|
on Contract Theory and Applications |
| By: | Harold L. Cole (Department of Economics, University of Pennsylvania, and NBER); Dirk Krueger (Department of Economics, University of Pennsylvania, CEPR and NBER); George J. Mailath (Department of Economics, University of Pennsylvania, and RSE, Australian National University); Yena Park (Seoul National University) |
| 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 which we term \social capital". We treat the contracting conditions of original and deviating coalitions symmetrically and show that higher social capital tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, although social capital facilitates the initial formation of coalitions, the extent of risk sharing in successfully formed coalitions is declining in the extent of social capital and equilibrium allocations might feature resource burning or utility burning: social capital is indeed a double-edged sword. |
| Keywords: | Financial Coalition, Limited Enforcement, Risk Sharing, Coalition-Proof Equilibrium |
| JEL: | E21 G22 D11 D91 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:064&r=all |
| By: | Jean Beuve; Marian W. Moszoro; Pablo T. Spiller |
| Abstract: | We present a model of public procurement in which both contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to-private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments. |
| JEL: | D23 D72 D73 D78 H57 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28491&r=all |
| By: | Claudius Gros; Daniel Gros |
| Abstract: | Delays in the availability of vaccines are costly as the pandemic continues. However, in the presence of adjustment costs firms have an incentive to increase production capacity only gradually. The existing contracts specify only a fixed quantity to be supplied over a certain period and thus provide no incentive for an accelerated buildup in capacity. A high price does not change this. The optimal contract would specify a decreasing price schedule over time which can replicate the social optimum. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2102.09807&r=all |
| By: | Jean-Henry Ferrasse (Aix-Marseille Univ, CNRS, M2P2, Marseille, France); Nandeeta Neerunjun (Aix-Marseille Univ, CNRS, AMSE and M2P2, Marseille, France); Hubert Stahn (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.) |
| Abstract: | We analyze the integration of intermittent renewables-based technologies into an electricity mix comprising of conventional energy. Intermittency is modeled by a contingent electricity market and we introduce demand-side flexibility through the retailing structure. Retailers propose diversified electricity contracts at different prices allowing consumers to choose their optimal electricity consumption. These contracts are modeled by a set of state-contingent electricity delivery contracts. We show existence and uniqueness of a competitive equilibrium of the contingent wholesale and retail markets. We provide a welfare analysis and only obtain constraint efficiency due to a limited number of delivery contracts. Finally, we discuss the conditions under which changing the set of delivery contracts improves penetration of renewables and increases welfare. This provides useful policy insights for managing intermittency and achieving renewable capacity objectives. |
| Keywords: | electricity market, renewables, intermittency, demand exibility |
| JEL: | Q41 Q42 D61 G13 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2114&r=all |
| By: | Li, Zhaolin |
| Abstract: | We present a moral hazard model in which both the entrepreneur and investor face limited liability and employ a robust decision rule that maximizes their worst-case expected profit when distributional ambiguity exists. Applying strong duality, we reformulate the robust moral hazard model by introducing a new set of incentive compatibility constraints associated with choosing the most unfavourable distribution. We develop a one-step-ahead method using shadow prices for such probabilistic resources as mean and variance to characterize the robustly optimal contract and to improve the commonly used debt contract. |
| Keywords: | debt contract; moral hazard; robust optimization; Financial data |
| Date: | 2021–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:syb:wpbsba:2123/2123/23549.2&r=all |
| By: | Gaetano Gaballo; Guillermo Ordoñez |
| Abstract: | In absence of insurance contracts to share risk, public information is a double-edged sword. On the one hand, it empowers self-insurance as agents better react to shocks, reducing risk. On the other hand, it weakens market-insurance as common knowledge of shocks restricts trading risk. We embody these two faces of information in a single general-equilibrium model. We characterize the conditions under which market-insurance is superior, and then public information – even though costless and precise – is socially undesirable. In the absence of information, however, market-insurance is still underprovided as individuals fail to internalize its general equilibrium benefits. |
| JEL: | D52 D53 D62 D8 E21 G11 G12 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28489&r=all |