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on Contract Theory and Applications |
| By: | Ioannis Pinopoulos (Department of Economics, University of Macedonia) |
| Abstract: | We consider an upstream supplier who bargains with two cost-asymmetric downstream firms over the terms of interim observable two-part tariff contracts: contracts are initially secret (acceptance decisions are based on beliefs) but downstream firms observe the accepted contract terms before competing in prices. We show that the more efficient downstream firm pays a higher input price than its less efficient rival, a finding that is in stark contrast to the previous findings in the literature on input price discrimination with two-part tariff contracts. We also show that a ban on input price discrimination will reduce both consumer and total welfare when the upstream supplier bargains the common two-part tariff contract with the less efficient firm. This result is interesting from a policy perspective since it implies that even though under discriminatory input prices the upstream supplier favors the “wrong” firm, non-discriminatory input pricing can make things even worse in terms of welfare. |
| Keywords: | Vertical relations, input price discrimination, two-part tariffs, bargaining, welfare. |
| JEL: | D4 L1 L4 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2017_01&r=cta |
| By: | Juan-José Ganuza (Universitat Pompeu Fabra and Barcelona GSE); Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros) |
| Abstract: | This paper shows that the concession model discourages firms from acquiring information about the future profitability of a project. Uniformed contractors carry out good and bad projects because they are profitable in expected terms even though it would have been optimal to invest in screening them out according to their value. White elephants are identified as avoidable negative net present-value projects that are nevertheless undertaken. Institutional arrangements that limit the losses that firms can bear exacerbate this distortion. We characterize the optimal concession contract which fosters the acquisition of information and achieves the first best by conditioning the duration of the concession to the realization of the demand and includes payments for not carrying out some projects. |
| Keywords: | Concession contracts, information acquisition, flexible-term concessions. |
| JEL: | D82 D86 H21 L51 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2017_1701&r=cta |
| By: | Hans Gersbach (Swiss Federal Institute of Technology Zurich, Institute for the Study of Labor (IZA), CESifo (Center for Economic Studies and Ifo Institute) and Centre for Economic Policy Research (CEPR)); Jean-Charles Rochet (University of Zurich, University of Toulouse I, Ecole Polytechnique Fédérale de Lausanne, and Swiss Finance Institute) |
| Abstract: | Evidence suggests that banks tend to lend a lot during booms, and very little during recessions. We propose a simple explanation for this phenomenon. We show that, instead of dampening productivity shocks, the banking sector tends to exacerbate them, leading to excessive fluctuations of credit, output and asset prices. Our explanation relies on three ingredients that are characteristic of modern banks' activities. The first ingredient is moral hazard: banks are supposed to monitor the small and medium sized enterprises that borrow from them, but they may shirk on their monitoring activities, unless they are given sufficient informational rents. These rents limit the amount that investors are ready to lend them, to a multiple of the banks' own capital. The second ingredient is the banks' high exposure to aggregate shocks: banks' assets have positively correlated returns. Finally the third ingredient is the ease with which modern banks can reallocate capital between different lines of business. At the competitive equilibrium, banks offer privately optimal contracts to their investors but these contracts are not socially optimal: banks' decisions of reallocating capital react too strongly to aggregate shocks. This is because banks do not internalize the impact of their decisions on asset prices. This generates excessive fluctuations of credit, output and asset prices. We examine the efficacy of several possible policy responses to these properties of credit markets, and show that it can provide a rationale for macroprudential regulation. |
| Keywords: | Bank Credit Fluctuations, Macroprudential Regulation, Investment Externalities |
| JEL: | G21 G28 D86 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1203&r=cta |
| By: | László Á. Kóczy (Centre for Economic and Regional Studies, Hungarian Academy of Sciences and and Keleti Faculty of Business and Management, Óbuda University); János Kiss Hubert (Centre for Economic and Regional Studies, Hungarian Academy of Sciences) |
| Abstract: | The 2016 Nobel Memorial Prize in Economic Sciences was awarded to Oliver Hart and Bengt Holmström for their work on contract theory. Contract theory is a subfield of game theory where the conflict between the owner - the principal - and the CEO - or agent is at the centre of interest. In the following we explain the principal-agent model of Holmström with some extensions and then look at the property right aspects of these models based on Hart's work. Although the two researchers are recognised for their theoretical work, in our simple introduction we avoid complex formulae and illustrate the models with examples. |
| Keywords: | contract theory, incentives, principal-agent problem, Nobel prize, risk, property rights JEL Codes: C72, D82, D86 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pkk:wpaper:1701&r=cta |
| By: | Johansen, Bjørn Olav (Department of Economics, University of Bergen, Norway); Vergé, Thibaud (CREST, ENSAE, Université Paris-Saclay and Norwegian School of Economics) |
| Abstract: | In the context of vertical contractual relationships, where competing sellers distribute their products directly as well as through competing intermediation platforms, we analyze the welfare effects of price parity clauses. These contractual clauses prevent a seller from offering its product at a lower price on other platforms or through its own direct sales channel. Recently, they have been the subject of several antitrust investigations. Contrary to the theories of harm developed by competition agencies and in some of the recent literature, we show that when we account for the sellers’ participation constraints, price parity clauses do not always lead to higher commissions and final prices. Instead, we find that they may simultaneously bene.t all the actors (platforms, sellers and consumers), even in the absence of traditional efficiency arguments. |
| Keywords: | Vertical contracts; price parity clauses; platforms; endogenous participation |
| JEL: | L13 L42 |
| Date: | 2017–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2017_001&r=cta |