MANAGERIAL ECONOMICS & DECISION SCIENCES; SOCIAL ENTERPRISE
Associate Professor of Managerial Economics and Decision Sciences
Bård Harstad joined Managerial Economics and Decision Sciences in 2004. His academic interests include political economics, public economics and organizational economics. In particular, his research focuses on international institutions, negotiations and agreements; currently he is analyzing international climate change agreements. Parts of this research have published in journals like the American Economic Review, Quarterly Journal of Economics and Scandinavian Journal of Economics.
Before coming to Kellogg, Harstad completed his PhD in Economics at Stockholm University and a Cand. Oecon degree from the University of Oslo, in his native Norway. For shorter periods, he has also worked in the World Bank, the Norwegian Institute of International Affairs and as a freelance journalist.
Economics of Organizations
Political Economy/Design
Strategy in Non-Market Environments
Voting Systems
- Recent Media Coverage
Financial Times: Trade Could Hold the Key to a Climate Deal - 12/3/2009
Forbes.com: Corruption, American Style - 1/22/2009
See all Kellogg in the Media
I investigate when a flexible bargaining agenda, where side payments are possible, facilitates cooperation in a context with strategic delegation. On the one hand, allowing side payments may be necessary when one party's participation constraint otherwise would be violated. On the other, with side payments each principal appoints a delegate that values the project less, since this increases her bargaining power. Reluctant agents, in turn, implement too few projects. I show that side payments are bad if the heterogeneity is small while the uncertainty and the typical value of the project are large. With a larger number of parties there may be a stalemate without side payments, but delegation becomes more strategic as well, and cooperation decreases in either case.
I study two regions that are negotiating an agreement to internalize externalities. Local preferences are local information, but reluctance is, in equilibrium, signaled by delay. Conditions are derived for when it is efficient to restrict the attention to policies that are uniform across regions - with and without side payments - and when it is efficient to prohibit side payments in the negotiations. While policy differentiation and side payments allow the policy to better reflect local conditions, they create conflicts between the regions and thus, delay. If political centralization implies uniformity, as frequently assumed in the federalism literature, the results describe when centralization outperforms decentralized cooperation. But the results also provide a theoretical foundation for this uniformity assumption, and characterize when it is likely to hold.
This paper brings together the market for products, the market for talent, and firms' organizational form. While the organizational design determines the allocation of blame and fame within the firm, the value of a good reputation depends on the market structure. Consequently, the market structure dictates the optimal organizational design. If competition becomes tougher and the market thicker, transparent firms decentralize while non-transparent firms concentrate control, transparency itself is improved, corporations switch from U-form to M-form, and the turnover of managers increases. The model rationalizes recent trends in both executive pay and organizational design.
For a club such as the European Union, an important question is whether a subset of the members should be allowed to form "inner clubs" and enhance cooperation. Flexible cooperation allows members to participate if and only if they benefit, but it leads to free-riding when externalities are positive. Flexible cooperation is better if the heterogeneity is large and the externality small, I show, but rigid cooperation is the political equilibrium too often. Both regimes are, however, extreme variants of a more general system combining mandatory and minimum participation rules. For each rule, I characterize the optimum and the equilibrium.
A club's majority rule defines the number of members that must approve a policy proposed to replace the status quo. Since the majority rule thus dictates the extent to which winners must compensate losers, it also determines the incentives to invest in order to become a winner of anticipated projects. If the required majority is large, members invest too little because of a hold-up problem; if it is small, members invest too much in order to become a member of the majority coalition. To balance these opposing forces, the majority rule should increase in the project's value and the club's enforcement capacity but decrease in the heterogeneity in preferences. Externalities can be internalized by adjusting the rule. With heterogeneity in size or initial conditions, votes should be appropriately weighted or double majorities required.
I study dynamic private provision of public goods (or bads) when agents (or countries) can invest in cost-reducing technologies and sign incomplete contracts. The model leads to a dynamic common pool problem that is more severe than its static counter-part. Nevertheless, a sequence of short-term agreements on contribution levels makes everyone worse off since countries invest less when they anticipate future negotiations. Long-term agreements induce countries to invest more. The best agreement is more demanding if the time horizon of the agreement is short and the externality from investing large (e.g., if the patent system is weak). If investments can be subsidized, the subsidy should be larger if the agreement is short-lasting. The fi rst best can always be implemented by long-term agreements with renegotiations. The results have implications for the optimal design of climate treaties and they hold whether permits are tradable, non-tradable or if instead emission taxes are used.
Why do we often observe corruption in poor countries and lobbying in rich ones, and what are the consequences? We present a simple growth model where firms initially are subject to a regulation. Instead of complying with the regulation, a firm can bribe bureaucrats to "bend the rules" and thus be exempted, or firms can jointly lobby the government to "change the rules". In equilibrium, firms bribe when the level of development is low but they tend to switch to lobbying when the level of development is sufficiently high. Bribing, however, is associated with hold-up problems, which discourage firms from investing. If the hold-up problems are severe, firms will never build up a high enough capital stock to make lobbying worthwhile. The economy is then stuck in a poverty trap with bribing forever. The model generates a rich set of empirical predictions and provides new insights into the effects of anticorruption policies and the evolution of the regulatory framework over time.
Principals, such as voters or districts, typically benefit by strategically delegating their bargaining and voting power to representatives different from themselves. There are conflicting views in the literature, however, of whether such a delegate should be "conservative" (status quo biased) or instead "progressive" relative to his electorate. I show how the answer depends on the political system in general, and the majority requirement in particular. A larger majority requirement leads to conservative delegation and hence a status-quo bias, but optimal delegation is always achieved by the appropriate voting rule. The model is simple and can be employed, for example, to compare decentralization and centralization.
Tradable permits are celebrated as a political instrument since they allow (i) firms to equalize marginal costs through trade and (ii) the government to distribute the burden in a politically fair and feasible way. These two concerns, however, may conflict in a dynamic setting. Anticipating the government's temptation to give more permits to high-cost firms in the future, the firms purchase permits excessively today to signal high costs. This raises the price above marginal costs and distorts abatements. If the government redistributes permits frequently and the (shadow) price for permits is large, the distortions can be greater than the gains from trade, implying that non-tradable quotas may be better.
Political economics takes a formal approach to collective decisions and political institutions. This course gives an overview of the field by discussing its analytical tools and recent research frontiers. We will start by studying the general problem of social choice and collective decisions, then analyze representative democracies as principal-agent problems. Based on this framework, we will investigate alternative political institutions and the organization of governments.
Topics in Formal Political Theory (MECS-516-0)
This seminar focuses on formal models of bargaining, coalition formation and information within legislatures. Prerequisite: A graduate-level course in game theory.
This course counts toward the following majors: Social Enterprise
In recent decades corporations have increasingly become the dominant source for political and social change. Increased globalization and technological progress have further accelerated this process. Businesses are now held accountable by standards other than legal compliance or financial performance. Successful business leaders have recognized that these challenges are best mastered by a commitment to values-based management. However, simply "doing the right thing" is not enough. Rather, companies increasingly find themselves as targets of aggressive legal action, media coverage and social pressure. Organizations must be prepared to handle rapidly changing environments and anticipate potential threats. This requires a deep understanding of the strategic complexities in managing various stakeholders and constituencies. To confront students with these challenges in a realistic fashion, the class is structured around a rich set of challenging case studies and crisis simulation exercises.
PHONE: 847-491-5166
FAX: 847-467-1220
Jacobs Center Room 533