|
on Contract Theory and Applications |
| By: | Yi Xue (University of International Business and Economics); Xiaochuan Xing (Tsinghua University); Alexander Karaivanov (Simon Fraser University) |
| Abstract: | Survey data from CFPAM, the leading joint-liability microfinance lender in China, indicate that nearly 70% of all borrower groups in the sample are `bogus' -- that is, one person uses all loans given to group members in a single investment project while all other group members act as unproductive cosigners. This practice not only violates CFPAM rules but is also inconsistent with the majority of the theoretical literature on group lending, a basic tenet of which is that each borrower uses their own loan to implement their own investment project (what we call `standard' group). We therefore extend the classic model of group lending under joint liability by explicitly allowing for both standard and bogus groups in a setting with the possibility of strategic default due to limited enforcement. The optimal choice between standard and bogus groups is endogenous and depends on the borrowers' characteristics (project productivity and probability of success). We analyze the optimal group loan contract (or menu of contracts) and show that bogus groups optimally arise when either the productivity differential between the projects in a group is high (in heterogeneous groups), or when the absolute level of project productivity is high (in homogeneous groups). Explicitly allowing for the possibility of bogus groups not only helps the lender avoid losses which would occur if their presence is ignored, but also enhances productive efficiency and borrower welfare in the economy. We test the model predictions with data from rural China and evaluate the welfare gains from implementing the optimal contract (or menu) relative to the benchmarks of: (a) lenders operating unaware of bogus groups or (b) lenders using a contract that endogenously rules out bogus group formation. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:728&r=all |
| By: | Dirk Bergemann; Tibor Heumann; Stephen Morris |
| Date: | 2015–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:786969000000001101&r=all |
| By: | Dutcher, E. Glenn (University of Central Missouri); Balafoutas, Loukas (University of Innsbruck); Lindner, Florian (University of Innsbruck); Ryvkin, Dmitry (Florida State University); Sutter, Matthias (University of Cologne) |
| Abstract: | We utilize a laboratory experiment to compare effort provision under optimal tournament contracts with different distributions of prizes which motivate agents to compete to be first, avoid being last, or both. We find that the combined tournament contract incorporating both incentives at the top and at the bottom induces the highest effort, especially in larger groups. Avoiding being last produces the lowest variance of effort and is more effective at motivating employees compared to competing for the top. |
| Keywords: | tournament, winner, loser, contract, experiment, learning |
| JEL: | M52 J33 J24 D24 C90 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9330&r=all |
| By: | Maurizio Naldi; Giuseppe D'Acquisto |
| Abstract: | Suppliers (including companies and individual prosumers) may wish to protect their private information when selling items they have in stock. A market is envisaged where private information can be protected through the use of differential privacy and option contracts, while privacy-aware suppliers deliver their stock at a reduced price. In such a marketplace a broker acts as intermediary between privacy-aware suppliers and end customers, providing the extra items possibly needed to fully meet the customers' demand, while end customers book the items they need through an option contract. All stakeholders may benefit from such a marketplace. A formula is provided for the option price, and a budget equation is set for the mechanism to be profitable for the broker/producer. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1509.06524&r=all |
| By: | Dirk Bergemann; Benjamin A. Brooks; Stephen Morris |
| Date: | 2015–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:786969000000001031&r=all |
| By: | Strömbäck, Elon (Department of Economics, Umeå School of Business and Economics) |
| Abstract: | The European Commission encourages public authorities to split procurement contracts into multiple contracts in order to increase the competiveness of small and medium sized enterprises (SMEs). In this paper, I use data from Swedish public procurement auctions for internal regular cleaning service contracts to study the effect of contract size and number of contracts on SME participation and the probability of submitting the winning bid. I found that SME participation is negatively related to both contract size and the number of contracts in the procurement. A possible interpretation is that reduced contract size in order to stimulate SME participation is counteracted by reduced incentives for them to enter into procurements with multiple contracts. Medium-sized firms are also more successful when bidding for smaller contracts relative to large firms. Nevertheless, the results indicate that the SMEs’ award rate is positively correlated with the number of contracts in the procurement. |
| Keywords: | Procurement design; Split-award; Endogenous entry; Small and medium sized enterprises |
| JEL: | D44 H11 H57 L23 |
| Date: | 2015–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0914&r=all |
| By: | Alfaro, Laura; Antràs, Pol; Chor, Davin; Conconi, Paola |
| Abstract: | In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antras and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model’s predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm’s propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggests that contractual frictions play an important role in shaping the integration choices of firms around the world. |
| Keywords: | global value chains; incomplete contracts; sequential production |
| JEL: | D23 F14 F23 L20 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10837&r=all |