitution?
Why shock is needed in theory?

Linda Babcock, George Loewenstein(1997)"Explaining Bargaining Impasse: The Role if Self-Serving Biases”

This is a paper about contract theory. It suggests concept of Self-serving bias, which is fair mind depends on the view(not actually situation), and self interest. This biases occurs when there is asymmetrical view from a person, and lead negotiation to a impasse.

This concept of self-serving biases is useful for explaining contradiction such as reason for effectiveness of job search assistance. This area is between economics and psychology. Through the way of experiment is different, these two science is the same essencially.

Credibility

Today was the last lecture of Business English. Two DCS and two LIP. They were great, actually.

Last individual presenter was a girl who was good at previous presentations. Actually, her presentation was not as good as my expectation. But everyone listened carefully, and that made an active discussion after that. I thought that credibility is important for all situations.

After the lecture, I asked teacher about how to study English in Japan. He told me three things. Read English books, watch DVD spoken in and written in English, and join some conversation in English. Actually, these are great way to study.

I will keep studying English, and in the next study abroad, I will become like English-Japanese.

Gary D. Libecap and Steven N. Wiggins, (1984),”Contractual Responses to the Common Pool: Prorationing of Crude Oil Production”

This paper is application of game theory and inspection of it. The paper try to describe effect of bargaining cost to institutions, forms of contract.

In conclusion, it shows concentration has positive effect for output, and form of contract. But, like the prisoner’s dilemma, contracts take form of prorationing even if it is costly.

Tore Ellingsen and Magnus Johannesson(2007),”Paying Respect”

This is a paper about the non-monetary incentive. In pure economics, people work for only monetary incentive. However, it is not true for real world, because workers get utility from respect from employers and co-workers.

There are two models about behavioral agency theory; the social preference approach, and the social esteem approach. Former focuses relationship among people, and latter focuses social value and its influence to incentives. In this paper, authors adapt the former, and discuss evidence that workers respond to attention, symbolic rewards, and trust. Finally, they demonstrate through model of respect and incentives, relation between incentives and respect, and effect of respect to labor markets.

Conclusion is that, economic analysis is wrong to insist that all people always work for money only.

Questions:
What is the model in the paper?
What is the core concept and differences of attention, rewards, respect…?

Sum up the lecture

Sum up the lecture

Today was the last lecture of Sustainable Management. At the first part, teacher said she was disappointed about our poor participation in the course. That was true, but it was difficult to discuss about sustainability, especially in her class, I thought…

Any way, she summarized the structure of the lecture. It was interesting for me. The lecture consisted;

1. Concept:
Concept of Sustainability

2. Business:
CSR, conduct
sustainable market and enterprize
supply chain, customers sustainability
sustainable leadership
financial market and cooperate responsibility

3. Standerize:
social entrepreneur
reporting
social standard

4. Poverty reduction:
poverty reduction


From the all over the course, I learned three things about sustainability.

First is complexity of network. To consider sustainability, we have to look supply chain, from raw material to customer, even to recycle. Network becomes more complex and more long-term, and communication become more and more important.

Second is standardization. To make communication efficient, a system of certification is needed. It should be international one. And in terms of financial market, sustainability should be evaluated. This generates some report of CSR, and indexes.

Last one is poverty reduction. Ultimately, sustainability relates poverty and developing countries because the concept of sustainability is global, and one of the biggest polluters in the future world will be developing countries.

At the same time, I leaned that there are not solid method or theory in sustainability. I do not know why, but I think “sustainability” should not be an independent subject, should be one theme of some business administration because there is some trade-off in real and theory, and sustainability is only theory and ideals.

C.K.Prahalad and Stuart L. Hart, ”The Future at the Bottom of the Pyramid”

This is a proposal for MNCs to enter the Bottom of the Pyramid; Tier 4, the market where people’s annual per capita income is less than $1,500, but the population is 4,000 millions.

Authors pointed that some unreasonable assumption, such as poor market is for government and NGO, has prevented MNCs from Tier 4. But actually, Tier 4 is also area for MNCs and can improve MNCs activity.

As Tier 4 is important for MNC, MNC is important Tier 4, because only MNCs has Resources, Leverages, Bridges, and Transfers. To make use of these advantages, MNCs should build a local base of support, conduct R&D focused on the poor, Form new alliances, increase employment intensity, and reinvest cost structures.

Finally, Tier 4 ‘s market is made by local firm, MNCs, and global partnership.

Sustainable Finance

Today's lecture was hold by a PhD. student. But actually, she was better than the teacher, I thought because of English wise and knowledge of student's attitudes.

It was kind of a presentation in Business English class. Someone complained that she told only knowleage in the paper for the lecture, but for me, it was interesting.

The way to evaluate social investment:
*avoidance screening(negative screening)
*positive screening(choose best in industry, or bench mark)
(these are done by questionaires and talks)

The influence of shareholders:
*amplify external pressure on corporations
*legitimize CSR in the corporation
*take part in shaping norms about CSR overtime

I thought, CSR is a product for social investment.



And from the paper that the teacher presented us, I learned "system view"
That is the way to think sustaibability, social value in long term.

1. To understand the source of change
2. To predict the effect of the source to each external factor
3. To integrate each factor and imagine interaction between them

Sustainability is most difficult problem we have ever seen, I felt. But it means it is most interesting object at the same time.

Paul L. Joskow(1998)”Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets”

This paper examines the importance of long term contract when relation-specific investment is needed. In this research, 277 contracts are used to inspect the hypothesis that relation-specific investment leads durable contract, and the hypothesis strongly supported.

Questions:
What is simple model for this situation?
What is general implication for this?
Is econometrics interesting subject for me?

Thomas C. Schelling(1998)”Self-Command in Practice, in Policy, and in a Theory of Rational Choice”

This paper treats the dynamics of individual preference. People change their value at a certain time, and it is not unusual. In this paper, author first explains such self-command, and develop the concept for rational customer. And second, he takes some experiment, and last shows implications for welfare judgment.

Questions
What is the difference of self-command from simple model, and how the economical model change?
What it the implication for society or law?

Jean Tirole,(2000)”Corporate Governance”

This is an economic analysis of the concept shareholder value, and shareholder society. It shows, in conclusion, the implementation of the stakeholder society makes three lacks: pledgeable income, decision-making, and clear mission for management.

First, the paper starts analysis in a firm level, focusing on pledgeable income, monitoring, and control rights with simple framework. Second, the paper develop the previous analysis for society level to analyze shareholder society. And last it shows the cost and benefit shareholder society such as protecting noncontrolling stakeholders, convenants, exit options, flat claims, emerged fiduciary duty.

Questions:
What is the first basic model?
What is the logic of badness of shareholder society in game theory?
How to analyze cost and benefit?

Lecture 11: Social and Non-materialistic Preferences

In real world, there are more factors than simple pay-off. This is the lecture which justifies those factors.

Reciprocity: give and take
Trust: belief of goodness for someone

Interpretations:
1. Trust and positive reciprocity: You can trust me because I reward you
2. Trust and negative reciprocity: I trust because I punish you if you do not reward
3. Trust and reputation: You can trust me because my valuable reputation is at stake
4. Trust and reliability: You can trust me because I can optimize in this way in the game

Example 1: the Dictator game
Players: a dictator and a recipient
Rules: the dictator distributes 100 unit of money(M) to the recipient
Outcomes: distribute M, receive M
Payoffs:100-M, M

Surprisingly, most of the class choose 50!

Example 2: the trust game
Players: 1 and 2
Rules: if 1 chooses T, its payoff of (1, 2)=(20,20). If 1 chooses T and 2 R, its payoff is (25,25), if 2 does N, it is (15,30)
Outcomes: NT, (T,N),(T,R)
Payoffs(20,20),(15,30),(25,25)

In pure incentive theory, only (15,30) can be choose. But considering positive reciprocity, (25,25) can be chosen.

