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on Contract Theory and Applications |
| By: | FARHI, Emmanuel; TIROLE, Jean |
| JEL: | E44 E52 G28 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:20896&r=cta |
| By: | Yusuke Kamishiro (Brown University); Roberto Serrano (Brown University and IMDEA Ciencias Sociales) |
| Abstract: | We study information transmission in large interim quasilinear economies using the theory of the core. We concentrate on the core with respect to equilibrium blocking, a core notion in which information is transmitted endogenously within coalitions, as blocking can be understood as an equilibrium of a communication mechanism used by players in coalitions. We consider independent, ex-post and signal-based replicas of the basic economy. For each, we offer an array of negative and positive convergence results as a function of the complexity of the mechanisms used by coalitions. We identify conditions under which asymmetric information remains as an externality and non-market outcomes stay in the core, as well as those for the core to converge to the set of incentive compatible ex-post Walrasian allocations. Further, all the results are robust to the relaxation of the incentive constraints, and hence suggest a process through which information may get incorporated into a fully revealing equilibrium price function. Keywords: Core w.r.t. Equilibrium Blocking, Core Convergence, Independent Replicas, Ex-Post Replicas, Signal-Based Replicas, Information Transmission, Communication Mechanisms, Mediation, Rational Expectations Equilibrium. |
| Keywords: | Core w.r.t. Equilibrium Blocking; Core Convergence; Independent Replicas; Ex-Post Replicas; Signal-Based Replicas; Information Transmission; Communication Mechanisms; Mediation; Rational Expectations |
| JEL: | C71 C72 D51 D82 |
| Date: | 2009–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:imd:wpaper:wp2009-12&r=cta |
| By: | Eduardo Engel; Ronald Fischer; Alexander Galetovic |
| Abstract: | Public-private partnerships (PPPs) are increasingly used to provide infrastructure services. Even though PPPs have the potential to increase efficiency and improve resource allocation, contract renegotiations have been pervasive. We show that existing accounting standards allow governments to renegotiate PPP contracts and elude spending limits. Our model of renegotiations leads to observable predictions: (i) in a competitive market, firms lowball their offers, expecting to break even through renegotiation, (ii) renegotiations compensate lowballing and pay for additional expenditure, (iii) governments use renegotiation to increase spending and shift the burden of payments to future administrations, and (iv) there are significant renegotiations in the early stages of the contract, e.g. during construction. We use data on Chilean renegotiations of PPP contracts to examine these predictions and find that the evidence is consistent with the predictions of our model. Finally, we show that if PPP investments are counted as current government spending, the incentives to renegotiate contracts to increase spending disappear. JEL classification: H21, L51, L91. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:265&r=cta |
| By: | E. Agliardi |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:677&r=cta |
| By: | Jing Chen (Department of Economics, Florida International University) |
| Abstract: | This paper develops and tests a model that explains entry into serial entrepreneurship and the performance of serial entrepreneurs as the result of selection on innate ability. The model supposes that agents establish businesses with imperfect information about their entrepreneurial ability and the profitability of business ideas. Agents continually observe signals with which they update their beliefs, and this process eventually determines their next business choice. Selection on ability induces a positive correlation between entrepreneurial experience (measured by previous business earnings and founding experience) and serial business formation, as well as its subsequent performance. The predictions in the model are tested using panel data from the NLSY79. The analysis permits a distinction to be made between selection on innate ability and learning by doing. |
| Keywords: | Serial entrepreneurs, selection, ability, entrepreneurial experience, learning by doing. |
| JEL: | J21 J24 J62 M13 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:0913&r=cta |
| By: | Ingo Fender; Janet Mitchell |
| Abstract: | This paper examines the power of different contractual mechanisms to influence an originator’s choice of costly effort to screen borrowers when the originator plans to securitise its loans. The analysis focuses on three potential mechanisms: the originator holds a “vertical slice”, or share of the portfolio; the originator holds the equity tranche of a structured finance transaction; the originator holds the mezzanine tranche, rather than the equity tranche. These mechanisms will result in differing levels of screening, and the differences arise from varying sensitivities to a systematic risk factor. Equity tranche retention is not always the most effective mechanism, and the equity tranche can be dominated by either a vertical slice or a mezzanine tranche if the probability of a downturn is likely and if the equity tranche is likely to be depleted in a downturn. If the choice of how much and what form to retain is left up to the originator, the retention mechanism may lead to low screening effort, suggesting a potential rationale for government intervention. |
