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ABSTRACT**:  This article evaluates the impact of the introduction of incentive regulation on firm growth among the population of local exchange carriers in the US telecommunications industry between 1988 and 2001. The results show that the rate of return method and other intermediate incentive schemes have had a negative impact on firm growth. Conversely, the introduction of pure price caps schemes had a positive and significant impact on firms' growth. These results highlight the importance of proper and appropriate incentive compatible mechanism design in motivating firms to strive for superior performance.

Efficient incentive-compatible schemes for resolving hidden action and hidden information problems have been shown to exist, thereby offering the hope that public goods can be provided in a neutral, non-political way. We argue that this hope is illusory. Such schemes inevitably generate a residual profit, and a property right to the residual creates a stake in inefficiency; the residual can be increased by a distortion of the efficient incentive system. In general, therefore, the residual-owners' claims that they will not distort the efficient incentive scheme are not credible. Economic efficiency in the presence of externalities requires the resolution of a fundamentally political problem: the credible commitment of central officials to the implementation of an efficient incentive scheme that is not in their own best interest.

We reexamine the characterization of incentive compatible single-parameter mechanisms introduced in Archer & Tardos (2001). We argue that the claimed uniqueness result, called 'Myerson's Lemma' was not well established. We provide an elementary proof of uniqueness that unifies the presentation for two classes of allocation functions used in the literature and show that the general case is a consequence of a little known result from the theory of real functions. We also clarify that our proof of uniqueness is more elementary than the previous one. Finally, by generalizing our characterization result to more dimensions, we provide alternative proofs of revenue equivalence results for multiunit auctions and combinatorial auctions.

The ex ante incentive compatible core of an exchange economy with private information is the (standard) core of a socially designed characteristic function, which expresses the fact that coalitions allocate goods by means of random incentive compatible mechanisms. We first survey some results in the case of perfectly divisible goods. Examples then show that the ex ante incentive compatible core can be empty, even if utility functions are quasi-linear. If, in addition to quasi-linearity, further assumptions are made (like independent private values), the non-emptiness of the core follows nevertheless from d'Aspremont and Gérard-Varet's construction of incentive compatible, ex post efficient mechanisms. We also introduce a private information version of Shapley and Scarf's economies with indivisible goods, and prove that the ex ante incentive compatible core is always non-empty in this framework.