Example3:the mini-ultimatum game
Players: 1 and 2
Rules: if 1 chooses F, its payoff of (1, 2)=(20,20). If 1 chooses U and 2 chooses A, its payoff is (80,20), if 2 chooses P, it is (0,0)
Outcomes: F, (U,A),(U,P)
Payoffs(50,50),(80,20),(0,0)

Example4:Involuntary trust and ultimatum games
Players: 1 and 2
Rules:1 already chose T, 2 can choose N or R
Outcomes: N,R
Payoffs(15,30),(25,25)

Players: 1 and 2
Rules:1 already chose T, 2 can choose A or P(=punish)
Outcomes: A,P
Payoffs(80,20),(0,0)

Fairness is one of factors to influence our decision.

Models(fairminded)

ui=mi－ψi*f(lmj-mil)

-mi is agent i’s net monetary payoff and j is not i
-ψi is non-negative parameter
-f is an increasing function

But it can not fully explain the reason of player 2’s action or popularity of 50:50.
Extensions of the fairness models are
*worthy audience
*signaling
*both

Example: Esteem for fairmindedness
???

In resent biology and psychology, human’s preference is hot issue. But reciprocity is one of biggest solution.

a negative aspects of positive evaluations

Today’s lecture was also Longer Individual Presentation.　There were four presentation about presentation skills, mafia, JPmorgan, and DLA Norgic. Interestingly, every presentation has same outline, introduction, agenda, contents(What, Why, How), conclusion. I think it is caused by the fact here is an economic focus school.

Familiar comments were amount of information. Someone said that information on slide was too much to understand. I was commented same thing. I thought, especially in not native language presentation, not linguistic communication is important.

Actually, I felt boring in some presentation because they did not put their effort on presentation. But no one pointed that because we had to say only positive comments. I think this―cannot discover core of problem―was the biggest shortcoming of positive evaluation.

Nobel Prize Lecture

Today I skiped my lecture, and went to the Nobel Prize Lecture.

My aim of today was:

1.to know the uniquenesses of novel prize winners
2.to get point of good presentations

and

1 was passion and simplicity

2 was
*simple structure(history to research), but humors are in some part
*fluent means succession of sentences
*change of volume is advanced skill, but it gives confidence
*change of slide's view(picture,script) is also effective

Asymmetric information 3: post contract

Even under a symmetric information, there can be private information about either:
What the agents do
The outcome of agents’ actions
The relevant circumstances facing the agents

In contracts, there are three trade-offs
1. incentives vs risk sharing( we will focus on this)
2. incentives vs rent extraction
3. incentive power vs incentive balance

And three solutions:
1. monitoring
2. incentive contracts
3. regulation (task design)

Model: principle(an employer) and agent(an worker)

Player: a risk neutral employer, a risk averse worker.
Rules:
Worker’s action is unobservable to the employer, only the outcome can be observed.
w wage = α＋βz
e effort
z observed outcome (profit) = e+x
x random variable (mean zero)
r measure of (absolute) risk aversion (worker not only care about wage but also care about risk)
C(e) workers’ disutility of effort
u(worker’s ulitity) is wbar-1/2*rVar〔ｗ〕

Outcomes:
The agent’s utility is
UA=α＋β(e+x)- C(e) -1/2*rVar〔α＋β(e+x)〕=α＋βe- C(e) -1/2*r2Var〔x〕
(because mean x is zero, andαand e is constant)
The principle utility is
UP=e-(α＋βe)
Method to optimum:
We should get β becauseα can allocate surplus in any desired way.
We want to maximize UA+UP
Two steps:
(i) Find the agent’s optimal choice of e for anyβ
β-c”(e)=0
(ii) Find principal’s optimal choice ofβ
Considering about (i), UA+UP = e-C(e)-1/2*r(C”(e))2Var〔x〕
(iii) find the condition which maximize UA+UP by differentiation.
e-C(e)-1/2*r(C”(e))2Var〔x〕is 1-C”(e)-rC”(e)C””(e)Var〔ｘ〕＝0
UsingC“(e)= β, this condition can be rewritten as
β=1/(1+rC““(e)Var〔ｘ〕)
Emprics:
(i)CEO’s saraly positively relate to his firm’s stock return.
(ii)For low return variability, the number is 20-25, and for high variability, it is around 2-5.
In general, CEO’s salary should connect to not only firm’s performance but also depend on negatively industries performance. but in reality, CEO’s salary is positively related industries performance but if there is big share holder, the relation becomes weaker.

Other extensions:
Multiple tasks: Incentive power vs incentive balance
( if focus on one measure, it breaks the balance of incentive)
Monitoring
Multiple agents
-yardstick competition(ideal competition among different markets)
-credibility and tournaments

Appendix: Informativeness Principle and Filtering

Suppose pay can be made own output and competitor’s output.
z is own output = e+x
z2 is competitor’s = e2＋y
w is wage = α＋βｚ＋γｚ２

the worker’s expected utility is then
UA= α＋β(e+x)＋γ（ebar2+ybar）-C(e)-1/2rVar〔α＋β(e+x)＋γ（ebar2+y）〕
= α＋βe＋γebar2-C(e)-1/2r(β2Var〔x〕＋γ2Var〔y〕＋2βγCov〔x、y〕)

The problem is to chooseγso as to minimize
γ2Var〔ｙ〕＋２βrCov〔x,y〕

First order condition is

2γVar〔y〕+2βrCov〔x,y〕=0

Is γ=－βCov〔x、y〕/Var〔y〕

Asymmetric Information 2:post-contract and common values

This case is which buyer and seller knows a common value( not exactly each value, but a correlation to each value). Oil field is one example because oil price is common for all.

Signaling is costly and just a waste, but desirable. For example, price, education, gifts, non-profit, freedom, wages, and so on.

Example1: price and quality signal
Player: seller and quality sensitive customers(S), and quality insensitive customers(I)
Rule: two products: high quality and low quality.
High: cost is 1, value for S is 6, value for I is 5
Low: cost is 3, value for S and I is 4
Outcomes:
1. when quality is known:>efficient???

Example2:Education
Player: productive workers(P), unproductive workers(U)
Rule: P’s productivity is 2, and Us’ is 1. the productivity is privately known and cannot be revealed costlessly. Education shows their productivities. It costs 1/p.
Perfect Bayesian equilibrium which satisfies plausible restriction on out-of-equibrium beliefs.
Outcomes:
P takes education at a cost of 1/2, U takes nothing.

Terms:
Perfect Bayesian Equilibrium:
Bayesian Equilibrium in dynamic games.

Intuitive Creterion:
This is the method to eliminate multiple PBE. If there are deviation to improve payoff, it can be removed if it is Nash Equilibrium.

Pooling Equilibrium:
an equilibrium where senders with different types all choose the same message.

Separating equilibria:
an equilibrium where senders with different types choose different messages.

Example3: Gifts

Player: A and B
Rule: A wants to befriend with B, and it values 1 or 2. B wants to befriend with A only if A’s value is 2. Only A knows his value for friends.
Outcome: A can bring a gift to B.
Even if the gift is worthless for B, A would give the gift because it represents A’s value for friend is 2.

Example4: Effective wages(completely hard to understand…)

Player: employer, worker
Rule: employer has two job; good and bad. Good job’s productivity is qh, and bad one’s is ql. Worker can invest human capital p=qe. Employment is for two periods. In period 1,
Payoff:worker gets w, offered by employer, and in period 2, worker gets βqe where β<1/2(why?)
Outcome: in the least costly separating equilibrium, the employer offers w=o if q=ql, and w=(1-β) β(qh-ql)ql, if q=qh.

