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on Contract Theory and Applications |
| By: | Michela, Cella; Federico, Etro |
| Abstract: | We analyze competition through incentive contracts for managers in duopoly. Privately informed managers exert surplus enhancing e¤ort that generates an externality on the rival. Asymmetric information on imperfectly correlated shocks creates a two-way distortion of efforts under strategic substitutability in effort and a double downward distortion under strategic complementarity in effort. In the first case, as with contracts for R&D activity or small contractual spillovers for quantity and price competition, increasing the correlation of types reduces the polarization of contracts and the di¤erentials in managerial compensations between efficient and inefficient managers. In the second case, as with large contractual spillovers, the opposite occurs. |
| Keywords: | oligopoly, screening, two way distortion, incentives, investments |
| JEL: | D21 D82 D86 L13 L22 |
| Date: | 2016–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:328&r=cta |
| By: | Salvatore Capasso (Institute for Studies on Mediterranean Societies (ISSM) - CNR and CSEF, Italy); Lodovico Santoro (Institute for Research on Innovation and Services for Development (IRISS) - CNR, Italy) |
| Abstract: | This paper develops the notion that corruption is a contract between a public official and a private agent and that the features of this contract depend on the allocation of bargaining power between the parties. Active corruption thus occurs when the public official fixes the terms of the contract and is otherwise considered passive. Employing Italian data on various corruption-based regional-level crimes, the paper empirically reassesses the causes of corruption. A simple theoretical model highlights the differences between these two forms of corruption in terms of bribery and emphasizes the implications both for aggregate corruption and its measurement. |
| Keywords: | active corruption, passive corruption, bargaining power |
| JEL: | D73 H57 |
| Date: | 2016–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:429&r=cta |
| By: | Choy , James (Department of Economics, University of Warwick) |
| Abstract: | Many societies are divided into multiple smaller groups. Certain kinds of interaction are more likely to take place within a group than across groups. I model a reputation effect that enforces these divisions. Agents who interact with members of different groups can support lower levels of cooperation with members of their own groups. A hierarchical relationship between groups appears endogenously in equilibrium. Group divisions appear without any external cause, and improvements in formal contracting institutions may cause group divisions to disappear. Qualitative evidence from the anthropological literature is consistent with several predictions of the model. |
| Keywords: | Cooperation, Caste, Social Institution |
| JEL: | C73 O12 O17 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1113&r=cta |
| By: | Alger, Ingela; Juarez, Laura; Juarez-Torres, Miriam; Miquel-Florensa, Josepa |
| Abstract: | How does informal risk sharing affect incentives to avoid risk? While moral hazard is expected under formal insurance, theory suggests that the incentive effects of informal risk sharing are ambiguous: internalization of the external effects of transfers on others may reduce or enhance incentives to avoid risk. To study this issue, which is particularly relevant for developing economies, we designed a novel real-effort lab experiment and conducted it in 16 small villages in rural Mexico. We fi nd that subjects internalize the effects of transfers enough for the presence of transfers to signi cantly increase e¤ort compared to autarky situations. |
| Keywords: | informal insurance, effort, moral hazard, free-riding effect, empathy effect |
| JEL: | C93 D64 O12 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:30163&r=cta |