nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2009‒03‒28
eight papers chosen by
Simona Fabrizi
Massey University Department of Commerce

  1. Contract Design for Biodiversity Procurement By Bardsley, Peter; Burfurd, Ingrid
  2. Stability under Learning of Equilibria in Financial Markets with Supply Information By Maik Heinemann
  3. Point-record incentives, asymmetric information and dynamic data (revised version) By Jean Pinquet; Georges Dionne; Mathieu Maurice; Charles Vanasse
  4. Predicting the performance of conservation tenders when information on bidders's costs is limited By Schilizzi, Steven; Latacz-Lohmann, Uwe
  5. Profit Taxation and Finance Constraints By Christian Keuschnigg; Evelyn Ribi
  6. Disclosing information on knowledge By Røhme, Thomas
  7. Matching Firms, Managers and Incentives By Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
  8. Generosity, Greed and Gambling: What difference does asymmetric information in bargaining make? By Charlotte Klempt; Kerstin Pull

  1. By: Bardsley, Peter; Burfurd, Ingrid
    Abstract: Market based instruments are proving increasingly effective in biodiversity procurement and in regulatory schemes to preserve biodiversity. The design of these policy instruments brings together issues in auction design, contract theory, biology, and monitoring technology. Using a mixed adverse selection, moral hazard model, we show that optimal contract design may differ significantly between procurement and regulatory policy environments.
    Keywords: biodiversity, procurement, adverse selection, moral hazard, contract theory,
    Date: 2009
  2. By: Maik Heinemann (Institute of Economics, University of Lüneburg)
    Abstract: In a recent paper Ganguli and Yang [2009] demonstrate, that there can exist multiple equilibria in a financial market model á la Grossman and Stiglitz [1980] if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important respects from the usual equilibrium of the Grossman–Stiglitz type which still exists in this model. This note shows that these additional equilibria are always unstable under learning. This is true for both eductive learning following Guesnerie [2002] and adaptive learning via least–squares estimation (cf. Marcet and Sargent [1988] or Evans and Honkapohja [2001]). Regarding the original Grossman–Stiglitz type equilibrium, the stability results are less clear cut, since this equilibrium might be unstable under eductive learning while it is always stable under adaptive learning.
    Keywords: Recursive Least Squares Learning, Eductive Stability, Rational Expectations, Private Information
    JEL: D82 D83 C62
    Date: 2009–03
  3. By: Jean Pinquet (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Georges Dionne (HEC Montréal -); Mathieu Maurice (HEC Montréal -); Charles Vanasse (TD Asset Management -)
    Abstract: Les politiques de sécurité routière utilisent souvent des mécanismes incitatifs basés sur les infractions pour améliorer le comportement des conducteurs. Ces mécanismes sont, soit monétaires (amendes, primes d'assurance), soit non monétaires (permis à points). Nous analysons l'efficacité de ces mécanismes dans l'incitation à une conduite prudente. Nous déterminons leurs propriétés théoriques par rapport au nombre de points associés aux infractions et par rapport au temps contrat. Ces propriétés sont ensuite testées empiriquement dans un modèle qui sépare l'aléa moral de l'hétérogénéité inobservée. Nous concluons à la présence d'aléa moral dans les données. Par ailleurs, la prime indicée sur les points introduite en 1992 a réduit de 15% la fréquence d'infractions. Enfin, nous comparons l'efficacité globale de ces différents mécanismes incitatifs et nous calculons des équivalents monétaires pour les infractions et les suspensions de permis.
    Keywords: Mécanismes incitatifs, permis à points, sécurité routière
    Date: 2008–07
  4. By: Schilizzi, Steven; Latacz-Lohmann, Uwe
    Abstract: Buying environmental services from private landholders using tendering mechanisms are usually subject to a budget constraint. Auction theory has mostly focused on target-constrained auctions and is not well developed for this type of auction. This paper examines the predictive capacity of a simple model developed for budget-constrained tenders, already used to design new conservation programs, by submitting it to controlled lab experiments. We study the capacity of the model to predict both experimental bids and the performance of the auction institution, based on the kind of limited information typically available to a conservation agency. We conclude there exists an optimal level of information on bidders’ costs, neither too large nor to small, making the tender worth considering as a policy option as well as allowing an ex-ante assessment of its economic performance.
