nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2021‒05‒03
four papers chosen by
Guillem Roig
University of Melbourne

  1. Robust Contracting in General Contract Spaces By Backhoff-Veraguas, Julio; Beissner, Patrick; Horst, Ulrich
  2. Relational Enforcement By Peter Wagner; Jan Knoepfle
  3. Obviously Strategy-proof Mechanism Design With Rich Private Information By Mariya Halushka
  4. Contracts, Firm Dynamics, and Aggregate Productivity By Bernabe Lopez-Martin; David Perez-Reyna

  1. By: Backhoff-Veraguas, Julio (University of Twente); Beissner, Patrick (Australian National University); Horst, Ulrich (HU Berlin)
    Abstract: We consider a general framework of optimal mechanism design under adverse selection and ambiguity about the type distribution of agents. We prove the existence of optimal mechanisms under minimal assumptions on the contract space and prove that centralized contracting implemented via mechanisms is equivalent to delegated contracting implemented via a contract menu under these assumptions. Our abstract existence results are applied to a series of applications that include models of optimal risk sharing and of optimal portfolio delegation.
    Keywords: robust contracts; nonmetrizable contract spaces; ambiguity; financial markets;
    JEL: C02 D82
    Date: 2020–05–14
  2. By: Peter Wagner; Jan Knoepfle
    Abstract: This paper studies a principal who incentivizes an agent to achieve and maintain compliance and voluntarily disclose incidences of non-compliance. Compliance is modeled as a persistent binary process that jumps at random times arriving at a rate that depends on the agent's efforts. The state of compliance is verifiable by the principal only at isolated instances through costly inspections. We show that in principal-optimal equilibria, the principal attains maximum compliance by using deterministic inspections. The optimal equilibrium features periodic inspection cycles which are suspended during periods of self-reported non-compliance, in which the agent is fined. We explain how commitment to random inspections benefits the principal by relaxing the agent's incentive- compatibility constraints, and we discuss possible ways for the principal to overcome her commitment problem through third-party involvement.
    Keywords: Relational contracts, compliance, costly inspections, commitment, randomization
    JEL: C73 D82 D83 D86 L51
    Date: 2021–04
  3. By: Mariya Halushka (Department of Economics, University of Ottawa)
    Abstract: I consider settings with rich private information – an agent's type may include private information other than just his preferences. In such settings, I identify a necessary condition for obviously strategy-proof implementation of social choice rules. I consider applications to strict preferences, matching and object allocation.
    Keywords: Obvious strategy-proofness, Mechanism design.
    JEL: D82 D90
    Date: 2021
  4. By: Bernabe Lopez-Martin; David Perez-Reyna
    Abstract: We construct a firm-dynamics framework to evaluate the impact of the enforcement of contracts between final goods producers and intermediate goods suppliers on firm life-cycle growth, technology accumulation, and aggregate productivity. We show that contractual incompleteness implies a wedge on profits, which disincentives technology accumulation and is potentially correlated with technology, in addition to wedges on production decisions. We find that our model accounts for differences in output per worker of up to 33 percent across economies. The impact on firm life-cycle growth, the age and size distribution of firms is quantitatively significant.
    Date: 2021–04

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