Keys:
(i) what is the effort given the worker’s belief about q?
(ii) how much must the good employer type pay to prove qh?

Asymmetric Information 1:pre-contract

Example1:Selling One Unit
Asymmetric information for seller
c = seller’s cost (publicly known)
v = buyer’s value (privately known)
p = offer price
F(p) = the probability that v is lower than p
seller guesses buyer’s value as distribution(here, we assume it is uniform on interval 〔0,vbar〕
seller’s optimal strategy is to make the offer p which maximizes benefit of seller

(p-c)(1-F(p))=(net profit)(probability that v is higher than p)=(p-c)(1-p/vbar)

And p=(c+vbar)/2 maximizes it. But it is inefficiently high.

This mechanism is:
It is difficult for seller to optimize their benefit. And if seller cannot perfectly commit, it is also difficult to optimize. But If buyer makes offer, it is easy to optimize.

If seller has multiple units, he can make more money through quantity discounts. If so, the price for a low number of units will be inefficiently high.

Example2: Red Tape and Corruption

Player: entrepreneurs(E) and bureaucrat(B)
Rule:
B sells licenses to E, and it values 10 for E
E’s wealth is privately knowledge w=10(probability q), w=5(probability 1-q)
B’s price is 5 (if q<0.5), and 10 (if q>0.5)
B have red tape which impose additional cost t to E, but no cost for B.
With red tape t=5, B can charge a price of 5, and charge a bribe of 5-e.
E’s expecting wealth is
Without red tape
If q<0.5
:10-5=5
If q>0.5
:10+10q+5(1-q)-10=5q+5
Outcome
Payoff

Result: red tape is profitable.


Case: Oil Field Organization
If there are common pool problem, it predicts
(i) Excessive drilling
(ii) More concentrated ownership leads to smaller inefficiencies

And it was almost proved in different number of owner and different jurisdictions.

Tutoring

Today we had a tutorial for term paper of Sustainable Management. It was quite better than I had expected.

Before discussion, I was so anxious about what to ask and first of all, what was our main point, because our plan was so broad and abstract. What was worse, I could not express fully about that.

In the tutoring, we decided to focus on adaptation of household level energy generation in EU. First, one member represented we would focus on renewable resources, and this conversation lead the question “what is needed for adaptation of clean energy”. Next, one member stated household solar energy, and it lead private energy generation. And after that, teacher suggested us to focus on EU.

It was too good to be true because before the tutoring, Ian said he did not have any idea. I guess he planed to find some way in tutoring because if teacher agreed, it was easy to persuade other members. I leaned a lot about team management in this class.

sustainability and leadership

Today’s class was the worst class in my study in SSE. One of the reason was I did not read required article, but mainly it is caused by teacher’s skill.

The topic was so abstract, and contents had nothing new.

But I leaned something from the lecture:

1, concept of exampler: association needs leader, manager, and exampler.
2, students who are active has good preparation: I seated next a girl who gave opinion in every lecture. She read quite well and underlined a lot. It was great surprise for me, but it was natural for students.
3, likes attracts likes: I think the quality of guest was quite low. This caused by the teacher because in last term’s lecture, all guest were good and teacher was also great.

From next time, I will read and prepare for discussion!

Longer Individual Presentation

Today’s Business English was only Longer Individual Presentation, and this was my turn!

About my presentation, I got following comments:

bad
1. look script so much
2. too much information in one slide(characters are small)
3. topic is little more complex

good
1. good voice
2. good slide and color
3. hand action

Most impressive thing for me was everyone gave me comment after presentation, not question. I want to say thank you for everyone in class.


About other people’s presentation, what I felt was familiarity is important because it causes discussion with individual opinion. One of today’s topic was consuming attitudes and it caused interesting discussions.

Any way I have derived from big task, so I am happy now.

Nozick feedback

Today’s English class was Nozick feedback and longer individual presentation. In lecture I did not know the word “punctuation”=reading mark, but now I got it.

Nosick feedback:
1. long sentence can be divided by punctuation, or put the mark of illustration before the long part.
2. capitalism opposition> opposition to capitalism
3. If we… sometimes lacks subject. If we > let us
4. difference between OO, which/who XX, and OO which/who XX is that, former means all OO are XX, but latter limits OO only which/who is XX.
5. reason for one’s –ing or why S+V, strive(=to make a great effort to achieve)> aim
6. after ;, we can use capital if the sentence follows is long.
7. however should not be used in sentences, but can used with , , or first and last

Longer Individual presentation:
1. why/what/how are important
2. figure is standard of business communication
3. good chance is not necessary to say


present= give a gift (not represent)


About feedback of my assignment, I found there are many absences of “the”. And even Soviet Union, an unique object, needs “the”.

And there are some spelling mistake and chose of word such as present( not represent).

I will try to care about them.

stable and reliable

Today’s lecture was all individual presentation. I tried to look carefully for preparation of my presentation. Here are some points:

Tone: should corresponds with characters, and atmosphere. But energetic does not always mean good.
Theme: should have some connection for listener.
New info: should be included in presentation.
Standing: stably is important.
Question: should be presented first.
Picture: is better to have some caption
Character: too small is hard to see

I noticed that listeners were always feeling boring. That was big problem…

After the lecture, I asked some question about last assignment. Here are answers for the questions.

Improvement vs improving: -ing is used to express activity.
Equal to vs equal as: to is directly same, as is indirectly such as property of someone.
Stable vs reliable: stable is about quantity, and reliable is about quality.

I will make my presentation now!

Figure, Reason, Point, Before view

Today’s lecture should have been team presentations, but actually was not. This was twice that I misunderstood the obligation of presentation. But it was not bad, because I got an opportunity to improve my presentation.

Today’s lecture style was orthodox: first was summary of the case, and discussion about that. But what I could not understand was she divided class into three, not into group that prepared some presentation, and gave each group each role such as product manager, and started to discuss about the case. I thought this way was inefficient because we can not necessarily express the opinion which was made by group, and ultimately this group preparing and non-group lecture made the quality of discussion lower.

But, of course, there was some positive aspects about that. One was it made clear characters and opinions of individual students. What was more, the discussion confused in two positions; promote organic cotton, and not care about organic. The discussion was interesting because it told me how to express my opinion, and what is good speech.

From this lecture, I learned four things:

Figure: In discussion, or business communication, figure is important and only information we can rely on. For example, figure about distribution, money, time, are most important figures.

Reason: It is also important for discussion. Opinion itself is no value, and reason is true value because there is no room to inspect opinion without reason.

Point: To grasp key factor is important in the premise of figure and reason. For example, what is competitive advantage for a firm.

Before view: This is overlook of discussion. There are some question and requirement for discussion, but before that, to see broadly is more important. For example, in the case of H&M, organic cotton is used by only 1%, it means it might be waste of time to discuss organic cotton.

Globalization opposes Sustainability

Today’s sustainable management was first “lecture”. The theme of the lecture was Sustainable Supply Chain, and teacher explained this from company’s view and customer’s view.

From company:
Most impressive was the fact that globalization opposes sustainability. Globalization necessarily increases transportation, and distance between customer and production of goods. It means more consumption of fuels, concealment of negative information such as child labor or environmental destruction. And ultimately, the goal of the sustainable supply chain is to reduce resources; opposite to marketing.

From customer:
Sustainable Supply Chain means changes of lifestyle for customer. But it also opposition of economy; large consumptions and large productions for growth.


About presentation:
From her presentation, I leaned followings;
Common knowledge is waste of time
Slide should be formatted for efficient information
Credibility is important for attention
Sustainability is naturally boring area for students, because we do not know contradiction to environment in business situation; the core of this area.

