nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2018‒12‒03
five papers chosen by
Guillem Roig
University of Melbourne

  1. Conservation auctions, collusion and the endowment effect By Justin Dijk; Erik Ansink
  2. Smart contracts and transaction costs By Massimiliano Vatiero
  3. Organizing Global Supply Chains: Input Cost Shares and Vertical Integration By Giuseppe Berlingieri; Frank Pisch; Claudia Steinwender
  4. The economics of justice as fairness By Abatemarco, Antonio; Stroffolini, Francesca
  5. Pledge-and-Review Bargaining By Bård Harstad

  1. By: Justin Dijk (Vrije Universiteit Amsterdam, PBL); Erik Ansink (Vrije Universiteit Amsterdam)
    Abstract: We contribute to the literature on the optimal design of auction mechanisms for the procurement of nature conservation activities. We use an economic experiment to examine whether the market efficiency of conservation auctions increases or decreases with repetition. Theory predicts that repetition facilitates collusion among sellers in procurement auctions, while behavioral economics suggests that repetition may increase market efficiency because it attenuates the endowment effect - the phenomenon that ownership of a good tends to increase one's valuation of the good. We find that of these two countervailing effects, the latter has the upper hand; average bids decrease monotonically over the consecutive auctions. Since repetition increases market efficiency, conservation contracts can be of shorter duration and procured at a higher frequency than has been suggested before.
    Keywords: Auctions; procurement; endowment effect; collusion; nature conservation
    JEL: C91 D44 H57 Q57
    Date: 2018–11–20
  2. By: Massimiliano Vatiero
    Abstract: Because of the enforcement based on the blockchain technology, smart contracts are supposed to allow contracting parties to conduct transactions more efficiently than traditional contracts. This paper challenges that claim. Because of the need for an efficiency-enhancing adaptation of institutions—a chief problem of transaction cost economics-traditional contracts may incur lower transaction costs than smart contracts.
    Keywords: Blockchain, Smart contracts, Incomplete contracts, Transaction costs, Adaptation
    JEL: D23 D86 L14 L86 O33
    Date: 2018–10–01
  3. By: Giuseppe Berlingieri; Frank Pisch; Claudia Steinwender
    Abstract: We study whether and how the technological importance of an input - measured by its cost share - is related to the decision of whether to "make" or "buy" that input. Using detailed French international trade data and an instrumental variable approach based on self-constructed IO tables, we show that French multinationals vertically integrate those inputs that have high cost shares. A stylized incomplete contracting model with both ex ante and ex post inefficiencies explains why: technologically more important inputs are "made" when transaction cost economics type forces (TCE; favoring integration) overpower property rights type forces (PRT; favouring outsourcing). Additional results related to the contracting environment and headquarters intensity consistent with our theoretical framework show that both TCE and PRT type forces are needed to fully explain the empirical patterns in the data
    Keywords: vertical integration, supply chains, direct requirements, input output relationship, intrafirm trade
    JEL: F10 F14 L16 L23 O14
    Date: 2018–11
  4. By: Abatemarco, Antonio; Stroffolini, Francesca
    Abstract: In this paper, the authors challenge the common interpretation of Rawls' Theory of Justice as Fairness by showing that this theory, as outlined in the restatement (Rawls, Justice as Fairness: a Restatement, 2001), goes well beyond the definition of a distributive value judgment, in such a way as to embrace efficiency issues as well. A simple model is discussed to support our interpretation of the difference principle, by which inequalities are shown to be permitted as far as they stimulate a greater effort in education in the population, and so economic growth. To their knowledge, this is the only possibility for the inequality to be "bought" by both the most-, and above all, the least-advantaged individual as suggested by the difference principle. Finally, by recalling the old tradition of "universal ex-post efficiency", the authors show that a unique optimal social contract does not exist behind the veil of ignorance; more precisely, the sole set of potentially Rawls-optimal social contracts can be identified a priori, and partial justice orderings derived accordingly.
    Keywords: justice,Rawls,inequality,social contract
    JEL: D63 D31 J31
    Date: 2018
  5. By: Bård Harstad
    Abstract: Real-world negotiations differ fundamentally from existing bargaining theory. Inspired by the Paris Agreement on climate change, this paper develops a novel bargaining game in which each party its own contribution (to a public good, for example), before the set of pledges must be accepted. I first show that, if the tolerance for delay is uncertain, each equilibrium pledge coincides with an asymmetric Nash bargaining solution. The weights placed on others. payouts reflect the underlying uncertainty, but they vary from pledge to pledge, so the set of equilibrium pledges is inefficient. This bargaining outcome is embedded in a dynamic contribution game, with endogenous technology, participation, enforcement, and contract terms, to investigate when pledge-and-review bargaining is desirable. The model’s predictions can rationalize the key differences between the climate agreements signed in Kyoto (1997) and Paris (2015) as well as the development from the former to the latter.
    Keywords: dynamic games, bargaining games, Nash program, climate change, Paris Agreement, Kyoto Protocol
    Date: 2018

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