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on Contract Theory and Applications |
| By: | Ingela Alger (Department of Economics, Carleton University); Ching-to Albert Ma (Department of Economics, Boston University); Regis Renault (Universite de Cergy-Pontoise, THEMA) |
| Abstract: | A principal requires a manager for production. He can use an internal manager, or contracts with an external manger. In each case, the manager obtains experience benefits from production. When the principal uses an internal manager, both parties share cost information. When the principal contracts with an external manager, only the external manager acquires cost information. The internal manager has limited access to the credit market; he has a minimum income constraint. The external manager has adequate access and has no minimum income constraint. The principal faces a tradeo. Hiring an internal manager eliminates asymmetric information, but extracting experience rent is more difficult due to the minimum income constraint. Hiring an external manager means giving up information rent, but extracting experience rent is feasible. Whether the principal uses an internal or an external manager depends on the tightness of the minimum income constraint and the magnitude of the experience benefit. The principal's optimal choice may not be socially efficient. |
| Keywords: | Theory of the firm, job experience rent, informational rents. |
| JEL: | D23 L22 |
| Date: | 2009–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:09-03&r=cta |
| By: | Alessandro Cigno; Annalisa Luporini |
| Abstract: | We examine the second-best family policy under the assumption that both the number, and the future earning capacities of the children born to a couple are random variables with probability distributions conditional on unobservable parental actions. Potential parents take their decisions without taking into account the e¤ects of these actions on the government?s future tax revenue. The second-best policy provides parents with credit and insurance, and allows them to appropriate the external benefits of their actions. |
| Keywords: | stochastic quantity and quality of children, moral hazard, population externalities, family allowances, scholarships, pensions |
| JEL: | D13 D78 D82 H31 J13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp13_09&r=cta |
| By: | Jellal, Mohamed |
| Abstract: | Using the principal-agent- supervisor paradigm, this paper examines the occurrence of collusion in a setting where the principal has no information about the supervisor and the agent does not necessarily know the supervisor’s preferences. We formally prove the occurrence of collusion is more likely when the agent has information about the supervisor. This result suggests that corruption, which is likely to emerge in long term reciprocal relationships between public officials and potential bribery, may be reduced by the means of staff rotation. Evidence from an experimental study supports this proposition |
| Keywords: | Principal Agent Supervisor paradigm; Social Capital ;Social Preferences;Bureaucracy;Corruption , Staff Rotation |
| JEL: | D73 Z13 D82 |
| Date: | 2009–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17179&r=cta |
| By: | Jellal, Mohamed |
| Abstract: | In developing countries, empirical evidence suggests that labor unions entail a positive wage gap for unionized workers, in particular in monopolistic and publicly controlled firms. In this paper, we analyze how the presence of a labor union affects the regulation of a monopoly under asymmetric information. Since part of the informational rent left to the monopolistic firm benefits to the syndicate, we prove that the regulator is induced to lower the rent when the union has a large bargaining power. The net consumers' surplus can either increase or decrease with the firm's bargaining power depending on the firm's efficiency type. JEL |
| Keywords: | asymmetric Information ;Labor Union ; Monopolistic Firms ; Regulation Incentives |
| JEL: | J51 D82 D42 L43 |
| Date: | 2009–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17279&r=cta |
| By: | Olivier Gossner; Ehud Kalai; Robert Weber |
| Abstract: | In Bayesian environments with private information, as described by the types of Harsanyi, how can types of agents be (statistically) disassociated from each other and how are such disassociations reflected in the agents’ knowledge structure? Conditions studied are (i) subjective independence (the opponents’ types are independent conditional on one’s own) and (ii) type disassociation under common knowledge (the agents’ types are independent, conditional on some common-knowledge variable). Subjective independence is motivated by its implications in Bayesian games and in studies of equilibrium concepts. We find that a variable that disassociates types is more informative than any common-knowledge variable. With three or more agents, conditions (i) and (ii) are equivalent. They also imply that any variable which is common knowledge to two agents is common knowledge to all, and imply the existence of a unique common-knowledge variable that disassociates types, which is the one defined by Aumann. |
| Keywords: | Bayesian games, independent types, common knowledge. |
| JEL: | D80 D82 C70 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1476&r=cta |
| By: | Jellal, Mohamed |