Remko I. van Hoek(1999),”From reversed logistics to green supply chains”

This is a study to aiming at making framework of green supply chain to meet ecological foot print’s requirement. This paper demonstrates key points and challenges of research of green supply chain management, and possibility for them in real world.(reverse means recycle)

In this paper, author organizes concepts of reverse logistics, green supply chain, and the change from former to latter. The biggest difference between two is range of players. Logistics means only firms activity, but supply chain contains streams of product, raw supplier to customers, nearly whole society. What is more, globalization make supply chain more broad and complex. To overcome this, this paper suggests firms should not only reverse but also act value-seeking approach, to add some value for products, for resource reduction; ultimate goal.

Esben Rahbek Pedersen and Peter Neergaard(2006)"Caveat Emptor-Let the Buyer Beware! Environmental Labelling and the Limitations of “Green” Consumerism

This is a study for inspecting Green labeling. In 1990s, a great many number of environmental rebelling products were released, and some of them received a great deal of attention while others remain in obscurity. To understand the difference, this paper discusses factors that determine market impact. The conclusion of the paper is that, the differences are caused by over-simplified concept of “green” consumer, and this leads firms fail to capture the actual complexity of consumer value, attitudes of behavior.

gramatical problem

Today's class consisted of DCS and excercises of gramatical mistake in English writing.
followings are some points:

DCS:
*Voice is important(do not read, but tell)
*hand is also important
*familiarity(closeness to topic for listener)
*small paper is good
*last is "thank you for listening"

Excercise:
divide sentences(use some connecting, and find each subject)
*, and or .(full stop)
*Having +++ed,
*since is because + time

make formal:
*other guys>competitors
*are dying>be looking forward to
*great>rewarding
*flop>not beeing successful
*crazy about>very enthusiastic about

find less word:
a check in the amount of $10> a check for $10
along the lines of> like
in reference to > about
in regard to > about
viable to the eye > visible
will you be so kind as to > please

translation feedback

done>>>fullfill
allow>>>to ++
equal as (not to)
future>>> in the future
nation>>>if it means soil, we should use land
mixture>>>combination
characteristic>>s
increment>>>enhancement

Rural area>>country side
promote>>>support
maintenance is uncountable

Ernst Fehr and Simon Gachter(2000)”Fairness and Retaliation: The Economics of Reciprocity”

The aim of the paper is to explain reciprocity, a situation in which two people, groups, or countries give each other similar kinds of help or special rights. Fundamentally, economics expects selfish individuals and they can reach efficient situation in the long run. However, the authors think individuals differently; fairness, and reciprocity, and explain real situation through experiments in laboratories.

The view of reward is more effective than punishment even if it is same in economics is interesting. And the facts that fairness or incomplete constrain is preferable than selfish and complete are also interesting. But I think they can be explain profit maximization in the long term. The result of the paper is interesting for importance of system, but not so interesting for another aspect of human preference, I think.

Rolf Wustenhagen and Jasper Boehnke(2006),"Business models for sustainable energy”

“sustainable energy technologies” can be defined as providing energy services with lowe environmental impact than today, while maintaining economic efficiency and being socially acceptable. This paper is a chapter of a book and it focuses on the sustainable production perspective of this broader picture, by looking at business models for sustainable energy. It starts to describe energy industry, and next overlooks history of researches of business model, and presents appropriate model for sustainable energy technology.

According to the paper, sustainable energy technology is characterized by three factors: environmental externality, capital intensity and long lead times, and the power of incumbents. On the other hand, core concepts of business model are value production(=what is value), configuration of value creation(=how to deliver the value), and revenue model(=how to make money). These factors correspond with each other.

Author says, about value production is customer value. About configuration of value creation, outsourcing is important. And after sales service is contribute to revenue model.

Rolf Wustenhagen(2004)”Sustainability and Competitiveness in the Renewable Energy Sector”

This is a case study of a Danish wind turbine manufacturing company, Vestas. Between 1994 and 2001, Vesta’s sales have increased more than tenfold. This paper examines the key success factor of Vestas, and describes its challenges for future.

The key success factors of Vestas are five.

1.A clear vision for Vestas and the industry; focus on renewable energy
2.Managing internal growth; use government, stock option, school
3.International expansion
4.The politics of wind energy; because energy is regulated industry
5.Social responsibility and environmental management; ISO14001, some certification

However, Vestas faces some challenges for example, U.S. overcapacity of energy, high utilities’ credit rate which prevent to develop projects, change of exchange rate, doubt of core-competence of vertical integration. Theoretically, wind energy is most efficient in other renewable energies and its needs will become increase to meet Kyoto protocol by 2012, but it is not clear how to solve these questions.

John Wiley and Sons, 2006,”Current Issues in the Greening of Industry”

This is a guide for business schools to study environmental case. Today, environmental problem is always discussed in everywhere in the world. But only business school, the heat is low.

For the reason of business school’s neglect of environmental energy issue, this paper presents two reasons. First is business school missed the trends because of big change of one industry different from their traditional way of study of routine whole industry. Second is its interdisciplinarity, which means complexity.

However, actually, the issue of greening industry is appropriate topic for business schools. In the future, it will be more study from the schools.

World Energy Outlook 2008, International Energy Agency

This is a report of IEA about global energy supply and demand in future. It was presented in the face of financial crisis and incremental price of energy in 2007-2008.

The report says, the current energy system is at a crossroads. The risk is lack of investment rather than resources. Urgent action is necessary but key is governmental action to make financial incentive for efficient and low carbon energy and reduction of subsidy of energy consumption.

About future demand and supply, demand will increase 45% from 2006 to 2030. in the supply, fossil fuels account for 80% of energy mix but the share will decrease compared with increase of coal and renewable resource. In the consumption, China and India account just over half of the increase in world primary energy demand.

About investment, over half of investment is for maintaining current level of supply because most of infrastructure is needed to replace by 2030. Most incremental oil will come from OPEC but appropriate investment is necessary.

Surprisingly, oil reserve is enough for 40 years, but the resources are concentrated in small region. And gas is Russia, Iran and Middle East is 56% of the world.

However, decline in oil production is accelerating field-by-field. To combat the decline and offset falling production, large investment must be done. In this process, partnerships between MNCs and national companies are important.

On the other hand, Oil-rich countries have a lot of poverty. If they spend 0.4% of oil and gas revenue for minimal energy service, they can access enough energy.


Most difficult problem is to deal with climate change. In the reference scenario, world average temperature increase to 6c in the end of the century. Three-quarters of projected increase in energy related CO2 emissions in reference scenario arises in China, India and Middle East. Only Europe and Japan are emissions in 2030 lower than today.

To overcome this situation, any strong action must be done.

Emma Sjostrom(2008)”H&M and Organic Cotton”

This is a Case about H&M, Hennes and Mauritz, one of the most famous Swedish companies. In this case, author focuses the challenge of introducing organic cotton products of H&M, such as lead time, marketing, and purchaicing.

H&M’s business concept is “to offer fashions and quality at the best price”. It originated from women’s clothes shop “Hennes”(means “hers”)in 1947, and acquired “Mauritz Widforss” in 1968. It expanded 29 countries through overcoming scandals.

About organic cotton, it started in the 1990s, but it failed because it did not live up to its fashion standard. But in 2004, it was ready to new try with new designer, Stella McCartney. And this attempt succeeded.

To achieve this, H&M had to change many things. For example, manager’s motivation for organic production, certified system, efficient logistics, and so on. It was done by commitments of each department because H&M adapts like SBU system.

For future, CEO thinking three things: long-term line of organic, promotion of organic purchase, and minimizing transportation.

long-term line of organic:
partnership of other organization for changing production sustainably
promotion of organic purchase:
use sustainable activity for advertisement
minimizing transportation:
make or use network other organic production organization

Information does not mean informative, and evaluation is made by audience not by presenter.

