INCENTIVES FOR SABOTAGE IN VERTICALLY-RELATED INDUSTRIES

Performance Spillover in a Multitask Environment*GARY HECHT,University of Wisconsin–MadisonIVO TAFKOV,Georgia State UniversityKRISTY L.TOWRY,Emory University1.IntroductionScholars have noted a recent trend away from extreme specialization,asfirms shift toward a holistic approach to job design,combining tasks and exploiting the synergies that result from the‘‘blurring of occupational barriers’’(Lindbeck and Snower2000).Combining multiple tasks into a single job,through such mechanisms as multitasking and task rota-tion,presents a challenge in terms of incentive contracting.For example,performance on some important tasks can be difficult or expensive to measure,making it infeasible for the firm to provide incentives on these tasks.In these cases,firms may resort to partial incen-tive contracts—contracts that provide performance-based pay for only a subset of tasks. However,Holmstrom and Milgrom(1991)(hereafter HM)argue that the use of partial incentive contracts can lead to an undesirable shift of the employee’s attention away from important tasks for which incentives are not provided.Because of this distortion,HM’s analysis implies that,when differentially measurable tasks are combined into a single job,flat-wage contracts are potentially preferable to partial incentive contracts.1 While the assumption that incentives positively affect the performance on rewarded tasks at the expense of the other tasks is quite simple,prior research has not supported this intuition.More specifically,many previous studies that examine the effect of partial incentives on performancefind that incentives have a positive effect on task dimensions that are rewarded,but have no effect on unrewarded task dimensions(see Bonner and Sprinkle2002and Jenkins,Mitra,Gupta,and Shaw1998for reviews of this and related literature).Thesefindings led Bonner and Sprinkle2002(332)to conclude that‘‘it appears to be desirable to linkfinancial incentives to one dimension of performance even if other important dimensions of performance cannot be measured or contracted on.’’The purpose of our paper is to investigate the apparent misalignment between HM’s intuition and this related empirical literature.Embracing HM’s intuition,we predict that,relative to aflat-wage incentive system, partial incentives increase the disparity in effort toward rewarded versus unrewarded tasks. By logical extension,we expect partial incentives to increase the disparity in performance as well.We label this the disparity effect.We argue,however,that this disparity effect may be mitigated by another effect.Specifically,we provide theory to suggest that,under some *Accepted by Alan Webb.We appreciate the helpful comments and suggestions from two anonymous reviewers, Gregory Berns,Shana Clor-Proell,Gavin Ekins,Anne Farrell,Carol Gee,Rick Gilkey,Lynn Hannan,Steve Kachelmeier,Marsha Keune,Tim Keune,Benjamin Luippold,Linda Thorne,Brian Mayhew,Chad Proell, Steve Salterio,Geoff Sprinkle,Matt Sooy,Thomas Vance,Alan Webb,Michael Williamson,Wilda Womanac, and workshop participants at Emory University,University of Florida,University of Massachusetts at Amherst,University of Wisconsin–Madison,the Queens-York Behavioural Accounting Conference,2008 Southeast Accounting Research Conference,and the2009AAA Management Accounting Section Meeting. 1.We use the termflat-wage to refer to compensation contracts that do not explicitly provide compensationbased on task performance(i.e.,salary-based contracts).In order for aflat-wage contract to be effective, some level of intrinsic motivation to perform tasks well must exist.Contemporary Accounting Research Vol.29No.2(Summer2012)pp.563–589ÓCAAAdoi:10.1111/j.1911-3846.2011.01114.x564Contemporary Accounting Researchcircumstances,the influence of partial incentives on rewarded task performance will spill over to positively influence unrewarded task performance as well.We label this the spill-over effect.Our theoretical development of the spillover effect relies on both extant theory(i.e., activation theory and arousal theory)and the results of recent neuroscience research.This research suggests that incentives induce a physiological response that is associated with enhanced task performance.Following evidence that this physiological response has general aspects(i.e.,the effect of the response is not completely task-specific),there exists the potential for incentives provided on one task to positively influence performance of other, unrewarded tasks.We provide an indirect test of this effect,relying on the logic that,if per-formance spillover is driven by a physiological response to partial incentives,it would be more likely to occur if unrewarded tasks are performed coincidentally with rewarded tasks (i.e.,during the incentive-induced physiological response).Thus,we predict an interaction, such that partial incentives are more likely to lead to performance spillover when the tasks are performed in close temporal proximity than when they are not.Notably,a design choice common in the prior empirical literature(i.e.,the use of a multidimensional task for which the dimensions are performed simultaneously)facilitates performance spillover. Thus,our theory provides a logical explanation for why the empirical literature has not consistently found a negative effect of partial incentives on unrewarded task performance.We conduct an experiment in which we vary the incentive mechanism(partial incen-tives vs.flat-wage)and the temporal relation between two tasks(sequential vs.simulta-neous),and observe participants’effort and performance.As expected,wefind support for both the disparity effect and the spillover effect.These results combine to provide evidence that is consistent with our theoretical explanation for the anomalous prior results.Specifi-cally,we report an interaction,such that partial incentives significantly decrease unre-warded task performance when the tasks are performed sequentially(consistent with HM), but not when they are performed simultaneously(consistent with the related empirical lit-erature).Thus,we conclude that the negative effects of partial incentives on the allocation of effort toward unrewarded tasks can,at least partially,be mitigated by a spillover effect.There are at least two important implications of this research.First,we demonstrate that the misalignment between HM’s assumption and the related empirical literature is partially explained by the use of a multidimensional(as opposed to multitask)setting in prior empirical work.Thus,our results shed light on confusing empirical results related to partial incentives.Second,our results also have practical implications.That is,they imply that partial incentives are likely to be more effective when tasks are performed in close temporal proximity.In fact,our results suggest that it is possible,through partial incen-tives,to increase rewarded task performance without a corresponding decrease in unre-warded task performance.The remainder of the paper is organized as follows.Section2develops the hypotheses. Section3presents the experiment.Section4reports the results.Section5concludes.2.Theory and hypothesesThe effects of incentives on effort and performanceSimple intuition and a number of formal theories predict that incentives will positively affect performance through increased effort.For example,expectancy theory from psy-chology(Vroom1964)and agency theory from economics(Baiman1982,1990)suggest that tying incentives to performance increases the extrinsic motivation to exert effort, which leads to improved performance.The basic premise of reinforcement theory (Komaki,Coombs,and Schepman1996)is that external stimuli(i.e.,extrinsic rewards) reinforce desired behavior(i.e.,performance).Goal-setting theory(Locke and Latham CAR Vol.29No.2(Summer2012)Performance Spillover in a Multitask Environment565 1990)proposes that incentives increase employees’acceptance of established goals,leading to increased effort and performance.Although these theories propose different mecha-nisms via which incentives affect performance,they all suggest that incentives increase the intensity and⁄or the duration of effort,and that increased effort leads to increased perfor-mance(see discussion in Bonner and Sprinkle2002:305–11).2The multitask setting complicates the incentive design problem considerably.In this setting,incentives influence not only effort intensity and⁄or duration,but also effort direc-tion(Bonner and Sprinkle2002:306,331–32;Merchant1988;HM).That is,employees tend to shift their efforts toward those tasks for which incentives are most heavily weighted.This effort-directing role of incentives provides a powerful control tool,in that it allows the controlling party(i.e.,owners,board of directors,or senior management)to direct employee effort toward the tasks most crucial forfirm success.However,this tool is only valuable to the extent that incentive weights can be freely chosen by the controlling party.This is not always the case,as it is infeasible to provide incentives on many impor-tant tasks,because,for example,performance on these tasks is difficult or expensive to measure.In such cases,firms have the option of using partial incentive contracts,placing incentive weights only on a subset of tasks for which an employee is responsible.This paper addresses the consequences of partial incentives,and particularly the effect of partial incentives on unrewarded task performance.Our predictions are based on two potentially offsetting effects,which we refer to as the disparity effect and the spillover effect.The disparity effectFrom an employee’s perspective,any attention directed toward an unrewarded task(i.e.,a task on which incentives are not directly provided)represents an opportunity cost,in that this attention could be more profitably directed toward the rewarded ing similar reasoning,HM argue that,relative to aflat-wage compensation scheme,the use of partial incentive contracts can lead to an undesirable shift of the employee’s attention away from the important tasks for which incentives are infeasible.This shift results in greater dispar-ity(i.e.,less balance)in effort allocation among tasks.Further,given a positive effort-per-formance relation,greater disparity in effort leads to greater disparity in performance across the tasks.This discussion leads to the following baseline hypothesis:H YPOTHESIS 1.Relative toflat wages,partial incentives increase the difference in effortand performance across the two tasks.On the surface,the disparity effect predicted in Hypothesis1implies that partial incen-tives will increase rewarded task performance and decrease unrewarded task performance. The related empirical research,however,generally supports only thefirst of these implications (e.g.,Hamner and Foster1975).Based on this evidence,we make the following prediction:H YPOTHESIS2.Relative toflat wages,partial incentives will increase rewarded task effortand performance.The results from the related empirical research are not as straightforward with regard to unrewarded task performance.Bonner and Sprinkle(2002)review this literature,and 2.Other theories suggest that incentives potentially have a detrimental effect on performance.For example,cognitive evaluation theory(Deci1973;Deci and Ryan1985)predicts that intrinsic and extrinsic motiva-tions are inversely related.According to this theory,in the case of an interesting task,incentives lead to a focus on external rewards related to the task.This focus decreases intrinsic motivation and,thus,decreases effort and performance.In the case of an uninteresting task(i.e.,in which intrinsic motivation is relatively low),incentives increase motivation,and thus increase effort and performance.CAR Vol.29No.2(Summer2012)566Contemporary Accounting Researchbased on a majority of thefindings conclude that partial incentives do not seem to have HM’s assumed negative effect on unrewarded task performance.Noting the potentially premature nature of this conclusion,they call for future related research.3Motivated by the state of the literature and Bonner and Sprinkle’s2002call for future research,we develop a theory in the next subsection that helps explain the misalignment in the multi-task incentives literature.The spillover effectIf partial incentives increase disparity(i.e.,decrease balance),it seems intuitive that perfor-mance on one task must increase while performance on the other task decreases.However, the latter is not necessarily the case.Partial incentives could increase disparity by increas-ing performance on one task without a coincidental decrease in performance on the other task.We posit that in some cases,partial incentives will have just such an effect.Specifi-cally,we argue that the disparity effect is potentially mitigated by another effect,through which the positive influence of partial incentives spills over from the rewarded task to the unrewarded task.In this subsection,we review literature that provides theory and empiri-cal results suggesting such a spillover effect.Two such theories are activation theory and arousal theory(Scott1966;Scott and Ers-kine1980;Gardner and Cummings1988).Activation theory contends that task perfor-mance is a function of an employee’s activation level—the‘‘state of neural excitation in the reticular activating system(RAS)of the central nervous system(the brain and the spinal cord)’’(Gardner and Cummings1988,83).Arousal theory contends a similar effect, but is more inclusive with respect to the type of physiological response—that is,individu-als’arousal system includes the RAS,the endocrine system,and the autonomic nervous system(Gardner and Cummings1988).4Prior accounting research has embraced various aspects and implications of these theories in explaining the mechanism by which environ-mental and task-related factors influence performance(see, e.g.,Ashton1990;Fessler 2003).While activation and arousal theories are general in nature,recent advances in tech-nology have allowed researchers to investigate the specifics of individuals’physiological response tofinancial incentives.Much of this work has focused on the role of dopamine in facilitating the effects of incentives(e.g.,Depue and Collins1999;Koepp et al.1998). Other research examines the particular regions of the brain that experience increased neu-ral activation in response to incentives(e.g.,Bjork and Hommer2007;Elliott,Friston, and Dolan2000;Knutson,Westdorp,Kaiser,and Hommer2000;Knutson et al.2001; O’Doherty et al.2004).Some studies(e.g.,Pochon et al.2002;Taylor et al.2004)examine the neural response to incentives in tasks requiring executive function,‘‘the cognitive pro-cess that regulates an individual’s ability to organize thoughts and activities,prioritize tasks,manage time efficiently,and make decisions’’(American Heritage Medical Dictio-nary2007).Executive function is known to play a role in influencing individual motiva-tion,and the results of these studies are consistent with the notion that incentives increase performance at least partially through neural activation.3.One subsequent paper that provides related evidence is Bruggen and Moers(2007),who investigate theinfluence of social incentives on employees’effort level and effort allocation toward multiple tasks.While Bruggen and Moers consider determinants of employees’performance in multi-task settings,their research purpose does not include a direct consideration of the misalignment between HM’s assumption and the related empirical literature.We further discuss this issue in a subsequent subsection.4.The basic models underlying these theories suggest that the relationship between the construct and perfor-mance is nonlinear.Specifically,the relationship is modeled as an inverted U,such that higher activa-tion⁄arousal leads to higher performance,until the individual is overactivated or overaroused,at which point performance declines.CAR Vol.29No.2(Summer2012)Performance Spillover in a Multitask Environment567 In summary,activation theory,arousal theory,and recent empirical evidence suggest that individuals exhibit a physiological response to incentives,and that this physiological response is associated with enhanced performance.Recent evidence from neuroimaging studies is consistent with the idea that incentives create a‘‘motivational state’’that is separa-ble from any task-specific neural response to incentives(e.g.,Beck et al.2010;Engelmann, Damaraju,Padmala,and Pessoa2009;Locke and Braver2008).We acknowledge that the extant research is far from conclusive regarding the implications of such a general physio-logical response.Indeed,Engelmann et al.(2009)state that one of the great challenges in studying the neural effects of motivation is separating such nonspecific effects from the more specific(i.e.,item-or task-specific)effects of motivation,and only recently have neurosci-ence researchers begun to develop experimental protocols that allow for the disentangling of these two types of incentive effects.Nonetheless,this early research is supportive of our assumption that the physiological response to partial incentives has general aspects.To the extent that partial incentives lead to a general physiological response,then there exists the potential for incentives provided on one task to positively influence perfor-mance of other,unrewarded tasks.That is,if the performance of multiple tasks coincides with the physiological response induced by partial incentives,then those tasks(regardless of whether they are rewarded or unrewarded)will be affected by this response.We label this the spillover effect.In our investigation of the spillover effect,we do not directly test for a physiological response to partial incentives,due to technical limitations.5Rather,we provide an indirect test of this effect,using the logic described above.Specifically,if performance spillover is driven by a physiological response to partial incentives,it would be more likely to occur if unrewarded tasks are performed coincidentally with rewarded tasks(i.e.,during the incen-tive-induced physiological response).That is,if rewarded and unrewarded tasks are per-formed in close temporal proximity,unrewarded task performance will benefit from the physiological response to partial incentives.However,once the rewarded task is complete, incentives are no longer in effect,and the physiological response will dissipate.6Therefore, when the rewarded and unrewarded tasks are performed at different times,it is unlikely that performance spillover will occur.The net influence of these two effects—the disparity effect and the spillover effect—on unrewarded task performance will depend on the relative sizes of the disparity effect versus the spillover effect.If the disparity effect stems,at least partially,from a decrease in unrewarded task performance,this would suggest that partial incentives could reduce unrewarded task performance.However,the spillover effect suggests that the positive effect of partial incentives on rewarded task performance may spill over to the unrewarded task.If the spillover effect is substantial,it could completely offset(or even exceed)the disparity effect such that partial incentives would have no negative net influence(or even a positive net influence)on unrewarded task performance.Recall that we expect the spillover effect to occur when tasks are performed in close temporal proximity(hereafter,simulta-neously)versus when tasks are performed at different times(hereafter,sequentially).Based on this reasoning,we expect that the net influence(including both the disparity effect and the spillover effect)of partial incentives on unrewarded task performance to be less negative when the tasks are performed simultaneously than when they are performed 5.A direct measure of individuals’physiological response would likely entail use of fMRI(or other)equip-ment.Given that we are at an early stage in the investigation of the misalignment between HM and the related empirical literature,we do not use such an expensive measure of participants’activation level.Rather,we adopt the approach of establishing the effect of tasks’temporal relation behaviorally,and reserve a more direct test of individuals’physiological response for future research.6.We discuss the relatively limited empirical results on the duration of incentive-induced activation in section3.CAR Vol.29No.2(Summer2012)568Contemporary Accounting Researchsequentially.In fact,when the tasks are performed simultaneously,it is possible that the net effect will actually be positive.H YPOTHESIS3a.The effect of partial incentives on unrewarded task performance(vs.flatwages)will be less negative(and potentially positive)when the tasks are performed simultaneously than when they are performed sequentially.While it is commonly assumed that performance is a function of effort,we do not assume this to be true in our setting.For example,prior research shows that incentives can improve cognitive control(e.g.,Locke and Braver2008),and this improved cognitive control may lead to increases in performance,even if it is not associated with an explicit and conscious choice to increase effort.(Of course,the effect of cognitive control on per-formance is likely task-specific.)Thus,while we do not assume that performance is a func-tion of effort,we do predict that the physiological response to partial incentives will affect effort in our setting.That is,the physiological effect we predict may be conceptualized as either a reduction in the employee’s cost of effort or a greater return associated with exert-ing effort,in the form of better performance.Under either of these interpretations,the employee will likely be more willing to exert effort when performing tasks coinciding with the physiological response.This effect translates into an effect on effort that is parallel to the effect on performance hypothesized above.H YPOTHESIS3b.The effect of partial incentives on unrewarded task effort(vs.flatwages)will be less negative(and potentially positive)when the tasks are performed simultaneously than when they are performed sequentially.The spillover effect as an explanation for the anomalous empirical resultsRecall that our goal is to explain the apparent misalignment between HM’s assumption and the related empirical literature.We offer the spillover effect as an explanation.As sta-ted above,when tasks are performed simultaneously,it is possible that the net influence of the disparity effect and the spillover effect on unrewarded task performance will actually be positive.It is this possibility that makes the spillover effect a logical explanation for the failure of the prior literature to document a consistently negative effect of partial incen-tives on unrewarded task performance.More specifically,the spillover effect could explain the prior anomalous results,given that in those studies the tasks were performed simulta-neously.Of the eight studies cited by Bonner and Sprinkle2002,six did notfind evidence of a negative effect of partial incentives on unrewarded task performance.7Notably,all six of these studies use a single production task,comprising two dimensions(i.e.,quantity and quality).Thus,a majority of this prior empirical literature uses a multidimensional setting,in which both dimensions are performed simultaneously,the exact setting in which performance spillover is most likely to occur.Thus,it is possible that the results of prior studies did not support HM’s intuition precisely because those studies used the multidi-mensional setting,in which performance of two task dimensions was simultaneous.87.One of the other two studies,using two tasks performed simultaneously,finds mixed results(Bahrick,Fitts,and Rankin1952).The remaining study addresses the effect of incentives on total performance rather than rewarded versus unrewarded task performance,and alsofinds mixed results(McNamara and Fisch1964). 8.Bruggen and Moers(2007)offer a parallel consideration of multitask settings,investigating the influenceof social incentives on the effort level and effort allocation toward multiple tasks.Though not the primary purpose of their investigation,theyfind no difference in unrewarded task effort acrossflat-wage and par-tial incentives conditions.We acknowledge that our theory does not provide a logical explanation for this lack of significance,because their experiment setting is one in which activation is unlikely to play a role.Further,they use a task for which little intrinsic motivation exists,whereas HM’s analysis and the dispar-ity effect we posit both depend on some level of intrinsic motivation(see footnote1).CAR Vol.29No.2(Summer2012)Performance Spillover in a Multitask Environment5693.MethodExperiment design overviewWe use a2·2(between-subjects)·12(within-subjects)experiment design.The between-subjects independent variables are the incentive mechanism(partial incentives vs.flat-wage)and the temporal relation between the tasks(sequential vs.simultaneous).9The within-subjects independent variable is the round of task performance.Participants made decisions that affected product profitability(our proxy for performance),measured in the experiment currency lira,and decided whether to acquire feedback regarding their deci-sions(our proxy for effort).At the end of the experiment,lira earned by participants were converted to U.S.dollars at a rate of240lira per U.S.dollar.It is important to highlight three features of our design.One,we use a multitask set-ting(as opposed to a single,multidimensional task setting,as was used in the majority of the prior empirical literature).This design choice allows us to use the same tasks across our temporal relation conditions,thus attaining ceteris paribus conditions.That is,with a single-task,multidimensional setting,it would be impossible to operationalize the sequen-tial condition.Two,given our multitask setting,it would be difficult to achieve true ‘‘simultaneity’’among the tasks.That is,presenting two tasks simultaneously does not ensure that they will be performed simultaneously.We view temporal relation as a contin-uum,and capture via our manipulation different points along—though not the endpoints of—this continuum.The fact that we do not operationalize the endpoints of this contin-uum works againstfinding support for our hypotheses.Three,our experiment is designed to test our theoretical explanation for the misalignment between HM’s assumption and related empirical literature,rather than to provide a comprehensive test of HM’s model. This means that we sometimes sacrifice mundane realism(Swieringa and Weick1982)in favor of experimental control.More specifically,our theory relates to the consequences of partial incentives rather than the antecedents,and so we do not try to simulate these ante-cedents in our experiment design.For example,a core problem addressed by HM relates to differentially measurable tasks,whereas we use two tasks on which performance is equally(and,in fact,perfectly)measurable.The theoretical explanation we propose is not dependent on differential measurability,and we can most effectively test our theory by col-lecting perfectly measurable dependent variables.Therefore,our design should be inter-preted not as an attempt to simulate the details underlying HM’s analysis,but rather as providing the best setting to test our theory.Task descriptionThe task is adapted from Sprinkle2000,and performed on a computer using z-Tree soft-ware(Fischbacher2007).Each participant was assigned the role of a production manager, and was responsible for making decisions regarding two separate products for12indepen-dent rounds.In each round the subject had to make10production quantity choices(5 choices for Product A and5choices for Product B).Participants were told that the com-pany’s goal was to maximize the profits from each of the two products.For each Product A production choice,the company’s profit was determined jointly by the production quan-tity(Q AÆ{1,2,3,...19,20})chosen by participants and the unknown economic condition (EC AÆ{1,2,3,...19,20}).10Similarly,company profit for Product B depended on the chosen production quantity(Q BÆ{1,2,3,...19,20})and the unknown economic condition 9.For expositional simplicity,we refer to the condition in which tasks are performed in closer temporalproximity as the simultaneous condition.10.Economic conditions were chosen independently and randomly from a uniform distribution each roundfor each product.To enhance control,these random draws were made prior to the experiment sessions, and each participant faced the same set of economic conditions,in the same order.CAR Vol.29No.2(Summer2012)。

