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on Contract Theory and Applications |
| By: | Andrea Attar (DEF & CEIS, Università di Roma Tor Vergata and Toulouse School of Economics (CRM, IDEI)); Catherine Casamatta (Toulouse School of Economics (CRM, IDEI)); Arnold Chassagnon (Université de Tours and Paris School of Economics); Jean Paul Décamps (Toulouse School of Economics (CRM, IDEI)) |
| Abstract: | We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games. |
| Keywords: | Multiple Lending, Menus, Strategic Default, Common Agency, Bank Competition |
| JEL: | D43 D82 G33 |
| Date: | 2017–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:409&r=cta |
| By: | Leonardo M. Giuffrida (Department of Economics and Finance, University of Rome "Tor Vergata"); Gabriele Rovigatti (Department of Economics and Finance, University of Rome "Tor Vergata") |
| Abstract: | We empirically investigate the effect of oversight on contract outcomes in public procurement. In particular, we stress a distinction between public and private oversight: the former is a set of bureaucratic checks enacted by contracting offices, while the latter is carried out by private insurance companies whose money is at stake through so-called surety bonding. We analyze the universe of U.S. federal contracts in the period 2005-2015 and exploit an exogenous variation in the threshold for both sources of oversight, estimating their causal effects on costs and execution time. We find that: (i) public oversight negatively affects outcomes, in particular for less competent buyers; (ii) private oversight has a positive effect on outcomes by affecting both the ex-ante screening of bidders - altering the pool of winning firms - and the ex-post behavior of contractors. |
| Keywords: | oversight, procurement, screening, red tape, moral hazard. |
| JEL: | D21 D44 D82 H57 L74 |
| Date: | 2017–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:411&r=cta |
| By: | Luigi Zingales |
| Abstract: | Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a “Medici vicious circle,” where money is used to get political power and political power is used to make money. |
| JEL: | G3 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23593&r=cta |