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on Contract Theory and Applications |
| By: | Barnichon, Régis; Zylberberg, Yanos |
| Abstract: | Unemployment insurance (UI) programs traditionally take the form of a single insurance contract offered to job seekers. In this work, we show that offering a menu of contracts can be welfare improving in the presence of adverse selection and moral hazard. When insurance contracts are composed of (i) a UI payment and (ii) a severance payment paid at the onset of unemployment, offering contracts with different ratios of UI benefits to severance payment is optimal under the equivalent of a single-crossing condition: job seekers in higher need of unemployment insurance should be less prone to moral hazard. In that setting, a menu allows the planner to attract job seekers with a high need for insurance in a contract with generous UI benefits, and to attract job seekers most prone to moral hazard in a separate contract with a large severance payment but little unemployment insurance. We propose a simple sufficient statistics approach to test the single-crossing condition in the data. |
| Keywords: | Adverse Selection; moral hazard; Unemployment insurance |
| JEL: | D82 J65 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13959&r=all |
| By: | Robert S. Gibbons; Manuel Grieder; Holger Herz; Christian Zehnder |
| Abstract: | Effective organizations are able not only to coordinate their members on efficient strategies but also to adapt members’ strategies to unforeseen change in an efficient manner. We explore whether part of organizational culture - namely, relational contracts that facilitate both coordi-nation and adaptation - enable organizations to achieve these ends. In a novel experiment, we explore how parties establish such relational contracts, whether they achieve efficient coopera-tion, and how they adapt to exogenous shocks. Specifically, we test the hypothesis that basing a relational contract on general principles rather than specific rules is more successful in achieving efficient adaptation. In our Baseline condition, we observe that pairs who articulate general principles achieve significantly higher performance than those who rely on specific rules. The mechanism underlying this correlation is that pairs with principle-based agreements are more likely to expect their pair to take actions that are consistent with what their relational contract prescribes. To investigate whether there is a causal link between principle-based agreements and performance, we implement a “Nudge” intervention to foster principle-based relational con-tracts. The Nudge succeeds in motivating more pairs to formulate principles and in making pairs significantly more likely to select efficient initial choices. However, the intervention fails to increase performance in the long run. Our results suggest that principle-based relational con-tracts may improve organizational performance, but our results also illustrate the difficulty of building such an organizational culture, which is consistent with the idea that high-performing relational contracts constitute a competitive advantage only if they are difficult to imitate. |
| Keywords: | organization economics, adaptation, relational contracts |
| JEL: | D02 D23 L14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7871&r=all |
| By: | Gani Aldashev; Zaki Wahhaj |
| Abstract: | We study how contractual incompleteness affects marriage contracts, including premarital investments in human capital, age of marriage, and the timing of payments. We formalise different solutions to the contractual problem and document their use across societies and at different points in history. The most common form of marriage arrangement today is one where human capital investments precede the marriage agreement. However, two other forms of contractual arrangements have also been prevalent in the past: (i) transfer of the bride to the groom's family prior to human capital investments (e.g. pre-pubescent marriages); (ii) a forward contract specifies investments to be made in the bride before her transfer to the groom's family (e.g. cradle betrothal). Each alternative suffers from a form of inefficiency (due, respectively, to search costs, agency problems in childrearing, and underinvestment due to the classical hold-up problem). The model generates predictions regarding the contractual form adopted as a function of the prevailing production technology, population density, and credit constraints. We argue that a theory of marriages that allows contractual form to be endogenous provide insights about the impact of development policies that are missed when the contractual form is taken as given. |
| Keywords: | Marriage Markets, Child Marriage, Dowry, Human Capital Investments, Brideprice, Forward Contracts, Incomplete Contracts, Hold-up Problem |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/293782&r=all |
| By: | Macchiavello, Rocco; Miquel-Florensa, Josepa |
| Abstract: | This paper studies the Sustainable Quality Program in Colombia - a quality upgrading program implemented on behalf of a multinational coffee buyer. The Program is a bundle of contractual arrangements involving farmers, intermediaries, exporters and the multinational buyer. We tackle three questions. First, we investigate the impact of the Program on the supply of quality coffee. Eligible farmers upgraded their plantations, expanded land under coffee cultivation, increased quality and received higher farm gate prices. Second, we quantify how the Program gains are shared between farmers and intermediaries along the chain. In regions in which the Program was rolled out surplus along the chain increased by 30%. Eligible farmers kept at least half of the gains and their welfare increased by 20%. Finally, we examine how the Program works conducting counterfactual exercises and comparing the Program price premia along the chain against two prominent non-buyer driven certifications. The Program achieved a better transmission of the export gate price premium for quality to the farm gate and curbed market failures that stifled quality upgrading. Contractual arrangements at the export gate significantly contributed to higher farmers welfare in rural areas. |
| Keywords: | BuyerDriven Supply Chain; Contracts; market structure; Quality upgrading; voluntary standards |
| JEL: | L23 O12 Q12 Q13 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13935&r=all |
| By: | Sara Biancini (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique); David Ettinger (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Baptiste Venet (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine, DIAL - Développement, institutions et analyses de long terme, Institut de Recherche pour le Développement (IRD)) |
| Abstract: | We analyze the relationship between Microfinance Institutions (MFIs) and external funding institutions, with the aim of contributing to the debate on "mission drift" (the tendencyfor MFIs to lend money to wealthier borrower rather than to the very poor). We suggestthat funding institutions build incentives for MFIs to choose the adequate share of poorerborrowers and to exert effort to increase the quality of the funded projects. We show thatasymmetric information on both the effort level and its cost may increase the share of richerborrowers. However the unobservability of the cost of effort has an ambiguous effect. Itpushes efficient MFIs to serve a higher share of poorer borrowers, while less efficient onesdecrease their poor outreach. |
| Keywords: | Microfinance,Funding Institutions,Mission Drift,Contract Theory |
| Date: | 2019–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02304352&r=all |
| By: | Canidio, Andrea; Legros, Patrick |
| Abstract: | Each job can be performed in several ways, which we call tasks An agent's performance at a task is informative about his productivity at different tasks. But tasks are not contractible: choosing tasks is the prerogative of management within firms, and of the agent if he is an entrepreneur. Firms will invest in the discovery of their workers' productivity at different tasks only if they cannot easily move to other firms. Therefore, labor-market frictions determine whether learning an agent's talent occur within firms, or whether an agent may become an entrepreneur to acquire task discretion. |
| Keywords: | entrepreneurial failures; entrepreneurship; labor-market frictions; learning; organizational choice; Task discretion |
| JEL: | D83 J24 J62 J63 L26 M13 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13954&r=all |