Abstract. I investigate the multiple agency problem when agents can monitor the per-formance of other agents. A particularly interesting incentive scheme of this sort has been used by the Grameen Bank of Bangladesh and I use this example to investigate some general questions involving group incentive schemes. For example, I show that a principal prefers a monitor who can reduce the costs of desirable actions rather than increase the cost of undesirable actions. I also consider when it is beneficial to the principal for agents to mutually insure each other. Finally, I examine a sequential incentive plan in which agents form a group and first serve as monitors and later are monitored by other agents.

The standard economic model of efficient competitive markets relies on the ability of sellers to charge prices that vary as their costs change. Yet, there is no restructured electricity market in which most retail customers can be charged realtime prices (RTP), prices that can change as frequently as wholesale costs. We analyze the impact of having some share of customers on time-invariant pricing in competitive electricity markets. Not only does time-invariant pricing in competitive markets lead to outcomes (prices and investment) that are not first-best, it even fails to achieve the second-best optimum given the constraint of time-invariant pricing. We then study a number of policy interventions that have been proposed to address the perceived inadequacy of capacity investment. We show that attempts to correct the level of investment through taxes or subsidies on electricity or capacity are unlikely to succeed, because these interventions create new inefficiencies. We demonstrate that the most common proposal, a subsidy to capacity ownership financed by a tax on retail electricity, is particularly problematic. An alternative approach to improving efficiency, increasing the share of customers on RTP, has some surprising effects. We show that such a change lowers the equilibrium price to flat rate customers

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comments on an earlier version of this paper. We consider a Cournot equilibrium where firms with identical cost functions produce a homogeneous good. A subset of these firms faces an exogenously-induced marginal contraction of individual output. We show that for any given finite number of firms greater than one, each firm in the subset will gain (lose) if the number of firms in the subset is sufficiently large (small). With constant marginal costs of production and a linear inverse demand curve, the firms in the subset will gain if and only if they outnumber the firms outside it by more than one. In general, the firms in the subset will gain if and only if their number exceeds by more than one an "adjusted" number of outside firms, where the multiplicative adjustment factor depends on the curvatures of the cost and inverse demand curves. In a price-taking equilibrium, on the other hand, the firms in the subset will never lose from a marginal contraction of their output. Indeed, they will strictly gain if

We have received helpful suggestions from many colleagues in writing this paper. These include, but are not limited to, Joel Slemrod, Alasdair Smith, Bob Stern, Jerry Thursby, Marie Thursby, and others who participated in seminars at the

A Solution to the Problem of Externalities and Public Goods when Agents are Well-Informed. by

Abstract. This paper examines the legal rules that govern the interpretation of standardized form contracts. Different legal rules induce different bargaining games between buyers and sellers, and can have consequences for the efficiency of exchange when communication is costly. The traditional common-law rule, which binds an assenting recipient of a form contract to fine-print terms he has not read, has little effect in encouraging parties to read contracts, contrary to the conventional wisdom among lawyers. Instead, there is little practical difference between a rule that nominally holds the drafter of a fQrm contract responsible for communicating its terms, and one that holds the receiving party responsible. Moreover, the traditional rule may be Pareto inferior to a rule providing presumptive warranties when negotiation is costly.

The standard economic model of efficient competitive markets relies on the ability of sellers to charge prices that vary as their costs change. Yet, there is no restructured electricity market in which most retail customers can be charged realtime prices (RTP), prices that can change as frequently as wholesale costs. We analyze the impact of having some share of customers on time-invariant pricing in competitive electricity markets. Not only does time-invariant pricing in competitive markets lead to outcomes (prices and investment) that are not first-best, it even fails to achieve the second-best optimum given the constraint of time-invariant pricing. We then show that attempts to correct the level of investment through taxes or subsidies on electricity or capacity are unlikely to succeed, because these interventions create new inefficiencies. In contrast, increasing the share of customers

This article addresses the supply and pricing of backup power to be provided by local distribution companies to industrial self-generators. Optimal self-generation investment and backup power contracting strategies for self-generators are characterized. The paper characterizes welfare-optimal pricing and second-best pricing for a local distribution company (Disco).

In Korea, the price schedule for local telephone combines two-part tariffs and peakload pricing subject to rate-of-return (RoR) regulation. Although the effect of RoR regulation on two-part tariffs or peak-load pricing has been separately analyzed by many authors in some detail, the behaviour of regulated firm under combined two-part and peak-load pricing has not been studied until now. This paper examines the effect of regulation on the rate structure and welfare under combined two-part and peak-load pricing.