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on Contract Theory and Applications |
| By: | Patrick Bolton (Columbia University); Neng Wang (Columbia Business School); Jinqiang Yang (School of Finance, Shanghai University of Finance and Economics) |
| Abstract: | We formulate a dynamic financial contracting problem with risky inalienable human capital. We show that the inalienability of the entrepreneur’s risky human capital not only gives rise to endogenous liquidity limits but also calls for dynamic liquidity and risk management policies via standard securities that firms routinely pursue in practice, such as retained earnings, possible line of credit draw-downs, and hedging via futures and insurance contracts. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1703&r=cta |
| By: | Juan S. Mora-Sanguinetti (Banco de España); Marta Martínez-Matute (Banco de España); Miguel García-Posada (Banco de España) |
| Abstract: | A number of theoretical and empirical studies have shown that the development of credit markets is affected by the efficacy of enforcement institutions. A less explored question is how these institutions interact with turns in the economic cycle and the impact of different types of legal procedures on credit market performance. This paper fills these gaps by analysing how differences in the availability of credit and in non-performing loans ratios may be partially explained by regional variations in the quality of loan contract enforcement during recent periods of sustained growth (2001-2007) and recession (since 2008) in the Spanish economy. This research concludes that a rise in the clearance rate of executions (i.e. when a judge enforces the repayment of a debt) increases the ratio of total credit to GDP. However, the declaratory stage of proceedings (i.e. when a debt is fi rst verifi ed by a judge) does not seem to be statistically significant. A possible explanation of this fi nding is that, throughout the economic cycle, a significant proportion of the defaults declared are strategic (i.e. defaults by a solvent debtor). Furthermore, it is observed that, in regions where declaratory procedures are more efficient, less credit is declared as non-performing. The latter effect, however, is only observed after the onset of the «Great Recession» in 2008. This may be related to the increase in non-strategic defaults during a downturn. |
| Keywords: | enforcement institutions, legal procedures, credit availability, non-performing loans ratio. |
| JEL: | K41 E51 G2 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1630&r=cta |
| By: | Dubois, Pierre; Jullien, Bruno |
| Abstract: | The paper argues that the emergence of private labels can be partially explained by the new information technologies available at the retail level. In our approach, the owner of a brand has ìdecision rightsîon product design, while the details of the production and distribution are left to contractual negotiation. Manufacturers have privileged information about the cost of improving quality, while distributors have private information on the impact of quality on demand. We show that ownership of the brand should be allocated to the party with a relative informational advantage. In particular, if the information of the distributor improves due to a technological shock on data collection and information management, it may become optimal for the distributor to introduce its own brand, rather than to distribute a manufacturerís brand. |
| Keywords: | store brand, private label, asymmetric information, vertical structures, product design, decision rights |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:4832&r=cta |
| By: | Albuquerque, Rui; Cabral, Luis; Guedes, Jose |
| Abstract: | This paper shows that in the presence of correlated investment opportunities across banks, risk sharing between bank shareholders and bank managers leads to compensation contracts that include relative performance evaluation and to investment decisions that are biased toward such correlated opportunities, thus creating systemic risk. We analyze various policy recommendations regarding bank managerial pay and show that shareholders optimally undo the intended risk-reducing effects of the policies, demonstrating their ineffectiveness in curbing systemic risk. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11693&r=cta |
| By: | Thibaut Duprey |
| Abstract: | Production efficiency and financial stability do not necessarily go hand in hand. With heterogeneity in banks’ abilities to screen borrowers, the market for loans becomes segmented and a self-competition mechanism arises. When heterogeneity increases, the intensive and extensive margins have opposite effects. Bank informational rents unambiguously decrease welfare and distort effort incentives. But the bank most efficient at screening expands its market share by competing against itself to offer effort-inducing contracts, which decreases the share of non-performing loans. A macroprudential authority acting alone reinforces this tension. Optimality is restored by targeting lending policies toward borrowers with intermediate abilities. |
| Keywords: | Financial Institutions, Financial stability, Financial system regulation and policies |
| JEL: | G14 G21 L13 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-56&r=cta |
| By: | Amy Rose; Robert Stoner; Ignacio Pérez-Arriaga |
| Abstract: | High levels of inflexible bilateral trade in southern Africa have limited the participation in the competitive short-term markets, leading to inefficient use of energy infrastructure and blocking the South African Power ’s long-term goal of transitioning from a cooperative to competitive market. Under the current supply and investment climate, governments and market participants are unlikely to forego their preference for long-term contracts owing to concerns about security of supply and risk mitigation. In this paper, we demonstrate that the current method for integrating bilateral and market trading introduces inefficiencies in the use of generation and transmission infrastructure, reduces total trade, and increases system costs. We propose and test an alternative method based on contracts for differences and implicit auctions to ensure the same level of security of supply for contract holders while minimising market distortions. Keywords: bilateral contract, market design, power |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2016-132&r=cta |
| By: | Benoît Le Maux (CREM-CNRS and Condorcet Center, University of Rennes 1, France); Sarah Necker (University of Freiburg, Walter-Eucken Institute, Deutschland); Yvon Rocaboy (CREM-CNRS and Condorcet Center, University of Rennes 1, France) |
| Abstract: | We develop a theory of the evolution of scientific misbehavior. Our empirical analysis of a survey of scientific misbehavior in economics suggests that researchers’ disutility from cheating varies with the expected fraction of colleagues who cheat. This observation is central to our theory. We develop a one-principal multi-agent framework in which a research institution aims to reward scientific productivity at minimum cost. As the social norm is determined endogenously, performance-related pay may not only increase cheating in the short run but can also make cheat-ing increasingly attractive in the long run. The optimal contract thus depends on the dynamics of scientific norms. The premium on scientific productivity should be higher when the transmission of scientific norms across generations is lower (low marginal peer pressure) or the principal cares little about the future (has a high discount rate). Under certain conditions, a greater probability of detection also increases the optimal productivity premium. |
| Keywords: | Economics of Science, Contract Theory, Scientific Misbehavior, Social Norms |
| JEL: | A11 A13 K42 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2016-17&r=cta |