COMPETITION AND CORPORATE TAX AVOIDANCE:EVIDENCE FROM CHINESE INDUSTRIAL FIRMS*Hongbin Cai and Qiao LiuThis article investigates whether market competition enhances the incentives of Chinese industrial firms to avoid corporate income tax.We estimate the effects of competition on the relationship between firms Õreported accounting profits and their imputed profits based on the national income account.To cope with measurement errors and potential endogeneity,we use instrumental variables,exogenous policy shocks and other robustness analysis.We find robust and consistent evidence that firms in more competitive environments engage in more tax avoidance activities.Moreover,all else equal,firms in relatively disadvantageous positions demonstrate stronger incentives to avoid corporate income tax.Recently tax avoidance and evasion has received increasing attention both practically and in academic research.1The literature has come to view tax avoidance and evasion as an important corporate strategy and has examined various determinants affecting tax avoidance activities;see,e.g.,Slemrod (2004);Desai and Dharmapala (2006).However,how industrial characteristics such as competitive environment affect firms Õincentives to engage in tax avoidance activities has not been analysed.Moreover,almost all empirical works in this literature focus on the US experience;for a notable exception,see Sivadasan and Slemrod (2006)on India.Using a large dataset of Chinese industrial firms,we examine empirically how product market competition affects firms Õincentives to avoid corporate income tax.We study corporate Ôtax saving Õbehaviour of Chinese firms,because it is an important economic phenomenon in an increasingly important economy in the world.2For example,the Chinese National Auditing Office uncovered 11.89billion Chinese yuan or RMB (about $1.6billion)in 2003based on a four-month,nationwide investigation of 788companies selected at random in 17provinces and cities (The Asian Wall Street Journal ,A2,September 20,2004).Fisman and Wei (2004)also identify evidence of pervasive tariff evasion in China.It is safe to say that these cases of uncovered *We are grateful to Jo ¨rn-Steffen Pischke (the editor),and three anonymous referees for numerous con-structive comments that greatly improved the article.We have also benefited from the comments of Paul Devereux,Amar Hamoudi,Joseph Fan,Huixing Huang,Ginger Jin,Sainan Jin,Jean-Laurent Rosenthal,James Vere and participants at the HKUST Finance Seminar,2006AEA annual meeting and 2006Interna-tional Conference on Corporate Governance in Asia.We thank Geng Xiao for help in the early stage of this project and Yong Wei for excellent research assistance.The first author acknowledges support from NSFC grant (Project No.70725002)and from the Chinese Education Ministry’s NCET.The second author’s research has been supported by grants from the University Grants Committee of Hong Kong (Projects No.AOE/H-05/99,HKU 7472/06H,and HKU747107H).1For example,the US Internal Revenue Service estimated that about 17%of income tax liability is not paid (Slemrod and Yitzhaki,2002).Citing the US General Accounting Office,Desai and Dharmapala (2006)state that ÔBy 2000,53%of large US corporations reported tax liabilities lower than $100,000.ÕFeldman and Slemrod (2007)find that ÔOn average reported positive self-employment,non-farm small business and fame income must be multiplied by a factor of 1.54,4.54and 3.87,respectively,in order to obtain true income.Õ2Following the literature,we do not distinguish tax avoidance (e.g.,taking advantage of loopholes in tax laws,earning management)and illegal evasion (e.g.,failing to report revenue or profit).Moreover,Ôtax avoidance and evasion Õ,Ôtax avoidance Õ,Ôtax saving Õand Ôtax efficiency Õare used interchangeably.The Economic Journal ,119(April ),764–795.ÓThe Author(s).Journal compilation ÓRoyal Economic Society 2009.Published by Blackwell Publishing,9600Garsington Road,Oxford OX42DQ,UK and 350Main Street,Malden,MA 02148,USA.tax evasion represent only a tiny fraction of tax avoidance and evasion by Chinese firms.Intuitively,firms under greater competition pressure are more motivated to avoid tax so as to have more investment money to compete in the market place.Thus,firms in more competitive industries and firms in relatively disadvantageous positions within an industry should have stronger incentives to avoid tax.In an earlier working paper (Cai and Liu,2007),we demonstrate these results in a simple theoretical model.In this article we focus on testing these conjectures empirically.The dataset we use is maintained by the National Bureau of Statistics of China (NBS)and contains firm-level information based on the annual accounting briefing reports filed by all Ôabove scale Õindustrial firms in China from 2000to 2005.On average we have about 190,000firms per year in our sample.However,a main challenge for our empirical analysis,which is common to the literature on tax avoidance and evasion,is that firms Õtrue accounting profits are not observable.To overcome this difficulty,scholars often use book incomes as a proxy for true profits and use the book–tax gap as a measure of tax avoidance,e.g.,Desai (2003;2005)and Desai and Dharmapala (2006).But this approach works only for public companies since book incomes for non-listed companies are usually unavailable.Using a similar approach,we calculate an imputed corporate profit based on the national income account –that is,by deducting intermediate inputs from gross output.For many reasons,this imputed corporate profit can legitimately differ from a firm’s true accounting profit based on the General Accepted Accounting Principles (GAAP).A main reason is the differences in the revenue and expense recognition rules of the two systems,for example,not all gross output in the current year necessarily converts into firm revenue in the same year.Asset depreciation rules can also be different.Tax credits (such as earning-reinvestment credits)and tax loss carry-overs can be other sources of the gap between the imputed profit and true accounting profit.For these reasons,the imputed corporate profit PRO based on the national income account is probably not a good proxy for true accounting profit and certainly not as good as book income.Thus,using the gap between the imputed profit and the reported accounting profit as a measure of tax avoidance is not appropriate in our context.However,for our purposes,we only need to assume that the imputed profit and the true accounting profit are positively correlated ,which is likely to hold since both reflect a firm’s economic fundamentals.The reason is that our theoretical predictions are mainly concerned with comparative statics results about the sensitivity of reported profits to true accounting profits .As long as the imputed profit and the true accounting profit are positively correlated,our comparative statics results will carry over to the sensitivity of the reported profit to the imputed profit.Therefore,our empirical strategy is to test hypotheses regarding how competition (and other variables of interest)affects the sensitivity of the reported profits to the imputed profits.Our theoretical predictions are all confirmed by our empirical results.Specifically,we find strong evidence indicating that competition in the product market enhances firms’incentives to engage in tax avoidance activities .The estimated effect on profit under-reporting has the predicted sign and is statistically significant for several measures of competition (the number of firms,concentration,or industry average profit margin)[A P R I L 2009]765E V I D E N C E F R O M C H I N E S E I N D U S T R I A L F I R M Sand alternative definitions of industries (3-digit or 4-digit industry codes)and markets (national or regional).Our main empirical results are robust to alternative specifications.Besides OLS regressions,we run 2SLS regressions instrumenting for both the imputed profit and competition.In particular,we use the number of permissions required for establishing a new firm in a four-digit industry as the instrument for competition and the average imputed profit at the four-digit industry level (excluding the firm itself)as the instrument for the imputed profit.In all model specifications,we find supporting empirical evidence.3In addition,we investigate a natural experiment on the compet-itive environment (lifting of restrictions on foreign investment)for two industries.All these investigations yield the same result that competition encourages the under-reporting of profits by firms.This means that even though endogeneity (such as competition)and measurement errors (such as the imputed profit)pose potentially serious econometric issues in our estimation,they are unlikely to be the driving forces of our main results.The competition effect is also economically significant.Take the 2SLS regression in column (4)of Table 4as an example.When all independent variables take their mean values,the reported profit will increase by 0.504if the imputed profit increases by 1.If the competition measure used in the regression (industry average profit margin in this case)increases from its mean by one standard deviation (i.e.,competition is less intensive by one standard deviation),then the responsiveness of the reported profit to the imputed profit increases to 0.584,representing a 15.7%increase from its previous level.In other words,a representative firm in an industry that is one standard deviation less competitive than the average industry reports about 16%more profit for each unit of imputed profit than an identical firm in the industry with the average degree of competition.Our analysis also yields useful results regarding other factors that may affect firms Õincentives to engage in tax avoidance activities.After controlling for other character-istics,firms facing higher tax rates or tighter financial constraints and smaller firms report lower profits for each unit of imputed profit.These are all consistent with our theoretical predictions.The estimated effects of these factors have the predicted signs and are statistically and economically significant.Based on the 2SLS estimation of the baseline model (e.g.,see model (4)in Table 4),all else equal,for each unit of imputed profit,a one-standard-deviation increase in the tax rate reduces a firm’s reported profit by 5.6%from its mean level;a one-standard-deviation increase in our measure of accessibility to capital markets leads to a 2.1%increase in the firm’s reported profits;and lastly,a one-standard-deviation increase in firm employment size causes the firm’s reported profits to increase by 27.4%.Our article builds on and contributes to the aforementioned growing literature on corporate tax avoidance and evasion.Our main contribution is to present systematic evidence from China that product market competition increases tax avoidance.Insofar as some of the tax avoidance and evasion is illegal or socially undesirable,our article is also related to papers that point out the Ôdark side Õof competition,e.g.,3In an earlier working paper Cai and Liu (2007),we also run GMM estimations on a balanced panel of a subsample and find qualitatively similar results.766[A P R I L T H E E C O N O M I C J O U R N A LCummins and Nyman (2005)and Shleifer (2004).In particular,Shleifer (2004)ar-gues that competition encourages the spread of a wide range of unethical behaviour such as employment of child labour,corruption,excessive executive pay and cor-porate earnings manipulation.The basic idea is simple:the effects of competition critically depend on the instruments firms use to compete in the product markets.If firms use socially unproductive means to gain competitive advantage,then competi-tion may not lead to socially desirable outcomes.In this regard,ours is the first article to our knowledge that provides systematic empirical evidence consistent with that claim.The rest of the article proceeds as follows.Section 1describes briefly the institutional background of corporate taxation in China.Then Section 2develops theoretical con-jectures and empirical hypotheses.We describe the dataset and our empirical strategy in Section 3,and then present the main empirical results in Section 4.Section 5examines the robustness of our empirical analysis.Concluding remarks are in Section 6.1.Institutional BackgroundIn the central planning system before economic reforms started in 1978,Chinese industrial firms were mostly state-owned (except small collective firms).They were not independent accounting units and had to send all surpluses to the government agencies controlling them.There was no corporate income tax in the planning system;for a description of China’s economic reforms,see Wu (2003).Starting in 1979and continuing in the 1980s,the Chinese government introduced a number of enterprise taxation rge state-owned enterprises (SOEs hereafter)were subject to 55%income tax,small SOEs were subject to a 10–55%tax schedule and private firms’s income tax rate was set at 35%.For large SOEs,there were also complicated and evolving sharing formulae to divide the after tax profits between SOEs and govern-ment.SOE reforms focused on Ôdelegating decision power and giving incentives Õ(fang quan yang li)in the 1980s,and then continued in the 1990s with Ômodern corporation system Õemphasising corporatisation and governance.Many small and medium-sized SOEs were quietly privatised,others were transformed into corporations.At the same time,non-state firms (private,foreign,Hong Kong/Taiwan)grew fast and became more and more important in the economy.As a part of the Ôsystematic fiscal and taxation Õreforms,in 1994China enacted the ÔCorporate Income Tax Code Õthat overhauled corporate taxation.All domestic firms,independent of ownership types,pay 33%corporate income tax,except that small firms with taxable income less than 30,000RMB pay 18%income tax.Since the reforms,SOEs have been allowed to keep the after-tax profits for re-investing and for covering Ôreform costs Õ(e.g.,paying for laidoff workers).4Most foreign invested industrial firms pay 15%corporate income tax.The Code allowed various exemptions,tax credits (e.g.,recycling,environmental protection,retained earning reinvestment)and reductions (e.g.,to high tech firms,new firms in poor areas),and foreign investment firms in general enjoy much more favourable treatments (Cui,2005).4See the World Bank policy note ÔSOE Dividends:How Much and to Whom?Õ(Kuijs et al.,2005).2009]767E V I D E N C E F R O M C H I N E S E I N D U S T R I A L F I R M SThe tax collection agencies were also reformed in 1994.Before 1994,provincial and local tax collectors collected all taxes,then the central government and provincial governments divided the total tax revenue according to some previously negotiated sharing formula.In the 1994reforms,taxes are classified into central and local taxes,and a National Taxation bureau (Guoshuiju)and provincial bureaus (Dishuiju)are responsible for collecting central taxes and local taxes separately.Both the National Taxation Bureau and provincial bureaus are under the supervision of the State Administration of Taxation.Right now,corporate income tax is classified as a Ôcentral tax Õand thus is collected by the National Taxation Bureau and its branches in all provinces.5Along with impressive economic growth in the last three decades,the economic landscape in China has changed dramatically over the reform years.Starting from a central planning economy,the Chinese economy has become a mixed economy in which the non-state sector plays an increasingly dominant role.Among all Ôabove scale Õindustrial firms in our dataset,in 2005the SOEs and collective firms account for only 10.2%and 15.1%respectively,mixed-ownership firms for 21.4%,and private firms (domestic,foreign,and Hong Kong and Taiwan)account for 53.3%.Moreover,through many years of reforms,managers of the remaining SOEs and collective firms are now given considerable decision power and relatively strong incentives that tie their compensation with firm performance,giving rise to a common concern about Ôinsider control Õin these firms (Wu,2003).The high economic growth and increasing tax collection efforts together produce impressive growth of corporate income tax revenue for the Chinese government since the reforms in 1994.In 2001,the total revenue from corporate income tax was 263billion RMB,and in 2005it increased to 534.4billion RMB (China Statistical Yearbook,2006).6However,enforcement and collection of corporate income tax are still con-sidered rather weak.For example,according to one report by a city branch of the National Taxation Bureau ,there are three main problems:(1)insufficient manpower in the collection agency to deal with the increasingnumber of firms;(2)lack of training and skills in the collection agency to collect corporate incometax (which is much more complicated than other taxes such as VAT);and(3)ineffective management system in the collection agency.7In each city,tax collection offices usually identify large firms as Ôimportant tax targets Õ(zhongdianhu)and each tax official is assigned to deal with a certain number of these5The classification of corporate income tax has changed over time since 1994.Initially the National Taxation Bureau collected corporate income tax on SOEs that belonged to the central government and on foreign firms,while provincial bureaus were responsible for collecting income tax on other SOEs,collective firms and domestic private firms.On January 1,2002,the State Council enacted the ÔIncome Tax Sharing Reform Act Õthat changed the classification.This feature will not create problems for our empirical analysis,because the location fixed effect in our regressions should reflect any enforcement difference across loca-tions.6The data on the total revenue from corporate income tax before 2001are not available.The Yearbook has information about the total revenue from corporate income tax from SOEs and Collective firms,which increased from 70.8billion RMB in 1994to 100billion RMB in 2000.7ÔCurrent Situations and Suggestions for Improvement of Corporate Income Tax Collection Õ,by Yushen Li and Xin Li,on webpage /llyj/ShowArticle.asp?ArticleID ¼104.768[A P R I L T H E E C O N O M I C J O U R N A Lfirms.Apart from this,tax collection officials do not appear to have effective systematic ways of auditing and checking firms.For example,sampling tax evasion cases reported in the industry magazine China Taxation ,one finds that the vast majority of the cases were reported by insiders to the tax authority.Given the weak enforcement of corporate income tax,one would expect tax avoid-ance and evasion to be quite pervasive.Even though there is no systematic study,this is quite evident from anecdotal evidence and numerous cases reported in the media.Among the many avoidance and evasion methods,the following seem to be among the most common:(a )mis-recording sales revenue (e.g.,under Ôaccounts receivable Õ);(b )abusing tax credits (e.g.,claiming recycling materials);(c )transfer prices with Ôaffiliated Õfirms;(d )earning management (e.g.,to smooth profit and loss);and (e )fake receipts.8Moreover,there are also numerous books of taxation planning that teach how to minimise corporate tax legally (e.g.,Cui,2005).The large demand of such knowledge indicates that firms do pay close attention to tax efficiency strategies.2.Theoretical Conjectures,Empirical Methodology and Testable Hypotheses Let p i ,t be firm i Õs true accounting profit in year t .We postulate that it reports a profit of^p i ;t ¼d i ;t p i ;t þe i ;t þf i ;t ð1Þwhere ^pi ;t is the profit firm i reports,d i ,t <1and e i ,t 0are two parameters and f i ,t is a mean zero error term.This means that firms under-report their profits.Clearly,theamount of profit under-reported,p i ;t À^pi ;t ,is decreasing in d i ,t and e i ,t .In other words,when d i ,t and e i ,t are greater,firm i reports more truthfully.In an earlier working paper (Cai and Liu,2007),we present a simple theoretical model that yields a profit-reporting decision rule as in (1).We also show that d i ,t and e i ,t depend on market competition and other firm characteristics.Intuitively,firms under greater competitive pressure are more motivated to avoid tax so as to have more investment money to compete in the market place.Thus,firms in more competitive industries and firms in relatively disadvantageous positions within an industry should have stronger incentives to avoid tax.Our theoretical predictions can be summarised into the following two conjectures;for details,see Cai and Liu (2007):Conjecture 1.All else equal,profit under-reporting becomes more severe in more competitive environments.8On the internet there is a widely circulated article without source entitled Ô60Methods to Evade Cor-porate Taxes Õ,see,for example,/k/itsp-Software/2006–9/0/530239.html.In one case that involved 39firms in three provinces in 2004,firms used fake receipts of recycling materials to evade taxes totalling 1.239billion RMB.In another case in Hunan province in 2004,one company used transfer pricing to avoid tax of 228million RMB.For details of these cases,see the webpage of the State Adminis-tration of Taxation http://fi/g/20060420/1614658846.shtml.2009]769E V I D E N C E F R O M C H I N E S E I N D U S T R I A L F I R M SConjecture 2.All else equal,profit under-reporting becomes more severe when tax rates or marginal returns of capital are larger,or when the cost of tax avoidance is smaller.Intuitively,with higher tax rates,one yuan of un-reported profit saves more tax,hence profit under-reporting is more profitable.With higher marginal returns of capital,one yuan of saved tax will generate more future profit.In either case,firms will tend to report lower profits.On the other hand,if the cost of tax avoidance is higher,firms will report more truthfully.Note that we focus on the effect of competition on tax avoidance and do not explicitly consider the possible agency problems in the tax avoidance decisions.Recently the effects of managerial incentives on firms Õtax avoidance have been emphasised by several scholars (Crocker and Slemrod,2005;Chen and Chu,2005;Desai and Dharamapala,2006).These studies clearly show that agency issues can have important implications for firms Õtax avoidance behaviour.In this article,as long as managers partially care about firm value,our qualitative results (Conjectures 1and 2)should still hold.Specifically,if managers Õpayoff functions are increasing in firm value,competition pressure will force managers to engage in more tax avoidance activities.Thus,to focus on the competition effect and also due to data limitation,we abstract from agency issues in this article.See Section 5.4for more discussion on this.Since p i ,t is not observable,we cannot estimate (1)directly.To overcome this diffi-culty,we adopt the following ing the NBS database,which we detail in Section 3,we compute firm i Õs corporate profit PRO i ,t in year t according to the national income accounting system as follows:PRO i ;t ¼Y i ;t ÀMED i ;t ÀFC i ;t ÀWAGE i ;t ÀCURRD i ;t ÀVAT i ;t ð2Þwhere Y i ,t is the firm’s gross output;MED i ,t measures its intermediate inputs excluding financial charges;FC i ,t is its financial charges (mainly interest payments);WAGE i ,t is the firm’s total wage bill;CURRD i ,t is the amount of current depreciation and VAT i ,t is the value added tax.Note that PRO i ,t defined here,as an imputed profit,can legitimately differ from firm i Õs true accounting profit p i ,t .A main reason is the differences in the revenue and expense recognition rules of the two systems,for example,not all gross output in the current year necessarily converts into firm revenue in the same year.Asset depreciation rules can also be different.Tax credits (such as earning-reinvestment credits,recycling and environmental credit)and tax loss carry-overs can be other sources of the gap between PRO i ,t and p i ,t .For these reasons,this imputed profit is at best a very noisy proxy for p i ,t .In fact,a key challenge for our empirical strategy is to address the measurement errors in PRO i ,t effectively,which we detail in later Sections.On the other hand,the imputed profit from the national income account system and the (unobservable)true profit should be positively correlated since they both reflect the firm’s fundamentals.We suppose that the imputed profit and the true profit are related in the following way:p i ;t ¼g i ;t þPRO i ;t þh i ;t ð3Þwhere g i ,t is an unknown parameter and h i ,t is a mean zero error term.The unobservable g i ,t reflects the (firm-specific)differences in profit calculation between 770[A P R I L T H E E C O N O M I C J O U R N A Lthe accounting system and the national income account system.A priori ,we do not know the sign of g i ,t :it can be positive or negative.By substituting (3)into (1),we deriveRPRO i ;t ¼d i ;t PRO i ;t þE i ;t þ i ;t ;ð4Þwhere we use RPRO i ,t to replace ^pi ;t ;E i ,t ¼d i ,t g i ,t þe i ,t ;and i ,t ¼d i ,t h i ,t þf i ,t .Further-more,we propose the following econometric specification for d i ,t (note that j denotes the industry of firm i ):d i ;t ¼b 0þb 1Compet j ;t þb 2Tax i ;t þb 3Finance i ;t þb 4Firm Size i ;t þb 5X i ;t þ i ;t ð5Þwhere Compet j ,t measures the level of competition in industry j ;Tax i ,t is firm i Õs tax rate in year t ;Finance i ,t is a measure of how easily firm i can access capital market;and X i ,t is a set of control variables that includes other firm characteristics,time fixed effect and location fixed effect.From Conjectures 1and 2,we have the following hypotheses:Hypothesis 1.b 1<0,i.e.,a firm’s incentives to engage in tax avoidance are positively correlated with the degree of product market competition.Hypothesis 2.b 2<0,i.e.,a firm’s incentives to engage in tax avoidance are positively correlated with its tax rate.Hypothesis 3.b 3>0,i.e.,a firm’s incentives to engage in tax avoidance are negatively correlated with its accessibility to capital market.The impact of firm size on firms Õtax avoidance is harder to determine.On the one hand,as mentioned earlier,tax collectors in China pay more attention to larger firms,thus making the expected cost of avoiding tax higher for larger firms.Moreover,firm size may also serve as a proxy for easier access to capital market,which again reduces larger firms Õincentives to avoid tax.On the other hand,one could argue that there are economies of scales in tax avoidance activities,thus larger firms have stronger incentives to hide profits.While it remains an empirical issue to find out in which direction the net effect goes,our prior is that the former is likely to be more important and hence we state Hypothesis 4as follows:Hypothesis 4.b 4>0,i.e.,larger firms have weaker incentives to engage in tax avoidance.We have a specification for E i ,t ,which is similar to that for d i ,t as in (5).However,since we cannot determine the sign of g i ,t in (3)a priori ,and since E i ,t ¼d i ,t g i ,t þd i ,t e i ,t ,our model has no prediction about how E i ,t will be affected by competition or other variables.Thus,we do not have predictions about the signs of the coefficients in the estimation of E i ,t .2009]771E V I D E N C E F R O M C H I N E S E I N D U S T R I A L F I R M S。

