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on Contract Theory and Applications |
| By: | Silvia Marchesi (University of Milan Bicocca and Centro Studi Luca d’Agliano); Laura Sabani (University of Florence); Axel Dreher (University of Goettingen, KOF Swiss Economic Institute, IZA and CESifo) |
| Abstract: | We focus on the role that the transmission of information between a multilateral (e.g., the IMF) and a country has for optimal (conditional) reform design. The main result is that the informational advantage of the country must be strictly greater than the advantage of the multilateral in order to increase a country\'s discretion in the choice of the policies to be implemented (country ownership). To the contrary, an increase in the conflict of interests between the multilateral and the country may lead the multilateral to leave more freedom in designing reforms, which is at odds to what is commonly argued. Our empirical results provide support to the idea that the IMF follows an optimal allocation rule of control rights over policies, leaving the recipient countries more freedom whenever their local knowledge appears to be crucial for designing more adequate reforms. |
| Keywords: | IMF conditionality, delegation, communication, ownership, panel data |
| JEL: | C23 D82 F33 N2 |
| Date: | 2009–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:csl:devewp:274&r=cta |
| By: | Quillerou, Emmanuelle; Fraser, Rob |
| Abstract: | The Environmental Stewardship Scheme provides payments to farmers for the provision of environmental services based on agricultural foregone income. This creates a potential incentive compatibility problem which, combined with an information asymmetry on farm land heterogeneity, could lead to adverse selection of farmers into the scheme. However, the Higher Level Scheme (HLS) design includes some features that potentially reduce adverse selection. This paper studies the adverse selection problem of the HLS using a principal agent framework at the regional level. It is found that, at the regional level, the enrolment of more land from lower payment regions for a given budget constraint has led to a greater overall contracted area (and thus potential environmental benefit) which has had the effect of reducing the adverse selection problem. In addition, for landscape regions with the same payment rate (i.e. of the same agricultural value), differential weighting of the public demand for environmental goods and services provided by agriculture (measured by weighting an environmental benefit function by the distance to main cities) appears to be reflected into the regulatorâs allocation of contracts, thereby also reducing the adverse selection problem. |
| Keywords: | Adverse selection, agri-environment, Environmental Stewardship, principal-agent, contract, Environmental Economics and Policy, D78, D82, H44, Q18, Q58, |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aesc09:51068&r=cta |
| By: | Katya Malinova; Andreas Park |
| Abstract: | In a dynamic model of financial market trading multiple heterogeneously informed traders choose when to place orders. Better informed traders trade immediately, worse informed delay — even though they expect the public expectation to move against them. This behavior causes distinct intra-day patterns with decreasing (L-shaped) spreads and increasing (reverse L-shaped) volume and probability of informed trading (PIN). Competition increases market participation and causes more pronounced spread and less pronounced volume patterns. Systematic improvements in information increase spreads and volume. Very short-lived private information generates L- or reverse J-shaped volume patterns, which are further enhanced by competition. |
| Keywords: | intraday patterns, asymmetric information, trade timing, microstructure |
| JEL: | D82 G12 G14 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-365&r=cta |
| By: | Matthias Dahm (Universitat Rovira i Virgili); Robert Dur (Erasmus University Rotterdam, CESifo, IZA); Amihai Glazer (University of California, Irvine) |
| Abstract: | A firm may induce voters or elected politicians to support a policy it favors by suggesting that it is more likely to invest in a district whose voters or representatives support the policy. In equilibrium, no one vote may be decisive, and the policy may gain strong support though the majority of districts suffer from adoption of the program. When votes reveal information about the district, the firm's implicit promise or threat can be credible. |
| Keywords: | Lobbying; voting; special interests; influence |
| JEL: | C72 D72 D78 |
| Date: | 2009–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090068&r=cta |
| By: | Banterle, Alessandro; Souza Monteiro, Diogo M; Stranieri, Stefanella |
| Abstract: | Traceability is helping retailers manage food safety risks and support product differentiation. This paper aims to investigate how traceability may be used to screen supplier for private labels dedicated provider pools. Retailers in the UK and Italy have several private label product lines and increasingly select dedicated suppliers. The choice of providers is a typical agency problem as retailers contract the production for their private labels, having incomplete information on types and effort of their suppliers. Different contracts must be designed for suppliers of private labels depending on position of the product line and its food safety risk. A case study, based on the second largest Italian retailer reveals that traceability and quality assurance schemes are used together to manage suppliers of private labels |
| Keywords: | Traceability, dedicated providers, food products, retailing, vertical coordination, Marketing, Q13, Q18, L81, L66, L15, |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aesc09:50933&r=cta |
| By: | Matthias Kräkel; Anja Schöttner |
