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on Contract Theory and Applications |
| By: | Hoppe, Eva I.; Schmitz, Patrick W. |
| Abstract: | In a laboratory experiment with 754 participants, we study the canonical one-shot moral hazard problem, comparing treatments with unobservable effort to benchmark treatments with verifiable effort. In our experiment, the players endogenously negotiate contracts. In line with contract theory, the contractibility of the outcome plays a crucial role when effort is a hidden action. If the outcome is contractible, most players overcome the hidden action problem by agreeing on incentive-compatible contracts. Communication is helpful, since it may reduce strategic uncertainty. If the outcome is non-contractible, in most cases low effort is chosen whenever effort is a hidden action. However, communication leads the players to agree on larger wages and substantially mitigates the underprovision of effort. |
| Keywords: | Moral hazard; Hidden action; Contract theory; Incentive theory; Laboratory experiments |
| JEL: | D82 D86 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95618&r=all |
| By: | Fehmina Malik; Manjesh K. ~Hanawal; Yezekael Hayel; Jayakrishnan Nair |
| Abstract: | Revenue sharing contracts between Content Providers (CPs) and Internet Service Providers (ISPs) can act as leverage for enhancing the infrastructure of the Internet. ISPs can be incentivized to make investments in network infrastructure that improve Quality of Service (QoS) for users if attractive contracts are negotiated between them and CPs. The idea here is that part of the net profit gained by CPs are given to ISPs to invest in the network. The Moral Hazard economic framework is used to model such an interaction, in which a principal determines a contract, and an agent reacts by adapting her effort. In our setting, several competitive CPs interact through one common ISP. Two cases are studied: (i) the ISP differentiates between the CPs and makes a (potentially) different investment to improve the QoS of each CP, and (ii) the ISP does not differentiate between CPs and makes a common investment for both. The last scenario can be viewed as \emph{network neutral behavior} on the part of the ISP. We analyse the optimal contracts and show that the CP that can better monetize its demand always prefers the non-neutral regime. Interestingly, ISP revenue, as well as social utility, are also found to be higher under the non-neutral regime. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.09580&r=all |
| By: | Fay, Marianne; Martimort, David; Straub, Stephane |
| Abstract: | We characterize the structure of financial and regulatory infrastructure contracts and derive conditions under which public and private finance coexist. This requires a combination of regulated prices and public subsidies sufficiently attractive for outside financier pointing at a fundamental trade-off between financial viability and social inclusion. While improvements in the efficiency of bankruptcy procedures facilitate access to private finance, institutional changes lowering the cost of public funds make public finance more attractive. Project data from the PPI database provides support for our findings and reveals an inverse U-shaped pattern, with private finance peaking for countries in the upper-middle income range. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13844&r=all |
| By: | Daniel Lehmann |
| Abstract: | Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be aggregated into a single choice function expressing a collective preference. In this framework, a two-sided matching problem may be described as an agreement problem between two parties: the two parties must find a stable agreement, i.e., a set of contracts from which no party will want to take away any contract and to which the two parties cannot agree to add any contract. On such stable agreements each party's preference relation is a partial order and the two parties have inverse preferences. An algorithm is presented that generalizes algorithms previously proposed in less general situations. This algorithm provides a stable agreement that is preferred to all stable agreements by one of the parties and therefore less preferred than all stable agreements by the other party. The number of steps of the algorithm is linear in the size of the set of contracts, i.e., polynomial in the size of the problem. The algorithm provides a proof that stable agreements form a lattice under the two inverse preference relations. Under additional assumptions on the role of money in preferences, agreement problems can describe general two-sided markets in which goods are exchanged for money. Stable agreements provide a solution concept, including prices, that is more general than competitive equilibria. They satisfy an almost one price law for identical items. The assignment game can be described in this framework and core elements of an assignment game are the stable agreements. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.08823&r=all |
| By: | Albrecht, James; Cai, Xiaoming; Gautier, Pieter A.; Vroman, Susan |
| Abstract: | We consider a labor market with search frictions in which workers make multiple applications and firms can post and commit to general mechanisms that may be conditioned both on the number of applications received and on the number of offers received by its candidate. When the contract space includes application fees, there exists a continuum of equilibria of which only one is socially efficient. In the inefficient equilibria, firms have market power that arises from the fact that the value of a worker's application portfolio depends on what other firms offer, which allows individual firms to free ride and offer workers less than their marginal contribution. Finally, by allowing for general mechanisms, we are able to examine the sources of inefficiency in the multiple applications literature. |
| Keywords: | competing mechanisms; directed search; efficiency; market power; multiple applications |
| JEL: | C78 D44 D83 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13912&r=all |