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on Contract Theory and Applications |
| By: | Ganuza Fernandez, Juan Jose; Llobet, Gerard |
| Abstract: | This paper shows that the concession model discourages firms from acquiring information about the future profitability of a project. Uniformed contractors carry out good and bad projects because they are profitable in expected terms even though it would have been optimal to invest in screening them out according to their value. White elephants are identified as avoidable negative net present-value projects that are nevertheless undertaken. Institutional arrangements that limit the losses that firms can bear exacerbate this distortion. We characterize the optimal concession contract, which fosters the acquisition of information and achieves the first best by conditioning the duration of the concession to the realization of the demand and includes payments for not carrying out some projects. |
| Keywords: | Concession contracts; flexible-term concessions; Information Acquisition |
| JEL: | D82 D86 H21 L51 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12557&r=cta |
| By: | Luca Livio |
| Abstract: | Widely used performance-based contracts put (positive or negative) externalities on co-workers. These externalities have been proven to shape an organization’s working climate especially when workers exhibit social preferences. However, it is a priori unclear whether a more friendly or a more competitive working environment should be encouraged. In this paper I consider a theoretical model in which a self-interested principal has to motivate a set of agents. Agents are symmetric, potentially risk-averse and exhibit reciprocity concerns towards each other. The optimal incentive scheme is derived solving a psychological game with asymmetric information about effort choices. I show that the optimal incentive design depends on the interplay between the agents’ attitudes towards risks and their preferences for reciprocity. In particular, the optimal scheme implements (i) a relative performance compensation scheme which induces an exchange of unkindness if agents are relatively little risk averse and (ii) a joint performance compensation scheme which induces an exchange of kindness if agents are sufficiently risk averse. My findings can explain some puzzling empirical results. |
| Keywords: | Gift Exchange, Group Production, Incentives, Moral Hazard, Reciprocity, Team, Tournament |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/265328&r=cta |
| By: | Francesco Decarolis; Leonardo M. Giuffrida; Elisabetta Iossa; Vincenzo Mollisi; Giancarlo Spagnolo |
| Abstract: | To what extent does a more competent public workforce contribute to better economic outcomes? We analyze this question in the context of the US federal procurement by combining data on office-level competencies, federal workforce characteristics, and procurement performance. Using an instrumental variable strategy, we find that the effects of competence heterogeneity across bureaus are quantitatively important: if all federal bureaus were to obtain NASA's high level of competence (corresponding to the top 10 percent of competence), delays in contract execution would decline by 7.2 million days and price renegotiations would drop by $13.5 billion over the 2010-2015 period analyzed. Cooperation within the office appears to be a key driver of the findings. |
| JEL: | H11 H57 J45 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24201&r=cta |
| By: | Dimakopoulos, Philipp D. (Humboldt University Berlin); Heller, C.-Philipp (Humboldt University Berlin) |
| Abstract: | We study the allocation of German lawyers to regional courts for legal trainee-ships. Because of excess demand in some regions lawyers often have to wait before being allocated. The currently used \"Berlin\" mechanism is not weakly Pareto efficient, does not eliminate justified envy and does not respect improvements. We introduce a mechanism based on the matching with contracts literature, using waiting time as the contractual term. The resulting mechanism is strategy-proof, weakly Pareto efficient, eliminates justified envy and respects improvements. We extend our proposed mechanism to allow for a more flexible allocation of positions over time. |
| Keywords: | many-to-one matching; matching with contracts; stability; slot-specific choice functions; waiting time; legal education; |
| JEL: | D82 C78 H75 I28 |
| Date: | 2018–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:68&r=cta |
| By: | Hackbarth, Dirk; Rivera, Alejandro; Wong, Tak-Yuen |
| Abstract: | This paper studies incentives in a dynamic contracting framework of a levered firm. In particular, the manager selects long-term and short-term efforts, while shareholders choose initially optimal leverage and ex-post optimal default policies. There are three results. First, shareholders trade off the benefits of short-termism (current cash flows) against the benefits of higher growth from long-term effort (future cash flows), but because shareholders only split the latter with bondholders, they find short-termism ex-post optimal. Second, bright (grim) growth prospects imply lower (higher) optimal levels of short-termism. Third, the endogenous default threshold rises with the substitutability of tasks and, for a positive correlation of shocks, the endogenous default threshold is hump-shaped in the volatility of permanent shocks, but increases monotonically with the volatility of transitory shocks. Finally, we quantify agency costs of short-term and long-term effort, cost of short-termism, effects of investor time horizons, credit spreads, and risk-shifting. |
| Keywords: | Capital Structure; Contracting; Multi-tasking |
| JEL: | D86 G13 G32 G33 J33 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12588&r=cta |