Dear Editor,I am writing to express my concerns about the current state of waste management in our city.With the rapid development of urbanization and the increasing population,the issue of waste classification has become a pressing matter that needs immediate attention.Firstly,the lack of awareness among citizens about the importance of waste classification is alarming.Many people are still unaware of the environmental benefits of sorting waste and the potential harm caused by improper disposal.This lack of knowledge leads to a situation where waste is often mixed together,making it difficult for recycling efforts to be effective.Secondly,the infrastructure for waste classification is insufficient.Although there are some public bins designated for different types of waste,they are not widely available, and many people do not know how to use them properly.Moreover,the collection and transportation of sorted waste are not wellorganized,which undermines the entire waste management system.To address these issues,I propose the following measures:cation and Awareness Campaigns:The government should launch campaigns to educate the public about the importance of waste classification and the methods of doing so.This could include school programs,community workshops,and media advertisements.2.Improvement of Waste Collection Facilities:More bins for different types of waste should be installed in public areas,and clear instructions should be provided on how to use them.Additionally,the frequency of waste collection should be increased to ensure that the bins do not overflow.3.Incentives for Recycling:Introducing incentives such as discounts or rewards for those who consistently recycle can motivate more people to participate in waste classification.4.Regular Monitoring and Enforcement:Authorities should monitor waste disposal practices and enforce penalties for those who fail to comply with waste classification regulations.5.Technological Innovation:Investing in technology that can assist in sorting waste more efficiently,such as automated sorting machines,can help improve the effectiveness of the waste management system.In conclusion,waste classification is not just a civic duty but a collective responsibility that contributes to a cleaner and more sustainable environment.It requires a concerted effort from both the government and the citizens to implement effective strategies and practices.I hope this letter will contribute to the ongoing discussions on waste management and inspire action towards a greener future.Yours sincerely,Your Name。

