Optimal Short-Termism

This paper develops a dynamic contracting (multitasking) model of a levered firm. In particular, the manager selects long-term and short-term efforts, and shareholders choose optimal debt and default policies. Excessive short-termism ex post is optimal for shareholders because debt has an asymmetric effect: shareholders receive all gains from short-term effort but share gains from long-term effort. We find that grim growth prospects and shareholder impatience imply higher optimal levels of short-termism. Also, an incentive cost effect and a real option effect create nontrivial patterns for the endogenous default threshold. Finally, we quantify agency costs of excessive short-termism, which underscore the economic significance of our results. This paper was accepted by Gustavo Manso, finance.

Indian cities are stuck in short-termism on smog

Headline INDIA: Cities are stuck in short-termism on smog

EU Climate and Energy Policy: How Myopic Is It?

This article investigates the shortsightedness or myopia of recent climate and energy policy (CEP) in the EU. To this end, it develops and applies a measurement tool of short-termism composed of four key criteria: (1) the reflection of science-based long-term thinking in the policy process and its output; (2) the degree to which mid-term greenhouse gas emission targets and accompanying policies align with science-based long-term objectives; (3) the stringency of the legislation; and (4) its adaptability. We use these criteria to assess the levels of short-termism of the EU’s 2020 and 2030 CEP frameworks and the (still evolving) European Green Deal (EGD). Overall, we find that the level of myopia of EU CEP has fluctuated and has advanced far less than the development of the nominal mid-term emission targets might suggest. The EGD’s 55% emission reduction target for 2030 only constitutes a return to the levels of alignment with science-based long-term objectives existing in the 2020 Package (making good on the regression of the 2030 Framework). It is primarily due to the maturing of long-term thinking and a ratcheting mechanism, that EU climate policy under the EGD can be considered less myopic than the 2020 Package (although the assessment remains preliminary pending the adoption of further implementing legislation). These findings lay the ground for future research that not only investigates reasons for the general myopia of (EU) climate policy, but also the drivers of the fluctuations over time.

Food emergency is yet more Sri Lankan short-termism

Headline SRI LANKA: Food emergency is yet more short-termism

Anticipatory governance for newcomers: lessons learned from the UK, the Netherlands, Finland, and Korea

Anticipatory governance (AG) is defined as a “system of systems” that employs foresight to create future plans and execute relevant actions. Recently, various frameworks of AG have been introduced, but there is little practical information available for newcomers on how to do this. This research conducted a framework-based comparative country analysis to provide lessons learned for newcomers in the sphere of foresight-linked AG. By evaluating the AG levels of Finland, the UK, the Netherlands, and Korea, we found that the consequences of foresight-linked AGs were different in each country. At the same time, we also identified a common denominator, namely, future receptivity, a “human or people” capacity to accept and understand the value of foresight. Instead of temporary system changes or organizational modifications, future receptivity is an underlying element for newcomers to overcome lingering short-termism and facilitate the coordination of stakeholders concerning foresight. In conclusion, we suggest ways to promote future receptivity for newcomers. First, the government should educate and train the public and government officials to promote future literacy and future proficiency. Second, the government should provide a process for public participation such as nationwide networking that enables the public to influence their diverse future images over foresight outcomes.

Ghana’s Competitive Clientelism and Space for Long-Term Stable Policies

Given the close election results and the winner-takes-all nature of politics in Ghana, researchers have argued that the two parties are now characterized by a high degree of vulnerability, which in turn provides strong incentives for ruling elites in both parties to find strategies to ensure their political survival. This results in the distribution of state resources to political supporters and short-termism, which weakens the possibility of building a broad political consensus on any national development issues. Using the case of Ghana’s Right to Information Bill, this article will argue that there are conditions under which elite commitment to long-term development could be fostered and sustained in competitive clientelist political settings like Ghana.