| Keywords: | retention requirements, screening incentives, securitisation, tranching |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:289&r=cta |
| By: | Francesco Columba; Leonardo Gambacorta; Paolo Emilio Mistrulli |
| Abstract: | A large body of literature has shown that small firms experience difficulties in accessing the credit market due to informational asymmetries. Banks can overcome these asymmetries through relationship lending, or at least mitigate their effects by asking for collateral. Small firms, especially if they are young, have little collateral and short credit histories, and thus may find it difficult to raise funds from banks. In this paper, we show that even in this case, small firms may improve their borrowing capacity by joining mutual guarantee institutions (MGIs). Our empirical analysis shows that small firms affiliated with MGIs pay less for credit compared with similar firms which are not MGI members. We obtain this result for interest rates charged on loan contracts which are not backed by mutual guarantees. We then argue that our findings are consistent with the view that MGIs are better than banks at screening and monitoring opaque borrowers. Thus, banks benefit from the willingness of MGIs to post collateral since it implies that firms are better screened and monitored. |
| Keywords: | credit guarantee schemes, joint liability, microfinance, peer monitoring, small business finance |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:290&r=cta |
| By: | Christopher Blattman |
| Abstract: | Why do civil wars occur at all when, given the high costs of war, groups have every incentive to reach an agreement that avoids fighting? Explanations have focused on information asymmetries and the inability to sign binding contracts in the absence of the rule of law. [WP No. 166]. |
| Keywords: | econometric, macroeconomic recoveries, micro-level analysis, data, economics, Civil war, violence, economic development, contracts, costs, war, incentive, growth, poverty, economists, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2231&r=cta |
| By: | Amedeo Argentiero (University of Rome Tor Vergata - Dept. of Economics and ISAE - Institute for Studies and Economic Analyses) |
| Abstract: | In the banking literature (Manove et al. (2001)) "Lazy Banks" are defined as those banks that substitute project screening with collateral. This paper aims to test for Italy some empirical implications of the theoretical model of "Lazy Banks": the negative relationship between collateral and project screening, whether collateral is posted by safer borrowers and law enforcement is able to increase the degree of collateralization. Empirical evidence presented here suggests that, both for long-term loans and short-term ones, when project screening increases, the amount of real guarantees with respect to the credit granted increases. Moreover, the data show that collateral seems to be posted by high-risk borrowers and law enforcement does not matter in explaining the presence of real guarantees for long-term loans, whereas it represents a further risk component that generates an increase in collateral for short-term loans. Therefore, a model of "Lazy Banks" does not seem to be verified on the data, suggesting the results rather a sort of "diligence" in the banks' behavior. Furthermore, the empirical findings on our data reveal that the presence of real guarantees is not able to lower ex-post default credit risk. These results are consistent with a view of collateral as a credible mechanism for commitment against informative asymmetries and not as a convenient hedge against realized ex-post credit default risk. |
| Keywords: | Collateral, Screening, Lazy Banks, Default Risk. |
| JEL: | D82 G21 H42 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:isa:wpaper:113&r=cta |
| By: | Inés Macho-Stadler; David Pérez-Castrillo |
| Abstract: | There are two main ways in which the knowledge created in universities has been transferred to firms: licensing agreements and the creation of spin-offs. In this paper, we describe the main steps in the transfer of university innovations, the main incentive issues that appear in this process, and the contractual solutions proposed to address them. |
| Date: | 2009–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:785.09&r=cta |
| By: | Jean Marie Abraham; Thomas DeLeire; Anne Beeson Royalty |
| Abstract: | This paper illustrates the impact of moral hazard for estimating relative rates of underinsurance and to present an adjustment method to correct for this source of bias. Individuals or households are often classified as underinsured if out-of-pocket spending on medical care relative to income exceeds some threshold. We show that, without adjustment, this common threshold measure of underinsurance will underestimate the number with low levels of insurance coverage due to moral hazard. We propose an adjustment method and apply it to the specific case of estimating the difference in rates of underinsurance among small- versus large-firm workers with full-year, employer-sponsored insurance. Using data from the 2005 Medical Expenditure Panel Survey, we find that after applying the adjustment, the underinsurance rate of small-firm households increases by approximately 20% with the adjustment for moral hazard and the difference in underinsurance rates between large firm and small firm households widens substantially. Adjusting for moral hazard makes a sizeable difference in the estimated prevalence of underinsurance using a threshold measure. |
| JEL: | I10 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15410&r=cta |