nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2018‒04‒16
four papers chosen by
Guillem Roig
University of Melbourne

  1. Competing for Talent By Yuhta Ishii; Aniko Ory; Adrien Vigier
  2. Overburdened judges By Ludivine Roussey; Raphaël Soubeyran
  3. The public service mutual: theories of motivational advantage By Le Grand, Julian; Roberts, Jonathan
  4. Do farmers follow the herd? The influence of social norms in the participation to agri-environmental schemes By Philippe Le Coent; Raphaële Preget; Sophie Thoyer

  1. By: Yuhta Ishii (Centro de Investigaci´on Econ´omica, Mexico); Aniko Ory (Cowles Foundation, Yale University); Adrien Vigier (BI Norwegian Business School)
    Abstract: In many labor markets, e.g., for lawyers, consultants, MBA students, and professional sport players, workers get offered and sign long-term contracts even though waiting could reveal significant information about their capabilities. This phenomenon is called unraveling. We examine the link between wage bargaining and unraveling. Two firms, an incumbent and an entrant, compete to hire a worker of unknown talent. Informational frictions prevent the incumbent from always observing the entrant’s arrival, inducing unraveling in all equilibria. We analyze the extent of unraveling, surplus shares, the average talent of employed workers, and the distribution of wages within and across firms.
    Keywords: Unraveling, Talent, Wage Bargaining, Competition, Uncertainty
    JEL: C7 D8 J3
    Date: 2018–02
  2. By: Ludivine Roussey; Raphaël Soubeyran
    Abstract: We develop a double-sided moral hazard model in which the production of justice depends on two tasks (jurisdictional and administrative). The jurisdictional task can be provided only by a judge (the agent) while the administrative task can be provided either by the government (the principal) and/or by the judge. However, the judge performs the administrative task at a higher unit cost. First, we show that the rst-best situation is such that the judge exerts no effort to provide the administrative task. Second, we show that two forms of (second-best) optimal contract can emerge when neither the government's effort nor the judge's effort is contractible: either the incentives are shared between the government and the judge and the judge exerts no effort to provide the administrative task, or the judge faces high-powered incentives which induce her to exert effort to provide both tasks. Our model proposes a rationale for judges work overload observed in many countries.
    Date: 2018–02
  3. By: Le Grand, Julian; Roberts, Jonathan
    Abstract: Public service mutuals are a form of employee-led organization in which service workers spin out of the public sector to form “mutuals” that contract back with government to provide a service. This article draws on economic and psychological theory to demonstrate that mutuals can align both self-interested and altruistic or public service motivations so as to serve the social good; moreover, by offering greater autonomy to public service professionals, mutuals are predicted to encourage energetic and persistent behaviors. In both cases, there is an advantage over alternative forms of organization such as the public sector bureaucracy, the shareholder-owned private firm, or the nonprofit organization. The employee-led mutual form, however, may not appeal to risk-averse workers, its collective decision-making systems may be inefficient, and external mechanisms may be required to ensure that organizational outcomes are always directed toward the social good.
    JEL: R14 J01
    Date: 2018–01–12
  4. By: Philippe Le Coent; Raphaële Preget; Sophie Thoyer
    Abstract: This article analyses the role played by social norms in farmers’ decisions to enroll into an agri-environmental scheme (AES). First, it develops a simple theoretical model highlighting the interplay of descriptive and injunctive norms in farmers’ utility functions. Second, an empirical valuation of the effect of social norms is provided based on the results of a stated preference survey conducted with 98 wine-growers in the South of France. Proxies are proposed to capture and measure the weight of social norms in farmers’ decision to sign an agri-environmental contract. Our empirical results indicate that the injunctive norm seems to play a stronger role than the descriptive norm.
    Date: 2018–01

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