Journal of the Asia Pacific EconomyV ol.17,No.2,May2012,332–342R&D andfirm performance:evidence from the Indianpharmaceutical industryChandan Sharma∗National Institute of Financial Management,Faridabad,Haryana,India This paper examines the impact of research and development(R&D)activities onfirms’performance for the Indian pharmaceutical industry by utilizing the data of the postre-form period(1994–2006).For this purpose,we construct two empirical frameworks,namely growth accounting and production function.Estimation results based on thegrowth-accounting framework suggest that R&D intensity has a positive and significanteffect(15%)on total factor productivity.The results also confirm that the performanceof foreignfirms operating in the industry is more sensitive toward R&D than the localfirms.Furthermore,the estimation results of the production function approach indicatethat the output elasticity to R&D capital varies from10%to13%.In view of thesefind-ings,we propose further encouragement and incentives for doing in-house innovativeactivities in the Indian pharmaceutical industry.Keywords:productivity;R&D;Indian pharmaceuticalJEL classifications:O30,D241.IntroductionThe pharmaceutical industry in India has completely transformed itself since the mid-1990s when Trade-Related Aspects of Intellectual Property Rights(TRIPs)came into effect.This has not only led to a substantial increase in the amount of research and development (R&D)expenditure,but also transformed the approach,structure and dynamics of R&D activities.In the past,thefirms mainly focused on development of new processes for manufacturing drugs,but now they are also engaging aggressively in R&D for new chemical entities(NCEs)and modification of existing chemical entities to develop new formulations and compositions.Furthermore,thefiscal incentives for doing R&D have also grown significantly in the recent years.In this context,this study attempts to answer a question that how and to what extentfirms’in-house R&D affects their performance indirectly through total factor productivity(TFP)and directly through output in the Indian pharmaceutical manufacturing.This is an important and relevant question for a policy standpoint and one would like to have an answer for.In a pioneer study,Solow(1957)recognized that technological change is one of the key driving factors of productivity growth.Proponents of recently developed endogenous growth theories have also recognized its role;however,they considered it endogenous which is driven by the deliberate investment of resources by profit-seekingfirms(Grossman and Helpman1990,1991,Smolny2000).The theory also accepts the fact that afirm’s innovation ∗Email:chandanieg@ISSN:1354-7860print/1469-9648onlineC 2012Taylor&Francis/10.1080/13547860.2012.668094Journal of the Asia Pacific Economy333 activity is crucial to its technological progress and productivity growth.Klette and Griliches (1996)extended the edogenous growth theory for R&D and productivity linkage in the context offirm and presented the quality ladder model in a partial equilibrium framework. The model explains that R&D investment and innovation activities are the engine of growth. Thus,the theortical linkage between R&D activities and productivity offirms is well established in the literature.In the empirical literature too,there is no dearth of study on R&D andfirm’s or plant’s performance.Most of these studies are invariably found to have a significant and positive effect of R&D on the performance of afirm.However,the estimated elasticity of productivity or output with respect to R&D varies widely in these studies(e.g.see Griliches1979,1986,Jaffe1986,Griliches and Mairesse1990,Griffith et al.2006).1A closer look on the empirical literature reveals several reasons for a wide variation in the elasticity estimation.First,it is observed that these results vary according to the type of industry in consideration.For instance,in R&D-intensive industries,by and large,elasticity is found to be larger.Second,the choice of the estimation technique is another source of the divergence.In several studies,application of different econometric techniques has yielded wide variation in the results with the same data(e.g.see O’Mahony and Vecchi2009).Third, it is also observed that a vast variation exists in results betweenfirm-level and industry-level data.2Finally,the size of elasticity also depends heavily on the choice of the indicator of firm’s performance(on the dependent variable),that is output,labor productivity,TFP and profit.Against this backdrop,we are set to investigate the role of R&D on the performance offirms in the Indian pharmaceutical industry.We take up the issue in an innovative way and attempt to investigate the relationship for the very recent period(1994–2006).We take into consideration two important indicators offirms’performance,namely output and TFP, for the empirical analysis.This investigation is very relevant from a policy perspective, mainly,because contrary to the general perception that pharmaceutical industry in general is very sensitive to R&D activities,the Indian pharmaceutical industry is known for its low research intensity.Nevertheless,the recent data indicate that at least some largefirms in this industry have started taking R&D activities a bit more seriously than earlier.The remainder of this paper is structured methodically in sections,which are as follows: Section2discusses policy reforms and innovation activities in the Indian pharmaceutical industry.Section3explains data-related issues and estimates TFP of the samplefirms.Sec-tion4constructs empirical models and estimates the effects of R&D onfirms’performance. Thefinal section lays out concluding remarks and policy suggestions.2.Policy reforms and innovation activities in Indian pharmaceutical industry Since independence(1947),India had remained a net user,rather than developer,of R&D-intensive pharmaceutical products.This was due to obvious reasons such as inadequate investment resources,lack of sufficient skill in medicinal chemistry and high risk due to uncertain nature of such investments and embryonic R&D infrastructure in the country. Furthermore,India had always been considered very soft on the issue of intellectual property rights.3However,fact of the matter is that the country had a product patent regime and most of multinational corporations(MNCs)operating through their subsidiaries were enjoying this regime and charging relatively high price.On the argument of nonaffordability of drugs to a large section of the population,the government abolished product patent protection in 1972and drugs price control was introduced.Due to this,domesticfirms were left with very little incentives to invest in capital-intensive new drug development and no incentives what334 C.Sharmaso ever for the MNCs to introduce new drugs into the Indian market(Saranga and Banker 2010).Indian companies(along with MNCs subsidiaries)responded to this situation by developing generics drugs.A major policy shift was witnessed in the industry when an agreement on TRIPs came in to the picture.4This made mandatory product/process patent protection for the World Trade Organization(WTO)member countries including India.This development coupled with modification in the Drug Policy in1994and with economic liberalization(since1991) has significantly increased the competition in the industry,as MNCs,which were both technologically advanced and had access to new products through their parent companies, were allowed to operate in the market.In this new product patent regime,Indianfirms have started looking for new sources of growth in future and the biggest source will be productive R&D,which can deliver patentable innovations.Therefore,ever since the product patent regime was launched on1January2005,domestic pharmaceutical companies have increased their allocation for R&D and their structure of R&D activities.At present,the Indian drug and pharmaceutical industry is ranked as the fourth largest in terms of volume and thirteenth in terms of value in the world.The industry accounts for about8%of the total world’s drug production(OPPI[Organisation of Pharmaceutical Producers of India]2008). However,the Indian industry’s forte remained in generic product market,and this has been propelled by reverse engineering skills and also low-cost advantage.The pharmaceutical products price is ruled at relatively low level,both in the domestic as well as in export markets.Currently,Indian companies on an average spend about5%of turnover on R&D, which is much lower as compared with companies of most of the developed countries where this percentage varies between15%and20%(OPPI2008).Why Indian companies have hitherto invested very little in R&D for new drug discovery and NCEs?The industry circle possibly explains this phenomenon by two important factors.First,the industry lacks product patent protection regime,massive investment requirement and high-risk nature of such investment.Second,Indian price control regime also tended to squeeze the profit margin which served as a disincentive to spend on R&D.Nevertheless,in the recent years, the outlook of the industry has changed considerably andfirms in India have started taking R&D activities more seriously and more funds are being invested now in these activities (see Figure1).There can be at least two reasons behind this change in the attitude of Indian firms related to the R&D activities.First,fiscal incentives and government support have encouragedfirms for R&D.Recently the government has started many new tax exemptions schemes and extended most of such old schemes.5Second,the new patent regime has also forced Indianfirms to take up the R&D activities more seriously,if they have to survive in the market.3.Data and TFP estimation technique3.1.DataFirms’data of the Indian Drug and Pharmaceutical industry are mainly obtained from the Prowess6database provided by the Center for Monitoring Indian Economy(CMIE). The analysis includes89firms which have consistent data in the study period1994–2006. Details of variables,their definitions and sources are discussed in Table1.73.2.TFP estimationIn order to examine the role of R&D onfirms’productivity performance,first,we need to estimate TFP of our samplefirms.In this process,the ordinary least squares(OLS)approachJournal of the Asia Pacific Economy335-100102030405060Figure 1.Growth in sales and R&D expenditure in the Indian pharmaceutical industry.(Source:Prowess Database,CMIE,2008)of measuring TFP of firms as the difference between actual and predicted output may lead to omitted variable bias since the firm’s choice of inputs is potentially correlated with unobserved productivity shocks.To overcome this problem,we use the Levinsohn–Petrin (2003)technique.This technique explicitly recognizes and overcomes the endogeneity,which occurs because at least a part of the TFP is observed by the profit-maximizing firms early enough so as to allow the factor input decisions to be changed.This procedure utilizes firms’intermediate inputs as proxies to correct the part of the unobserved productivity shock correlated with firms’inputs.Following this approach,we estimate a Cobb–Douglas Table 1.Variables definition and their source(s),1994–2006.VariablesDefinition Data source Output (Y )Gross value added Prowess Labor input (N )Number of workers Prowess andAnnual Surveyof Industries(ASI)Physical capital (K )Computed as follows:K t =(1−δ)K t −1+I t ,where K is the capital stock,I is deflated gross investment and δis the rate of depreciation taken at 7%.Prowess R&D intensity (R&D int)R&D expenditure of firms divided by their sales Prowess R&D capital (R&Dcap)Annual expenditure on R&D Prowess Export intensity (Export)Export of firms divided by their sales Prowess Import intensity (Import)Total import (raw material and finished goods)of firms divided by their sales.Prowess Raw materialsExpenditure on raw materials Prowess Power&fuelExpenditure on power and fuel Prowess Size Value of sales of firms Prowess Note:All series are deflated with appropriate deflator before any econometrics treatment.336 C.SharmaTable2.Cobb–Douglas production function estimation using Levinsohn–Petrin productivity esti-mator.(dependent variable:LY).Variables Coefficient Z valueLn(K)0.26801∗2.50 Ln(N)0.60809∗13.33 Wald test(p value).1667Notes:Wald test of constant returns to scale.Proxy variables:power and fuel expenses and raw material expenses.∗Statistical significance at5%.production function in the following form:Ln(Y it)=α0+α1Ln(N it)+α2Ln(K it)+ωit+ηit,(1)where Y,N and K denote value added,labor and capital,respectively,offirm i in year t. Ln indicates that series are transformed in logarithm before any econometric treatment.In this model(Equation1),the error has two parts:first isω,which represents the transmitted productivity component,while second isη,which is an error term that is not correlated with inputs;ωis affected byfirms’policy,and it is unobserved(for details of this methodology, see Levinsohn and Petrin2003,Sharma2010).Results of the estimated production function are reported in Table2,which suggest that both inputs have significant impact on output of firms.On the basis of this estimation,TFP of our samplefirms is computed for the further analysis.4.Estimating the effects of R&D onfirms’performanceNow we intend to investigate the impact of R&D on TFP and output of the samplefirms. Our study constructs two frameworks.Thefirst is the growth-accounting framework,which allows an indirect impact of R&D on productivity through TFP,within the endogenous growth framework.The second is the production function framework,in which R&D capital directly enters in the aggregate production function as an input.4.1.Effects of R&D on TFPWe start our empirical analysis with the growth-accounting framework.Under this approach, we broadly follow Coe and Helpman(1995)and Atella and Quintieri(2001)and test R&D intensity(R&D int)on the estimated TFP offirms.Therefore,our baseline empirical model to be estimated is as follows:TFP it=α+γLn(R&D int it)+βX it+u it,(2)where TFP and R&D int are the level of TFP and R&D intensity,respectively,offirm i in period t.R&D intensity is measured by the ratio of R&D expenditure to sales offirms. In the equation,X is a vector offirm characteristics;u is error term;andα,γandβare parameters to be estimated.Ln indicates for logarithm transformation of the variables.We estimate Equation(2)in four alternative ways and their results are reported in Table3. Column1of the table presents results of the model in which only R&D intensity is the explanatory variable.Columns2,3and4includefirm-specific characteristics(controlJournal of the Asia Pacific Economy337 Table3.Effects of R&D on TFP,1994–2006.Variables1234Ln(R&D int)0.1925∗(1.943)0.1516∗(1.983)0.1542∗(1.994)Ln(Export)−0.0093(−0.999)−0.3742(−0.374)−0.0034(−0.384) Ln(Import)−0.0070(−0.483)−0.004(−0.291)−0.0096(−0.673) Ln(size)0.1289∗(13.391)0.0096∗(13.324)0.1292∗(13.401)0.0157∗(3.347)Foreignfirmdummy(FD)TFP(−1)−0.1857∗(−9.719)0.0196∗(−10.228)−0.1814∗(−9.691) Ln(R&D int)∗0.3632∗(1.955) FDConstant0.3512(41.33)0.0601∗(9.1159)0.0617∗(9.329)0.0592∗(9.018) R20.16300.349320.358380.3489Notes:t values are in parentheses.Estimation technique is random GLS(generalized least squares).∗Statistical significance at5%level.variables),that is size,export intensity(export)and import intensity(import).8Column 3also includes a dummy for foreignfirms(FD)(if foreignfirm,FD=1,otherwise0), while column4includes an interaction variable of foreignfirm dummy and R&D intensity. One previous year’s lag of the dependent variable is included in columns2,3and4,to tackle the potential endogeneity.The results show that the R&D intensity elasticity to the productivity is positive and varies from0.15to0.19.This implies that1%increase in R&D intensity leads to0.15%–0.19%increase in TFP.This estimate is relatively lower than the findings for France(Cuneo and Mairesse1984,Hall and Mairesse1995)and for Taiwan (Wang and Tsai2003).However,it is larger than that of the US(Mairesse and Hall1996), the UK(Kafouros2005).The impact of foreignfirm dummy is also found to be significant and positive on TFP(see column3of Table3),which suggests that foreignfirms are more productive than the localfirms in the industry.Surprisingly,the estimated coefficient of the interaction variable of R&D to foreignfirm dummy is found to be sizably large(0.36) (see column3of Table3).This can be interpreted as1%increase in R&D intensity of foreignfirms leads to0.36%increase in their TFP,which is one of the largestfindings in comparison with that of the related literature.Further,the results regarding the trade variables,that is export and import intensities,are not found to have any significant effects on the productivity.However,size offirms(which measures economies of scale)seems to be crucial as coefficient of this variable is found to be sizable,positive and statistically significant on the productivity.4.2.Effects of R&D on outputNext we shift our attention to estimate the impact of R&D capital on output of our sam-plefirms.In doing so,a production function approach is utilized,a la Griliches(1980), Schankerman(1981)and Branstetter and Chen(2006).Here our baseline specification isLn(Y it)=α0+α1Ln(K it)+α2Ln(N it)+α3Ln(R&Dcap it)+εit,(3)where Y,N,K and R&Dcap represent value added,labor,physical capital and R&D capital, respectively.R&D capital is a measurement of the stock of knowledge possessed by afirm338 C.SharmaTable4.Effects of R&D on output offirms,1994–2006.Variables(1)FE(2)RE(3)System GMM Ln(K)0.243∗(5.74)0.257∗(7.71)0.147∗(2.58) Ln(N)0.489∗(11.75)0.553∗(16.44)0.381∗(8.14) Ln(R&Dcap)0.117∗(5.34)0.132∗(6.57)0.101∗(3.53) Sargan0.171R20.91410.9147Notes:t values are in parentheses.Sargan is the p value from the Sargan(1958)test of over-identifying restrictions, which test the overall validity of instruments for the GMM estimators.FE and RE denotefixed effect and random GLS(generalized least squares)estimator,respectively.∗Statistical significance at5%level.at a given point of time.9Ln,i and t denote logarithms of the variables,firm and year, respectively;α1,α2andα3are parameters to be estimated.We are especially interested in α3,because this is the measure of output elasticity to R&D capital.We estimate Equation(3)by three estimators:fixed effect,random effect and system generalized method of moments(GMM).Estimating the model using OLS withfixed or random effect usually provides estimates that are generally consistent with a priori knowledge of factor shares and constant returns to scale(Griliches and Mairesse1995). However,the procedure may produce biased and inconsistent estimates in the presence of endogeneity(Griliches1979).Therefore,following O’Mahony and Vecchi(2009),we also apply GMM technique for the estimation developed by Arellano and Bover(1995) and Blundell and Bond(1998).The Blundell and Bond estimator,also called the system GMM estimator,combines the regression expressed infirst differences(lagged values of the variables in levels are used as instruments)with the original equation expressed in levels (this equation is instrumented with lagged differences of the variables)and allows us to include some additional instrument variables.The technique significantly reduces the weak correlation problem,and has been proved to give more reasonable and reliable results in the context of production function estimation(Blundell and Bond2000).The estimated result of Equation(3)is presented in Table4.The system GMM estimator significantly reduces the size of parameters of labor and capital in comparison with estimate offixed effect and random effect.However,the coefficient of our prime interest,R&D capital,is almost invariant to the use of the estimators.Results of the estimations suggest that the output elasticity to R&D capital varies from10%to13%,which implies that1% increase in R&D capital leads from0.10to0.13%growth infirms’output.This estimate is broadly in accordance with the estimates of Griliches(1979,1986)for the US,larger however than that of Branstetter and Chen(2006)for Taiwan and lower than three European countries(O’Mahony and Vecchi2009).Also,our estimated elasticity is substantially larger than that of Raut(1995)for India,whofinds it significant,however,small of the magnitude (0.016%).5.Conclusion and policy suggestionsFindings of this study suggest that in-house R&D activities offirms are crucial determinates of productivity and output of the Indian pharmaceuticalfirms.In this study,we have tested the effects in two frameworks:growth accounting and production function.Results of the growth-accounting analysis suggest that R&D intensity has a strong,positive and significantJournal of the Asia Pacific Economy339 effect(15%)on TFP growth.This estimate is slightly larger than thefindings of the international studies.The results also confirm that foreignfirms operating in the industry are more sensitive toward R&D activities than the localfirms,as interaction of their dummy with the R&D variable yields elasticity to0.36,which means that1%increase in R&D intensity of foreignfirms leads to0.36%growth in their TFP.Furthermore,we investigate the effects of R&D capital onfirms’output under the production function framework.The results indicate that the output elasticity to R&D capital varies from0.10to0.13,which implies that1%increase in R&D capital leads from0.10%to0.13%growth infirms’output. Thisfinding is moderate in comparison with the estimated elasticity for other countries.Considering thefindings of this study on the crucial role of R&D in stimulating output and productivity,it is a worrying factor that the Indian pharmaceutical industry is charac-terized by low R&D intensity.Thus,there is a straightforward policy suggestion that the government should encouragefirms for R&D activities through different ways which may includefiscal incentives,training and institutional collaboration.It is also noteworthy that only allocatingfiscal incentives cannot helpfirms,but its implementation at the ground level is also equally important.This is vital in the case of India because of the bureaucratic hurdles often slow the pace of execution of the policies.10Therefore,there is an urgent need to overcome from such attitude.Moreover,foreignfirms are found to be proactive in R&D activities,which may have a positive spillover effects for the otherfirms in the long run thereforeflows of foreign direct investment in the industry should also be encouraged. Finally,considering thefindings in this study regarding the important role of in-house innovation activities offirms,we propose for further research in this area especially in developing countries using micro-level data.Notes1.Considering the example fromfirm-level studies,Griliches(1979,1986)found that the elasticityto R&D in the US manufacturing was around0.07.In France,it was found that the elasticity was larger than that in the US and it ranged between0.09and0.33(Cuneo and Mairesse 1984).For USA,Jaffe(1986)estimated the elasticity around0.20.For the same country, Griliches and Mairesse(1990)found it is ranging from0.25to0.45,while in the same study,for Japanese manufacturing,it was found to be ranging from0.20to0.50.However,for Taiwanese manufacturingfirms,Wang and Tsai’s(2003)estimation suggested it as0.19.In a recent paper, Griffith et al.(2006)for the UK manufacturingfirms found the size of the elasticity too low (ranging from0.012to0.029).In the case of India,the elasticity with respect to value added was calculated to be0.064in the heavy industries,0.357in the light industries and0.101in the overall industries(Raut1995).2.Firm-based studies generally indicated for a greater role of R&D investment in production thanindustry-level studies.3.However,it can be counter-argued that developing countries lose by granting patent protectionsince the costs of patent protection outweigh its benefits(see,e.g.,Penrose1951,Vaitsos1972, Greer1973).4.India signed TRIPs in1994;however,only since1January2005,it was implemented in thecountry.5.Some of the importantfiscal benefits are as follows:(a)The benefit of weighted exemption on the income tax has been till31March2015.(b)Deduction is given on tax to depreciation on investment made in land and building for dedicated research facilities,expenditure incurred on clinical trials and expenditure incurred for obtaining regulatory approvals.(c)Reference Standard(sample under test)is exempted from import duty.(e)Reference books to be imported for R&D are exempted from import duty.(f)On the basis of recommendations of the Pharmaceutical Research and Development Committee,the government provides some extrafiscal incentives to R&D-Intensive Companies(Gold Standard Companies).(g)To fund the R&D initiatives of institutions and industry,the Pharmaceutical340 C.SharmaResearch and Development Support Fund(PRDSF)has a corpus of Indian rupee(INR)1500 million to utilize.6.Prowess database is an online database provided by the Centre for Monitoring Indian Economy(CMIE).The database coversfinancial data for over23,000companies operating in India.Most of the companies covered in the database are listed on stock exchanges,and thefinancial data include all those information that operating companies require to disclose in their annual reports.The accepted disclosure norms under the Indian Companies Act,1956,make compulsory for companies to report all heads of income and expenditure,which account for more than1%of their turnover.7.Detailed discussion on dataset and transformation of variables can be seen in Sharma and Mishra(Forthcoming).8.To capture the export intensity offirms,we use ratio of export to value of sales offirms.Theoretically exportingfirms make themselves more productive and efficient to compete in foreign markets,therefore we expect a positive impact of this variable.On the other side,the import intensity offirms is captured by total import(imports of both raw material andfinished goods)to value of sales offirms(for detailed discussion on this issue,see Ben-David1993, Sachs and Warner1995,Aw et al.2000,Wagner2002,Bernard and Bradford2004).Importing firms may receive technologies as well as better inputs,which can potentially helpfirms to enhance their productivity performance.Size offirms is accommodated in the model by using logged value of sales offirms.Theoretically,because of economies of scale,a larger size and increasing output should have a positive influence on the productivity offirms.Therefore,we expect positive sign of this variable as well.9.It’s important to note that two measures of R&D are used in the analysis.We have tested the R&Dimpact on TFP by using R&D intensity(a ratio of R&D expenditure to sale).It is important to note that two measures of R&D are used in the analysis.First,we test the R&D impact on TFP by using R&D intensity(a ratio of R&D expenditure to sale).Second,R&D capital(deflated expenditure on R&D activities)is used as an input in the output function(Equation3).10.It is also widely observed that in India,the general goal set by politicians consists of vaguestatements and bureaucrats are left with considerable choice in translating the policy objective into concrete decision rules.ReferencesArellano,M.and Bover,O.,1995.Another look at the instrumental variable estimation of error-components models.Journal of econometrics,68(1),29–51.Atella,V.and Quintieri,B.,2001.Do R&D expenditures really matter for TFP?Applied economics, 33(11),1385–1389.Aw,B.Y.,Chung,S.,and Roberts,M.J.,2000.Productivity and turnover in the export market:micro evidence from Taiwan and South Korea.W orld Bank economic review,14(1),65–90.Ben-David,D.,1993.Equalizing exchange:trade liberalization and income convergence.Quarterly journal of economics,108(3),653–679.Bernard,A.B.and Bradford,J.J.,2004.Exporting and productivity in the US.Oxford review of economic policy,20(3),343–357.Blundell,R.and Bond,S.,1998.Initial conditions and moment restrictions in dynamic panel data models.Journal of econometrics,87,115–143.Blundell,R.and Bond,S.,2000.GMM estimation with persistent panel data:an application to production functions.Econometric reviews,19,321–340.Branstetter,L.G.and Chen,J.R.,2006.The impact of technology transfer and R&D on productivity growth in Taiwanese industry:microeconometric analysis using plant andfirm-level data.Journal of the Japanese and international economies,20,177–192.Coe,D.T.and Helpman,E.,1995.International R&D spillovers.European economic review,39(5), 859–887.Cuneo,P.and Mairesse,J.,1984.Productivity and R&D at thefirm level in French manufacturing.In:Z.Griliches,ed.R&D,patents and productivity.Chicago:University of Chicago Press. Greer,D.F.,1973.The case against patent systems in less-developed countries.The journal of international law and economics,8,223–266.。