| Abstract: | It is well-known that, in static models, minimum wages generate positive worker rents and, consequently, ine?ciently low effort. We show that this result does not necessarily extend to a dynamic context. The reason is that, in repeated employment relationships, ?rms may exploit workers’ future rents to induce excessively high effort. |
| Keywords: | bonuses; limited liability; minimum wages |
| JEL: | D82 D86 J33 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse8_2009&r=cta |
| By: | Liran Einav; Amy Finkelstein; Jonathan Levin |
| Abstract: | We describe recent advances in the empirical analysis of insurance markets. This new research proposes ways to estimate individual demand for insurance and the relationship between prices and insurer costs in the presence of adverse and advantageous selection. We discuss how these models permit the measurement of welfare distortions arising from asymmetric information and the welfare consequences of potential government policy responses. We also discuss some challenges in modeling imperfect competition between insurers, and outline a series of open research questions. |
| JEL: | C51 D82 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15241&r=cta |
| By: | Dan Bernhardt; Steeve Mongrain; Joanne Roberts |
| Abstract: | When parole boards learn whether inmates are rehabilitated by observing their behavior in prison, we show why they would release one inmate, while continuing to incarcerate another with a longer sentence, but who is otherwise observationally identical. This reflects that the longer a parole board has discretion, the more valuable is additional information gleaned from observing behavior. A consequence is that an increase in sentence length can lead to even greater increases in expected time served. We also consider the effect of increased sentences on inmates’ incentives to undertake rehabilitative effort. To encourage effort, sentences cannot be too short, but when inmates discount the future sufficiently, long sentences may also be undesirable. We show how different parole board priors can support multiple equilibria in rehabilitation effort, and investigate the effects of discretion restrictions like parole eligibility. |
| Date: | 2009–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2009-06&r=cta |
| By: | Luigi Mittone; Matteo Ploner |
| Abstract: | We experimentally investigate social effects in a principal-agent setting with incomplete contracts. The strategic interaction scheme is based on the well-known Investment Game (Berg et al., 1995). In our setting four agents (i.e., trustees) and one principal (i.e., trustor) are interacting and the access to choices of peers in the group of trustees is experimentally manipulated. Overall, subjects are positively influenced by peer's choices they observe. However, the positive interaction between choices is not strong enough to raise the reciprocity of those observing at the same level of those whose choices are observed. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpce:0905&r=cta |
| By: | Dimitri Vayanos; Jiang Wang |
| Abstract: | We examine how liquidity and asset prices are affected by the following market imperfections: asymmetric information, participation costs, transaction costs, leverage constraints, non-competitive behavior and search. Our model has three periods: agents are identical in the first, become heterogeneous and trade in the second, and consume asset payoffs in the third. We examine how imperfections in the second period affect different measures of illiquidity, as well as asset prices in the first period. Besides nesting multiple imperfections in a single model, we derive new results on the effects of each imperfection. Our results imply, in particular, that imperfections do not always raise expected returns, and can influence common measures of illiquidity in opposite directions. |
| JEL: | D8 G1 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15215&r=cta |
| By: | Rajkamal Iyer; Asim Ijaz Khwaja; Erzo F.P. Luttmer; Kelly Shue |
| Abstract: | The current banking crisis highlights the challenges faced in the traditional lending model, particularly in terms of screening smaller borrowers. The recent growth in online peer-to-peer lending marketplaces offers opportunities to examine different lending models that rely on screening by multiple peers. While these market-based, non-hierarchical structures potentially offer screening advantages, especially in utilizing soft information, individual lenders likely lack financial expertise and lending experience. This paper evaluates whether lenders in such peer-to-peer markets are able to use borrower information to infer creditworthiness. We examine this ability in one such online market using a methodology that takes advantage of lenders not observing a borrower’s true credit score but only seeing an aggregate credit category. We find that lenders are able to use available information to infer a third of the variation in creditworthiness that is captured by a borrower’s credit score. This inference is economically significant and allows lenders to lend at a 140-basis-points lower rate for borrowers with (unobserved to lenders) better credit scores within a credit category. While lenders infer the most from standard banking “hard†information, they also use non-standard (subjective) information. Our methodology shows, without needing to code information contained in the pictures or personal descriptions posted by borrowers, that lenders learn even from such “softer†information, particularly when it is likely to provide credible signals regarding borrower creditworthiness. Our findings highlight the screening ability of peer-to-peer markets and suggest that these emerging markets may provide a viable complement to traditional lending markets, especially for smaller borrowers. |
| JEL: | D53 D8 G21 L81 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15242&r=cta |