nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2017‒06‒04
three papers chosen by
Guillem Roig
University of Melbourne

  1. Ethical standards and cultural assimilation in financial services By Morrison, Alan; Thanassoulis, John
  2. How should we model property? thinking with my critics By Benito Arruñada
  3. Leasing of Agricultural Land Versus Agency Theory in the Light of Study Results By Renata Marks-Bielska; Agata Zieliñska

  1. By: Morrison, Alan; Thanassoulis, John
    Abstract: We study a firm with ethical employees who can adopt a profitable working practice that may harm their customers. Their response to this dilemma reflects their compensation contract as well as their ethical willpower. We identify optimal compensation contracts under utilitarian and deontological (duty-based) ethical standards. With utilitarian employees, and irrespective of employee willpower, a profit maximising firm with sophisticated customers generates the ethically best outcome. Organizational culture emerges as an equilibrium phenomenon. If the firm is a partnership, if sales commissions are hidden, or if customers are naive the firm may use bonuses to create a culture of malpractice.
    Keywords: behavioural norms; bonuses; Culture; Ethics
    JEL: D03 G02 G20
    Date: 2017–05
  2. By: Benito Arruñada
    Abstract: Inspired by comments made by Allen (2017), Lueck (2017), Ménard (2017) and Smith (2017), this response clarifies and deepens the analysis in Arruñada (2017a). Its main argument is that to deal with the complexity of property we must abstract secondary elements, such as the physical dimensions of some types of assets, and focus on the interaction between transactions. This sequential-exchange framework captures the main problem of property in the current environment of impersonal markets. It also provides criteria to compare private and public ordering, as well as to organize public solutions that enable new forms of private ordering. The analysis applies the lessons in Coase (1960) to property by not only comparing realities but also maintaining his separate treatment of the definition of property rights and transaction costs. However, it replaces his contractual, single-exchange, framework for one in which contracts interact, causing exchange externalities.
    Keywords: property rights, externalities, enforcement, transaction costs, public ordering, private ordering, impersonal exchange.
    JEL: D23 K11 K12 G38 H41 O17 P48
    Date: 2017–05
  3. By: Renata Marks-Bielska (University of Warmia and Mazury in Olsztyn, Poland); Agata Zieliñska (University of Warmia and Mazury in Olsztyn, Poland)
    Abstract: Agency theory examines relations between entities as contract relations. The agency relation is always present when the situation of one person depends on the activities of another person. The individual who performs such activities is the agent, and the other party dependant on the activities of the agent is called the principal. The agency relation occurring between the above-listed parties is one of the oldest and most extensively codified modes of social interactions. Relationship studies: andlord - tenant, belong to the earliest and classic examples of agency relationships, analyzed by economists.the determination of the significance of the lease in Polish agriculture with the use of agency theory. The theoretical basis is primarily provided by a review of the literature encompassing publications devoted to agency theory, legislative acts pertaining to leases, as well as domestic and foreign scientific studies. Statistical data deriving from the Agricultural Property Agency. The time range of the analysis encompassed the years 1992–2015. The empirical section was prepared on the basis of results of our own studies.According to the analysis of the results of the author’s own studies, the most important advantage of leasing for the lessees is the possibility of expanding the farm (76.1%). Very similar importance was also assigned to the possibility of the pre-emptive right (70.1%). Most frequently (42.4%) this answer was indicated by the respondents who held over 75% under lease in total used land. This may be justified by the fact that farms with a high share of lease function in the environment of a relatively higher level of risk than farms with the majority of ownership, whereas purchase of leased land contributes to its minimisation.
    Keywords: agricultural lease, agency theory, contract
    JEL: D82 L51 Q15
    Date: 2017–05

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