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Even as the evidence of global warming mounts, the international response to this serious threat is coming unraveled. The United States has formally withdrawn from the 1997 Kyoto Protocol; other key nations are facing difficulty in meeting their Kyoto commitments; and developing countries face no limit on their emissions of the gases that cause global warming. In this clear and cogent book-reissued in paperback with an afterword that comments on recent events--David Victor explains why the Kyoto Protocol was never likely to become an effective legal instrument. He explores how its collapse offers opportunities to establish a more realistic alternative. Global warming continues to dominate environmental news as legislatures worldwide grapple with the process of ratification of the December 1997 Kyoto Protocol. The collapse of the November 2000 conference at the Hague showed clearly how difficult it will be to bring the Kyoto treaty into force. Yet most politicians, policymakers, and analysts hailed it as a vital first step in slowing greenhouse warming. David Victor was not among them. Kyoto's fatal flaw, Victor argues, is that it can work only if emissions trading works. The Protocol requires industrialized nations to reduce their emissions of greenhouse gases to specific targets. Crucially, the Protocol also provides for so-called \"emissions trading,\" whereby nations could offset the need for rapid cuts in their own emissions by buying emissions credits from other countries. But starting this trading system would require creating emission permits worth two trillion dollars--the largest single invention of assets by voluntary international treaty in world history. Even if it were politically possible to distribute such astronomical sums, the Protocol does not provide for adequate monitoring and enforcement of these new property rights. Nor does it offer an achievable plan for allocating new permits, which would be essential if the system were expanded to include developing countries. The collapse of the Kyoto Protocol--which Victor views as inevitable--will provide the political space to rethink strategy. Better alternatives would focus on policies that control emissions, such as emission taxes. Though economically sensible, however, a pure tax approach is impossible to monitor in practice. Thus, the author proposes a hybrid in which governments set targets for both emission quantities and tax levels. This offers the important advantages of both emission trading and taxes without the debilitating drawbacks of each. Individuals at all levels of environmental science, economics, public policy, and politics-from students to professionals--and anyone else hoping to participate in the debate over how to slow global warming will want to read this book.

During the Old Babylonian period (ca. 2002-1595 B.C.), the city of Nippur was a primary center for transmission of Sumerian culture, and its scribal schools (called edubba in Sumerian, lit. 'the house of the tablets') had a great reputation throughout ancient Mesopotamia. The function of the edubba was twofold: to train the scribes in the skills of their profession, equipping them to record day-to-day affairs, and to preserve and pass on their cultural heritage. In the last phase of early education, pupils were trained comprehensively in the formal rhetoric of administration and law by compilations of the so-called 'model contracts,' together with 'model court cases,' legal phrasebooks and collections of legal principles. While they were not functional documents, but simply didactic tools (being stripped of incidental details, such as list of witnesses and date), model contracts follow the common patterns of Sumerian contract types and represent a comprehensive assortment of all possible transactions that the ancient Mesopotamian administration might have been required to draw up in everyday economic life: barley and silver loans; deeds of real estate, field or slave sale; marriage contracts; adoptions, and so on. The book contains the publication of the Sumerian model contracts from Old Babylonian Nippur kept in the Hilprecht Collection, Jena. The edition provides transliterations, translations, commentaries of the entire corpus and of some duplicates kept in other cuneiform collections; the indexes comprise personal names, deities, toponyms and a glossary. Finally, the plates at the end of the volume offer handcopies and photographs of all the HS tablets.

Can an organization avoid blame for an unpopular action when an adviser advises it to do it? We present experimental evidence suggesting this is the case--advice to be selfish substantially decreases punishment of being selfish. Further, this result is true despite advisers' misaligned incentives, known to all: Through a relational contract incentive, advisers are motivated to tell the decision makers what they want to hear. Through incentivized elicitations, we find suggestive evidence that advice moves punishment by affecting beliefs of how necessary the selfish action was. In follow-up treatments, however, we show advice does not decrease punishment solely through a beliefs channel. Advice not only changes beliefs about what happened, but also the perceived morality of it. Finally, in treatments in which advisers are available, the data suggest selfish decision makers act more selfishly.

This paper reviews theoretical and empirical work on financial contracting that is relevant to accounting researchers. Its primary objective is to discuss how the use of accounting information in contracts enhances contracting efficiency and to suggest avenues for future research. We argue that incomplete contract theory broadens our understanding of both the role accounting information plays in contracting and the mechanisms through which efficiency gains are achieved. By discussing its rich theoretical implications, we expect incomplete contract theory to prove useful in motivating future research and in offering directions to advance our knowledge of how accounting information affects contract efficiency.

