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on Contract Theory and Applications |
| By: | Schmitz, Patrick W. |
| Abstract: | In the Grossman-Hart-Moore property rights theory, there are no frictions ex post (i.e., after non-contractible investments have been sunk). In contrast, in transaction cost economics ex-post frictions play a central role. In this note, we bring the property rights theory closer to transaction cost economics by allowing for ex-post moral hazard. As a consequence, central conclusions of the Grossman-Hart-Moore theory may be overturned. In particular, even though only party A has to make an investment decision, B-ownership can yield higher investment incentives. Moreover, ownership matters even when investments are fully relationship-specific (i.e., when they have no impact on the parties' disagreement payoffs). |
| Keywords: | incomplete contracts; ownership rights; investment incentives; relationship specificity; moral hazard |
| JEL: | D23 D86 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97912&r=all |
| By: | Charles Murry (Department of Economics, Boston College); Peter Newberry (Penn State University) |
| Abstract: | Many U.S. states restrict the ability of franchisors to terminate or restructure franchise contracts through regulation. We empirically examine the effect of these regulations on the franchising decisions of firms at the local level. Using data from the quick-service restaurant industry, we find that franchise regulations are associated with 12% fewer franchises in the average zip-code. We find evidence that the impact of the regulation varies based on the local characteristics of a zip-code and can be as high as 16%. |
| Keywords: | Franchising, Entry, Regulatory Capture, Retailing |
| JEL: | L22 L26 K20 |
| Date: | 2020–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:991&r=all |
| By: | Matsue, Toyoki |
| Abstract: | Fluctuations in employment are one of the central issues in the labor market literature and have been investigated in a number of empirical and theoretical studies. This study presents a dynamic framework that can analyze the economy in which long-term and short-term contracts coexist. The particular differences between long-term and short-term contracts are stickiness of employment adjustments and explicit employment duration. The simulation results show that the large short-term employment ratio and the high quit rate lead to the high variations in employment. Moreover, they indicate that the large adjustment cost and the long employment duration bring about decreased employment fluctuations. |
| Keywords: | employment dynamics; dynamic labor demand; labor market institutions; adjustment cost; employment duration |
| JEL: | D90 E24 J23 J32 J41 |
| Date: | 2019–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97545&r=all |
| By: | Lamar Pierce; Alex Rees-Jones; Charlotte Blank |
| Abstract: | Behavioral economists have proposed that loss-averse employees increase productivity when bonuses are "loss framed"—prepaid then clawed back if targets are unmet. We theoretically document that loss framing raises incentives for costly risk mitigation and for inefficient multitasking, potentially leading to large negative performance effects. We empirically document evidence of these concerns in a nationwide field experiment among 294 car dealers. Dealers randomized into loss-framed (but financially identical) contracts sold 5% fewer vehicles than control dealers, generating a revenue loss of $45 million over 4 months. We discuss implications regarding the use of behavioral economics to motivate both employees and firms. |
| JEL: | D03 D81 J22 J31 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26619&r=all |
| By: | William Morrison; Bradley J. Ruffle |
| Abstract: | We design a series of laboratory experiments to investigate the effects of purchasing insurance and of pre-filled claim forms on dishonesty in loss reporting. In our experiment, participants report the outcome of privately rolling two dice where the numbers rolled map to a payoff distribution with the possibility of losses in earned income. Prior to this reporting task, participants bid for a limited number of insurance contracts which issue an indemnity payment equal to each insured individual’s reported loss. We find that dishonest reporting is significantly more prevalent among insured individuals relative to the uninsured, consistent with an ‘entitlement bias’. Further we find that prefilling the reporting form with the most probable outcome only modestly constrains dishonest reporting among both insured and uninsured individuals. We explore reasons why pre-filled forms should be applied with caution. |
| Keywords: | experimental economics; pre-filled forms; pre-populated fields; insurance; dishonesty; claim build-up |
| JEL: | C91 D82 G22 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2020-01&r=all |