    Keywords: Auctions, procurement, tenders, conservation, learning, economic experiments,
    Date: 2009
  5. By: Christian Keuschnigg; Evelyn Ribi
    Abstract: In the absence of financing frictions, profit taxes reduce investment by their effect on the user cost of capital. With finance constraints due to moral hazard, investment becomes sensitive to cash-flow and own equity of firms. The impact of taxes changes fundamentally. Taxes reduce investment because they erode cash flow and, thereby, a firm's pledgeable income available for repayment to outside investors, and not because they reduce the user cost of capital. We propose a corporate finance model of investment and derive three central results: (i) Even small taxes impose first order welfare losses on financially constrained firms; (ii) ACE and cash-flow tax systems, which are investment neutral in the neoclassical model, are no longer neutral when firms are finance constrained. (iii) When banks are active and provide external finance together with monitoring services, the two systems not only reduce investment, but are also no longer equivalent. With active banks, investment is subject to double moral hazard and the timing of tax payments becomes important. The ACE system gives tax relief at the return stage and provides better incentives than a cashflow tax which gives tax relief upfront.
    Keywords: Finance constraints, profit tax, cash-flow tax, ACE tax
    JEL: G38 H25
    Date: 2009–03
  6. By: Røhme, Thomas (Department of Informatics, Copenhagen Business School)
    Abstract: na
    Keywords: na
    JEL: H00
    Date: 2009–03–18
  7. By: Oriana Bandiera; Luigi Guiso; Andrea Prat; Raffaella Sadun
    Abstract: We provide evidence on the match between firms, managers and incentives using a new survey designed for this purpose. The survey contains information on a sample of executives’ risk preferences and human capital, on the explicit and implicit incentives they face and on the firms they work for. We model a market for managerial talent where both firms and managers are heterogeneous. Following the sources of heterogeneity observed in the data, we assume that firms differ by ownership structure and that family firms, though caring about profits, put relatively more weight on benefits of direct control than non-family firms. Managers differ in their degree of risk aversion and talent. The entry of firms and managers, the choice of managerial compensation schemes and the manager firm matching are all endogenous. The model yields predictions on several equilibrium correlations that find support in our data: (i) Family firms use managerial contracts that are less sensitive to performance, both explicitly through bonus pay and implicitly through career development; (ii) More talented and risk-tolerant managers are matched with firms that offer steeper contracts. (iii) Managers who face steeper contracts work harder, earn more and display higher job satisfaction. Alternative explanations may account for some of these correlations but not for all of them jointly.
    Keywords: managerial incentives, matching, firm performance, family firms
    JEL: J3 J5 G3
    Date: 2009
  8. By: Charlotte Klempt (Max Planck Institute of Economics, Jena); Kerstin Pull (University of Tübingen, Faculty of Economics and Business Administration)
    Abstract: We analyze the effects of asymmetric information concerning the size of a pie on proposer behavior in three different bargaining situations: the ultimatum game, the Yes-No-game and the dictator game. Our data show that (a) irrespective of the information condition, proposer generosity increases with responder veto power, (b) informed proposers in the ultimatum game try to exploit their superior information and hide their greed by a seemingly fair offer, and (c) uninformed proposers in the dictator game exhibit gambling behavior by asking for more than potentially is at stake. While the results of our experimental analysis are interesting as such, they may also yield interesting practical implications.
    Keywords: Bargaining, Information, Experimental Games
    JEL: C72 C91
    Date: 2009–03–23

This nep-cta issue is ©2009 by Simona Fabrizi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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