BEC口语讲义Part 1 Interview:Sample ScenariosInterlocuter: Good morning. My name is X, and this is my colleague, Y. And your names are A and B?A: Yeah.B: Yeah.I: Thank you. Now, first of all, we‘d like to know something about each of you. Ms A, can you tell me a bit about yourself.A.My pleasure. As you know, my name is A. I‘m from Jiangsu Province. I‘m nowstudying in OO University. And I‘m majoring in international trade there.I: Thank you. Ms A. Now Ms B, can you tell me something about your ambitions?B: Yes, I am now a student with OO University majoring in business administration.I hope I can get my MBA and join a world famous multinational company. And after I have had enough experience, I am going to start a company of my own.I: Thank you, Ms B. And Ms A, could you tell me about your ambitions?A: A big question for me indeed. I‘ve never thought about it, but I bet I‘ll work towards a CEO of a big multinational corporation. That‘s my goal in life. And that‘s why I am spending so much time on English, business English in particular..I: Mr. A, you say you‘re spending a lot of time on business English. Do you think business English is difficult to learn?A: Not exactly, though it may be difficult at the initial stage. The thing is that you need to have some business knowledge before you start to learn business English.I: How about you, Ms B? Is it difficult for you?B: Not really. You know, I like English very much, and my major is business administration. So I have always found business English very interesting.* * * *I: Good morning, my name is X, and this is my colleague, Y. And your names are A and B?A: Yeah.B: Yes.I: Thank you. Now, first of all, we‘d like to know something about each of you. Miss A, can you tell me something about your work?A: My pleasure. I‘m working with APC Inc., which is a US-based company. I have worked there for three years on the international marketing side. I must say that it is a very interesting job. I love my job.I: Thank you, Miss A. Now Miss B, can you tell me about your activities outside college?B: Well, I do a lot of interesting things in my spare time. I often go shopping on weekends，something most of the young ladies like me do that in their spare time. And I have worked part time for several big companies. I think, by doing that, I can have some hands-on experience in business. That‘s very important for my future career.I: Thank you, Miss B. And you Miss A, can you tell me about your hometown?A: Hmm…well, my hometown is Nantong. It lies at the mouth of Yangtze River, the longest in China. It has a population of 5 million. There‘s quite some places of historical interests there. And the economy there is growing fast in my hometown. The friendly environment has attracted a lot of investment from overseas.I: Miss B, you said you‘d worked for several companies on a part time basis. Is there any other reason for you to work there apart from obtaining some work experience? B: Yeah. Obviously I can make some extra money from that. You know, my mother is now retrenched. It‘s really not easy for my parents to support me. And I don‘t want to be too heavy a burden for them.I: How about you, Miss A? Are you a part time by any chance?A: Oh, yes. But I don‘t work for companies. I teach several private students. I think teaching is a very interesting job, especially when I see my students are making progress. And just as Miss B said, money is an important consideration for me. So I teach for entertainment as well as for cash.Other possible questions:Life:What‘s your name? Where are you from? Do you think the place you are living in is an ideal place for living? Where do you like to live, in the city or in the countryside? Do you live near here? How did you come here?Work: Where do you work? What kind of work do you like? Who do you work for? What do you like best about your work? What do you think of your present job? What do you think of working at home? Do you like your boss? What kind of boss do you like best?Study: Where do you study? What kind of subjects do you like best? Do you like your school? How do you like exams at school?Hobbies: What do you often go shopping for? Do you like sports? What kind of sports do you like best? Do you think football is more popular in China than before? What are you hobbies? What kind of extracurricular activities do you like best? Why are you interested in golf?* * * *Part 2 Mini-presentation: (1 min preparation, 1 min talk)The structure of a good mini-presentation:I.Introduction: one or two sentences. No need to be very long.There are two ways of starting the question in BEC III ―how to…‘ and ‗the importance of…‘，and BEC II questions always start with ‗what is important when doing something‘So, for ‗how to…‘, you can always start with ‗Well, when it comes to xxing…, quite a number of things can be done.‘or ‗Well, as is known to all, it is very important to…The question is of course – how?‘For ‗ the importance of…‘, you can start with ‗Well, in my view, you should not underestimate the importance of …‘ or ‗Well, as is known to all, it is very important to…The question is of course –why?‘For BEC II, you can start with ‗Well, when it comes to xxing…, several vital factors must be taken into account. ‗ or ‗Well, as we all know, many factors must be considered when…, the questions is of course – which ones?‘Basically, ‗how to…‘ asks about methods, ‗the importance of…‘ asks about benefits, and ‘what is important when…‘ asks about factors to consider.II. Main body: 1st point + development sentences2nd point + development sentences(3rd , 4th points + development sentences) ……During the preparation, you should think of at least two points, in the form of key words or key phrases. Then you make a sentence using the each key word or phrase.There are four common ways to construct a development sentence：1.Explanation of the point : In this way, To put it another way, In other words, That is tosay, …so to speak, …let‘s say2.Stating Reasons : As a result, As a consequence, Consequently, Therefore, Due to, Thanks to,On account of3.Giving Examples: Say, For instance, For example, As a good example, By way of example4.Negative hypothesis : If…notBeginning: First of all, To begin with, For one thing, At the first stage, Initially, The company will begin by…Transition: And, And of course, Then, Besides, On the other hand, But more than that, Not only that, Apart from that, And an other thing, On top of that, What‘s more, Beyond those, But most importantly, But above all, Last but not least, Once…, Having (done)…III. Recapitulation or Conclusion: one or two sentences.All in all, In short, In a word, In brief, To summarise, To sum up, To recap, In conclusion, On the whole, Altogether, In a nutshell, To cut a long story shortYou can use the pattern ‗While there are also other considerations in… I believe the factors mentioned above are the most significant ones. ‗for ‗how to…‘ and ‗what is important…‘ questions. For ‗the importance of…‘, you can use ‗While there are also other arguments why… I believe thereasons mentioned above are the most significant ones. ‗* * * *Sample Mini-presentations:A. III-1. Career Development: how to fill a key vacancyWhen it comes to filling a key vacancy, a company will usually follow the same standard procedure. (开题)It will begin by producing an accurate job description of what it would like the successful candidate to do. （要点1，关键词job description）From this, it can then produce a profile of this ideal candidate, which is a list of skills, experience, attributes and so on. （发展1，解释）Having produced this profile, the company must then decide on the best recruitment method to capture a candidate with this profile. （要点2，关键词recruitment method）This might be an internal advertisement or an external advertisement in a newspaper, on the Internet say, even an agency or perhaps a headhunter. （发展2，例子）Having decided on the best recruitment method, the advertisements are then placed or the headhunter contacted and a list of candidates will be then drawn up to be put through t he company‘s recruitment processes. （要点3，关键词recruitment processes）This might be interviews, psychometric tests or even hand-writing analysis. （发展3，例子）This will then produce the ideal candidate for the company.The company will then have to negotiate terms with this candidate （要点4，关键词negotiate terms）and, hopefully, this will result in terms which are both affordable for the company and attractive enough to get the candidate they want. （发展4，解释）Even though different companies vary somewhat in their efforts to fill open posts, the steps mentioned above are very much the norm rather than the exception in any industry. （结论）B. III-11. Recruitment: the importance of having a good CVWell, in my opinion, you should never underestimate the importance of having a good CV. (开题)To begin with, in the majority of cases, your CV is the employer‘s first impression of you. （要点1，关键词first impression）Your first chance to impress your potential employer, let‘s say. （发展1，解释）As you should remember to your advantage, yo u‘ve got only 30 seconds to leave a positive impression on someone, whether he is a customer or a potential employer. （发展1，解释）But more than that, your CV also showcases your essential skills in order to compete in today‘s job market. （要点2，关键词skills）In other words, it provides an illustration of your skills to organize, summarize, prioritize and present information effectively, say, as well as your linguistic and communicative abilities. （发展2，解释）But above all, a CV, by its very nature, also indicates how your qualification and experience match your employer‘s requirements. （要点3，关键词qualification and experience）In this way, your prospective boss will be able to reach a sound decision on your suitability for the position. （发展3，解释）Even though employers these days use a variety of selection techniques, such as analyzing your handwriting or psychometric tests, a good CV is still the single most important part of any application. （结论）C. II-13. What is important when choosing a new supplier? Prices and discounts, ReputationWell, when it comes to choosing a new supplier, several vital factors must be taken into account.To begin with, I think we must consider the price of goods first. We can compare the prices offered by different suppliers and choose the one which is more reasonable. Because only if we get the supply at lower price can we make profits. Of course, it would be even better if the supplier can offer discounts to regular clients.Another point we should also consider is the location of the su pplier. We‘d better choose one who is not too far away from us. If the supplier is too far away, that will most likely increase the cost of transportation.Besides, it‘s also very important to consider whether the supplier is reliable. We would never choo se those who always deliver their goods late or those who can‘t ensure the quality of goods. Because late delivery may bring heavy loss to us, and quality is the lifeline of any business. Otherwise we may lose our own clients. So in this aspect, we must not make any concessions, and lower prices cannot be a valid mitigating factor.While there are also other considerations in choosing a supplier, such as reputation, means of payment, after-sales service, I believe the factors mentioned above are the most indispensable ones.D. II-36. What is important when choosing business premises to rent? Location, Length of contractWell, as we all know, many factors must be considered when choosing business premises to rent, the questions is of course – which ones?From my point of view, we should first take the location into consideration. Some companies choose to locate in office blocks downtown; some would like to be near the largest concentrations of their target customers. It depends largely upon the type of the company in question. Companies that provide services must be located within easy access. So they usually choose those places where there is convenient transportation.Another important facet to consider is the size of the premises. Nowadays, more and more large companies prefer an open, spacious working floor which allows colleagues to communicate and interact freely. Of course, a small company would not rent the whole floor. That will be a waste of space and an unnecessary cost burden.Last but not least, the length of contract should not be neglected. A fixed-term contract islegally binding and can only serve to make your situation worse in times of recession. Whenever possible, flexible contract arrangement should be preferred.While there are also other considerations in choosing business premises, such as rent and facilities, I believe the factors mentioned above are the most indispensable ones.E. III-7. Career Development: The importance of acquiring a range of skills throughout your careerWell, as is known to all, it is very important for a person to acquire a range of skills in the course of his career. The question is of course – why?When he has a range of skills, first of all, he is obviously more competitive than those who don‘t and therefore has better chances of surviving a downturn. To put it another way, companies are likely to retain highly skilled staff members even when mass layoff is inevitable.And that‘s not the only benefit. A person with a range of skills is more likely t o work his way to the top of the corporate ladder. In most companies, whether or not you have the appropriate skills is a relevant criterion for promotion.On the other hand, it will also be easier for a skilled employee to find a job outside his own company if he is not satisfied with his present job. In this way, acquiring a variety of skills in one‘s career offers more professional mobility.So, when all the benefits are taken into account, no wonder acquisition of skills is taken so seriously nowadays.F. III-8. Career Planning: how to assess the career opportunities provided by different types of companiesWell, when it comes to assessing different career opportunities, several vital factors must be taken into account.First of all, the type of company should be taken into consideration. Different types of firms have their own benefits and challenges. In a multinational company., say, you can learn international business management and culture, and as an icing on the cake, you may have more opportunities to travel abroad. However, English is the working language in multinationals. You have to be very good at English to work there. So state-owned companies may better suit some people.Salary should be another important consideration. As everyone knows, multinational companies usually offer higher salaries. But if you have just graduated from college, you shouldn‘t be too concerned about that. As a new hand, it‘s more important to gain more experience through working rather than earn quick money.After salary, we should not ignore other financial rewards in the form of fringe benefits. Some companies offer housing allowance, car allowance, children‘s education allowance in addition to salaries. Still others provide staff with free health club and cafeteria. And high tech firms often supplement salaries with stock options.Although there are also other considerations in assessing different careeropportunities, such as training, location, and good colleagues, I believe the factors mentioned above are the most indispensable ones.G. III-31. Human Resources: how to select the right staff for promotionWell, as is known to all, it is very important to select the right staff for promotion. The question is of course – how?For one thing, qualification definitely counts a great deal. A good qualification, especially an advanced degree, normally indicates high aptitude and a wide range of knowledge and skills. Even though we often hear clichés like ‗But degrees don‘t mean everything‘, in the real world, qualification actually means a lot.That said, there ARE certain skills and knowledge, or what we call flair, that come only from long-time hands-on experience. So it is only natural that the next thing to consider should be experience. Only by accumulating enough experience can an employee be totally at ease with his duties. Besides, experience can also tell us about his performance, track record, and leadership potential.Well, last but not least, personality should also be a factor in any staffing decision. Different positions require different personal qualities. The highest virtues for an engineer engaged in R & D, for instance, would be meticulousness and creativity. Yet for a sales manager, being energetic and outgoing is much more important because sales managers have to leave a good first impression upon their clients. But for any position, hard-working people are always welcome.So to recap, qualification, experience and personality are the three promotion criteria that we all need to keep in mind.H. III-62. Product Promotion: how to promote an imported brandWith so many people these days making a conscious decision to buy domestic products, the pressure on those companies wishing to promote imported brands is greater than ever before.Initially, a company needs to show how their product is superior to the local equivalents. Maybe it‘s better quality; maybe it‘s more stylish; maybe it‘s better image. Anyway, a company needs to show customers the benefits of being more adventurous in their buying decisions, in order to encourage them to move away from the home brands they currently use.Well, beyond that, if you market a product as something exotic or unusual, say, you‘re bound to attract new clients. As you may also have expe rienced, most people have a strong craving for things novel and unfamiliar. Of course, when the sense of curiosity wears off, such a strategy will usually fall short of expectations.Last but not least, cultural stereotypes are also a powerful selling tool. A cosmetics range associated with French chic, for example, is sure to attract customers. And if people are looking to buy a reliable car, there‘s no better label than ‗made inGermany‘. These national associations can also be exploited at the point o f sale. Playing French music in supermarkets, for example, is proven to improve the sales of French wine.All in all, if you want to successfully promote an imported brand, you need to give your customers a good reason to try something a little bit more exciting than their own home brands.I. III-70. Advertising: the importance of stereotypes in advertisingWell, I‘m very much convinced that you should never underestimate the importance of stereotypes in advertising.First of all, a stereotype is something enduring and easily identifiable to a whole national group. When an Asian audience see Eiffel Tower in an ad, they instantly conjure up the romantic image of Paris at night. And with that in mind, any product associated with French chic, say, cosmetics, perfume, and fashion, will become an easy sell. As another example, the German Audi designers in white lab coats are obviously obsessed with perfection. And so we can guarantee that any product we buy from them is going to be designed to perfection the moment we see this ad.What‘s more, stereotypes can make us feel good about our own value systems or customs. An ad targeted at a British audience might pit a refined Londoner against a brash New Yorker and that‘ll give the impression that the product we‘r e selling is obviously full of taste and discretion. And in this way, stereotypes reinforce the positive qualities in the minds of the viewers.And lastly, stereotypes make good comedy because everybody wants to laugh at other countries and people who are different. A fictitious aboriginal tribe once served as the backdrop for a celebrated cell phone ad. The contrast between the modern and the primitive kept the audience in stitches. And of course, if they‘ve had a laugh, they‘re more likely to remember the advert.So to sum up, stereotypes are useful to advertisers because they‘re basically a shorthand. You‘ve got thirty seconds to get your main selling point across. And with a stereotype you can do that in two.J. III-84. Marketing: the importance of packaging products appropriately In recent years, numerous factors have made packaging an important marketing tool.Increased competition and clutter on retail store shelves means that packages now must perform many sales tasks -- from attracting attention, to describing the product, to making the sale. Among these, the first one is undoubtedly the most crucial function. Companies are realizing the power of good packaging to create instant consumer recognition of the company or brand. Nowadays, in an average supermarket, which stocks 15,000 to 17,000 items, the typical shopper passes by some 300 items per minute, and 53 percent of all purchases are made on impulse. In this highly competitive environment, the package may be the seller‘s last chance to influence buyers. It becomes a ―five-second commercial‖. The renowned Campbell Soup Company, say, estimates that the average shopper sees its familiar red and white can 76 times a year, creating the equivalent of$26 million worth of advertising. However, everyone‘s favorite success story on packaging involves the ubiquitous red Coke can. Marketers everywhere have emulated but rarely equaled the marketing power of its simple design. More recently, the picture of a smiling Tiger Woods, the golf guru, appears on the boxes of a certain brand of cereals, apparently to convey an image of fitness, energy, and vitality. The effort has not been wasted – its sales tripled in one year.In brief, while good packaging can serve many practical purposes, it is with its utility in effective product promotion that marketers are primarily concerned.K. III-87. Customer Relations: how to maintain customer interest in a company’s products Well, as is known to all, it is very important for a company to maintain customer interest in their products. The question is of course – how?I think there are several ways to do that. For one thing, we should always make sure that we provide our customers with quality goods and quality after-sales service, as these two aspects are indisputably the lifeline of any business. Continuous new product development and innovation in service are also necessary in reinforcing and expanding customer base.Apart from that, enough emphasis should be laid on the feedback from our customers. If necessary, prompt action should be taken to take care of their needs and demands.Finally, if possible we should provide some incentives to repeat customers. For example, we can grant a certain rebate to them if their purchases reach a certain amount. And offering coupons and free delivery to customers are also effective and feasible methods.All in all, we should try our utmost to keep our customers satisfied and fulfill their expectations. Only by doing so can we maintain clients‘ interest in our products.L. III-113. Production Development: the importance of R & D to a company To illustrate the importance of research and development to some firms, the level of annual investment in research and development by the top ten listed corporations in the States can serve as a telling indicator: each of these firms typically spends more than $1 billion on research and development per year. The question is, why?First of all, firms invest funds in research and development primarily in order to design new products. F or instance, Procter and Gamble‘s R & D resulted in its two-in-one shampoo and conditioner technology. This new technology has been used in its famous Pantene, Head & Shoulders products, which now enjoy a significant market share in various countries.On the other hand, companies also use R & D to improve the products they already produce. Again, Procter and Gamble has improved the technology of Tide detergent more than seventy times. And not surprisingly, Tide is now the leading detergent in North America.What‘s more, R & D can allow one firm a huge competitive advantage and therefore improve revenue streams dramatically. For example, Pfizer, one of the pharmaceutical titans, has successfully obtained patents for such best selling drugs as Benadryl, Listerine and Viagra. In other words, Pfizer now has the monopoly in these lucrative drugs. This ‗license to print money‘ comes directly from Pfizer‘s R & D activities.In short, firms that spend money on R & D have found to their delight that the benefits almost always exceed the expenses.M. III-130. Health and Safety: the importance of a safe working environment for maintaining staff moraleFirms that create a safe working environment not only prevent injuries but improve the morale of their employees as well. I feel strongly that this is something indispensable for any company.First of all, a safe working environment offers peace of mind to staff members and therefore can significantly motivate staff to enhance a firm‘s productivity. As a result, m any leading firms, such as Intel and GE, now identify workplace safety as one of their main goals. Not surprisingly, these are some of the best performing firms anywhere in the world.What‘s more, a safe environment can reduce the occurrence of workplace a ccidents, which are usually a source of staff dissatisfaction and low trust in the management. Taking safety measures can enhance staff loyalty and, in turn, moral. For instance, Levi Strauss and Co. imposes safety guidelines not only in its US facilities but also in Asian factories where some of its clothes are made. Starbucks, meanwhile, has developed a code of conduct in an attempt to improve the quality of life in coffee-producing countries, in an effort to buck against sweatshop-like working conditions. These two companies have been rated highly by their employees.In short, if you want to boost morale among your staff, or to put it in plain words, if you want to see enthusiasm, confidence, or loyalty in your workforce, then safety should have your prior attention.N. III-137. International Business: the importance of a global presence for a company With more mergers and acquisitions than ever before, I think it‘s becoming quite clear that a company in the future will need to have a global presence in order to compete in tomorrow‘s market place. This presence can give a company many competitive advantages.To begin with, say, it can give access to local market knowledge, which can help avoid some very, very expensive mistakes on account of cultural conflicts. The Matsushita Firm of Japan learned this at a price, when they, without knowing the negative connotations of the word in the US, first launched their products under the brand name of ―National‘. Only when they switched to ‗Panasonic‘ did the fla t sale become brisk.On top of that, a global presence can spread the risk of doing business. As the saying goes: Don‘t put all your eggs in one basket. If a company sells to more than one market, it can survive a downturn in any one of those markets, tha t‘s something for sure.And if a company becomes truly global, the size of the company means it can realize economies of scale, say, in advertising or distribution or shipping. It can also move its production from country to country and take advantage of the best conditions at any given time.So I think, all in all, when these things are taken into consideration, it‘s quite clear that any company not looking to establish a global presence in the future may not have a future at all.O. III-138. Business Ethics: how to encourage ethical behaviour from employees Figures show that more and more companies are now reporting their ethical performance and it‘s clear, I think, that companies now have to address the issue of ensuring ethical behaviour amongst their staff. The question is of course – how?To begin with, awareness is key. And in order to promote awareness for ethics, the company needs to put ethics high on the training and staff development agenda. The HR department, say, can sponsor some workshops or seminars on business ethics, or even invite some external experts for this purpose.Once these procedures are in place, the company then needs to spell out an official code of ethical practice and ensure that all employees have access to it and can understand it easily. The company then needs to implement an effective and anonymous system of reporting any breaches of this code. Some companies even benchmark their ethical practices against those of industry leaders and see how they‘re doing.I suppose it‘s also vital that companies ensure that their senior managers set a good example, ‗walk and talk‘ so to speak. If they don‘t behave ethically why should staff?All in all, whatever measures a company adopts, it needs to make staff understand why ethics is important not just to the company but also to themselves as well.* * * *BEC II Part 2 questions:Career 职业题1.What is important when looking for a new job? Location, Salary, Good colleaguesSee C, F--Last but not least, good colleagues are not a minor consideration either. As we all know,。

