Environmental incentives are characterized by two distinct features: (1) a benefit-cost trade-off; and (2) private information about the trade-off. This suggests a degree of freedom of where to attach the private information, either to the benefit or the costs, as long as these choices imply the same behavior absent incentives (‘observation equivalent’). However, we show that different observation equivalent specifications can lead to different incentives. This is demonstrated for two cases: rainforest protection and contributions to a public good. Therefore, the choice of a private information parameter must be justified against observation equivalent alternatives.

Investigating the underlying producer characteristics associated with regional pest control adoption revealed an interesting proposition. Early adopting producers of firm-specific techniques with characteristics including higher education, more specialized operations, and larger sized business units are dissatisfied with a regional pest control technique. This study provides an explanation of the proposition based on a principal-agent model. Empirical support for the proposition is also presented by developing a multinomial logit model for predicting producers' dissatisfaction with boll weevil eradication.

At the close of the twentieth century, U.S. corporate scholarship was dominated by a principal-agent paradigm that assumed that shareholders were the principals or sole residual claimants in public corporations, and also assumed that corporate directors were the shareholders' agents. This approach led many corporate scholars to assume that the proper purpose of the corporation was to maximize shareholder wealth and that the chief economic problem of interest in corporate law was the “agency cost” problem of getting corporate directors to focus on this goal.

There are basic aspects of U.S. corporate law, however, that the principal-agent model cannot explain. These include directors' extensive and sui generis legal powers; the fact that directors control dividends; the device of legal personality; and the open-ended rules of corporate purpose. These corporate law “anomalies” have prompted contemporary economic and legal scholars to begin to move beyond a focus on agency costs and to pay attention to a second economic problem that arises in public corporations: the problem of protecting specific investment. When corporate production requires more than one individual or group to make specific investments, problems of intrafirm opportunism arise if shareholders try to exploit each other's specific investments or try to exploit the specific investments of creditors, employees, customers, and other groups. Board governance, while worsening agency costs, may provide a second-best solution to such intrafirm rent-seeking. This perspective explains many important corporate law “anomalies” that cannot be explained by the principal-agent model.

It also suggests a pressing need to revisit conventional notions of corporate purpose. Focusing on the problem of specific investment suggests that the proper purpose of the public corporation is not maximizing shareholder wealth, but promoting long-term, value-creating economic production under conditions of complexity and uncertainty, in a fashion that provides surplus benefits not only to shareholders but to other groups that make specific investments in corporations as well. This corporate objective is difficult to measure, much less maximize. Nevertheless, it may provide a better gauge of good corporate governance than the simplistic rubric of shareholder wealth.