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on Contract Theory and Applications |
| By: | Cromwell, Erich (U.S. Equal Employment Opportunity Commission); Goerg, Sebastian J. (Technische Universität München); Leszczynska, Monika (New York University School of Law) |
| Abstract: | We investigate how payoff-irrelevant terms can negatively impact relational contracts. In a lab experiment we compare two economically equivalent contracts – a fixed-term renewable and an open-ended at-will contract. Each contract provides partners with full flexibility regarding the length and termination of their interaction. When only one contract type is available, principals and agents in our experiment manage to form long-term profitable relationships irrespective of the contract type. However, when both contracts are available offering a fixed-term instead of an open-ended contract is perceived as unkind and results in lower effort provided by the agents. We show that this observed difference is not a matter of sorting, but a direct response to the contract type. Our results demonstrate that a relational contract might be affected by payoff-irrelevant terms and their perceived kindness. |
| Keywords: | contract design, relational contracts, reciprocity, trust |
| JEL: | C92 K12 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11712&r=cta |
| By: | Gabuthy, Yannick (University of Lorraine, University of Strasbourg, CNRS, BETA, Nancy, France); Muthoo, Abhinay (Department of Economics, University of Warwick) |
| Abstract: | This paper analyses arbitration as a surrogate for complete contracts. We embed this idea in a simple model of a long-term relationship between a firm and its workforce, in which they can make productive-enhancing, relationship-specific investments, and then negotiate over the division of the resultant surplus. It is shown that the mere presence of the arbitrator (in the background of negotiations) may enhance investment incentives ex-ante by minimising each party's ability to engage in hold-up behaviours ex-post. Furthermore, we highlight notably that the partners should optimally commit to call an arbitrator ensuring a compromise by awarding a reasonable share of the surplus to the worker. Indeed, this type of arbitrator would harmonise the parties' bargaining powers and then weight their investment incentives optimally. |
| JEL: | D74 J52 K41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1173&r=cta |
| By: | Roussy, Caroline; Rider, Aude; Chaib, Karim; Boyet, Marie |
| Abstract: | This article presents an analysis of risk management by French cereal farmers Producers are subject to market and production risks and to environmental restrictions. The paper analyses cereal farmers’ strategies to manage risks through marketing contracts and production decisions. Three main categories of marketing contracts are adopted bearing different risk levels: forward contracts, average price contracts and spot contracts. A hundred wheat producers are surveyed in SouthWest France. The quantitative analysis of their contractual choices shows that risk perceptions and the farmer’s level of education have an influence on contractual choice while crop diversification is negatively correlated with forward contracts. |
| Keywords: | Agricultural and Food Policy, Marketing |
| Date: | 2017–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaae17:261106&r=cta |
| By: | Ilya Prakhov (National Research University Higher School of Economics); Victor Rudakov (National Research University Higher School of Economics) |
| Abstract: | This paper evaluates the design of current contractual incentive mechanisms in Russian universities depending on the type of higher education institution after recent significant contractual reforms in the national academic sector. We employ the theoretical framework of incentive contracts in order to identify and assess performance measures of university faculty determining the total income received from teaching, research and administrative duties. We estimate returns from academic productivity in Russia to be reflected in the academic salary by an evaluation of empirical models of the determinants of faculty pay depending on their productivity, current academic and administrative position, gender and seniority. We show that for the entire sample, faculty salary is positively associated with publication activity. Teaching is significant only for the entire sample, but not significant for subsamples. Administrative duties (expressed in the position held) are positively related to faculty pay: the largest effect is for rectors and vice-rectors, but for deans and heads of departments or laboratories the effect is also strong. Heads of universities and structural units receive a significant bonus for their administrative position. For research-oriented universities the largest effect in publication activity is for the number of papers in high ranking journals. In universities with no research status we discovered a significant gender gap: the male faculty earn more than their female colleagues. There is a positive linear relationship between salary and seniority for the entire sample and in universities with no special status, which corresponds to human capital theory. Salaries in universities requiring higher entrance exam scores are higher than in less selective higher education institutions. The salary in Moscow universities is higher than in the regional higher education institutions. |
| Keywords: | academic contracts, faculty pay, merit pay, incentive contract, international rankings, competitiveness of higher education. |
| JEL: | I21 I23 J31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:47edu2018&r=cta |
| By: | Johannes Boehm; Ezra Oberfield |
| Abstract: | The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale. |
| JEL: | E23 F12 O11 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24937&r=cta |