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on Contract Theory and Applications |
| By: | Alisha Holland; Will Freeman |
| Abstract: | Where does the money come from to buy votes? We argue that an important source of funds for vote-buying comes from 'contract clientelism', or the provision of public contracts to private firms in exchange for campaign donations. Using quantitative data on Colombian infrastructure contracts, we demonstrate that municipalities exhibit an 'electoral contracting cycle' in which incumbents assign low-quality contracts while on the campaign trail. Contract manipulations are more common in municipalities with higher reports of clientelist activity. |
| Keywords: | Contracts, vote-buying, Clientelism, Infrastructure, Colombia, Public goods, Firms |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2021-155&r= |
| By: | Naonori Kakimura; Donghao Zhu |
| Abstract: | In this paper, we study a matching market model on a bipartite network where agents on each side arrive and depart stochastically by a Poisson process. For such a dynamic model, we design a mechanism that decides not only which agents to match, but also when to match them, to minimize the expected number of unmatched agents. The main contribution of this paper is to achieve theoretical bounds on the performance of local mechanisms with different timing properties. We show that an algorithm that waits to thicken the market, called the $\textit{Patient}$ algorithm, is exponentially better than the $\textit{Greedy}$ algorithm, i.e., an algorithm that matches agents greedily. This means that waiting has substantial benefits on maximizing a matching over a bipartite network. We remark that the Patient algorithm requires the planner to identify agents who are about to leave the market, and, under the requirement, the Patient algorithm is shown to be an optimal algorithm. We also show that, without the requirement, the Greedy algorithm is almost optimal. In addition, we consider the $\textit{1-sided algorithms}$ where only an agent on one side can attempt to match. This models a practical matching market such as a freight exchange market and a labor market where only agents on one side can make a decision. For this setting, we prove that the Greedy and Patient algorithms admit the same performance, that is, waiting to thicken the market is not valuable. This conclusion is in contrast to the case where agents on both sides can make a decision and the non-bipartite case by [Akbarpour et al.,$~\textit{Journal of Political Economy}$, 2020]. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.10824&r= |
| By: | Alain Bensoussan (emlyon business school); Benoit Chevalier-Roignant; Alejandro Rivera |
| Abstract: | We model the expansion decision of a levered firm. Straight debt distorts both timing and scaling: the firm invests less and later than its all-equity financed counterpart. The inclusion of performance sensitivity in the debt contract mitigates such distortions. Moreover, performance sensitivity is consistent with firm value maximization within a standard trade-off theory of capital structure. As a result, our model rationalizes the widespread use of performance sensitive debt (PSD), especially amongst fast growth firms. |
| Keywords: | Capital Structure,Real Options,Performance-Sensitive Debt,Debt Overhang |
| Date: | 2021–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03364891&r= |
| By: | Sosung Baik; Sung-Ha Hwang |
| Abstract: | We study the optimal auction design problem when bidders' preferences follow the maxmin expected utility model. We suppose that each bidder's set of priors consists of beliefs close to the seller's belief, where "closeness" is defined by a divergence. For a given allocation rule, we identify a class of optimal transfer candidates, named the win-lose dependent transfers, with the following property: each type of bidder's transfer conditional on winning or losing is independent of the competitor's type report. Our result reduces the infinite-dimensional optimal transfer problem to a two-dimensional optimization problem. By solving the reduced problem, we find that: (i) among efficient mechanisms with no premiums for losers, the first-price auction is optimal; and, (ii) among efficient winner-favored mechanisms where each bidder pays smaller amounts when she wins than loses: the all-pay auction is optimal. Under a simplifying assumption, these two auctions remain optimal under the endogenous allocation rule. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.08563&r= |