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on Contract Theory and Applications |
| By: | Troya Martinez, Marta; Wren-Lewis, Liam |
| Abstract: | Relational contracts are often studied as being between a principal and agent, such as an employer and an employee. But what happens when the relationship is managed by a supervisor, such as a manager? We develop a theory of supervised relational contracts and show that relational side payments between the supervisor and agent change the equilibrium contract in important ways. First, side payments facilitate the supervisor's commitment, potentially enabling levels of effort the principal could not achieve directly. Second, more valuable relationships may sustain more collusion, and hence produce less effort. We also analyze how the principal should bound the supervisor's discretion, and show that the principal benefits from entrusting a relationship to a supervisor when relational contracts are difficult. |
| Keywords: | Corruption; delegation; Relational Contracts |
| JEL: | D73 D86 L14 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12645&r=cta |
| By: | Berber Kramer (International Food Policy Research Institute (IFPRI)); David Kunst (VU Amsterdam; Tinbergen Institute, The Netherlands) |
| Abstract: | This paper tests whether the choice of when to be paid depends on the income type. A lab-in-the-field experiment in Kenya asked dairy cooperative members to allocate both an irregular windfall and their regular milk payments between two dates. Participants allocated the windfall to the earlier of the two dates, in line with theory, but allocated milk payments to the later date. Survey evidence suggests that allocations of regular dairy income were significantly more patient because farmers earmarked milk payments, but not the irregular windfall, for bulky expenditures. Given that compliance with informal contracts depends on whether the timing of payment aligns with recipient preferences, these findings have implications for contract design in rural value chains. |
| Keywords: | time preferences; mental accounting; fungibility; collective marketing |
| JEL: | D03 Q13 O12 |
| Date: | 2018–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180012&r=cta |
| By: | Herweg, Fabian; Rosato, Antonio |
| Abstract: | We analyze a model of price competition between a transparent retailer and a deceptive one in a market where a fraction of consumers is naive. The transparent retailer is an independent shop managed by its owner. The deceptive retailer belongs to a chain and is operated by a manager. The retailers sell an identical base product, but the deceptive one also offers an add-on. Rational consumers never consider buying the add-on, yet naive ones can be talked into buying it. By offering its store manager a contract that pushes him to never sell the base good without the add-on, the chain can induce an equilibrium in which both retailers obtain more-than-competitive profits. The equilibrium features market segmentation with the deceptive retailer targeting only naive consumers whereas the transparent retailer serves only rational ones. Welfare is not monotone in the fraction of naive consumers in the market. Hence, policy interventions designed to de-bias naive consumers might backfire. |
| Keywords: | Add-On Pricing; Bait and Switch; Consumer Naiveté; Incentive Contracts. |
| JEL: | D03 D18 D21 L13 M52 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12612&r=cta |