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on Contract Theory and Applications |
| By: | James Malcomson |
| Abstract: | Employees are divided into grades. Toyota places suppliers into only a small number of categories. This paper shows that grouping of privately informed and persistent agent types arises naturally in relational incentive contracts when agent type is continuous. Malcomson (2016) showed that full separation is not possible if, following full revelation of an agent's type, payoffs for principal and agent are on the Pareto frontier. |
| Keywords: | persistent private information, renegotiation-proofness, type pooling, relational incentive contracts |
| Date: | 2021–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:941&r= |
| By: | James Malcomson |
| Abstract: | This paper shows that, in the presence of relational contracts, an increase in uncertainty with no change in factor prices reduces capital investment and productivity in the long run even if the parties are otherwise risk neutral. |
| Keywords: | General capital, specific capital, investment, relational contracts, risk |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:940&r= |
| By: | Matthias Fahn; Takeshi Murooka |
| Abstract: | This paper theoretically investigates how an increase in the supply of homogenous workers can raise wages, generating new insights on potential drivers for the observed non-negative wage effects of immigration. We develop a model of a labor market with frictions in which firms can motivate workers only through informal incentives. A higher labor supply increases firms’ chances of filling a vacancy, which reduces their credibility to compensate workers for their effort. As a response, firms endogenously generate costs of turnover by paying workers a rent, and this rent is higher if an increase in labor supply reduces a firm’s credibility. By this effect, a higher labor supply — for example caused by immigration — can increase workers’ compensation. Moreover, an asymmetric equilibrium exists in which native workers are paid higher wages than immigrants and work harder. In such an equilibrium, an inflow of immigrants increases productivity, profits, and employment. |
| Keywords: | Informal Incentives, Labor Supply, Immigration. |
| JEL: | D21 D86 F22 J21 J61 L22 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2021-12&r= |
| By: | Colonnelli, Emanuele; Lagaras, Spyridon; Ponticelli, Jacopo; Prem, Mounu; Tsoutsoura, Margarita |
| Abstract: | We study how the disclosure of corrupt practices affects firms. We construct novel firm-level measures of involvement in corrupt practices using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. Using investment-, loan-, and worker- level data, we show that exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while we see no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms. |
| Keywords: | Anti-corruption program; Audits; Corruption; Firms; Brazil |
| JEL: | G D73 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:83&r= |
| By: | Leandro Arozamena; Juan José Ganuza; Federico Weinschelbaum |
| Abstract: | In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm. |
| Keywords: | auctions, favoritism, auction design, renegotiation, corruption |
| JEL: | I12 J13 H31 H24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1790&r= |
| By: | Avataneo, Michelle; Turhan, Bertan |
| Abstract: | In many real-world matching applications, there are restrictions for institutions either on priorities of their slots or on the transferability of unfilled slots over others (or both). Motivated by the need in such real-life matching problems, this paper formulates a family of practical choice rules, slot-specific priorities with capacity transfers (SSPwCT). These rules invoke both slot-specific priorities structure and transferability of vacant slots. We show that the cumulative offer mechanism (COM) is stable, strategy-proof and respects improvements with regards to SSPwCT choice rules. Transferring the capacity of one more unfilled slot, while all else is constant, leads to strategy-proof Pareto improvement of the COM. Following Kominers' (2020) formulation, we also provide comparative static results for expansion of branch capacity and addition of new contracts in the SSPwCT framework. Our results have implications for resource allocation problems with diversity considerations. |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202109010700001099&r= |