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on Contract Theory and Applications |
| By: | Contreras Oscar F.; Giorgio Zanarone |
| Abstract: | This paper studies how organizations manage the social comparisons that arise when their employees' pay and tasks, and hence their status vis-à-vis peers, differ. We show that under a "pay transparency policy", the organization may compress pay and distort the employees' tasks to minimize social comparison costs. We subsequently show that if the organization can credibly commit to informal agreements, it may remove social comparisons by implementing a "pay secrecy" policy. Under such a policy, the organization makes employees "officially equal" by granting them similar formal terms, while optimally differentiating their pay through self-enforcing informal adjustments. |
| Keywords: | Social Comparisons;Organization Design;Informal Contracts;Formal Contracts |
| JEL: | D03 D23 M52 M54 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2018-25&r=all |
| By: | Joaquín Gómez Miñambres (Lafayette College); Mark Schneider (University of Alabama) |
| Abstract: | Employment contracts often have a three-tiered structure, offering a base salary, a bonus for high performance and a penalty for poor performance. None of the standard models in contract theory generate such a contract. We show that such coarse contracts are optimal in a model where the agent exhibits two of the most robust deviations from expected utility theory: skewness preference and ambiguity aversion. The analysis identifies conditions where the optimal contract is simple and both carrots and sticks are optimal. Our analysis has implications for performance evaluation, corporate compensation structure, prize-linked savings accounts, and the determinants of intrinsic motivation. |
| Keywords: | Contract theory; Skewness Preference; Ambiguity Aversion; Simple Contracts |
| JEL: | D9 D86 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-02&r=all |
| By: | Hiroaki Ino (School of Economics, Kwansei Gakuin University); Norimichi Matsueda (School of Economics, Kwansei Gakuin University); Jun'ichi Miki (Faculty of Humanities and Social Sciences, Tohoku University of Community Service and Science) |
| Abstract: | It is reported previously that, in contracting out waste collection services to pri- vate enterprises, there is generally an inverse relationship between the contracting- out rate and the contract price, but this inverse relationship levels out as the degree of contracting-out increases and the contract price even goes up eventually as the contracting rate approaches 100%. In this paper, we construct a simple bargain- ing model between municipal governments and private rms and identify how the bargaining equilibrium differs from an outcome where municipal governments can make take-it-or-leave-it offers to private enterprises. Through a simple simulation analysis, in addition, we demonstrate that hold-up concerns of local governments can indeed lead to a U-shaped relationship between the contracting-out rate and the contract price across different municipalities. |
| Keywords: | bargaining, contracting-out, contract price, hold-up, waste collection |
| JEL: | H42 L33 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:186&r=all |
| By: | Anton Kolotilin (School of Economics, UNSW Business School); Hongyi (School of Economics, UNSW Business School) |
| Abstract: | We study a communication game between an informed sender and an uninformed receiver with repeated interactions and voluntary transfers. Transfers motivate the receiver's decision-making and signal the sender's information. Although full separation can always be supported in equilibrium, partial or complete pooling is optimal if the receiver's decision-making is highly responsive to information. In this case, the receiver's decision-making is disciplined by pooling extreme states, where she is most tempted to defect. In characterizing optimal equilibria, we establish new results on monotone persuasion. |
| Keywords: | strategic communication, monotone persuasion, relational contracts |
| JEL: | C73 D82 D83 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2018-12a&r=all |