A Continuous-Time Version of the Principal-AgentProblem.Yuliy SannikovOctober25,2007AbstractThis paper describes a new continuous-time principal-agent model,in which the output is a diffusion process with drift determined by the agent’s unobserved effort.The risk-averse agent receives consumption continuously.The optimal contract,basedon the agent’s continuation value as a state variable,is computed by a new methodusing a differential equation.During employment the output path stochasticallydrives the agent’s continuation value until it reaches a point that triggers retirement,quitting,replacement or promotion.The paper explores how the dynamics of theagent’s wages and effort,as well as the optimal mix of short-term and long-termincentives,depend on the contractual environment.1Keywords:Principal-agent model,continuous time,optimal contract,career path,retirement,promotionJEL Numbers:C63,D82,E21I am most thankful to Michael Harrison for his guidance and encouragement to develop a rigorous continuous time model from my early idea and for helping me get valuable feedback,and to Andy Skrzypacz for a detailed review of the paper and for many helpful suggestions.I am also grateful to Darrell Duffie, Yossi Feinberg,Xavier Gabaix,Bengt Holmstrom,Chad Jones,Gustavo Manso,Paul Milgrom,John Roberts,Thomas Sargent,Florian Scheuer,Sergio Turner,Cheng Wang,Ivan Werning and Robert Wilson for valuable feedback,and to Susan Athey for comments on an earlier version.1Introduction.The understanding of dynamic incentives is central in economics.How do companies moti-vate their workers through piecerates,bonuses,and promotions?How is income inequality connected with productivity,investment and economic growth?How dofinancial contracts and capital structure give incentives to the managers of a corporation?The methods and results of this paper provide important insights to many such questions.This paper introduces a continuous-time principal-agent model that focuses on the dynamic properties of optimal incentive provision.We identify factors that make the agent’s wages increase or decrease over time.We examine the degree to which current and future outcomes motivate the agent.We provide conditions under which the agent eventually reaches retirement in the optimal contract.We also investigate how the costs of creating incentives and the dynamic properties of the optimal contract depend on the contractual environment:the agent’s outside options,the difficulty of replacing the agent, and the opportunities for promotion.Our new dynamic insights are possible due to the technical advantages of continuous-time methods over the traditional discrete-time ones.Continuous time leads to a much simpler computational procedure tofind the optimal contract by solving an ordinary differ-ential equation.This equation highlights the factors that determine optimal consumption and effort.The dynamics of the agent’s career path are naturally described by the drift and volatility of the agent’s payoffs.The geometry of solutions to the differential equation allows for easy comparisons to see how the agent’s wages,effort and incentives depend on the contractual environment.Finally,continuous time highlights many essential features of the optimal contract,including the agent’s eventual retirement.In our benchmark model a risk-averse agent is tied to a risk-neutral principal forever after employment starts.The agent influences output by his continuous unobservable effort input.The principal sees only the output:a Brownian motion with a drift that depends on the agent’s effort.The agent dislikes effort and enjoys consumption.We assume that the agent’s utility function has the income effect,that is,as the agent’s income increases it becomes costlier to compensate him for effort.Also,we assume that the agent’s utility of consumption is bounded from below.At time0the principal can commit to any history-dependent contract.Such a contract specifies the agent’s consumption at every moment of time contingent on the entire past output path.The agent demands an initial reservation utility from the entire contract inorder to begin,and the principal offers a contract only if he can derive a positive profit from it.After we solve our benchmark model,we examine how the optimal contract changes if the agent may quit,be replaced or promoted.As in related discrete-time models,the optimal contract can be described in terms of the agent’s continuation value as a single state variable,which completely determines the agent’s effort and consumption.After any history of output the agent’s continuation value is the total future expected utility.The agent’s value depends on his future wages and effort.While in discrete time the optimal contract is described by cumbersome functions that map current continuation values and output realizations into future continuation values and consumption,continuous time offers more natural descriptors of employment dynamics: the drift and volatility of the agent’s continuation value.The volatility of the agent’s continuation value is related to effort.The agent has incentives to put higher effort when his value depends more strongly on output.Thus, higher effort requires a higher volatility of the agent’s value.The agent’s optimal effort varies with his continuation value.To determine optimal effort,the principal maximizes expected output minus the costs of compensating the agent for effort and the risk required by incentives.If the agent is very patient,so that incentive provision is costless,the optimal effort decreases with the agent’s continuation value due to the income effect.Apart from this extreme case,the agent’s effort is typically nonmonotonic because of the costs of exposing the agent to risk.The drift of the agent’s value is related to the allocation of payments over time.The agent’s value has an upward drift when his wages are backloaded,i.e.his current consump-tion is small relative to his expected future payoff.A downward drift of the agent’s value corresponds to frontloaded payments.The agent’s intertemporal consumption is distorted to facilitate the provision of incentives.The drift of the agent’s value always points in the direction where it is cheaper to provide the agent with incentives.Unsurprisingly,when the agent gets patient,so that incentive provision is costless,his continuation value does not have any drift.Over short time intervals,our optimal contract resembles that of Holmstrom and Mil-grom(1987)(hereafter HM),who study a simple continuous-time model in which the agent gets paid at the end of afinite time interval.HM show that optimal contracts are linear in aggregate output when the agent has exponential utility with a monetary cost of effort.2 2Many other continuous-time papers have extended the linearity results of HM.Schattler and Sung (1993)develop a more general mathematical framework for such results,and Sung(1995)allows the agentThese preferences have no income effect.According to Holmstrom and Milgrom(1991), the model of HM is“especially well suited for representing compensation paid over short period.”Therefore,it is not surprising that the optimal contract in our model is also approximately linear in incremental output over short time periods.In the long-run,the optimal contract involves complex nonlinear patterns of the agent’s wages and effort.In our benchmark setting,where the contract binds the agent to the principal forever,the agent eventually reaches retirement.After retirement,which occurs when the agent’s continuation value reaches a low endpoint or a high endpoint,the agent receives a constant stream of consumption and stops putting effort.The agent eventually reaches retirement in the optimal contract for two reasons.First, as shown in Spear and Wang(2005),the agent must retire when his continuation payoffbecomes very low or very high.3For the low retirement point,the assumption that the agent’s consumption utility is bounded from below implies that payments to the agent must stop when his value reaches the lower bound.For the high continuation values,retirement becomes optimal due to the income effect.When the agent’s consumption is high,it costs too much to compensate him for positive effort.Second,retirement depends on the relative time preferences of the agent and the principal.If the agent had a higher discount rate than the principal,then with time the principal’s benefit from output outweighs the cost of the agent’s effort.Under these conditions,it is sensible to avoid permanent retirement by allowing the agent to suspend effort temporarily.However,when the agent is equally patient as the principal,our result implies that the agent eventually reaches permanent retirement in the optimal contract.4Of course,retirement and other dynamic properties of the optimal contract depend on the contractual environment.The agent cannot be forced to stop consuming at the low retirement point if he has acceptable outside opportunities.Then,the agent quits instead of retiring at the low endpoint.If the agent is replaceable,the principal hires a new agent when the old agent reaches retirement.The high retirement point may also be replaced with promotion,an event that allows the agent to gain greater human capital,and manage larger and more important projects with higher expected output.5to control volatility as well.Hellwig and Schmidt(2002)look at the conditions for a discrete-time principal-agent model to converge to the HM solution.See also Bolton and Harris(2001),Ou-yang(2003)and Detemple,Govindaraj and Loewenstein(2001)for further generalization and analysis of the HM setting.3See also Wang(2006)for an extension of Spear and Wang(2005)to equilibrium in labor markets.4See DeMarzo and Sannikov(2006),Farhi and Werning(2006a)and Sleet and Yeltekin(2006)for examples where the agent is less patient than the principal.5I thank the editor Juuso Valimaki for encouraging me to investigate this possibility.The contractual envirnoment matters for the dynamics of the agent’s wages.We already mentioned that the drift of the agent’s continuation value always points in the direction where it is cheaper to create incentives.Since better outside options make it more difficult to motivate and retain the agent,it is not surprising that wages become more backloaded with better outside options.Lower payments up front cause the agent’s continuation value to drift up,away from the point where he is forced to quit.When the employer can offer better promotion opportunities,the agent’s wages also become backloaded in the optimal contract.The agent is willing to work for lower wages up front when he is motivated by future promotions.Thesefindings highlight the factors that may affect the agent’s wage structure in internal labor markets.Is the agent motivated more by wages in the short run,or those in the long run in an optimal contract?Contracts in practice use both short-term incentives,as piecework and bonuses,and long-term ones,as promotions and permanent wage increases.In our model, the ratio of the volatilities of the agent’s consumption and his continuation value measures the mix of short-term and long-term incentives.Wefind that the optimal contract uses stronger short-term incentives when the agent has better outside options,which interfere with the agent’s incentives in the long run.In contrast,when the principal has greater flexibility to replace or promote the agent,the optimal contract uses stronger long-term incentives and keeps the agent’s wages more constant in the short run.Wefind that the agent puts higher effort and the principal gets greater profit when the optimal contract relies on stronger long-term incentives.It is difficult to study these dynamic properties of the optimal contract using discrete-time models.Without theflexibility of the differential equation that describes the dynamics of the optimal contract in continous time,traditional discrete-time models produce a more limited set of results.Spear and Srivastava(1987)show how to analyze dynamic principal-agent problems in discrete time using recursive methods,with the agent’s continuation value as a state variable.6Assuming that the agent’s consumption is nonnegative and that his utility is separable in consumption and effort,they show that the inverse of the agent’s marginal utility of consumption is a martingale.An earlier paper of Rogerson (1985)demonstrates this result on a two-period model.7However,this restriction is not6Abreu,Pearce and Stacchetti(1986)and(1990)study the recursive structure of general repeated games.7This condition,called the inverse Euler equation,has received a lot of attention in recent macroeco-nomics literature.For example,see Golosov,Kocherlakota and Tsyvinski(2003)and Farhi and Werning (2006b).very informative about the optimal path of the agent’s wages,since a great diversity of consumption profiles in different contractual environments we study satisfy this restriction.In its early stage,this paper was inspired by Phelan and Townsend(1991)who develop a method for computing optimal long-term contracts in discrete time.There are strong sim-ilarities between our continuous-time solutions and their discrete-time example,implying that ultimately the two approaches are different ways of looking at the same thing.Their computational method relies on linear programming and multiple iterations to converge to the principal’s value function.While their method is quiteflexible and applicable to a wide range of settings,it is far more computationally intensive than our method of solving a differential equation.Also,as we discussed earlier,our characterization allows for analytic comparisons to study how the optimal contract depends on the contractual environment.Because general discrete-time models are difficult to deal with,one may be tempted to restrict attention to the special tractable case when the agent is patient.As the agent’s discount rate converges to0,efficiency becomes attainable,as shown in Radner(1985)and Fudenberg,Holmstrom and Milgrom(1990).8However,wefind that optimal contracts when the agent is patient do not deliver many important dynamic insights:the agent’s continuation value becomes driftless,and the agent’s effort,determined without taking the cost of incentives into account,is decreasing in the agent’s value.Concurrently with this paper,Williams(2003)also develops a continuous-time principal-agent model.The aim of that paper is to present a general characterization of the optimal contract using a partial differential equation and forward and backward stochastic differ-ential equations.The resulting contract is written recursively using several state variables, but due to greater generality,the optimal contract is not explored in as much detail.More recently,a number of other papers started using continuous-time methodology. DeMarzo and Sannikov(2006)study the optimal contract in a cash-flow diversion model using the methods from this paper.Biais et al.(2006)show that the contract of DeMarzo and Sannikov(2006)arises in the limit of discrete-time models as the agent’s actions become more frequent.Cvitanic,Wan and Zhang(2006)study optimal contracts when the agent gets paid once,and Westerfield(2006)develops an approach that uses the agent’s wealth, as opposed to his continuation value,as a state variable.The paper is organized as follows.Section2presents the benchmark setting and for-mulates the principal’s problem.Section3presents an optimal contract and discusses its properties:the agent’s effort and consumption,the drift and volatility of his continuation 8Also,Fudenberg,Levine and Maskin(1994)prove a Folk Theorem for general repeated games.value and retirement points.The formal derivation of the optimal contract is deferred to the Appendix.Section4explores how the agent’s outside options and the possibilities for replacement and promotion affect the dynamics of the agent’s wages,effort and incentives. Section5studies optimal contracts for small discount rates.Section6concludes the paper.2The Benchmark Setting.Consider the following dynamic principal-agent model in continuous time.A standard Brownian motion Z={Z t,F t;0≤t<∞}on(Ω,F,Q)drives the output process.The total output X t produced up to time t evolves according todX t=A t dt+σdZ t,where A t is the agent’s choice of effort level andσis a constant.The agent’s effort is a stochastic process A={A t∈A,0≤t<∞}progressively measurable with respect to F t, where the set of feasible effort levels A is compact with the smallest element0.The agent experiences cost of effort h(A t),measured in the same units as the utility of consumption, where h:A→ is continuous,increasing and convex.We normalize h(0)=0and assume that there isγ0>0such that h(a)≥γ0a for all a∈A.The output process X is publicly observable by both the principal and the agent.The principal does not observe the agent’s effort A,and uses the observations of X to give the agent incentives to make costly effort.Before the agent starts working for the principal,the principal offers him a contract that specifies a nonnegativeflow of consumption C t(X s;0≤s≤t)∈[0,∞)based on the principal’s observation of output.The principal can commit to any such contract.We assume that the agent’s utility is bounded from below and normalize u(0)=0.Also,we assume that u:[0,∞)→[0,∞)is an increasing,concave and C2function that satisfies u (c)→0as c→∞.For simplicity,assume that both the principal and the agent discount theflow of profit and utility at a common rate r.If the agent chooses effort level A t,0≤t<∞,his average expected utility is given byE r ∞0e−rt(u(C t)−h(A t))dt ,and the principal gets average profitE r ∞0e−rt dX t−r ∞0e−rt C t dt =E r ∞0e−rt(A t−C t)dt .Factor r in front of the integrals normalizes total payoffs to the same scale asflow payoffs.We say that an effort process{A t,0≤t<∞}is incentive compatible with respect to {C t,0≤t<∞}if it maximizes the agent’s total expected utility.2.1The Formulation of The Principal’s Problem.The principal’s problem is to offer a contract to the agent:a stream of consumption {C t,0≤t<∞}contingent on the realized output and an incentive-compatible advice of effort{A t,0≤t<∞}that maximizes the principal’s profitE r ∞0e−rt(A t−C t)dt (1) subject to delivering to the agent a required initial value of at leastˆWE r ∞0e−rt(u(C t)−h(A t))dt ≥ˆW.(2) We assume that the principal can choose not to employ the agent,so we are only interested in contracts that generate nonnegative profit for the principal.3The Optimal Contract.In this section,we heuristically derive an optimal contract and discuss its basic properties. In Appendix A we formally show that an optimal contract takes the form presented in this section.Only for this section,assume that an optimal contract can be written in terms of the agent’s continuation value W t as a single state variable.The continuation value W t is the total utility that the principal expects the agent to derive from the future after a given moment of time t.In the optimal contract,W t will play the role of the unique state descriptor that determines how much the agent gets paid,what effort level he is supposed to choose,and how W t itself changes with the realization of output.The principal must design a contract that specifies functions c(W),theflow of the agent’s consumption,a(W), the recommended effort level,and the law of motion of W t driven by the output path X t. Three objectives must be met.First,the agent must have sufficient incentives to choose therecommended effort levels.Second,payments,recommended effort and the law of motion must be consistent,so that the state descriptor W t represents the agent’s true continuation stly,the contract must maximize the principal’s profit.Before we describe the dynamic nature of the contract,note that the principal has the option to retire the agent with any value W∈[0,u(∞)),where u(∞)=lim c→∞u(c).To retire the agent with value u(c),the principal offers him constant consumption c and allows him to choose zero effort.Denote the principal’s profit from retiring the agent byF0(u(c))=−c.Note that the principal cannot deliver any value less than0,because the agent can guarantee himself nonnegative utility by always taking effort0.In fact,the only way to deliver value 0is through retirement.Indeed,if the future payments to the agent are not always0,the agent can guarantee himself a strictly positive value by putting effort0.We call F0the principal’s retirement profit.Given the agent’s consumption c(W)and recommended effort a(W),the evolution of the agent’s continuation value W t can be written as,(3) dW t=r(W t−u(c(W t))+h(a(W t)))dt+rY(W t)(dX t−a(W t)dt)σdZ twhere rY(W)is the sensitivity of the agent’s continuation value to output.When the agent takes the recommended effort level,dX t−a(W t)dt has mean0,and so r(W t−u(c(W t))+ h(a(W t)))is the drift of the agent’s continuation value.To account for the value that the principal owes to the agent,W t grows at the interest rate r and falls due to theflow of repayments r(u(c(W t))−h(a(W t))).We will see later that in the optimal contract,W t responds to output in the employment interval(0,W gp)and stops when it reaches0or W gp,leading to retirement.After the agent is retired,he stops putting effort and receives constant consumption utility ru(c(W t))=rW t.The sensitivity rY(W t)of the agent’s value to output affects the agent’s incentives.If the agent deviates to a different effort level,his actual effort affects only the drift of X t. The agent has incentives to choose effort that maximizes the expected change of W t minus the cost of effortrY(W t)a−rh(a).Since it is costly to expose the agent to risk,in the optimal contract Y(W t)is set at theminimal level that induces effort level a(W t).We denote this level byγ(a)=min{y∈[0,∞):a∈arg max a ∈A ya −h(a )}.(4)Functionγ(a)is increasing in a.For the binary action case A={0,a},γ(a)=h(a)/a. When A is an interval and h is a differentiable function,γ(a)=h (a)for a>0.We come to the crucial part where we describe the optimal choice of payments c(W) and effort recommendations a(W).Consider the highest profit F(W)that the principal can derive when he delivers to the agent value W.Function F(W)together with the optimal choices of a(W)and c(W)satisfy the HJB equationrF(W)=maxa>0,c r(a−c)+F (W)r(W−u(c)+h(a))+F (W)2r2γ(a)2σ2.(5)The principal is maximizing the expected currentflow of profit r(a−c)plus the expected change of future profit due to the drift and volatility of the agent’s continuation value.Equation(5)can be rewritten in the following form suitable for computationF (W)=mina>0,c F(W)−a+c−F (W)(W−u(c)+h(a))rγ(a)2σ2/2.(6)To compute the optimal contract,the principal must solve this differential equation by settingF(0)=0(7) and choosing the largest slope F (0)≥F 0(0)such that the solution F satisfiesF(W gp)=F0(W gp)and F (W gp)=F 0(W gp)(8) at some point W gp≥0,where F (W gp)=F 0(W gp)is called the smooth-pasting condition.9 Let functions c:(0,W gp)→[0,∞)and a:(0,W gp)→A be the minimizers in equation (6).A typical form of the value function F(0)together with a(W),c(W)and the drift of the agent’s continuation value are shown in Figure1.Theorem1,which is proved formally in Appendix A,characterizes optimal contracts.Theorem 1.The unique concave function F≥F0that satisfies(6),(7)and(8)9If r is sufficiently large,then the solution of(6)with boundary conditions F(0)=0and F (0)=F(0) satisfies F(W)>F0(W)for all W>0.In this case W gp=0and contracts with positive profit do not exist.-0.2-0.4-0.6-0.8√c,h(a)=0.5a2+0.4a,r=0.1andσ=1.Point W∗is Figure1:Function F for u(c)=the maximum of F.characterizes any optimal contract with positive profit to the principal.For the agent’s starting value of W0>W gp,F(W0)<0is an upper bound on the principal’s profit.If W0∈[0,W gp],then the optimal contract attains profit F(W0).Such a contract is based on the agent’s continuation value as a state variable,which starts at W0and evolves according todW t=r(W t−u(C t)+h(A t))dt+rγ(A t)(dX t−A t dt)(9) under payments C t=c(W t)and effort A t=a(W t),until the retirement timeτ.Retirement occurs when W t hits0or W gp for thefirst time.After retirement the agent gets constant consumption of−F0(Wτ)and puts effort0.The intuition why the agent’s continuation value W t completely summarizes the past history in the optimal contract is the same as in discrete time.The agent’s incentives are unchanged if we replace the continuation contract that follows a given history with adifferent contract that has the same continuation value W t.10Therefore,to maximize the principal’s profit after any history,the continuation contract must be optimal given W t. It follows that the agent’s continuation value W t completely determines the continuation contract.Let us discuss optimal effort and consumption using equation(5).The optimal effortmaximizesra+rh(a)F (W)+r2σ2γ(a)2F (W)2,(10)where ra is the expectedflow of output,−rh(a)F (W)is the cost of compensating the agent for his effort,and−r2σ2γ(a)2F (W)is the cost of exposing the agent to income uncertainty to provide incentives.These two costs typically work in opposite directions, creating a complex effort profile(see Figure1).While F (W)decreases in W because F is concave,F (W)increase over some ranges of W.11However,as r→0,the cost of exposing the agent to risk goes away and the effort profile becomes decreasing in W,except possibly near endpoints0and W gp(see Section5).The optimal choice of consumption maximizes−c−F (W)u(c).(11)Thus,the agent’s consumption is0when F (W)≥−1/u (0),in the probationary interval [0,W∗∗],and it is increasing in W according to F (W)=−1/u (c)above W∗∗.Intuitively, 1/u (c)and−F (W)are the marginal costs of giving the agent value through current con-sumption and through his continuation payoff,respectively.Those marginal costs must be equal under the optimal contract,except in the probationary interval.There,consumption zero is optimal because it maximizes the drift of W t away from the inefficient low retirement point.Why is it optimal for the principal to retire the agent if his continuation payoffbecomes sufficiently large?This happens due to the income effect:when theflow of payments to the agent is large enough,it costs the principal too much to compensate the agent for his effort,so it is optimal to allow effort0.When the agent gets richer,the monetary cost of 10This logic would fail if the agent had hidden savings.With hidden savings,the agent’s past incentives to save depend not only on his current promised value,but also on how his value would change with savings level.Therefore,the problem with hidden savings has a different recursive structure,as discussed in the conclusions.11F (W)increases at least on the interval[0,W∗],where c=0and sign F (W)=sign(rW−u(c)+ h(a))>0(see Theorem2).When W is smaller,the principal faces a greater risk of triggering retirement by providing stronger incentives.delivering utility to the agent rises indefinitely(since u (c)→0as c→∞)while the utility cost of output stays bounded above0since h(a)≥γ0a for all a.High retirement occurs even before the cost of compensating the agent for effort exceeds the expected output from effort,since the principal must compensate the agent not only for effort,but also for risk (see(10)).While it is necessary to retire the agent when W t hits0and it is optimal to do so if W t reaches W gp,there are contracts that prevent W t from reaching0or W gp by allowing the agent to suspend effort temporarily.Those contracts are suboptimal:in the optimal contract the agent puts positive effort until he is retired forever.12 The drift of W t is connected with the allocation of the agent’s wages over time.Section 5shows that the drift of W t becomes zero when the agent becomes patient,to minimize intertemporal distortions of the agent’s consumption.In general,the drift of W t is nonzero in the optimal contract.Theorem2shows that the drift of W t always points in the direction where it is cheaper to provide incentives.Theorem2.Until retirement,the drift of the agent’s continuation value points in the direction in which F (W)is increasing.Proof.From(5)and the Envelope Theorem,we haver(W−u(c)+h(a))F (W)+r2σ2γ(a)2F (W)2=0(12)Since F (W)is always negative,W−u(c)+h(a)has the same sign as F (W).QEDBy Ito’s lemma,(12)is the drift of−1/u (C t)=F (W t)on[W∗∗,W gp].Thus,in our model the inverse of the agent’s marginal utility is a martingale when the agent’s consump-tion is positive.The analogous result in discrete time wasfirst discovered by Rogerson (1985).In the next subsection we discuss the paths of the agent’s continuation value and income, and the connections between the agent’s incentives,productivity and income distribution in the example in Figure1.Before that,we make three remarks about possible extensions of our model.Remark1:Retirement.If the agent’s utility was unbounded from below(e.g.expo-nential utility),our differential equation would still characterize the optimal contract,but the agent may never reach retirement at the low endpoint.To take care of this possibility, 12This conclusion depends on the assumption that the agent’s discount rate is the same as that of the principal.If the agent’s discount rate was higher,the optimal contract may allow the agent to suspend effort temporarily.。

