Imrecon

A central thrust of Imrecon's  work has been to inform better diagnosis and design of incentive regimes. 

Imrecon employs a number of tools towards this end.  There is often a logical rationale for adopting one approach versus another, but it is not always safe to rely on a mental map of how mechanisms work and how they interact. 

A powerful class of analysis involves policy simulation to model the incentive regime under uncertain outturns for users and a company's investors, measuring the quality of the resulting alignment between the interests of both groups.  Imrecon has pioneered this kind of approach in a number of policy contexts.  The diagram to the right shows the results of a 100 scenario simulation of a rolling incentive mechanism used by a UK regulator - while the ideal mechanism would generate a tight upward-sloping diagonal, scenarios marked A and B can be explored to identify the source of some incentive distortions.  This example was a mechanism modelled in isolation, but the technique can be applied to an entire regime.

Imrecon's analysis recognises that economic incentives, which primarily operate on a firm's investors, are only part of the overall incentive picture.  The firm's managers are a key class of participants .  Sometimes, corporate governance can be relied on to align the interests of managers with those of investors, but it is not always safe for a regulator to assume this is the case if incentive rewards are not reflected in financial reporting in a timely manner or if the firm is not strongly driven by shareholder value (e.g. some publicly owned businesses).

Reputational incentives can also be powerful motivators.  The effectiveness of a regime could sometimes be enhanced by making performance more transparent to a wider audience, and regulators themselves can do much to achieve this.  A good example is publishing annual reports on performance against prior expectations or, even better, publishing performance rankings of the regulated firms in a sector.