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Optimal Mix Of Penalties In A Principal-Agent Model Under Different Institutional Arrangements

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  • Dietrich Earnhart
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    Abstract

    This paper uses principal-agent theory to examine the optimal mix of monetary- and resource-based penalties in two institutional settings: a market economy and a centrally planned economy. In a centrally planned economy, an agent's wealth depends mostly on real resources and little on monetary resources; therefore, monetary-based penalties have less penalizing power than do resource-based penalties. Based on this premise, theory generates hypotheses regarding differences in the optimal mix of penalty types between the two economic systems. This paper empirically tests these hypotheses using data from the Czech Republic regarding enforcement responses to water-damaging accidents (such as oil spills). © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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    Bibliographic Info

    Article provided by MIT Press in its journal The Review of Economics and Statistics.

    Volume (Year): 82 (2000)
    Issue (Month): 4 (November)
    Pages: 634-645

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    Handle: RePEc:tpr:restat:v:82:y:2000:i:4:p:634-645

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    Web page: http://mitpress.mit.edu/journals/

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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    Cited by:
    1. Lubomír Lízal & Dietrich Earnhart, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," William Davidson Institute Working Papers Series 492, William Davidson Institute at the University of Michigan.
    2. Earnhart, Dietrich & Lizal, Lubomir, 2006. "Effects of ownership and financial performance on corporate environmental performance," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 111-129, March.

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