共存竞争的英语In the ever-evolving tapestry of life, coexistence and competition stand as two threads that interweave, shapingthe fabric of our world. While coexistence fosters understanding and harmony, competition drives innovationand excellence. This duality is not a zero-sum game; rather, it is a symbiotic relationship that propels society forward. Coexistence is the foundation of a diverse andinclusive society. It promotes understanding and respect among different groups, cultures, and individuals. When we coexist, we acknowledge the validity and value of others, creating a rich tapestry of ideas and perspectives. This diversity enriches our lives, broadening our horizons and deepening our understanding of the world.Competition, on the other hand, is the spark thatignites progress and excellence. It challenges us to push our boundaries, to strive for betterment, and to achieveour full potential. Competition fosters innovation by encouraging us to think outside the box, to question established norms, and to explore new territories. Itdrives us to refine our skills, to push our limits, and to achieve our goals.However, the beauty of coexistence and competition lies in their harmonious blend. When these two forces are balanced, they create a dynamic environment that fosters growth and development. Coexistence provides the fertile ground for competition to flourish, while competition fuels the fire of coexistence, pushing us to connect, understand, and respect our differences.In the business world, for instance, coexistence and competition coexist in perfect harmony. Companies compete fiercely for market share, striving to innovate and offer the best products and services. But this competition does not exclude cooperation and collaboration. Businesses often coexist by sharing resources, knowledge, and expertise, creating win-win situations that benefit them all.In the realm of sports, the synergy of coexistence and competition is even more evident. Athletes compete vigorously on the field, striving to win the medal or the championship. But off the field, they coexist as teammates, sharing the same goals, dreams, and aspirations. Thiscoexistence fosters a sense of camaraderie and unity that strengthens their competitive spirit and helps them achieve their goals.In conclusion, coexistence and competition are not opposing forces; they are complementary elements that shape our world. When we embrace both, we create an environment that fosters understanding, respect, innovation, and excellence. It is this dynamic duo of coexistence and competition that propels us forward, driving us to achieve our full potential and contributing to the progress of society.**共存竞争：进步的动态双翼**在生命不断演进的织锦画卷中，共存与竞争是交织在一起的两条线，共同塑造着我们的世界。

