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on Contract Theory and Applications |
| By: | Auriol, Emmanuelle; Fourati, Maleke |
| Abstract: | With a view to reducing the consequences of corruption in public procurement, many governments have introduced debarment of suppliers found guilty of corrup- tion and some other forms of crime. This paper explores the market effects of debarment on public procurement. Debarment is found to make little difference in markets with high competition, while in markets with low competition it may deter corruption as long as firms value public procurement contracts in the future and there is a certain risk of being detected in corruption. On the other hand, debarment when it works has an anti-competitive effect, and this effect will contribute to facilitate collusion between suppliers. Debarment may work as a tool against collusion, but only if targeting one firm at the time (such as a ring-leader or the specific beneficiary when the collusion is detected) and not all the members of a cartel. If designed with an understanding of the market mechanisms at play, debarment can deter both collusion and corruption, thus improving the results of public procurement. If so, most current debarment regimes need modification. |
| Keywords: | Debarment, Corruption, Collusion, Procurement |
| JEL: | H57 K21 K23 K42 L41 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29679&r=all |
| By: | Pierre Picard (Département économie - Ecole Polytechique) |
| Abstract: | We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection and an arbitrary number of risk types, when insurance contracts include policy dividend rules. The Miyazaki-WilsonSpence state-contingent allocation is an equilibrium allocation, and it is the only one when out-of-equilibrium beliefs satisfy a robustness criterion. It is shown that stock insurers and mutuals may coexist, with stock insurers o⁄ering insurance coverage at actuarial price and mutuals cross-subsidizing risks. |
| Keywords: | Participating Contract, Policy Dividend.,Insurance, Adverse Selection, Mutual |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01206073&r=all |
| By: | Jihad C. Elnaboulsi (CRESE, Univ. Bourgogne Franche-Comté); W. Daher (Gulf University for Science and Technology, Department of Mathematics and Natural Science); Yigit Saglam (Victoria University of Wellington, School of Economics and Finance) |
| Abstract: | This paper presents an analysis of environmental policy in imperfectly competitive market with private information. We examine how environmental taxes should be optimally levied when the regulator faces asymmetric information about production and abatement costs in an irreversible observable policy commitment game. Under our setting, the paper investigates how information disclosure can improve the efficiency of the tax setting process and may o¤er an e¢ cient complement to conventional regulatory approaches. From a policy perspective, our ?ndings suggest that access to publicly disclosed information improves the ability of the regulator to levy ?rms? speci?c environmental taxes. Despite its advantages, however, informational disclosure may harm the environmental policy it purports to enhance since it facilitates collusive behavior. We show that information sharing may occur and thus leads to a superior outcome in terms of industry output and emissions. Disclosure may undermine market performance and environmental policy. |
| Keywords: | Environmental Regulation, Emissions Taxes, Collusion, Disclosed Information, Private Information, Information Sharing. |
| JEL: | D81 D82 H23 L51 Q58 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2015-14&r=all |
| By: | Matthew T. Cole (Department of Economics, California Polytechnic State University); Ben Zissimos (Department of Economics, University of Exeter) |
| Abstract: | This paper develops a new model of a trade agreement that puts at center stage the competing interests between firms within a sector. Larger firms favor trade liberalization whereas smaller firms favor protection. Lobbying by firms for or against the agreement is modelled as an all-pay auction, thus incorporating the feature that binding contracts over contributions for policies cannot be written. A new motive for trade agreement formation is uncovered in this framework whereby governments' incentives to liberalize are driven by the lobbying process. If a proposed agreement is over non-tariff barriers then it always entails free trade. If a proposed agreement is over ariffs then it either entails free trade, which maximizes lobbying revenue, or the tariff revenue maximizing tariff. This outcome is supported by the surprising result that, off the equilibrium path, any tariff agreement that entails lobbying and positive tariffs yields lower expected revenue for the government than a free trade agreement involving no tariff revenue. |
| Keywords: | All-pay auction, firm heterogeneity, non-tariff barriers, tariffs, trade agreement |
| JEL: | F02 F12 F13 D44 |
| URL: | http://d.repec.org/n?u=RePEc:cpl:wpaper:1501&r=all |
| By: | Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF)) |
