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on Contract Theory and Applications |
| By: | Thomas Schacherer (Humboldt-Universität zu Berlin) |
| Abstract: | This paper studies stochastic dynamic contracting between a principal and an agent, whose type evolution follows a Markov process. I analyze contracts in which the agent can terminate the contract in every period whereas the principal has full-commitment to her offer. The principal tries to screen the true type of the agent to maximize her profit. Therefore, she wants to incentivize him to reveal his true type. I show that stochastic contracts can never bring about more profits than deterministic contracts for the principal if the first-order approach is valid. For this result, it is immaterial if stochastic contracts depend on earlier realizations of the contract or not. |
| JEL: | J |
| Date: | 2015–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:wpaper:2015013&r=cta |
| By: | Benson, Alan (University of Minnesota); Sojourner, Aaron J. (University of Minnesota); Umyarov, Akhmed (University of Minnesota) |
| Abstract: | In two experiments, we examine the effects of employer reputation in an online labor market (Amazon Mechanical Turk) in which employers may decline to pay workers while keeping their work product. First, in an audit study of employers by a blinded worker, we find that working only for good employers yields 40% higher wages. Second, in an experiment that varied reputation, we find that good-reputation employers attract work of the same quality but at twice the rate as bad-reputation employers. This is the first clean, field evidence on the value of employer reputation. It can serve as collateral against opportunism in the absence of contract enforcement. |
| Keywords: | labor, personnel, contracts, online labor markets, job search, screening, reputation, online ratings |
| JEL: | L14 M55 J41 J2 L86 D82 K12 K42 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9501&r=cta |
| By: | Matthew Cole (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 tariffs 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 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:1510&r=cta |
| By: | Pierre-Olivier Weill (UCLA); Saki Bigio (Columbia GSB) |
| Abstract: | In this paper, we study the manner in which banks design and issue liabilities that facilitate trade amongst their customers. A bank mitigates a lemon problem by offering ex-ante lines of credit to their customers. Ex-post, some of these customers find it optimal to use their line of credit by pledging and revealing private information about their collateral. In exchange, these customers receive a deposit-like bank liability, which they subsequently use as a means of payment. In the optimal banking contract, the bank remains opaque about the private information; the liability is less risky than the underlying collateral; and the bank uses its capital to absorb losses in bad states of the world. We show that, with multiple banks, liabilities circulate and are guaranteed by the assets of the banking systems. We find that negative shocks to collateral value may propagate in the entire banking system. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:1478&r=cta |
| By: | Hino, Yoshifumi; Zennyo, Yusuke |
| Abstract: | We analyze a delegation game relevant to the conduct of corporate social responsibility (CSR) in which the firm's owner offers the manager a contract consisting of firm profit and social welfare. We derive three results that distinctly differ from existing findings. First, CSR decisions are strategic complements for firms. Second, with simultaneous CSR decisions, the equilibrium price is equal to marginal cost, despite the fact that firms compete in a Cournot duopoly. Finally, with sequential CSR decisions, unlike the follower firm, the leader firm never exhibits CSR. However, the follower firm can enjoy a profit equal to that derived by the leader in a Cournot-Stackelberg game. |
| Keywords: | Keywords Corporate social responsibility, Cournot, Strategic substitute, Strategic complement |
| JEL: | L13 L21 M14 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:67950&r=cta |
| By: | Kehoe, Timothy J. (University of Minnesota); Asturias, Jose (School of Foreign Service in Qatar, Georgetown University); Hur, Sewon (University of Pittsburgh); Ruhl, Kim J. (Stern School of Business, New York University) |
| Abstract: | In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequencing of reforms requires reforming trade barriers before contract enforcement. |
| Keywords: | Sequencing reforms; Trade barriers; Entry barriers; Contract enforcement |
| JEL: | F13 F4 O11 O19 O24 |
| Date: | 2015–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:521&r=cta |