Today’s lecture was “Longer Individual Presentation”. I looked forward about that because it was informative for the preparation of my presentation.

Important points;
1. If there is some relation, a topic is interesting
2. an agenda is necessary if contents are complex
3. balance of atmosphere(self image) and topic is important

Daniel;
It has clear structure and simple topic. It was many information, but I could not notice that. And costume is also good.

Niklas;
One slide was good.

Yoshi;
There is too much information in one presentation.


I thought, information does not mean informative, and evaluation is made by audience not by presenter.

Microfinance and study

Today's lecture was guest lecture, Lin Lerpold, Assistant Professor of SSE. She has many experiences both in business and academic. However, I felt her lecture was less interesting than I thought.

The lecture was well organized because we did many things, understanding a basic mechanism of Microfinance, describing challenges of Hand in Hand, and group work and presentation. In the introduction, she talked about five points of microfinance:

1. Peer Selection; lending to group
2. Peer Monitoring; monitor through the group
3. Dynamic incentive; start small lend, and it becomes bigger if repayment is satisfied.
4. Regular Repayment Schedule; repayment is done regularly immediately after lending
5. Collateral Substitute; there is no collateral, but have immediate fund that is 0.5% of loan as the substitute of collateral.

Next, we discussed about a case of Hand in Hand. There were too many activities that Hand in Hand was taking. Her explanation was this was typical type of NGOs because if they want to expand Microfinance, social infrastructure is needed such as school, citizen center, environment, and health and medical care. It was quite interesting point, and for me, it was also interesting to discuss more about confliction of vision and efficiency.

After that, we divided into five groups and did role play taking a role in a group. It was so excited because one of students were from India and had experience to work in a NGO. He said collecting donation is easy and hiring people also easy. But finding right people is difficult and sometimes there are scandals for NGO, such as farmer’s suicides.

About presentation of each group, there was nothing special. Of course, every presentation was clever and each has good information, but it is not real, meaningless to discuss a lot. I think this was the reason why the Indian student seemed to feel boring in the lecture. By the way, English fluentness was much important I felt…

Inside of Coase Theorem

(ii)(if exclusion is possible)
utility of leaving club become zero. Thus, one can sustain the optimal club size.

(iii)(if exclusion is not be credible, but menbers can adjust number of menbers)
if optimal size is not reached, menbers can offer marginal benefit of additional person for outsider.


If one joins at time zero, one can gain
(marginal benefit of optimal size) - pay
If one joins at time one, one can gain
(offer for additional person)

Therefore, encompassing club (n menbers) is sustainable if and only if

(marginal benefit of optimal size)-pay> (offer for additional person)


Summary:
if exclusion is impossible, club is break because free-riding is inevitable.
if exclusion is possible, free-riding is prevented, but optimazation depends on barganing ability of club.


Discussion:

Coase Theorem: if there are no transaction cost and property right, efficiency is reached voluntary.

This is almost true, because barganing power affects negotiation.
(but ongoing work suggest Coase Theorem holds in the end)

(i)limits of punishment and (ii)asymmetric information
is inefficiency that Coase Theorem hides.

seminar2

Economics of Organization Seminar 2

Today was a seminar. I found it was easy but actually, not so easy.
But it is so interesting!!!

(a)
Owner　Invests if
－1－r+δ/1－δ＞－1
ｒ＜δ/1－δ＝－１＋１/1－δ＜２
And customer knows it. Therefore, the assumption is reasonable.

(b)
owner
she chooses not invest because r>p>2.
It can be said there is no open shop.

(c)
f=fee for a gun-man
owner's incentive constraint
(1-f)(1+δ+δ2+...)>0
(this is when f>1)

a gum-man's incentive constraint
-rg+nf(1+δ+δ2+...)>0
n>rg(1-δ)/δf

(d)
c means customer has additional cost (c)for rob.
custmer's constraint changes;
1+δ/1-δ>3-p+δ/1-δ-c
p>2-c
(if p>2-c, customer pays)
It means sometimes r become more than p( if r>2 and p+c>2, r=p+2 r-2=p r>p means punishment cost is larger than punishment itself)
This means sometimes shop owner punishes by himself. But gum-man may create threat to keep their business.


(e)(f)
Quite interesting!!!

(i)short-run thinking where no investment is sustainable
one game, sometimes chicken or prisoner dilemma.
(ii)long-run thinking where investment is occur if δ is sufficiently large
Communication is important. Reputation, gossip credibility are affect efficiency.
(iii)the idea of costly punishment
If there are punishment, negotiation become efficient. Society became bigger and bigger but sometimes efficiency is not reached because punishment is costly and waste and it also has a limit.
(iv)the idea of third-party punishment
Former situation causes professional enforcer and it contribute efficient negotiation. But it enforcer sometimes creates threat by himself because if there is no threat he goes out of business. It makes inefficient situations.
(v)the idea of democratic control over punishment
Democratic society provide police. It does not have incentive to create threat because their salary is decided other way, from tax. It makes most efficient society among five.

2.
(a)
If p1 commits s1, s2' maximum share is 1-s1. In this case, p2 commits 1-s1 as s2.
reverse is the same and this means it is Nash Equilibrium.

(b)
If p1 commits s1, s2' maximum share is 1-s1. In this case, p2 commits 1-s1 or flexible
But if p2 commit flexible at first, s1 commit 1 . This is not synmetrical.
It means it is not Nash equilibrium.

(c)
(i)
If p1 commits s1, s2' maximum share is 1-s1-c.
In this case, p2 commit flexible because 1-s1>1-s1-c.
But If p2 commit flexible at first, s1 commits 1. It means previous equilibrium can be reached no longer.
(ii)
If p1 commits 1 first, p2 commits flexible because there is no room.
If p2 commits flexible p1 commits 1. Its synmetrical, and Nash equilibria.
and vice versa because of the synmetrical condition.

(d)
(i)
(If c>0, s1+s2=1 is impossible)
Nash equilibriums are S1=S2=1, and B1=B2=1/2.
Player1:
Expected payoff of S1: c=commit, f=fail to commit, w=wait, (but there is no choice of p2=w because c>0)
(p1,p2)=(c,f)+(f,c)+(f,f)=q(1-q)1+(q-1)q+(1-q)(1-q)*b1-c
if p1 choose w, expected payoff is
(p1,p2)=q0+(1-q)b1


if p1 commits s1 and it works(with q), equilibria can be reached when p2 choose flexible or fail to commit(1-q).
(ii)
Probability of disagreement is qq, therefore, agreement is given by 1-qq.

(iii)
No. why is it?

(e)
Features which fits the disagreement;
・zero sum game(whole amount of teritory is fixed)
・2 players, commitment is done at the same time.
・commitment stick(because of political power???)


features not be captured by the model;
・third palty's infulence(U.N.,U.S,)(it is impossibe to
・repeated game(not finshed in only once)
・If s1+s2>1, benefit is not lose. Negotiation repeats.

Limited Punishment

It was one lecture absence from last leacture I attended. Today's topic was limited punishment; in real sociaty, it is difficult to punish appropriately because of social system and cost. To achieve efficiency, some rewards should be used otherwise problem of commitment will rise.

This model's implication is useful for relation worker and employ, and entrepreneur and investor. And it also can be applied in justification of controling, defferences of credible system between developed and developing countries, needs of education for alter signaling of money.