Research Summary: Using arguments derived from transactions cost economics and incomplete contract theory, this article shows that the assumption that shareholders are a firm's only residual claimants is logically inconsistent with resource‐based theory's model of profit generation. It follows from this conclusion that resource‐based theory's model of profit appropriation must incorporate a stakeholder perspective. Some theoretical and empirical implications of this conclusion for resource‐based theory's model of profit generation, profit appropriation, the role of managers and entrepreneurs in resource‐based theory, and how conflicting interests among stakeholders can be resolved are all discussed. Finally, some continuing differences between stakeholder theory and incorporating a stakeholder perspective into resource‐based theory's model of profit appropriation are also discussed. Managerial Summary: Some argue that since shareholders are the only stakeholder who have a claim on a firm's profits, managers should focus only on maximizing shareholder wealth. Not only will this satisfy shareholders, it will also satisfy a firm's other stakeholders, since—in principle—these other stakeholders get paid before shareholders. This article shows that this logic is deeply flawed. In particular, it shows that if the only stakeholder who has a claim on a firm's economic profits is shareholders, then—in most competitive settings—a firm will not be able to attract the kinds of resources it needs to generate these profits. To attract the kinds of resources that can generate profits, managers must recognize that stakeholders, besides shareholders, have claims on the profits that their resources help generate. This, in turn, suggests that managers seeking to generate economic profits must adopt a stakeholder perspective in how they manage their firm. This article explores the managerial implications of this conclusion.

We study relational contracting and renegotiation in environments with external enforcement of long-term contractual arrangements. A long-term contract governs the stage games that the contracting parties will play in the future (depending on verifiable stage-game outcomes) until they renegotiate. In a contractual equilibrium, the parties choose their individual actions rationally, jointly optimize when selecting a contract, and exercise their relative bargaining power. Our main result is that in a wide variety of settings, the optimal contract is semi-stationary, with stationary terms for all future periods but special terms for the current period. In each period the parties renegotiate to this same contract. For example, in a simple principal-agent model with a choice of costly monitoring technology, the optimal contract specifies mild monitoring for the current period but intense monitoring for future periods. Because the parties renegotiate in each new period, intense monitoring arises only off the equilibrium path after a failed renegotiation.

In business-to-business relationships, sellers are often faced with instances of contractual breaches by buyers. In many cases, relationship factors preclude legal enforcement of contract terms, requiring sellers to explore alternate resolution options. Literature on contractual breaches has primarily focused on enforcement options based on terms specified in the contract. However, little is known about how companies deal with contractual breaches by their customers when legal enforcement is not a viable option. The authors use a grounded theory approach to investigate this important issue. Based on in-depth interviews with 40 supplier managers and executives in multiple industries, the authors identify: (a) types of out-of-contract alternatives for resolving breaches, (b) factors that lead to use of enforcement options outside the terms specified in the contract, (c) contextual influences, and (d) individual and firm-level consequences of outside-of-contract enforcement.

Software development outsourcing (SDO) contracts are plagued with ex post opportunism and underinvestment problems. Property rights theory (PRT) argues that appropriate property rights allocation between vendors and clients can reduce opportunism and incentivize relation-specific investments. We conduct an in-depth content analysis of 171 real SDO contracts and empirically examine how project attributes and contract parties’ bargaining power affect the allocation of intellectual property rights (IPR). We find that clients retained more IPR when software development was modularized whereas they shared more IPR with vendors in contracts that incorporated greater use of a vendor’s proprietary software. Greater levels of task complexity were associated with more IPR sharing with vendors. We also find that the responsiveness of IPR to project attributes varied across the different types of intellectual assets. For example, vendors were more likely to obtain redeployment rights of know-how if they were contracted for novel software development projects. However, clients were less likely to cede ownership of data and confidential information embedded in software customization projects. We control for a variety of firm and transaction characteristics and the results we obtain here are robust to concerns of endogeneity bias.

Interfirm contracts are plagued by opportunism arising from exchange hazards that increase the seller’s gains from holdup in fixed price contracts. These exchange hazards are higher when the seller can engage in unverifiable deliberate obfuscation. Although cost-plus contracts reduce holdup losses, they suffer from cost inefficiency. Past research has underscored the importance of trust as a control instrument to mitigate losses from exchange hazards, especially social relational trust that develops from past experiences. However, trust can also be calculative when it develops from the expectation of future economic gains to the buyer-seller dyad. We identify two dyadic mechanisms that generate calculative trust and curtail the likelihood of cost-inefficient behavior in cost-plus contracts. These mechanisms include future potential and bilateral reputation capital for cost containment. Analysis using probit estimations on 149 information technology outsourcing contracts for the period 1998 to 2005 suggests that calculative trust increases the likelihood of cost-plus contracts. Thus, calculative trust can mitigate inefficiencies in interfirm contracts. This paper was accepted by Shiva Rajgopal, accounting.