nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2017‒07‒23
three papers chosen by
Guillem Roig
University of Melbourne

  1. On the Role of Menus in Sequential Contracting: a Multiple Lending Example By Andrea Attar; Catherine Casamatta; Arnold Chassagnon; Jean Paul Décamps
  2. Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement By Leonardo M. Giuffrida; Gabriele Rovigatti
  3. Towards a Political Theory of the Firm By Luigi Zingales

  1. 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
  2. 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
  3. 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

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