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on Contract Theory and Applications |
| By: | Harold L. Cole; Dirk Krueger; George J. Mailath; Yena Park |
| Abstract: | We analyze efficient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation, and we treat the contracting conditions of original and deviating coalitions symmetrically. We show that better belief coordination (higher social capital) tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, the payoff of successfully formed coalitions might be declining in the degree of belief coordination and equilibrium allocations might feature resource burning or utility burning. |
| JEL: | E20 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26667&r=all |
| By: | Stadler, Manfred |
| Abstract: | We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers' output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented. |
| Keywords: | worker compensation schemes,piece rates,contests,tournaments,product market competition |
| JEL: | C72 L22 M52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:128&r=all |
| By: | Jeffrey Clemens; Parker Rogers |
| Abstract: | We analyze wartime prosthetic device patents to investigate how procurement policy affects the cost, quality, and quantity of medical innovation. Analyzing whether inventions emphasize cost and/or quality requires generating new data. We do this by first hand-coding the economic traits emphasized in 1,200 patent documents. We then train a machine learning algorithm and apply the trained models to a century's worth of medical and mechanical patents that form our analysis sample. In our analysis of these new data, we find that the relatively stingy, fixed-price contracts of the Civil War era led inventors to focus broadly on reducing costs, while the less cost-conscious procurement contracts of World War I did not. We provide a conceptual framework that highlights the economic forces that drive this key finding. We also find that inventors emphasized dimensions of product quality (e.g., a prosthetic's appearance or comfort) that aligned with differences in buyers' preferences across wars. Finally, we find that the Civil War and World War I procurement shocks led to substantial increases in the quantity of prosthetic device patenting relative to patenting in other medical and mechanical technology classes. We conclude that procurement environments can significantly shape the scientific problems with which inventors engage, including the choice to innovate on quality or cost. |
| JEL: | H57 I1 O31 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26679&r=all |
| By: | Daniel Bird; Alexander Frug |
| Abstract: | Workers rarely perform exactly the same tasks every day. Instead, their daily workload may change randomly over time to comply with the fluctuating needs of the organization where they are employed. In this paper, we show that this typical randomness in workplaces has a striking effect on the structure of long-term employment contracts. In particular, simple intertemporal variability in the worker's tasks is sufficient to generate a rich promotion-based dynamics in which, occasionally, the worker receives a (permanent) wage raise and his future work requirements are reduced. |
| Keywords: | dynamic contracting, random tasks, seniority, promotion |
| JEL: | D86 M51 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1147&r=all |
| By: | Francis Bloch; Shaden Shabayek |
| Abstract: | This paper studies whether a planner who only has information about the network topology can discriminate among agents according to their network position. The planner proposes a simple menu of contracts, one for each location, in order to maximize total welfare, and agents choose among the menu. This mechanism is immune to deviations by single agents, and to deviations by groups of agents of sizes 2, 3 and 4 if side-payments are ruled out. However, if compensations are allowed, groups of agents may have an incentive to jointly deviate from the optimal contract in order to exploit other agents. We identify network topologies for which the optimal contract is group incentive compatible with transfers: undirected networks and regular oriented trees, and network topologies for which the planner must assign uniform quantities: single root and nested neighborhoods directed networks. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2001.03122&r=all |
| By: | Mei Dong (University of Melbourne); Toshiaki Shoji (Seikei University); Yuki Teranishi (Keio University) |
| Abstract: | This paper builds up a model for a rental housing market. With a search and matching friction in a rental housing market, a new house entry is endogenized according to a business cycle. A price negotiation happens only when owner and tenant newly match and make a contract for a rental price. After making a contract, a rental price is fixed until the contract ends. Simulations show that variations of a price and a market tightness change according to a search friction in a housing market, a speed of a housing cycle, a bargaining power between owner and tenant for a price setting. An extensive margin effect brought by a housing entry well contributes to a price variation and this effect significantly changes by parameters. |
| Keywords: | rental housing market; search and matching |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:015&r=all |