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剑桥雅思阅读11原文(test1)READING PASSAGE 1You should spend about 20 minutes on Questions 1-13, which are based on Reading Passage 1 below.Crop-growing skyscrapersBy the year 2050, nearly 80% of the Earth’s population will live in urban centres. Applying the most conservative estimates to current demographic trends, the human population will increase by about three billion people by then. An estimated 109 hectares of new land (about 20% larger than Brazil) will be needed to grow enough food to feed them, if traditional farming methods continue as they are practised today. At present, throughout the world, over 80% of the land that is suitable for raising crops is in use. Historically, some 15% of that has been laid waste by poor management practices. What can be done to ensure enough food for the world’s population to live on?The concept of indoor farming is not new, since hothouse production of tomatoes and other produce has been in vogue for some time. What is new is the urgent need to scale up this technology to accommodate another three billion people. Many believe an entirely new approach to indoor farming is required, employing cutting-edge technologies. One such proposal is for the ‘Vertical Farm’. The concept is of multi-storey buildings in which food crops are grown in environmentally controlledconditions. Situated in the heart of urban centres, they would drastically reduce the amount of transportation required to bring food to consumers. Vertical farms would need to be efficient, cheap to construct and safe to operate. If successfully implemented, proponents claim, vertical farms offer the promise of urban renewal, sustainable production of a safe and varied food supply (through year-round production of all crops), and the eventual repair of ecosystems that have been sacrificed for horizontal farming.It took humans 10,000 years to learn how to grow most of the crops we now take for granted. Along the way, we despoiled most of the land we worked, often turning verdant, natural ecozones into semi-arid deserts. Within that same time frame, we evolved into an urban species, in which 60% of the human population now lives vertically in cities. This means that, for the majority, we humans have shelter from the elements, yet we subject our food-bearing plants to the rigours of the great outdoors and can do no more than hope for a good weather year. However, more often than not now, due to a rapidly changing climate, that is not what happens. Massive floods, long droughts, hurricanes and severe monsoons take their toll each year, destroying millions of tons of valuable crops.The supporters of vertical farming claim many potential advantages for the system. For instance, crops would be produced all year round, as they would be kept in artificially controlled, optimum growing conditions. There would be no weather-related crop failures due to droughts, floods or pests. All the food could be grown organically, eliminating the need for herbicides, pesticides and fertilisers. The system would greatly reduce the incidence of many infectious diseases that areacquired at the agricultural interface. Although the system would consume energy, it would return energy to the grid via methane generation from composting non-edible parts of plants. It would also dramatically reduce fossil fuel use, by cutting out the need for tractors, ploughs and shipping.A major drawback of vertical farming, however, is that the plants would require artificial light. Without it, those plants nearest the windows would be exposed to more sunlight and grow more quickly, reducing the efficiency of the system. Single-storey greenhouses have the benefit of natural overhead light: even so, many still need artificial lighting. A multi-storey facility with no natural overhead light would require far more. Generating enough light could be prohibitively expensive, unless cheap, renewable energy is available, and this appears to be rather a future aspiration than a likelihood for the near future.One variation on vertical farming that has been developed is to grow plants in stacked trays that move on rails. Moving the trays allows the plants to get enough sunlight. This system is already in operation, and works well within a single-storey greenhouse with light reaching it from above: it is not certain, however, that it can be made to work without that overhead natural light.Vertical farming is an attempt to address the undoubted problems that we face in producing enough food for a growing population. At the moment, though, more needs to be done to reduce the detrimental impact it would have on the environment, particularly as regards the use of energy. While it is possible that much of our food will be grown in skyscrapers in future, most experts currently believe it is far more likely that we will simply use the space available on urban rooftops.Questions 1-7Complete the sentences below.Choose NO MORE THAN TWO WORDS from the passage for each answer.Write your answers in boxes 1-7 on your answer sheet.Indoor farming1 Some food plants, including __________, are already grown indoors.2 Vertical farms would be located in __________, meaning that there would be less need to take them long distances to customers.3 Vertical farms could use methane from plants and animals to produce __________.4 The consumption of __________ would be cut because agricultural vehicles would be unnecessary.5 The fact that vertical farms would need __________ light is a disadvantage.6 One form of vertical farming involves planting in __________ which are not fixed.7 The most probable development is that food will be grown on __________ in towns and cities.Questions 8-13Do the following statements agree with the information given in Reading Passage 1?In boxes 8-13 on your answer sheet, writeTRUE if the statement agrees with the informationFALSE if the statement contradicts the informationNOT GIVEN if there is no information on this8 Methods for predicting the Earth’s population have recently changed.9 Human beings are responsible for some of the destruction to food-producing land.10 The crops produced in vertical farms will depend on the season.11 Some damage to food crops is caused by climate change.12 Fertilisers will be needed for certain crops in vertical farms.13 Vertical farming will make plants less likely to be affected by infectious diseases.READING PASSAGE 2You should spend about 20 minutes on Questions 14-26, which are based on Reading Passage 2 below.THE FALKIRK WHEELA unique engineering achievementThe Falkirk Wheel in Scotland is the world’s first and only rotating boat lift. Opened in 2002, it is central to the ambitious ￡84.5m Millennium Link project to restore navigability across Scotland by reconnecting the historic waterways of the Forth & Clyde and Union Canals.The major challenge of the project lay in the fact that the Forth & Clyde Canal is situated 35 metres below the level of the Union Canal. Historically, the two canals had been joined near the town of Falkirk by a sequence of 11 locks — enclosed sections of canal in which the water level could be raised or lowered — that stepped down across a distance of 1.5 km. This had been dismantled in 1933, thereby breaking the link. When the project was launched in 1994, the British Waterways authority were keen to create a dramatic twenty-first-century landmark which would not only be a fitting commemoration of the Millennium, but also a lasting symbol of the economic regeneration of the region.Numerous ideas were submitted for the project, includingconcepts ranging from rolling eggs to tilting tanks, from giant see-saws to overhead monorails. The eventual winner was a plan for the huge rotating steel boat lift which was to become The Falkirk Wheel. The unique shape of the structure is claimed to have been inspired by various sources, both manmade and natural, most notably a Celtic double-headed axe, but also the vast turning propeller of a ship, the ribcage of a whale or the spine of a fish.The various parts of The Falkirk Wheel were all constructed and assembled, like one giant toy building set, at Butterley Engineering’s Steelworks in Derbyshire, some 400 km from Falkirk. A team there carefully assembled the 1,200 tonnes of steel, painstakingly fitting the pieces together to an accuracy of just 10 mm to ensure a perfect final fit. In the summer of 2001, the structure was then dismantled and transported on 35 lorries to Falkirk, before all being bolted back together again on the ground, and finally lifted into position in five large sections by crane. The Wheel would need to withstand immense and constantly changing stresses as it rotated, so to make the structure more robust, the steel sections were bolted rather than welded together. Over 45,000 bolt holes were matched with their bolts, and each bolt was hand-tightened.The Wheel consists of two sets of opposing axe-shaped arms, attached about 25 metres apart to a fixed central spine. Two diametrically opposed water-filled ‘gondolas’, each with a capacity of 360,000 litres, are fitted between the ends of the arms. These gondolas always weigh the same, whether or not they are carrying boats. This is because, according to Archimedes’ principle of displacement, floating objects displace their own weight in water. So when a boat enters a gondola, the amount ofwater leaving the gondola weighs exactly the same as the boat. This keeps the Wheel balanced and so, despite its enormous mass, it rotates through 180° in five and a half minutes while using very little power. It takes just 1.5 kilowatt-hours (5.4 MJ) of energy to rotate the Wheel — roughly the same as boiling eight small domestic kettles of water.Boats needing to be lifted up enter the canal basin at the level of the Forth & Clyde Canal and then enter the lower gondola of the Wheel. Two hydraulic steel gates are raised, so as to seal the gondola off from the water in the canal basin. The water between the gates is then pumped out. A hydraulic clamp, which prevents the arms of the Wheel moving while the gondola is docked, is removed, allowing the Wheel to turn. In the central machine room an array of ten hydraulic motors then begins to rotate the central axle. The axle connects to the outer arms of the Wheel, which begin to rotate at a speed of 1/8 of a revolution per minute. As the wheel rotates, the gondolas are kept in the upright position by a simple gearing system. Two eight-metre-wide cogs orbit a fixed inner cog of the same width, connected by two smaller cogs travelling in the opposite direction to the outer cogs — so ensuring that the gondolas always remain level. When the gondola reaches the top, the boat passes straight onto the aqueduct situated 24 metres above the canal basin.The remaining 11 metres of lift needed to reach the Union Canal is achieved by means of a pair of locks. The Wheel could not be constructed to elevate boats over the full 35-metre difference between the two canals, owing to the presence of the historically important Antonine Wall, which was built by the Romans in the second century AD. Boats travel under this wall via a tunnel, then through the locks, and finally on to the Union Canal.Questions 14-19Do the following statements agree with the information given in Reading Passage 2?In boxes 14-19 on your answer sheet, writeTRUE if the statement agrees with the informationFALSE if the statement contradicts the informationNOT GIVEN if there is no information on this14 The Falkirk Wheel has linked the Forth & Clyde Canal with the Union Canal for the first time in their history.15 There was some opposition to the design of the Falkirk Wheel at first.16 The Falkirk Wheel was initially put together at the location where its components were manufactured.17 The Falkirk Wheel is the only boat lift in the world which has steel sections bolted together by hand.18 The weight of the gondolas varies according to the size of boat being carried.19 The construction of the Falkirk Wheel site took into account the presence of a nearby ancient monument.Questions 20-26Label the diagram below.Choose ONE WORD from the passage for each answer.Write your answers in boxes 20-26 on your answer sheet.How a boat is lifted on the Falkirk WheelREADING PASSAGE 3You should spend about 20 minutes on Questions 27-40, which are based on Reading Passage 3 below.Reducing the Effects of Climate ChangeMark Rowe reports on the increasingly ambitious geo-engineering projects being explored by scientistsA Such is our dependence on fossil fuels, and such is the volume of carbon dioxide already released into the atmosphere, that many experts agree that significant global warming is now inevitable. They believe that the best we can do is keep it at a reasonable level, and at present the only serious option for doing this is cutting back on our carbon emissions. But while a few countries are making major strides in this regard, the majority are having great difficulty even stemming the rate of increase, let alone reversing it. Consequently, an increasing number of scientists are beginning to explore the alternative of geo-engineering — a term which generally refers to the intentional large-scale manipulation of the environment. According to its proponents, geo-engineering is the equivalent of a backup generator: if Plan A — reducing our dependency on fossil fuels — fails, we require a Plan B, employing grand schemes to slow down or reverse the process of global warming.B Geo-engineering has been shown to work, at least on a small localised scale. For decades, May Day parades in Moscow have taken place under clear blue skies, aircraft having deposited dry ice, silver iodide and cement powder to disperse clouds. Many of the schemes now suggested look to do the opposite, and reduce the amount of sunlight reaching the planet. The most eye-catching idea of all is suggested by Professor Roger Angel of the University of Arizona. His scheme would employ up to 16 trillion minute spacecraft, each weighing about one gram, to form a transparent, sunlight-refracting sunshade in an orbit 1.5 million km above the Earth. This could, argues Angel, reduce the amount of light reaching the Earth by two per cent.C The majority of geo-engineering projects so far carried out — which include planting forests in deserts and depositing ironin the ocean to stimulate the growth of algae — have focused on achieving a general cooling of the Earth. But some look specifically at reversing the melting at the poles, particularly the Arctic. The reasoning is that if you replenish the ice sheets and frozen waters of the high latitudes, more light will be reflected back into space, so reducing the warming of the oceans and atmosphere.D The concept of releasing aerosol sprays into the stratosphere above the Arctic has been proposed by several scientists. This would involve using sulphur or hydrogen sulphide aerosols so that sulphur dioxide would form clouds, which would, in turn, lead to a global dimming. The idea is modelled on historic volcanic explosions, such as that of Mount Pinatubo in the Philippines in 1991, which led to a short-term cooling of global temperatures by 0.5℃. Scientists have also scrutinised whether it’s possi ble to preserve the ice sheets of Greenland with reinforced high-tension cables, preventing icebergs from moving into the sea. Meanwhile in the Russian Arctic, geo-engineering plans include the planting of millions of birch trees. Whereas the region’s nati ve evergreen pines shade the snow and absorb radiation, birches would shed their leaves in winter, thus enabling radiation to be reflected by the snow. Re-routing Russian rivers to increase cold water flow to ice-forming areas could also be used to slow down warming, say some climate scientists.E But will such schemes ever be implemented? Generally speaking, those who are most cautious about geo-engineering are the scientists involved in the research. Angel says that his plan is ‘no substitute for developi ng renewable energy: the only permanent solution’. And Dr Phil Rasch of the US-based Pacific Northwest National Laboratory is equally guarded about the roleof geo-engineering: ‘I think all of us agree that if we were to end geo-engineering on a given day, then the planet would return to its pre-engineered condition very rapidly, and probably within ten to twenty years. That’s certainly something to worry about.’F The US National Center for Atmospheric Research has already suggested that the proposal to inject sulphur into the atmosphere might affect rainfall patterns across the tropics and the Southern Ocean. ‘Geo-engineering plans to inject stratospheric aerosols or to seed clouds would act to cool the planet, and act to increase the extent of sea ice,’ s ays Rasch. ‘But all the models suggest some impact on the distribution of precipitation.’G ‘A further risk with geo-engineering projects is that you can “overshoot”,’ says Dr Dan Lunt, from the University of Bristol’s School of Geophysical Sciences, who h as studied the likely impacts of the sunshade and aerosol schemes on the climate. ‘You may bring global temperatures back to pre-industrial levels, but the risk is that the poles will still be warmer than they should be and the tropics will be cooler than before industrialisation.’ To avoid such a scenario, Lunt says Angel’s project would have to operate at half strength; all of which reinforces his view that the best option is to avoid the need for geo-engineering altogether.H The main reason why geo-engineering is supported by many in the scientific community is that most researchers have little faith in the ability of politicians to agree — and then bring in —the necessary carbon cuts. Even leading conservation organisations see the value of investigating the potential of geo-engineering. According to Dr Martin Sommerkorn, climatechange advisor for the World Wildlife Fund’s International Arctic Programme, ‘Human-induced climate change has brought humanity to a position where we shouldn’t exclude thinkin g thoroughly about this topic and its possibilities.’Questions 27-29Reading Passage 3 has eight paragraphs A-H.Which paragraph contains the following information?Write the correct letter, A-H, in boxes 27-29 on your answer sheet.27 mention of a geo-engineering project based on an earlier natural phenomenon28 an example of a successful use of geo-engineering29 a common definition of geo-engineeringQuestions 30-36Complete the table below.Choose ONE WORD from the passage for each answer.Write your answers in boxes 30-36 on your answer sheet.GEO-ENGINEERING PROJECTSProcedure Aimput a large number of tiny spacecraft into orbit far above Earth to create a 30 __________ that would reduce the amount of light reaching Earthplace 31 __________ in the sea to encourage 32 __________ to formrelease aerosol sprays into the stratosphere to create 33 __________ that would reduce the amount of light reaching Earth fix strong 34 __________ to Greenland ice sheets to prevent icebergs moving into the seaplant trees in Russian Arctic that would lose their leaves in winter to allow the 35 __________ to reflect radiationchange the direction of 36 __________ to bring more cold water into ice-forming areasQuestions 37-40Look at the following statements (Questions 37-40) and the list of scientists below.Match each statement with the correct scientist, A-D.Write the correct letter, A-D, in boxes 37-40 on your answer sheet.37 The effects of geo-engineering may not be long-lasting.38 Geo-engineering is a topic worth exploring.39 It may be necessary to limit the effectiveness of geo-engineering projects.40 Research into non-fossil-based fuels cannot be replaced by geo-engineering.List of ScientistsA Roger AngelB Phil RaschC Dan LuntD Martin Sommerkorn剑桥雅思阅读11原文参考译文(test1)PASSAGE 1参考译文：作物生长的“摩天大厦”到2050年，近80%的地球人口将在城市中心生活。

2023年北京市高考英语阅读C篇In recent years, researchers from diverse fields have agreed that short-termism is now a significant problem in industrialised societies. The inability to engage with longer-term causes and consequences leads to some of the world’s most serious problems: climate change, biodiversity collapse, and more. The historian Francis Cole argues that the West has entered a period where “only the present exists, a present characterised at once by the cruelty of the instant and by the boredom of an unending now”.近年来，来自不同领域的研究人员一致认为，短视主义现在是工业化社会的一个重大问题。

对长期原因和后果的缺乏参与导致世界上一些最严重的问题出现：气候变化、生物多样性崩溃等。

历史学家弗朗西斯·科尔认为，西方已经进入一个“只有现在存在”的时期，这个时期既被即时残酷所特征化，又被无尽的现在的无聊所特征化。

It has been proved that people have a bias (偏向) towards the present, focusing on loud attractions in the moment at the expense of the health, well-being and financial stability of their future selves or community. In business, this bias surfaces as short-sighted decisions. And on slow-burning problems like climate change, it translates into theunwillingness to make small sacrifices (牺牲) today that could make a major difference tomorrow. Instead, all that matters is next quarter’s profit, or satisfying some other near-term desires.已经证明，人们对现在有偏见，注重眼前的吸引力，而忽视了未来自己或社区的健康、幸福和财务稳定。

基于激光雷达的垂直能见度反演算法及其误差评估*宋海润， 王晓蕾， 李　浩（国防科技大学 气象海洋学院，南京 210000）摘 要： 针对大气垂直方向上消光系数分布不均匀难以用传统方法直接测量垂直能见度的问题，提出了一种基于激光雷达探测垂直能见度的计算方法。

根据大气辐射传输基本原理，借助于辐射传输方程，推导出了垂直能见度的计算公式；然后利用激光雷达原理方程和Klett 算法反演出大气垂直方向上的消光系数分布，基于此提出了垂直能见度的迭代算法。

最后，利用灰色模型GM(1,1)和批统计算法，对激光雷达反演得到的后向散射系数进行了评估，给出了误差置信区间为（0.760±0.339）×10−4（srad·km ）−1。

结果表明，该方法是一种特别有效的计算垂直能见度的方法，符合探测的基本需求，且误差小精度高。

关键词： 激光雷达； 垂直能见度； 消光系数； 辐射传输方程； GM(1,1)模型； 批统计 中图分类号： TN958.98 文献标志码： A doi : 10.11884/HPLPB202032.190250Inversion algorithm of vertical visibility based onlidar and its error evaluationSong Hairun ， Wang Xiaolei ， Li Hao（College of Meteorology and Oceanography , National University of Defense Technology , Nanjing 210000, China ）Abstract ： To solve the problem that the non-uniform distribution of extinction coefficients in the vertical direction of the atmosphere makes it difficult to directly measure the vertical visibility by traditional methods, this paper presents a method for calculating the vertical visibility based on lidar detection. Firstly, according to the basic principle of atmospheric radiation transmission and radiation transfer equation, it deduces the calculation formula of vertical visibility, which solves the problem that there is no specific formula for calculating vertical visibility.Secondly, it inverts the extinction coefficient distribution in the vertical direction of the atmosphere by using the lidar equation and Klett algorithm. On this basis, it proposes an iterative algorithm for vertical visibility. Finally, it uses the gray model GM(1,1) and batch statistics algorithm to evaluate the backscattering coefficient obtained by laser radar inversion, and gives the error confidence interval (0.760±0.339)×10−4(srad·km)−1. The results show that the method is a particularly effective one for calculating vertical visibility, which meets the basic requirements of detection,with small error and high precision.Key words ： lidar ； vertical visibility ； extinction coefficient ； radiative transfer equation ； GM(1,1) model ；batch statistics大气能见度是气象观测的常规项目之一，它不仅是表征大气透明度的一个重要参量，还可以表示大气的光学状态[1-2]。