| Abstract: | In some classes of models, taxes at the owner level are “neutral” and have no effect on firm activity. However, this tax neutrality is sensitive to assumptions and no longer holds in more complex models. We review recent research that incorporates greater complexity in studying the link between taxes and business activity – particularly entrepreneurship. Dividend taxes on owners of large firms affect firm activity in models that include agency conflicts between owners and managers. Similarly, after incorporating entrepreneurs’ occupational choice into the model, taxes are no longer neutral. By forsaking lucrative alternative careers, skilled entrepreneurs tend to have high opportunity costs, which make the choice of attempting to start a business of first order importance. Moreover, in models where it is assumed that capital flows across borders without cost, taxes on domestic business owners do not alter business activity because foreign capital seamlessly compensates for tax-induced declines in investments. This theoretical notion is contradicted by the strong “home bias” observed in business ownership, in particular for small firms and startups without easy access to international capital markets. Recent empirical work has emphasized that taxes have heterogeneous effects on mature firms, entrepreneurial startups, and owner-managed small firms. Lowering dividend taxes on firms with dispersed ownership has been shown to shift capital from mature firms into rapidly growing firms. Moreover, capital gains taxation tends to reduce the number of innovative startups and diminish venture capital activity, while high owner-level taxes encourage small business activity and non-entrepreneurial self-employment because such firms have more opportunities to avoid or evade taxes. To obtain efficient incentives in entrepreneurial startups, contractual terms are required that ex ante guarantee that all providers of critical inputs, especially equity constrained entrepreneurs, are entitled to a share of the resulting capital value firm. Unless properly designed, owner-level taxes prevent such ex ante contracting and thus lower the likelihood of eventual success. |
| Keywords: | Business taxation; Capital income taxation; Corporate governance; Entrepreneurship; Institutions; Tax policy |
| JEL: | H25 H26 H32 L26 |
| Date: | 2015–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1086&r=all |
| By: | Matthias Lang (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | Different models of uncertainty aversion imply strikingly different economic behavior. The key to understanding these differences lies in the dichotomy between first-order and second-order ambiguity aversion which I define here. My definition and its characterization are independent of specific representations of decisions under uncertainty. I show that with second-order ambiguity aversion a positive exposure to ambiguity is optimal if and only if there is a subjective belief such that the act’s expected outcome is positive. With first-order ambiguity aversion, zero exposure to ambiguity can be optimal. Examples in finance, insurance and contracting demonstrate the economic relevance of this dichotomy. |
| Keywords: | Uncertainty Aversion, Ambiguity, Smooth Ambiguity Aversion, Sub-jective Beliefs, Kinked preferences |
| JEL: | D82 D01 D81 G11 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2015_13&r=all |
| By: | Tam\'as Fleiner; Zsuzsanna Jank\'o; Akihisa Tamura; Alexander Teytelboym |
| Abstract: | We consider general networks of bilateral contracts that include supply chains. We define a new stability concept, called trail stability, and show that any network of bilateral contracts has a trail-stable outcome whenever agents' preferences satisfy full substitutability. Trail stability is a natural extension of chain stability, but is a stronger solution concept in general contract networks. Trail-stable outcomes are not immune to deviations of arbitrary sets of firms. In fact, we show that outcomes satisfying an even more demanding stability property -- full trail stability -- always exist. We pin down conditions under which trail-stable and fully trail-stable outcomes have a lattice structure. We then completely describe the relationships between all stability concepts. When contracts specify trades and prices, we also show that competitive equilibrium exists in networked markets even in the absence of fully transferrable utility. The competitive equilibrium outcome is trail-stable. |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1510.01210&r=all |
| By: | Serge Gijrath (Universiteit Leiden) |
| Abstract: | The paper assesses the scope of current regulation in the electronic communications sector in a period of rapid technological changes. It explores the network operator’s dilemma how to deal with investments in innovation in a time where fundamental innovation comes from outside; and the regulator’s dilemma how to improve the conditions for access to financial resources for research and innovation. The contention is to look whether different regulatory tools, such as proactively enhancing interoperability levels, subsidies and standardization measures could complement or supplement existing measures to safeguard competition. In terms of interoperability, two cases are discussed: IP connectivity and broadband access. The focus will be on measures proposed by the Commission in 2015 for the achievement of the Digital Single Market: what is the right track: does yardstick regulation imposing price-caps still work. The road to achieving more incentive regulation appears to be bumpy as well and reorganizing the level playing field does not appear to be a viable regulatory option. Some thought is given to how infrastructure sharing and other long-term contracts could form an alternative for regulation. A mix of regulation is proposed to move towards smarter electronic communications networks. |
| Keywords: | Interoperability, innovation; standardization; connected continent; IP connectivity; broadband access; incentive regulation; deregulation |
| JEL: | K00 K23 K33 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:2804775&r=all |