nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2020‒12‒14
four papers chosen by
Guillem Roig
University of Melbourne

  1. Mandatory Disclosure of Managerial Contracts in Nonprofit Organizations By Michael Kopel; Marco A. Marini
  2. Vertical Relations, Pass-through, and Market Definition: Evidence from Grocery Retailing By Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
  3. Political budget cycles in European public procurement By Havlik, Annika
  4. Economic Inequality Exacerbated by Economic Rents from Exploitative Contracting By Harashima, Taiji

  1. By: Michael Kopel (Institute of Organization and Economics of Institutions, University of Graz); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: Nonprofit organizations have been recently mandated to disclose the details of their executives' compensation packages. Contract information is now accessible not only to current and prospective donors, but also to rival nonprofit organizations competing for donations in the fundraising market. Our aim is to investigate the impact of publicly available contract information on fundraising competition of nonprofit organizations. We argue that, although such provision makes contract information available to multiple stakeholders and increases the transparency of the nonprofit sector, it also induces nonprofits to use managerial incentive contracts strategically. In particular, we find that the observability of incentive contracts relaxes existing fundraising competition. This is beneficial in terms of nonprofits' outputs, in particular when these organizations are trapped in a situation of excessive fundraising activities. However, we show that publicly available contract information distorts nonprofits' choice of projects, thus potentially inducing socially inefficient project clustering.
    Keywords: NonproÖt Organizations, Mandatory Contract Disclosure, Fundraising Competition, Strategic Incentive Contracts, Project Clustering, Project Specialization.
    JEL: L31 D64 F35 L13
    Date: 2020–11
  2. By: Justus Haucap; Ulrich Heimeshoff; Gordon J. Klein; Dennis Rickert; Christian Wey
    Abstract: We examine how different pass-through rates, from input- to final consumer prices, and different vertical contracts affect upstream market definition. Our theory model predicts that, under reasonable conditions, higher pass-through rates lead to definitions of larger upstream markets. Data from grocery retailing is used to quantify the empirical implications of our theoretical result. We find that resale price maintenance leads to larger upstream market definitions than linear pricing models. The reason is that linear pricing contracts are associated with lower pass-through rates under imperfect competition. We therefore advise competition authorities to carefully model vertical market structures, whenever they expect incomplete pass-through to be important.
    Keywords: market definition, vertical relations, pass-through, structural models
    JEL: L10 L40 L80 C50
    Date: 2020
  3. By: Havlik, Annika
    Abstract: This paper studies whether political budget cycles occur in public procurement in the European Union. Using project- level data from Tenders Electronic Daily (2008-2018), I analyze different steps along the procurement process, namely the publication of the contract notice, the awarding of the contract, and the completion of the project. While there is no evidence of an increased activity in project completions, I find an increase in public procurement contract notices and awards prior to national parliamentary elections. This effect is more pronounced for visible and labor-intensive projects and can be interpreted as a "credible election promise", as the budget for the project is only committed at the time of the award and not spent yet.
    Keywords: public procurement,political budget cycles,elections,European Union
    JEL: D72 D73 H57
    Date: 2020
  4. By: Harashima, Taiji
    Abstract: According to contract theory, exploitative contracting probably exists widely and on a large scale, and it generates economic rents. In this paper, I show that the origin of these economic rents is heterogeneity in fluid intelligences, and heterogeneity in honesty aggravates the situation. Even without asymmetric information and irrationality, and even if economic agents have no malicious intent and are always honest, economic rents from mistakes in business deals are generated. Some households or family lines persistently obtain these economic rents with higher probability than others, and, as a result, extreme economic inequality will be generated. This means that there is a built-in mechanism such that the level of economic inequality in an economy is naturally exacerbated. Hence, a government has to intervene in economic activities to eliminate the negative effects of these economic rents by appropriately redistributing incomes among households.
    Keywords: Contract; Economic rents; Exploitative contracting; Fluid intelligence; Inequality
    JEL: D33 D63 D86 E25 H23
    Date: 2020–11–18

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