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on Contract Theory and Applications |
| By: | Matthias Hunold; Johannes Muthers |
| Abstract: | We provide a theory of how RPM facilitate upstream cartels absent any information asymmetries using a model with manufacturer and retailer competition. Because retailers have an effective outside option to each manufacturer’s contract, the manufacturers can only ensure contract acceptance by leaving a sufficient margin to the retailers. This restricts the wholesale price level even when manufacturers collude. In this context, resale price maintenance may only be profitable for the manufacturers if they collude. We thus provide a novel theory of harm for resale price maintenance when manufacturers collude and illustrate the fit of this theory in various competition policy cases. |
| Keywords: | resale price maintenance, collusion, retailing. |
| JEL: | L41 L42 L81 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2020-06&r=all |
| By: | Kevin Lang (Boston University); Kaiwen Leong (Nanyang Technological University); Huailu Li (Shanghai Institute of International Finance and Economics); Haibo Xu (Tongji University) |
| Abstract: | We study roughly 11,000 loans from unlicensed moneylenders to over 1,000 borrowers in Singapore and provide basic information about this understudied market. Borrowers frequently expect to repay late. While lenders do rely on additional punishments to enforce loans, the primary cost of not repaying on time is compounding of a very high interest rate. We develop a very simple model of the relational contract between loan sharks and borrowers and use it to predict the effect of a crackdown on illegal moneylending. Consistent with our model, the crackdown raised the interest rate and lowered the size of loans. |
| Keywords: | Illegal Lending, Enforcement, Relational Contract |
| JEL: | K42 L14 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-338&r=all |
| By: | Doligalski, Pawel; Werquin, Nicolas; Ndiaye, Abdoulaye |
| Abstract: | Half of the jobs in the U.S. feature pay-for-performance. We study nonlinear income taxation in a model where such contracts arise in private labor markets that are constrained by moral hazard frictions. We derive novel formulas for the incidence of arbitrarily nonlinear reforms of any given tax code on both the mean of earnings and their sensitivity to performance. We show theoretically and quantitatively that, follow- ing an increase in tax progressivity, the higher performance-sensitivity caused by the crowding-out of insurance provided by firms is almost fully offset by a countervailing performance-pay effect driven by labor supply responses. As a result, earnings risk is hardly affected by policy. We then turn to the normative analysis of a government that levies taxes and transfers to redistribute income across workers with different levels of uninsurable productivity. We find that setting taxes without accounting for the endogeneity of private insurance is close to optimal. Thus, the common concern that standard models of taxation underestimate the cost of redistribution is, in the context of performance-based compensation, overblown. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124213&r=all |