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on Contract Theory and Applications |
| By: | Manoj Mohanan (Duke University); Grant Miller (Stanford University & NBER); Katherine Donato (Harvard University); Yulya Truskinovsky (Harvard T.H. Chan School of Public Health); Marcos Vera-Hernández (University College London & IFS) |
| Abstract: | A central issue in designing performance incentive contracts is whether to reward the production of outputs versus use of inputs: the former rewards efficiency and innovation in production, while the latter imposes less risk on agents. Agents with varying levels of skill may perform better under different contractual bases as well—more skilled workers may be better able to innovate, for example. We study these issues empirically through an experiment enabling us to observe and verify outputs (health outcomes) and inputs (guideline adherence) in Indian maternity care. We find that both output and input incentive contracts achieved comparable reductions in post-partum hemorrhage (PPH) rates, the dimension of maternity care most sensitive to provider behavior and the largest cause of maternal mortality. Interestingly, and in line with the theory, providers with advanced qualifications performed better and used new health delivery strategies under output incentives, while providers with and without advanced qualifications performed equally under input incentives. |
| JEL: | D86 J41 O15 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:464&r=cta |
| By: | Michael Geruso; Timothy Layton |
| Abstract: | In this essay, we review the theory and evidence concerning selection in competitive health insurance markets and discuss the common policy tools used to address the problems it creates. We begin by outlining some important but often misunderstood differences between two types of conceptual frameworks related to selection. The first, which we call the fixed contracts approach, takes insurance contract provisions as given and views selection as influencing only insurance prices in equilibrium. The second, the endogenous contracts approach, treats selection as also influencing the design of the contract itself, including the overall level of coverage and coverage for services that are differentially demanded by sicker consumers. After outlining the selection problems, we discuss four commonly employed policy instruments that affect the extent and impact of selection: 1) premium rating regulation, including community rating; 2) consumer subsidies or penalties to influence the take-up of insurance; 3) risk adjustment; and 4) contract regulation. We discuss these policies with reference to two markets that seem especially likely to be targets of reform in the short and medium term: Medicare Advantage and the individual insurance markets reformed by the Affordable Care Act of 2010. |
| JEL: | H22 H4 I1 I13 I18 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23876&r=cta |
| By: | Fleckinger, Pierre; Mimra, Wanda; Zago, Angelo |
| Abstract: | We build a model of collective reputation under moral hazard to analyze incentives under collective reputation. Producers can produce high quality, but it is only imperfectly detected. Products not detected as of high quality are pooled by to the collective reputation structure. Collective reputation can yield higher quality and welfare than individual reputation. While groups unravel in absence of transfers even when efficient, simple collective reputation contracts implement the First Best. |
| JEL: | D82 D71 L15 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc17:168283&r=cta |
| By: | Gemmo, Irina; Browne, Mark J.; Gründl, Helmut |
| Abstract: | Telemonitoring devices can be used to screen consumers' characteristics and mitigate information asymmetries that lead to adverse selection in insurance markets. However, some consumers value their privacy and dislike sharing private information with insurers. In the second-best efficient Wilson-Miyazaki-Spence framework, we allow for consumers to reveal their risk type for an individual subjective cost and show analytically how this affects insurance market equilibria as well as utilitarian social welfare. Our analysis shows that the choice of information disclosure with respect to revelation of their risk type can substitute deductibles for consumers whose transparency aversion is sufficiently low. This can lead to a Pareto improvement of social welfare and a Pareto efficient market allocation. However, if all consumers are offered cross-subsidizing contracts, the introduction of a transparency contract decreases or even eliminates cross-subsidies. Given the prior existence of a WMS equilibrium, utility is shifted from individuals who do not reveal their private information to those who choose to reveal. Our analysis provides a theoretical foundation for the discussion on consumer protection in the context of digitalization. It shows that new technologies bring new ways to challenge crosssubsidization in insurance markets and stresses the negative externalities that digitalization has on consumers who are not willing to take part in this development. |
| Keywords: | Adverse Selection,Digitalization,Privacy,Screening,Transparency Aversion |
| JEL: | D41 D52 D60 D82 G22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:icirwp:2517&r=cta |
| By: | Guillem Roig |
| Abstract: | In many markets, firms produce and sell complementary components that form a product system. This paper studies the effects of compatibility in product advertisement and entry decisions in a differentiated product market. While advertising enhances the ability of consumers to mix and match components closer to their preferences, more advertising does not always generate larger welfare. In my model, an incumbent uses advertising to increase the prospects of market competition with the objective to deter potential entry. However, under some parameters, entry deterrence does not occur when products are made compatible. With compatible products, the incumbent either obtains large benefits from accommodation or equilibria when all consumers are aware of the existence of the available products emerge. In this latter case, the amount of advertising cannot be further expanded to protect the incumbent’s monopolistic position. As a result, policies in favor of compatibility may encourage entry and generate larger levels of advertisement. |
| Keywords: | Product compatibility; Informative advertising; Entry deterrence; Market structure |
| JEL: | D21 D43 L13 L15 |
| Date: | 2017–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:015774&r=cta |
| By: | Eppinger, Peter S.; Kukharskyy, Bohdan |
| Abstract: | Contractual frictions are widely known to shape firm boundaries. But do better contracting institutions, which reduce these frictions, induce firms to be more or less deeply integrated? This paper provides a large-scale investigation of this question using a unique micro dataset of ownership shares across half a million firm pairs worldwide. We uncover strong evidence that better contracting institutions in subsidiaries' countries favor deeper integration, particularly in relationship-specific industries. We formally show that these findings can be explained by a generalized Property-Rights Theory of the firm featuring partial ownership, while they are at odds with the canonical Transaction-Cost Theory. |
| Keywords: | firm boundaries,contracting institutions,multinational firms,property-rights theory,firmlevel analysis |
| JEL: | F21 F23 D02 D23 L14 L23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:100&r=cta |