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on Contract Theory and Applications |
| By: | Benito Arruñada; Giorgio Zanarone; Nuno Garoupa |
| Abstract: | We analyze the “sequential exchange” problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets-specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventio nal wisdom in economics, strong property rights-enforceable against subsequent buyers- may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of “formalization” institutions that the literature has narrowly seen as entry barriers. |
| Keywords: | Property rights, enforcement, contracts, Incomplete Information, impersonal exchange |
| JEL: | D23 D83 K11 K22 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1005&r=cta |
| By: | Maria Paula Gerardino; Stephan Litschig; Dina Pomeranz |
| Abstract: | Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant. |
| JEL: | D73 H57 O38 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23978&r=cta |