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on Contract Theory and Applications |
| By: | Martimort, David; Semenov, Aggey; Stole, Lars |
| Abstract: | We characterize the complete set of equilibrium allocations to an intrinsic common agency screening game as the set of solutions to self-generating optimization programs. We provide a complete characterization of equilibrium outcomes for regular environments by relying on techniques developed elsewhere for aggregate games and for the mechanism design delegation literature. The set of equilibria include those with non-differentiable payoffs and discontinuous choices, as well as equilibria that are smooth and continuous in types. We identify one equilibrium, the maximal equilibrium, which is the unique solution to a self-generating optimization program with the largest (or “maximal”) domain, and the only equilibrium that is supported with bi-conjugate (i.e., least-concave) tariffs. The maximal equilibrium exhibits a n-fold distortion caused by each of the n principal’s non-cooperative behavior in over- harvesting the agent’s information rent. Furthermore, in any equilibrium, over any interval of types in which there is full separation, the agent’s equilibrium action corresponds to the allocation in the maximal equilibrium. Under mild conditions, the maximal equilibrium maximizes the agent’s information rent within the class of equilibrium allocations. When the principals’ most-preferred equilibrium allocation differs from the maximal equilibrium, we demonstrate that the agent’s choice function exhibits an interval of bunching over the worst agent types, and elsewhere corresponds with the maximal allocation. The optimal region of bunching trades off the principals’ desire to constrain inefficient n-fold marginalizations of the agent’s rent against the inefficiency of pooling agent types. |
| Keywords: | Intrinsic common agency, aggregate games, mechanism design for delegated decision-making, duality, equilibrium selection. |
| JEL: | D82 D86 |
| Date: | 2017–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80870&r=cta |
| By: | Macchiavello, Rocco (London School of Economics); Miquel-Florensa, Josepa (Toulouse School of Economics) |
| Abstract: | This paper compares integrated firms, long-term relationships and markets, and how they adapt to shocks in the Costa Rican coffee chain. The industry is characterised by significant uncertainty. Supply failures responses to unanticipated increases in reference prices reveal that integration and relationships reduce opportunism. Trade volumes responses to weather-induced increases in supply reveal that relationships provide demand assurance, although less than integration does. This benefit of integration is offset by costs when trading outside of the integrated chain. The evidence supports models in which firms boundaries alter temptations to renege on relational contracts and, consequently, the allocation of resources. |
| Keywords: | Vertical Integration, Relational Contracts, Adaptation, Demand Uncertainty, Supply Chain. JEL Classification: D23, L14, L22, O12, Q13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:321&r=cta |
| By: | Garrett, Daniel F. |
| Abstract: | We study the optimal mechanism in a dynamic sales relationship where the buyerís arrival date is uncertain, and where his value changes stochastically over time. The buyerís arrival date is the Örst date at which contracting is feasible and is his private information. To induce immediate participation, the buyer is granted positive expected rents even if his value at arrival is the lowest possible. The buyer is punished for arriving late; i.e., he expects to earn less of the surplus. Optimal allocations for a late arriver are also further distorted below Örst-best levels. Conditions are provided under which allocations converge to the e¢ cient ones long enough after contracting, and this convergence occurs irrespective of the time the contract is initially agreed (put di§erently, the so-called "principle of vanishing distortions" introduced by Battaglini (2005) continues to apply irrespective of the buyerís arrival date). |
| Keywords: | dynamic mechanism design;dynamic arrivals;stochastic process |
| JEL: | D82 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31911&r=cta |
| By: | Berlin, Mitchell (Federal Reserve Bank of Philadelphia); Nini, Gregory P. (LeBow College of Business, Drexel University;); Yu, Edison (Federal Reserve Bank of Philadelphia) |
| Abstract: | Corporate loan contracts frequently concentrate control rights with a subset of lenders. In a large fraction of leveraged loans, which typically include a revolving line of credit and a term loan, the revolving lenders have the exclusive right and ability to monitor and renegotiate the financial covenants in the governing credit agreements. Concentration is more common in loans that include nonbank institutional lenders and in loans originated subsequent to the financial crisis, when recognition of bargaining frictions increased. We conclude that concentrated control rights maintain the benefits of lender monitoring and minimize the costs of renegotiation associated with larger and more diverse lending syndicates. |
| Keywords: | corporate loans; credit agreements; line of credit |
| Date: | 2017–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-22&r=cta |
| By: | Martins, Pedro S. |
| Abstract: | Fixed-term contracts (FTCs) may be an important tool to promote employment, particularly in recessions or when permanent contracts are costly. Therefore, it may be useful to vary some of the legal parameters of FTCs over the business cycle, namely increasing their flexibility during downturns. We evaluate this idea by examining the effects of a 2011 law that increased the maximum duration of FTCs in Portugal, in the midst of a recession. Our analysis is based on regression-discontinuity (and difference-in-differences) methods and linked panel data. We find a considerable take up of this measure, as conversions to permanent contracts drop by 20%. Worker churning is reduced significantly, as mobility of eligible fixed-term workers to other firms drops by 10%. Employment also increases significantly for younger workers. |
| Keywords: | Employment law,worker mobility,segmentation,counterfactual evaluation |
| JEL: | J23 J41 J63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:101&r=cta |