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on Contract Theory and Applications |
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Issue of 2010‒07‒31
seven papers chosen by Simona Fabrizi School of Economics and Finance, Albany Campus |
| By: | Mireille Chiroleu-Assouline (Centre d'Economie de la Sorbonne - Paris School of Economics); Sébastien Roussel (LAMETA - Université Montpellier 1) |
| Abstract: | According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas (GHG) concentration and a promising means that could be institutionalised. However the potential for additional carbon quantities in agricultural soils is critical and comes from the agricultural firms behaviour with regards to land heterogeneity. In this paper, our aim is to set incentive mechanisms to enhance carbon sequestration by agricultural firms. A policymaker has to arrange incentives as agricultural firms have private information and do not spontaneously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible resource. As a result, we construct an intertemporal principal-agent model with adverse selection. Our contribution is to specify contracts in order to induce truthful revelation by the firms regarding their intrinsic characteristics towards carbon sequestration, while analytically characterizing the optimal path to sequester carbon as an exhaustible resource. |
| Keywords: | Adverse selection, agriculture, carbon sequestration, incentives, land-use. |
| JEL: | D60 D62 E62 H23 Q28 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:10060&r=cta |
| By: | Mireille Chiroleu-Assouline (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sébastien Roussel (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - CNRS : UMR5474 - INRA : UR1135 - CIHEAM - Université Montpellier I - Montpellier SupAgro) |
| Abstract: | According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas (GHG) concentration and a promising means that could be institutionalised. However the potential for additional carbon quantities in agricultural soils is critical and comes from the agricultural firms behaviour with regards to land heterogeneity. In this paper, our aim is to set incentive mechanisms to enhance carbon sequestration by agricultural firms. A policymaker has to arrange incentives as agricultural firms have private information and do not spontaneously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible resource. As a result, we construct an intertemporal principal-agent model with adverse selection. Our contribution is to specify contracts in order to induce truthful revelation by the firms regarding their intrinsic characteristics towards carbon sequestration, while analytically characterizing the optimal path to sequester carbon as an exhaustible resource. |
| Keywords: | Adverse selection ; agriculture ; carbon sequestration ; incentives ; land-use |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00505137_v1&r=cta |
| By: | Sukumar Vellakkal |
| Abstract: | In the backdrop of the low level of health insurance coverage in India, this study examines the determinants of the scaling-up process of health insurance by analyzing the rational behaviour of an insurance agent facing a trade-off between selling ‘health insurance’ and ‘other forms of insurance’ subject to his limited time and efforts, and the implications of such behaviour on adverse selection and equity. The paper presents various pre-conditions affecting the rational behaviour of insurance agents and also discusses two new concepts— ‘insurance habit’ and ‘asymmetric information on health insurance schemes’. Further, the study examines various strategies followed by insurance agents for maximizing their net incomes. The theoretical proposition is empirically validated by applying a binary Probit model and the primary data collected by the author is used in this context. The study concludes that given the existing incentive systems in the Indian insurance market for promoting various forms of insurance, the low level of insurance awareness among the general public, coupled with the dominant role of insurance agents in the market results in a situation of: 1. Low level of health insurance coverage, 2. No adverse selection and 3. Inequity in health insurance coverage. [Working Paper No. 233] |
| Keywords: | Health Insurance, Insurance Agent, Asymmetric Information, Adverse Selection and Insurance Habit |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2690&r=cta |
| By: | Bruno De Borger (Department of Economics, University of Antwerp); Amihai Glazer (Department of Economics, University of California-Irvine) |
| Abstract: | A firm whose profits increase when outsiders believe that it pays high wages may induce its workers to over-consume goods that signal high compensation. One implication is that firms may lobby government to subsidize fringe benefits with high signaling value, such as company cars, to their employees. We show that under plausible conditions the provision of fringe benefits indeed can signal the firm's type. Moreover, we demonstrate the existence of multiple equilibria---one equilibrium has no firm providing certain fringe benefits, whereas another equilibrium has fringe benefits signal the firm's type. The paper further shows that a firm that provides the fringe benefit may oppose a government subsidizing it too heavily, because a large subsidy could destroy the signaling value of the benefit. The analysis shows that an employer may even provide a fringe benefit to employees who place no value on it. Our results are consistent with many stylized facts on the provision of fringe benefits by firms. More generally, we the model highlights how and why a firm may engage in behavior which signals the type of workers it hires. |
| Keywords: | Signaling; Fringe benefits; Compensation |
| JEL: | D21 D82 J32 M52 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:101101&r=cta |
| By: | Mohamed Belhaj (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579) |
| Abstract: | This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive. |
| Keywords: | Operational Risk, Capital Requirements, Dividends, Basel Accords |
| Date: | 2010–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00504163_v1&r=cta |
| By: | De Borger B.; Glazer A. |
| Abstract: | A firm whose profits increase when outsiders believe that it pays high wages may induce its workers to over-consume goods that signal high compensation. One implication is that firms may lobby for government subsidies when they offer fringe benefits with high signaling value, such as company cars, to their employees. We show that under plausible conditions the provision of fringe benefits indeed can signal the firm's type. Moreover, we demonstrate the existence of multiple equilibria---one equilibrium has no firm providing certain fringe benefits, whereas another equilibrium has fringe signal the firm's type. The paper further shows that a firm that provides the fringe benefit may oppose a government subsidizing it too heavily, because a large subsidy could destroy the signaling value of the benefit. The analysis shows that an employer may even provide a fringe benefit to employees who place no value on it. Our results are consistent with many stylized facts on the provision of fringe benefits by firms. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2010016&r=cta |
| By: | Rocco Huang (Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106-1574, USA.); Lev Ratnovski (International Monetary Fund, 700 19 th St NW, Washington DC 20431, USA.) |
| Abstract: | Banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated nanciers can monitor banks, disciplining bad but re financing good ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but noisy public signal on bank project quality, short-term wholesale financiers have lower incentives to conduct costly monitoring, and instead may withdraw based on negative public signals, triggering inefficient liquidations. Comparative statics suggest that such distortions of incentives are smaller when public signals are less relevant and project liquidation costs are higher, e.g., when banks hold mostly relationship-based small business loans. JEL Classification: G21, G28, G33. |
| Keywords: | Financial Crises, Liquidity Risk, Wholesale Funding, Regulation. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101223&r=cta |