| Abstract: | Using the Principal-Agent-Supervisor paradigm, we examine in this paper how a tax collection agency changes optimal schemes in order to lessen the occurrence of bribery between the tax collector and the taxpayer. The Principal, who maximizes the expected net fiscal revenue, reacts by decreasing tax rates when the supervisor is likely to engage in corrupt transaction with taxpayer. The combat against collusion may explain the greater reliance on indirect taxes than on direct taxes both in developed and developing countries |
| Keywords: | Principal Agent Supervisor;Bureaucracy ;Collusion; Tax evasion |
| JEL: | D73 D82 H26 |
| Date: | 2009–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17177&r=cta |
| By: | Goderis, Benedikt; Wagner, Wolf |
| Abstract: | Credit derivatives allow for buying protection on corporate debt, but also on sovereign debt. In this paper we examine the implications for sovereign debt crises. We show that the availability of credit protection lowers ex-ante debtor moral hazard by allowing a bondholder to improve his bargaining position in negotiations with the sovereign, thus forcing the sovereign to internalize more of the costs of a crisis. When bondholders use credit protection strategically, we additionally find that credit derivatives do not hinder an efficient resolution of crises. Crisis resolution may even be improved by facilitating conditionality. When protection is not chosen strategically, however, credit protection may also be detrimental to crisis resolution by making restructuring more difficult. In either case we identify a role for government policy as bondholders' choice of protection is not necessarily socially efficient. |
| Keywords: | credit derivatives; sovereign debt crisis; moral hazard |
| JEL: | G14 F34 F33 |
| Date: | 2009–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17314&r=cta |
| By: | Rockerbie, Duane W.; Easton, Stephen T. |
| Abstract: | This paper discusses, in a very general way, a system of IMF insurance against sovereign default that could be offered to private lenders and banking groups. The system could overcome many of the current issues that plague the international private lending market, such as moral hazard on the part of private lenders, capital flight, and so on. How the insurance could be priced is also discussed in an appendix. Private lender membership in the IMF is also discussed. This would provide the IMF with some of the powers that central banks now have. |
| Keywords: | Sovereign debt,insurance,option value,IMF |
| JEL: | F33 F34 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:200939&r=cta |
| By: | Alessandro Cigno |
| Abstract: | Given that young children are under the control of their parents, if the government has a interest in either the welfare or the productivity of the former, it has no option but to act through the latter,. Parents are, in the ordynary sense.... |
| Keywords: | optimal taxation, optimal family allowances, hidden ability to raise children, hidden educational investments, endogenous and exogenous fertility |
| JEL: | D13 D82 H24 H31 J13 J24 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpc:wplist:wp16_09&r=cta |
| By: | Dion Bongaerts; K.J. Martijn Cremers; William N. Goetzmann |
| Abstract: | This paper explores the role played by multiple credit rating agencies (CRAs) in the market for corporate bonds. Moody's, S&P and Fitch operate in a competitive setting with market demand for both credit information and the certification value of a high rating. We empirically document the outcome of this competitive interaction over the period 2002 to 2007. Virtually all bonds in our sample are rated by both Moody's and Standard and Poors (S&P), and between 40% and 60% of the bonds are also rated by Fitch. This apparent redundancy in information production has long been a puzzle. We consider three explanations for why issuers apply for a third rating: 'information production,' 'adverse selection' and 'certification' with respect to regulatory and rules-based constraints. Using ratings and credit spread regressions, we find evidence in favor of Certification only. Additional evidence shows that the reported certification effects are consistent with an equilibrium outcome in a market with information-sensitive and insensitive bonds. In such a setting, ratings help to prevent market breakdowns. |
| JEL: | G12 G14 G24 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15331&r=cta |
| By: | Paiardini, Paola |
| Abstract: | In this paper we investigate the presence of asymmetric information in the parallel trading of ten-year government fixed rate bonds (BTP) on two secondary electronic platforms: the business-to-business (B2B) MTS platform and the business-to-customer (B2C) BondVision one. The two platforms are typified by a different degree of transparency. We investigate whether the probability to encounter an informed trader on the less transparent market is higher than the corresponding probability on the more transparent one. Our results show that on BondVision, that is the less transparent platform, the probability of encountering an informed trader is higher. Finally we perform a series of tests to check the robustness of our estimates. Two tests do not meet the hypothesis of independence. Nevertheless, these findings do not controvert the hypothesis of our model, but call for further analysis. |
| Keywords: | Market microstructure; Informed trading; Parallel trading; Transparency |
| JEL: | C51 G10 G14 |
| Date: | 2009–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:mol:ecsdps:esdp09053&r=cta |