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on Contract Theory and Applications |
| By: | Sebastian Gryglewicz (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)); Simon Mayer (University of Chicago - Booth School of Business); Erwan Morellec (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute) |
| Abstract: | We study a dynamic moral hazard problem in which a bank originates a pool of loans that it sells to competitive investors via securitization. The bank controls the default risk of the loans by screening at origination and monitoring after origination, but it is subject to moral hazard. The optimal contract between the bank and investors can be implemented via a time-decreasing stake within the loan pool, so the bank's monitoring incentives decrease and default risk increases over time. We find that screening and monitoring have positive incentive synergies and are complements. Credit ratings distort incentives, potentially increasing credit risk, and are particularly beneficial for high quality and short-maturity loans. |
| Keywords: | Corporate Bonds, Securitization, CLOs, Debt Maturity, Banking, Dynamic Contracting |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2182&r= |
| By: | Finocchiaro Castro, Massimo; Guccio, Calogero |
| Abstract: | In this work, adopting a semi-parametric approach and a quasi-experiment setting, we empirically assess the effects of a reform of public procurement regulation in Italy, approved in 2011, that increased the discretion of bureaucrats in selecting the procurer. To this end, employing a large dataset of public works managed by Italian municipalities in the period 2009-2013, we first estimate contract execution performance; then, we test the impact of the reform on the efficiency of public works execution in an institutional context characterized by large differences in social capital and trust in institutions. The results provide evidence that the reform exerted a positive, albeit small, effect on public works execution performance. However, the beneficial role exerted by increased discretion is positive and significant only in those areas where social capital and trust in institutions have reached higher levels. These results seem to suggest that more discretion leads to greater efficiency but also to greater corruption risks suggesting that increased discretion must be balanced by strengthened ex-post controls, particularly in high-risk areas. |
| Keywords: | Bureaucratic discretion,Social capital,Corruption,Public works contracts,Efficiency,Non-parametric frontier,Semi-parametric methods |
| JEL: | D24 D73 H57 P16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:247648&r= |
| By: | Bastien Baldacci; Philippe Bergault |
| Abstract: | With the fragmentation of electronic markets, exchanges are now competing in order to attract trading activity on their platform. Consequently, they developed several regulatory tools to control liquidity provision / consumption on their liquidity pool. In this paper, we study the problem of an exchange using incentives in order to increase market liquidity. We model the limit order book as the solution of a stochastic partial differential equation (SPDE) as in [12]. The incentives proposed to the market participants are functions of the time and the distance of their limit order to the mid-price. We formulate the control problem of the exchange who wishes to modify the shape of the order book by increasing the volume at specific limits. Due to the particular nature of the SPDE control problem, we are able to characterize the solution with a classic Feynman-Kac representation theorem. Moreover, when studying the asymptotic behavior of the solution, a specific penalty function enables the exchange to obtain closed-form incentives at each limit of the order book. We study numerically the form of the incentives and their impact on the shape of the order book, and analyze the sensitivity of the incentives to the market parameters. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.00375&r= |