Limited Punishment:
Commitment problem can be avoided if “cheating” is punished strongly enough. However, nowadays there are limits to both physical and economic punishments.
Which limit? ;death penalty, economic penalty.
Why are there such limits?; cost(because it is difficult to measure degree of punishment according to each crime. Difference of preference(because value of money or time is different among people, it is impossible to set appropriate punishment. Law(because law should be made before crime is made)

Therefore, in order to deter cheating, there must be a reward for good behavior. Sometimes, the required reward is so large that the parties have to live with the commitment problem.

Example 1:Efficiency Wages
Player: a employer and a worker.
B(e)=outcome of the work
C(e)=cost of the work
W(e)=wage
e=｛eh,eh｝
L=limit of wage

A Employer maximize B(e)-W(e), and a worker maximize W(e)-C(e).
If L is large enough and C(el) is low enough, the worker has no incentive to work with eh, because if she work with el, she can get at least L. It means inefficiency is caused by limitation of wages, and it is impossible to reach efficient equilibria.

To generalize the case, we can assume
B(eh)-C(eh)>B(el)-C(el)>0 (=eh is better than el)
Consider the contract:
W(el)=L, W(eh)=C(eh)
This contract induces effort eh if
W(eh)-C(eh)>W(el)-C(el), sufficient condition is C(el)>L (L is useless)

Interpretation: the contract will always be signed, and effort will always be efficient.

General Analysis of Limited Liability Case;
Suppose now that L>C(el). Then, the above contract does not work. The cheapest way to induce high effort is to set w(el)=L (as before) and set w(eh) to solve. (this means minimum wage is indifferent from w(el) because L is same as w(el))

W(eh)-C(eh)=L-C(el),
: eh and el gave same incentive for a worker.
That is
W(eh)=L+C(eh)-C(el)
:this is cheapest way to reach efficient equilibria.
Incentive wage should be consist of limit wage and difference of cost between motivated and not.

Example2:Corporate Finance
Player :an entrepreneur, an investor
I=investment cost
A=equity
R=gross investment return
b=private benefit to entrepreneur
p=probability of success
w=entrepreneur’s compensation in case of success

Assumptions;
If the entrepreneur works, p=h and b=0.
If the entrepreneur shirk, p=l and b=B>0.
Working good for welfare (h-l)R>B (=hR>B+lR
(work is better than shirk for the worker)
Shirking never supportable: lR-I+B<0(= net revenue of shrink is less than –B)
(shrink is not supportable if net return of shrinking case is more minus than private benefit of entrepreneur.)

Analysis;
Social optimum: Invest iff hR-I>0
Entrepreneur works iff(h-l)w>B(= hw>B+lw)

Rp=R-W=R-B/(h-l); expected return is net return minus wage for entrepreneur.
hRp>I-A; expected high revenue is more than investment cost minus asset of an entrepreneur.

Insight;
B=reputation of an entrepreneur, A=asset of an entrepreneur. It says good reputation and large asset is important for investment.

Investors control:
Monitoring cost (but it is non-monetary)is γ and it increase output by τ, there is funding if
hRp+τ＞I-A
If hRp0 ( it means hw is more than monitoring cost ofγ)

Implications:
Investor control may be justified when entrepreneur has little equity, and when investor control will not impose an excessive burden on the entrepreneur.
(because τ makes it easier to invest ifγ is not so heavy for entrepreneur)

Poor entrepreneur with large funding needs retain few control rights.(no money means no right)

In countries with weak legal enforcement of creditors’ claims, there is scope for other enforcement mechanisms. (development countries has many private finance)

Wealthy entrepreneurs relinquish few control rights( prefer to raise funds through bonds and bank loans with weak covenants)


Broader implications;
Imperfect credit markets imply poor people’s talent.(If someone is poor, she cannot get investment even if she has good talent)

The choice between production and crime is affected by the worker’s labor market prospects( low-skilled worker tends to commit a crime)

Absent sufficient punishment, even selfish rich people may favor some redistribution in order to prevent crime.(if punishment is not enough, not only worker but also employer (usually richer than worker) needs redistribution to prevent crime or shrink.


Words:
Argument; a set of reasons that show that something is true or not. The act of disagreeing of questioning something

Jonathan Morduch(1999)”The Microfinance Promise”

This is a verification of Microfinance. Microfinance is booming but there is not empirical study about its efficiency, there is only a promise. And some Microfinance institutions reject subsidies because government failed the same work as Microfinance.

In the paper, author concludes the effect of Microfinance is limited, and their operations are cost-sensitive because they have to lend small money for large number of people. To improve the cost structure, they have to change management structure or get subsidies. Subsidies are totally beneficial for Microfinance institutions even if it has bad effect. If the cost problem is cleared, they can focus more poor people because they now lend money less poor group of people than they want.

However, “making a real dent in poverty rates will require increasing overall levels of economic growth and employment generation”. Microfinance may be help some part of poverty reduction, but it is only introduction. In future, organizations of Microfinance have to challenge for innovation of new model.

Thomas C. Schelling(1956),"An Essay on Bargaining”

This is the oldest and the most difficult economic paper I have ever read. And First paper written by Nobel prize economist, Thomas C. Schelling, a expert of game theory.

It was hard to read because when it was written, there was no framework of game theory. In this paper, a situation of bargaining is written in a text without mathematics.

Mainly, it describes a difficulty of efficient bargaining beecause each negotiator has incentive to cheat. In other words, making credibility is impossible. To overcome the difficulty, it is useful to use share value (i.e. culture, religion), third party (=law, cort), separated stage, commitment.

The reason to use separated stage is that, if a negotiation is divided into some parts, a merit from each game becomes lower, and incentive to build credibility becomes bigger because credibility is important for future games. This application can be seen in daily life; amortization, short examination in each class, and so on.

In commitment, weakness is strength. If adversary knows opponent’s constraints, he have to consider the condition because it can not be changed by anyone. It can be say in a abstract game, if one has dominant strategy, he/she get high score because its opponents premise its choice.



I spent reading it for a week… Next time, I will read two days!!!

Teacher is evaluator

Today's lecture was presentation!
We had a presentation, and listened others'.


Now, I am so interested in methods of presentation because I will have one in Business English class.

From today's class, I learned following:

1.voice
most important thing is voice. Clearer and Stronger is better.
fluents are also important.

2.hand
Second is hand actions. It make explanation clearer.




Most impressive thing was confidence.
They did not need any help from teacher, they demonstrated "We want to <>, and we will do by <>". For me, teacher is person who gives answers and help. But for them, teacher is audience to evaluate them. To get high grade, they appeal their skill and talent even if actually not so. It is completely different for me.


The contents itself were not so advanced, I thought. But presentation and English were really good.


What the teacher pointed was "Narrower is better". She wanted us to focus business analysis for sustainability. Everyone felt that in class, because she will evaluate us.

Bargaining and Efficiency

Today's lecture was taken by the professor after an interval of a week. The lecture started from the rest of last lecture.


Rest of the last lecture:
This was the case of professional enforcement in a game which there are several shops and customers. Setting r=imidiate punishment cost, δ=discounter, punishment enforcer is easier to sustain in a price equal to marginal cost. It can be say natural monopoly because it is only price competition and if a enforcer enter and down the price, shops go it, and finally, two enforcers share a market in the same price.

These game describes we can reach efficient equilibria by changing our view, not changing situation and resource.


After that, we proceeded new topics:Strategic Bargaining

Strategic Bargaining:
Suppose each player can choose between (i)going directly to the negotiation table and (ii)trying to grab surplus(commit how much he/she want, and if it is possible, he/she can get it). Previously, we assumed efficient and fair negotiation. But this time, we assumed strategic negotiation.


