nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2018‒10‒08
four papers chosen by
Guillem Roig
University of Melbourne

  1. Regulating Cancellation Rights with Consumer Experimentation By Florian Hoffmann; Roman Inderst; Sergey Turlo
  2. How is research policy across the OECD organised?: Insights from a new policy database By Martin Borowiecki; Caroline Paunov
  3. A Modelling of the Role of Social Networks in Market Mechanism - Social Ties as Screening Tools in Price Discrimination By Karoly Miklos Kiss; Kinga Edocs
  4. Productivity and Firm Boundaries By Wilhelm Kohler; Marcel Smolka

  1. By: Florian Hoffmann; Roman Inderst; Sergey Turlo
    Abstract: Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too little returns or cancellations, as they do not internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers learn longer by imposing a commonly observed statutory minimum cancellation or refund period is socially efficient only when firms appropriate much of the market surplus, while it backfires otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the unregulated outcome firms grant particularly generous rights when competition is neither too low nor too high. The overarching theme of our analysis is that both the individual benefits and the welfare consequences of (consumer) experimentation depend crucially on the consumer's reservation value, which is endogenous in a market environment.
    Keywords: Consumer experimentation, cancellation rights, market equilibrium, externality, regulation, consumer protection
    JEL: D82 D86 L51
    Date: 2018–10
  2. By: Martin Borowiecki; Caroline Paunov
    Abstract: Building on a newly created policy indicator database, this paper provides a first systematic comparison of the governance of public research policy across 35 OECD countries from 2005 to 2017. The database was obtained following a three-year process that involved the development of an ontology of the governance of public research policy as well as data collection and validation by national authorities. The data show diverse institutions and mechanisms of policy action regarding higher education institutions (HEIs) and public research institutes (PRIs) are in place across the 35 OECD countries. The data also shows an increasing use of project funding, performance contracts and performance evaluations for HEIs and PRIs. In many countries, HEIs and PRIs are autonomous regarding their relations with industry, budget allocation but less frequently regarding salaries. Recent reforms have strengthened external stakeholders' participation in their governance. The database is publicly available on the following webpage:
    Keywords: cross-country policy indicators, governance of research policy, higher education institutions (HEIs) and public research institutes (PRIs), Innovation and research policy, OECD countries
    JEL: H11 I23 I28 O38
    Date: 2018–10–05
  3. By: Karoly Miklos Kiss (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and University of Pannonia, Veszprem); Kinga Edocs (University of Pannonia, Veszprem)
    Abstract: One of the most relevant and exciting issues in the latest decades in economics had been the asymmetric information and uncertainty, and their effects on market processes and efficiency. Some studies show that markets where information problems or/and uncertainty arise tend to be “networked”, and some studies propose that use of social networks can mitigate adverse selection and moral hazard problems, but this area is still under-developed. Price discrimination is a representative situation where asymmetric information vigorously appears. The firms rarely have precise information about the types of individual customers (their important features, preferences or willingness-to-pay), but can use incentive tools and screening mechanisms. Use of signaling and screening can reduce the cost of incentive under asymmetric information. We develop a model to show that social embeddedness of buyers and some relevant features of their social network can be used for screening to mitigate the information problem in pricing decisions.
    Keywords: asymmetric information, nonlinear pricing, incentive contracts, social network, social embeddedness
    JEL: D8 L11 Z13
    Date: 2018–09
  4. By: Wilhelm Kohler; Marcel Smolka
    Abstract: This paper develops and applies a test of the property rights theory of the firm in the context of global input sourcing. We use the model by Pol Antràs and Elhanan Helpman, “Global Sourcing," Journal of Political Economy, 112:3 (2004), 552-80, to derive a new prediction regarding how the productivity of a firm affects its choice between vertical integration and outsourcing and how this effect depends on the relative input intensity of the production process. The prediction we derive hinges on less restrictive assumptions than industry-level predictions available in existing literature and survives in more realistic versions of the model featuring multiple suppliers and partial vertical integration. We present robust firm-level evidence from Spain showing that, in line with our prediction, the effect of productivity works more strongly in favor of vertical integration, and against outsourcing, in more headquarter-intensive industries.
    Keywords: global sourcing, incomplete contracts, property rights theory, firm productivity
    JEL: F12 F19 F23 L22 L23
    Date: 2018

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