nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2020‒09‒14
three papers chosen by
Guillem Roig
University of Melbourne

  1. Labor Market Screening and Social Insurance Program Design for the Disabled By Naoki Aizawa; Soojin Kim; Serena Rhee
  2. Efficiently Imprecise Contracts By Toru Suzuki
  3. Network goods, price discrimination, and two-sided platforms By BELLEFLAMME, Paul,; PEITZ, Martin,

  1. By: Naoki Aizawa; Soojin Kim; Serena Rhee
    Abstract: This paper studies the optimal design of social insurance programs for disabled workers by developing and estimating an equilibrium labor search model with screening contracts. In the model, firms may strategically use employment contracts, consisting of wage and job amenities, to screen out the disabled. The optimal structure of disability policies depends on firms' screening incentives, which may distort employment rates and contracts. By exploiting policy changes on the labor demand side for the disabled in the United States, we identify and estimate our equilibrium model to explore the optimal joint design of disability policies, including disability insurance (DI) and subsidies to firms accommodating disabled workers. We find that firm subsidies mitigate screening distortions; at the same time, they interact with DI by reducing the labor supply disincentives it generates. The optimal policy structure leads to a considerable welfare gain by simultaneously making firm subsidies and DI benefits more generous.
    JEL: E61 H21 H51 I18 J32
    Date: 2020–07
  2. By: Toru Suzuki (University of Technology Sydney)
    Abstract: Actual contracts are often written in an imprecise manner. This paper introduces a formal writing cost framework in which the language of a contract, i.e., natural language, is explicitly modeled with predicate logic. It is shown that even if any obligation is contractible and describable by the language, the equilibrium contract can exhibit two kinds of impreciseness: (i) descriptive impreciseness, i.e., a contract leaves some relevant detail of the duty unmentioned, and (ii) semantic impreciseness, i.e., a contract uses some imprecise words leaving room for interpretation. Contractual impreciseness can persist even under a vanishingly small writing cost. Some novel comparative statics and other economic applications are provided.
    Keywords: A foundation of incomplete contract; contractual impreciseness; writing cost; predicate logic
    Date: 2020–09–02
  3. By: BELLEFLAMME, Paul, (CORE, Université catholique de Louvain); PEITZ, Martin, (Universität Mannheim)
    Abstract: A monopolist sells a network good to a set of heterogeneous users who all care about total participation. We show that the provider of the network good effectively becomes a two-sided platform if it can condition prices on some user characteristics. This still holds true if the network operator cannot obsoerve consumer characteristics but induces user self-selection when it offers screening contracts. In our setting, all incentive constraints are slack The use of freemium strategies emerges as a special case of versioning. Here, a base version is offered at zero price and a premium version at a positive price. Overall, the paper illustrates the close link between price discrimination in the presence of a network good and pricing by a two-sided platform.
    Keywords: network goods, two-sided markets, platform pricing, group pricing, menu pricing
    JEL: D62 L12 L82 L86
    Date: 2020–07–01

This nep-cta issue is ©2020 by Guillem Roig. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.