Strategic Grabbing:
Before a game, each player can choose
Suppose each player can choose between (i)going directly to the negotiation table and (ii)trying to grab surplus, and this situation also can be described as game. Sometime, we can see "prisoner's dilemma" or "chiken"(there are two Nash Equilibria, and each choice has risk became lower)

Strategic Commitment

*mathmatical symbols
{A,B}=consists of A and B
[A,B]=consists A to B (contains A and B)
(A,B)=consists A to B (does not contain A or B)
{A}=collection of A


Old result(suppose cost of commitment(c) is zero, probability of commitment success (q) is one):

If commitments are costless and perfect, any feasible payoff can be obtained in equilibrium.(Nash,1953;Ceawford,1982)


Newresult:(suppose c>0, q=1)
With small positive commitment costs and perfect commitment, irerated elimination of strictly dominated strategies leaves only three solutions:
(i)Player 1 gets everything for sure
(ii)Player 2 gets everything for sure
(iii)conflict with large probability

idea of proof: If s<β, w is selected, then other player choose S as 1

New result 2(suppose c>0, q<1)
result 3
With small positive commitment costs and imperfect commitment, iterated elimination of strictly dominated strategies implies conflict with probability q2

Idea of proof:
(a)show that w strictly dominates si<βi
(if si<βi, si-c<βi, therefore each player choose w)

(b)show that mixd strategy which plays 1 with probability si and w with probability 1-si,
now strictly dominates si<(βi,1)
(if bi
(c)1 dominate w
(each players dominate w?)


New result 3:Dynamic bargaining
This is repeated game.
Suppose that failed negotiations continue until agreement.
(i)As long as both negotiators are commited:disagreement
(ii)If both uncommited:Efficient agreement
(iii)If one committed and the other uncommited: the uncommitted negotiator deciders whether to accept proposal or make new commitment

Let c=0, and V denote expected present net value of a player, δ denote discount factor.

V=δ(qqv+q(1-q)v+(1-q)q(1-v)+(1-q)vv)

{qqv,q(1-q)v,(1-q)q(1-v),(1-q)vv}＝{(commit,commit),(commit,uncommit),(uncommit,commit),(uncommit,uncommit)}


V＝δ(1-q2)/2(1－δq2)

if q goes 1, v become 1/2.

Dead Celebrity Surprise

Today, I have a presentation: Dead Celebrity Surprise(DCS).

It was worse than I had expected.
The reason was;

1.It was not interesting for me(lack of my energy)
2.The frow of the text was not good
3.There were not so relevant picture to contents(lack of correspondence)
4.Not so enjoyable for me
5.My English was completely bad


Sometime, I forget I am worst English speaker in the class.
But I will try to make use of my strength.






Translation:
In many case, there are lots of long sentences in the object of translation.
We should change the sentence and divide them into a few sentences. We can also change the order clause in order that is easer to read.

And sometimes, the standard is not "right", but "clear".

Followings are other points;

*person=always , who
*many=many people
*on one's behalf of= always one's is other's
*repetition=noun of repeat

The use of this/that:
It represents distance about space/time. Of course, this is closer than that. But this and that are used at the same time as parallel:
This??, and that??
this=something you like, and that=something you do not like



Presentation:

We talked about looking and contents. For me, the best harvest in the talk was "audience",reason for the presentation. Because in my longer individual presentation, the audience is fixed, and I can tell preferences of some of them. It means we have to consider in choosing topic. I have decided my theme already, but I will make some reasoning about the topic for the audience.




Feedback of email English:

After the class, I asked some questions about feedback of my assignment.
These are the points:

*the difference between "this is why" and "this is a reason why".
"this is why" is reason.
"this is a reason why" is one of reasons.
and "this is a reason that" is wrong sentence.


*stuff
stuff is a collective noun as sheep.
stuff= a group of stuff
stuffs= groups of stuff

*reach/arrive
reach needs object(reach my home)
arrive needs nothing(arrive)




Anyway, I finished one of my big work in the class.
There are one more presentation. And today's topic was about the method of translation and presentation.

Sustainable, CSR reports

Today's lecture was about accounting CSR and sustaibability. The topic was so interesting because measurement of CSR is big problem for sustaibability.

Today, a guest came from an accounting firm. She was good at speaking English and talking. She was a kind of activist, but she knew about business or economics through her job and experience of study in a unversity. It was surprising for me, and big difference between most activists in Japan, I think. Howver, I could not comprehend fully what she spoke because of my lack of ability to hear.

The structure of the lecture was simple.

1.fact(problem/solution)
-global index(macro)
-example(micro)

2.CSR
-defenition
-position in society

3.CSR report
-why report is necessary
-law(government)
-report(private)
-index


What I was supprised at was Sweden has compursoly law for reporting CSR.
It is difficult in Japan.


And I leanrd two new things:

350(ppm): That is the level to which Hansen believes we need to reduce the concentration of carbon dioxide (and by implication, other greenhouse gases) in the atmosphere if we want to avoid a series of catastrophic climate tipping points.

ANIARA:The poem of a famous Swedish writer , Harry Martinson, who was a Nobel prize writer in 1972. This is about space travel and its human struggle. the story is really interesting.

I will read someday, and also read CSR report in this week!

translation presentation

Today's class started from DSC, self presentation about three dead celebrities. And we had short presentation about each text of translation.

Concerning DSC, four people presented their parties.
It was so interesting because everyone devised the way of presentation to make fun! most impressive thing was everyone set a theme about party, and clarified it at the beginning of the presentations.



In the part of explanation of the assignment of translation, it was bad.

I prepared well, but it was not good. I think the reason was it was so long for the class, and I could not put my feeling into the reading.


Today, I have DCS, so I will try to overcome such a fault.

email feedback!

I received e-mail assignment feedback.
The point was not bad, but grade was "G".
What happend? I will ask teacher.


What I have learned was follwings:

*"have" can not be used with "yesterday"
*trouble is uncountable
* and/so is used succession of time
*"go" is need with preposition(from, in, to, on)
*if it is a trip, road should be trip.
*This was why /reason
*consider does not need prepositions
*one of **s? staff is singular?
*invoice "for"
*not plane, but flight(if it is a service)
*compensate "for"
*plane road>>flight
*ticket "for"
*next needs "the"
*confirm needs no preposition
*trouble "with"

Seminar1

Today’s class was different class from ordinal one. It was just explanation of the seminar of the class. This was why the teacher was different. But her English was quite good.

The points of the seminar for me were following:

1. Talk does not mean credibility
If two players talk before the game, it does not always mean they can reach efficient equilibria. If there is one Nash equilibria, they can reach the equilibria. But if there are two equilibrias, it does not always reach the most efficient one. This is because payoff and credibility are different thing.

2. In stage game, we have to guess about the relation between them
If the game has several stages, there are some relations between them. We have to guess about it even if it is not mentioned. It becomes possible to make integrated game table.

By the lecture, I learned I had missed a lot of things about glossary of game theory. These are following:

Bayesian game:
The game the information is incomplete, but each player knows probability of opponent’s behavior.

Bayesian Nash equilibria:
The equilibria that maximize each player’s expected value.

Perfect Bayesian equilibria(PBE):
Subgame perfect Nash equilibria(Subgame perfect equilibria) in incomplete information

Mixed strategy equilibria:
The correction of probabilities of strategies.

Subgame perfect Nash equilibria(Subgame perfect equilibria):
The definition in dynamic games and it represents a Nash equilibrium of every subgame of the original game.

Thirds eye!

Today's lecture was the first guest lecture in Sustainable Management class.
The lecturer was a human right lawer, and so energetic woman.

Her speech was very practical matters, such as "Annual report is always wrong". And I remembered my experience about studying economics of developing countries.

What I felt were

・Is it enough to think agriculture in Japan?
・how can/should Japanese agriculture contribute "sustainabiliuty"?
・What does it mean to promote Japanese agriculture in the world now?



It was so critical question, but I will find answers by when return Japan.

