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on Contract Theory and Applications |
| By: | W. Bentley MacLeod; Teck Yong Tan |
| Abstract: | We introduce a general Principal-Agent model with subjective evaluation and malfeasance characterized by two-sided asymmetric information on performance that allows for an arbitrary information structure. Two generic contract forms are studied. An authority contract has the Principal reveal his information before the Agent responds with her information. Under such a contract, the Agent's compensation varies only with the Principal's information, while her information is used to punish untruthful behavior by the Principal. Conversely, a sales contract has the Agent reveal her information first. In this case, the Agent's performance incentives are affected by the information revealed by both parties. Because the Agent's information affects her compensation, the information revelation constraints are more complex under a sales contract, and provide a way to integrate Williamson's (1975) notion of guile into agency theory. We find that designing sales contracts for expert agents, such as physicians and financial advisors, are significantly more complex than designing optimal authority contracts. |
| JEL: | D86 J33 J41 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22156&r=cta |
| By: | Daniel Danau (Normandie Université, UNICAEN, CREM CNRS, France); Analisa Vinella (Università degli Studi di Bari "Aldo Moro", Italy) |
| Abstract: | Riordan and Sappington (JET, 1988) show that in an agency relationship in which the type of the agent is correlated with a signal that is observed publicly ex post, the principal may attain first best (full surplus extraction and efficient output levels) if she offers the agent a lottery such that each type is rewarded for one signal realization and punished equally for all the others. Gary-Bobo and Spiegel (RAND, 2006) show that this kind of lottery is most likely to be locally incentive-compatible when the agent is protected by limited liability. In this paper we investigate how the principal should construct the lottery to attain not only local but also global incentive-compatibility. We first assess that the main issue with global incentive-compatibility rests with intermediate types being potentially attractive reports to both lower- and higher-order types. We then show that a lottery including three (rather than two) levels of profit is most likely to be globally incentive-compatible under limited liability, if local incentive constraints are strictly satisfied. We identify conditions under which first best is implemented and pin down the optimal distortions when those conditions are violated. In particular, when the first-best allocation is locally but not globally incentive-compatible, output distortions are induced but no information rent is conceded to the agent. |
| Keywords: | Incentive compatibility; Limited liability; Correlated signals; Conditional probability; Full-rank condition |
| JEL: | D82 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2016-05&r=cta |
| By: | Petilliot, René |
| Abstract: | Previous research has found that agency workers are less satisfied with their job than regular workers on a perma-nent contract. All these studies have in common that they treat agency workers as a homogeneous group; that is, they did not consider the contract type agency workers hold. This paper analyzes whether differences in job satis-faction can be explained by the contract type using data from the German Socio-Economic Panel. The analysis leads to three main results. First, differences in job satisfaction cannot be explained by the contract type. Second, agency workers on a permanent contract are significantly less satisfied with their job than regular workers on the same contract. Third, agency workers on a fixed-term contract do not differ in reported job satisfaction from reg-ular workers on both fixed-term and permanent contracts. These findings give rise to the hypothesis that as a policy instrument agency employment appears to be well-suited for short-term periods, but it should be prevented that workers are persistently employed in such a work arrangement. |
| Keywords: | Job satisfaction,Temporary agency employment,Fixed-term contracts,Permanent contracts |
| JEL: | C23 I31 J28 J41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fzgdps:61&r=cta |
| By: | Herweg, Fabian; Schwarz, Marco A. |
| Abstract: | Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constraint optimal award procedure when the procurer cannot commit not to renegotiate. If cost differences are more pronounced for more complex designs, it is optimal to fix a simple design ex ante and to renegotiate to a more complex and costlier design ex post. Specifying a simple design initially enhances competition in the auction. Moreover, the procurer cannot benefit from using a multi-dimensional auction, as the optimal scoring rule depends only on the price. |
| Keywords: | Auction; Cost Overrun; Procurement; Renegotiation |
| JEL: | D44 D82 H57 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11179&r=cta |
| By: | Valeria, Gattai; Piergiovanna, Natale |
| Abstract: | In the context of the property rights theory of the firm, we study the role of investment spillovers in shaping the efficiency ranking of ownership regimes. In our model, spillovers arise from asset-embodied investment and footloose investment. Under the former, the benefits of investment can be appropriated only through asset control; under the latter, the benefits of investment can be appropriated independently of asset control. Our model predicts that asset-embodied investment favors the adoption of non-integration, while joint ownership may prevail in the presence of footloose investment. |
| Keywords: | Incomplete contracts, Property rights, Investment spillovers, Joint-control |
| JEL: | D23 D86 L24 |
| Date: | 2016–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:332&r=cta |
| By: | Bogdan Genchev (Boston College); Julie Holland Mortimer (Boston College) |
| Abstract: | Conditional pricing practices allow the terms of sale between a producer and a downstream distributor to vary with the ability of the downstream firm to meet a set of conditions put forward by the producer. The conditions may require a downstream firm to accept minimum quantities or multiple products, to adhere to minimum market-share requirements, or even to deal exclusively with one producer. The form of payment from the producer to the downstream firm may take the form of a rebate, marketing support, or simply the willingness to supply inventory. The use of conditional pricing practices is widespread throughout many industries, and the variety of contractual forms used in these arrangements is nearly as extensive as the number of contracts. |
| Keywords: | conditional pricing, terms of sale, downstream firm |
| JEL: | K11 K21 L4 L42 |
| Date: | 2016–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:908&r=cta |