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on Contract Theory and Applications |
| By: | Georgiadis, George; Szentes, Balázs |
| Abstract: | This paper considers a Principal–Agent model with hidden action in which the Principal can monitor the Agent by acquiring independent signals conditional on effort at a constant marginal cost. The Principal aims to implement a target effort level at minimal cost. The main result of the paper is that the optimal information-acquisition strategy is a two-threshold policy and, consequently, the equilibrium contract specifies two possible wages for the Agent. This result provides a rationale for the frequently observed single-bonus wage contracts. |
| JEL: | J1 |
| Date: | 2020–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:104062&r=all |
| By: | Delia Coculescu; Freddy Delbaen |
| Abstract: | We use the theory of cooperative games for the design of fair insurance contracts. An insurance contract needs to specify the premium to be paid and a possible participation in the benefit (or surplus) of the company. It results from the analysis that when a contract is exposed to the default risk of the insurance company, ex-ante equilibrium considerations require a certain participation in the benefit of the company to be specified in the contracts. The fair benefit participation of agents appears as an outcome of a game involving the residual risks induced by the default possibility and using fuzzy coalitions. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2009.04408&r=all |
| By: | Robert Akerlof; Anik Ashraf; Rocco Macchiavello; Atonu Rabbani |
| Abstract: | Conflicts between management and workers are common and can have significant impacts on productivity. We study how workers in a large Bangladeshi sweater factory responded to management’s decision to lay off about a quarter of the workers following a period of labor unrest. Our main finding is that the mass layoff resulted in a large and persistent reduction in the productivity of surviving workers. Moreover, it is specifically the firing of peers with whom workers had social connections – friends - that matters. We also provide suggestive evidence of deliberate shading of performance by workers in order to punish the factory’s management, and a corresponding deliberate attempt by the factory to win the angry workers back by selectively giving them tasks that are more rewarding. By combining ethnographic and survey data on the socialization process with the factory’s internal records, the paper provides a rare glimpse into the aftermath of an episode of labor unrest. A portrait of the firm emerges as a web of interconnected relational agreements supported by social connections. |
| Keywords: | layoffs, productivity, morale, relational contracts |
| JEL: | J50 M50 O12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8492&r=all |
| By: | Can Kizilkale; Rakesh Vohra |
| Abstract: | Trades based on bilateral (indivisible) contracts can be represented by a network. Vertices correspond to agents while arcs represent the non-price elements of a bilateral contract. Given prices for each arc, agents choose the incident arcs that maximize their utility. We enlarge the model to allow for polymatroidal constraints on the set of contracts that may be traded which can be interpreted as modeling limited one for-one substitution. We show that for two-sided markets there exists a competitive equilibrium however for multi-sided markets this may not be possible. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2008.09757&r=all |