Anyway, I will work not only study.

What is CSR?

Today's(Wednesday's) class was introduction of CSR.
The class started from a question "What is CSR?". Our definitions are "business going an extra mile(outside financial value) to add value to society", "refraing from activities activities that harm society", " add value to society beyond legal or duty"

And a question, "what is duty?" was following. In our defenition, it was "law about safety(employee, customer, environment)", "corperate law".

Last one was "what is society?" It was difficult to define. "people, stakeholder, and environment".


In some literature, CSR is difined as "value-driven" activity.


I was not so interested in the class because my corncern is a little bit different form sustainability. But I became understood that "sustainability" means not only environment but also poverish or developing countries, agriculture!

Michel E. Porter and Mark R. Kramer, ”Strategy& Society, The Link Between Competitive Advantage and Corporate Social Responsibility“

This is Porter’s view of CSR. The view has the same framework as Competitive Forces. He criticizes that many CSRs are not productive because firms pits business against society and CSRs are too general to exploit firms’ strengths.

Authors are claiming today’s justifications of CSR are meaningless and have no implication. These justifications are moral obligation, sustainability, license to operate, and reputation. Sometimes, sustainability works as reducing waste, but it is not enough. These mistakes occur from separate from independence of CSR from business unit.

Competitive context:
According to authors, competitive advantages of firm for society are categorized into four area:
1, the quantity and quality of available business inputs
2, the rule and incentives that govern competition
3, the size and sophistication of local demand
4, the local availability of supporting industries

Social issues:
Authors also say social activities divided into three:
1, Generic Social Issues
2, Value Chain Social Impact
3, Social Dimensions of Competitive Context

Step:
Finally, they say firms should take action in the following way:
1, Creating a corporate social agenda
-Responsive CSR, internal process(acting as good citizen, attuned to the evolving social concerns of stakeholders, and mitigating existing or anticipated adverse effects from business activities.
-Strategic CSR, outside-in prosess
2, integrating inside-out and outside-in practices


I think categories of CSR and analysis nowadays CSR is good, but others are not so. The example is all multinational companies. Its kind of boring because many firms is not MNCs. And it is most important, I think.

Presentation!

Today’s class was EU presentation. This was the first one for me.

The problem is that this is the group presentation. Before presentation, I worried about we could do good presentation because our theme was completely the same as other groups, and we did not have any rehearsal, most of all, other members’ slide were so poor.

However, these worry was completely wrong. The presentation was really good!!! In my part, I stressed “We will show you different aspect” even if I was not sure my teammates prepared these topics. But they did.

Our presentation harmonized each other at high level. I appreciated them and I was appreciated by them, too. It was one of the best memory in SSE!

Avinash Dixit (2003)”On Mode of Economic Governance”

This is a study for explaining intermediate in repeated game. The paper explores a model of contract governance in large-group interactions by profit-maximizing private intermediation. In conclusion, it says four things:

Under self-government, the choice between honesty and cheating for each side is similar and produces different outcome. And scope for one-sided or two-sided private for-profit government.

A better public information can locally increase rather than lower the intermediary’s profit.

Punishment is better than information in terms of profitanbility.

Profitable intermediation is contested by monopoly.


Q How it set the strategy?
Q What is “And scope for one-sided or two-sided private for-profit government.”?
Q Is this summary right?

SANDVIK CODE OF CONDUCT

This is a general statement of a company. It is not interesting because most of notions are too ordinary to make difference. However, order of statement is interesting for me.

Compliance: responsibility of complaint, finance
Business operation: suppliers, labors, working conditions,
Environment: natural resources, prevent of contamination
Communities: cooperation with local communities, independent from politics, support culture

What is SANDVIK business?

Debora L. Spar, Lane T. La Mure(2003)”The Power of Activism: Assesing the impact of NGOs on Grobal Business”

This is study about power of activists to MNCs. In the face of activism, MNCs choose one of three strategies: preemption, captiulation, and resistance.

The choices of MECs can be explain profit maximization because NGO impose cost MNCs. The cost differ among industry. Natural resource industry has higher cost than manufacturing one because of independence of the location.

In the face of activism, the role of top management is important. The self motivation of CEO is hard to explain. This study does not focus on CEO, but other thesis shows it is possible to get empirical answer of CEO’s motivation through relation between public account and high-profile of CEO’s. In future, it will be integrate with some theory.


Q, how it explain difference among industries’ strategies? And how to empirical?
Q, what is public account and high-profile?
Q, profit-maximization is truly one tool of analysis?

Avner Greif, Paul Milgrom, and Barry R. Weingast(1994)Coordination, Commitment, and Enforcement: The Case of the Merchant Guild

The aim of this paper is to interpret historical evidence to game theory. In the paper, it shows the mechanism of merchant guilds through framework of repeated game.

Surprisingly, game theory can explain history more clearly than old economic theory. Old theory, about cartel, can not explain facilitation of transaction by guilds. It only implies limiting trade for up grading price. On the other hand, repeated game can fully explain the expansion of guilds and their emerging.

It is also interesting two theories have same foundation but conclusions are different. And, later, cartel theory became true when trade were secured by bigger institutions and the interest of guilds became their merit.


Q, how to suppose the condition of act?
Q, what is main difference between game theory and cartel?
Q, why guilds change their role later? Has their interest changed?

Wesly Cragg(2000)”Human Rights and Business Ethics: Fashioning a New Social Contract”

The aim of this paper is to build “new social contract” . Because today, there are growing globalization and multinational corporations all over the world, and each government can not control fully their activities.

His suggestions are following:

1,New business frame work to promote increasing living standards by international trading. And also it is to prevent to transfer wealth from already rich to still poor.

2,New business frame work to meet CSR: human right, environmental act.

3,New frame works require partnership firms and governments. National and international governments should regulate and make foundation the environment such preserve fundamental human right and international commerce.

4,New contract needs monitoring system of civil society or private sector.

5,remind ourselves, “commerce without conscience is a formula for human exploitation not human development”


Q Is it true the needs of new contract?
Q What makes difference if the new contract is made?
Q What is main difference among firms, governments, and civil society?

J.Ahlstrom, E. Sjostrom(2005)”CSOs and Business Partnerships: Strategies for Interaction”

The object of this study is collaboration of Cross-sectoral partnership. This study shows Civil Society Organizations(CSOs) are divided into four: Preservers, Protesters, Modifiers, and Scrutinizers. And only Preservers have strategy to make partnership with firms, compared with independent strategies of others.

For companies seeking partner in their activities, it is important to understand which category the CSO belongs. Preservers are usually found easily because they were mainly formed in 1800-1970s and established their brand.


The structure of the paper is clear, and English is very easy to understand. But I do not think the category is right, category itself is true but strategy might be different from each others.


Q, why 4 kinds of CSOs take different strategy?
Q, what is partnership? Money?HR?
Q what is successful CSO?

K.S. Nilsson(2004)”The (Ir)responsible Organization―Argumentative Themes in the Literature on Corporate Social Responsibility and Corporate Citizenshi

K.S. Nilsson(2004)”The (Ir)responsible Organization―Argumentative Themes in the Literature on Corporate Social Responsibility and Corporate Citizenship

This is the study for CSR or Corporate Citizenship(CC). this paper arranged arguments that were taken place in this matter. The discussion in the paper shows two aspects of CSR and CC: conflict of interest between opponents and proponents regarding merit and drawbacks of CSE and CC. Clashes are caused by sub-groups.

However, this paper also shows CSR and CC are influenced by institutional form of organization. And the social activities end up cementing, rather than changing, hypothesis of profit maximization.


Q what is CSR and CC?
Q what is the difference of Institutional setting?
Q why profit maximization is bad( from the view of author)?