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


  • Dietrich Earnhart


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

Suggested Citation

  • Dietrich Earnhart, 2000. "Optimal Mix Of Penalties In A Principal-Agent Model Under Different Institutional Arrangements," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 634-645, November.
  • Handle: RePEc:tpr:restat:v:82:y:2000:i:4:p:634-645

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    References listed on IDEAS

    1. Forni, Mario & Reichlin, Lucrezia, 1996. "Dynamic Common Factors in Large Cross-Sections," Empirical Economics, Springer, vol. 21(1), pages 27-42.
    2. Forni, Mario & Lippi, Marco, 2001. "The Generalized Dynamic Factor Model: Representation Theory," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1113-1141, December.
    3. Forni, Mario & Reichlin, Lucrezia, 1997. "National Policies and Local Economies: Europe and the United States," CEPR Discussion Papers 1632, C.E.P.R. Discussion Papers.
    4. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, January.
    5. Mario Forni & Lucrezia Reichlin, 1998. "Let's Get Real: A Factor Analytical Approach to Disaggregated Business Cycle Dynamics," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 453-473.
    6. Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008, June.
    7. Chamberlain, Gary, 1983. "Funds, Factors, and Diversification in Arbitrage Pricing Models," Econometrica, Econometric Society, vol. 51(5), pages 1305-1323, September.
    8. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Earnhart, Dietrich & Lizal, Lubomir, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CEPR Discussion Papers 3557, C.E.P.R. Discussion Papers.
    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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