nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2016‒06‒25
four papers chosen by
Guillem Roig
University of Melbourne

  1. Foreign Direct Investments and trade in agriculture: an incomplete contracts approach By Margherita Scoppola
  2. The Effects of Wage Contracts on Workplace Misbehaviors: Evidence from a Call Center Natural Field Experiment By Jeffrey A. Flory; Andreas Leibbrandt; John A. List
  3. Mellowing with tenure? Socialization increases prosocial behavior in public organizations By Sheheryar Banuri; Philip Keefer
  4. Virtual Demand and Stable Mechanisms By Jan Christoph Schlegel

  1. By: Margherita Scoppola
    Abstract: Some firms invest abroad in land, while other firms procure raw materials from food or energy importing countries by means of an outsourcing arrangement with farmers in land-abundant countries. Few studies have investigated the pattern of recent Foreign Direct Investment (FDI) in agriculture and the ones that have are mostly focused on the locational drivers of FDI. This paper explores how the contractual features of transactions of agricultural products affect the "internalization" decision of firms, that is, the choice trade/FDI. The paper develops a partial equilibrium model incorporating incomplete contracts and asset specificity, which is used to address a number of questions: What is the impact of the quality of the institutions on the choice trade/FDI? How may the bargaining power of the downstream and upstream firms affect the outcome? How is the choice FDI/trade affected by the presence of a state-owned firm? The model provides some unconventional results, such as the finding that when the investor is private, better institutions may lead firms to choose outsourcing, while weak institutions may be a driver of FDI.
    JEL: Q15 F23 L23 Q17
    Date: 2016–05
  2. By: Jeffrey A. Flory; Andreas Leibbrandt; John A. List
    Abstract: Workplace misbehaviors are often governed by explicit monitoring and strict punishment. Such enforcement activities can serve to lessen worker productivity and harm worker morale. We take a different approach to curbing worker misbehavior—bonuses. Examining more than 6500 donor phone calls across more than 80 workers, we use a natural field experiment to investigate how different wage contracts influence workers’ propensity to cheat and sabotage one another. Our findings show that even though standard relative performance pay contracts, relative to a fixed wage scheme, increase productivity, they have a dark side: they cause considerable cheating and sabotage of co-workers. Yet, even in such environments, by including an unexpected bonus, the employer can substantially curb worker misbehavior. In this manner, our findings reveal how employers can effectively leverage bonuses to eliminate undesired behaviors induced by performance pay contracts.
    JEL: C9 C93 J3 J41
    Date: 2016–06
  3. By: Sheheryar Banuri (University of East Anglia); Philip Keefer (Inter-American Development Bank)
    Abstract: Recent research suggests that prosocial organizations are likely to have more prosocial employees, and that this match plays a significant role in organization contracting practices and productivity -- for example, in government. Evidence suggests that selection plays a role: prosocial employees are more likely to join prosocial organizations. In this paper, we ask whether prosocial behavior increases with tenure in prosocial organizations. Using a unique sample of nearly 300 mid-career Indonesian public officials, we find that subjects with longer tenure in the public sector exhibit greater prosocial behavior.
    Date: 2016–05
  4. By: Jan Christoph Schlegel
    Abstract: We study conditions for the existence of stable, strategy-proof mechanisms in a many-to-one matching model with discrete salary space (the discrete Kelso-Crawford model). Workers and firms want to match many-to-one and agree on the terms of their match. Firms demand different sets of workers at different salaries. Workers have preferences over different firm-salary combinations. Workers' preferences are monotone in salaries. We show that for this model a descending auction mechanism is the only candidate for a stable mechanism that is strategy-proof for workers. Moreover, we identify a maximal domain of demand functions for firms, such that the mechanism is stable and strategy-proof. For each demand function in our domain, we can construct a related demand function that we call a virtual demand function. Replacing demand functions by virtual demand functions will not change the outcome of our mechanism. Known conditions (gross substitutability and the law of aggregate demand) can be applied to the virtual demand profile to check whether the mechanism is stable and strategy-proof. Our result gives a sense in which gross substitutability and the law of aggregate demand are necessary for the existence of a stable and strategy-proof mechanism. In the special case where demand functions are generated by quasi-linear profit functions, demand functions and virtual demand functions agree. Thus for this case, our domain reduces to the domain of demand functions under which workers are gross substitutes.
    Keywords: Matching with contracts; Matching with salaries; Gross Substitutes; Virtual Demand
    JEL: C78 D47
    Date: 2016–06

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