|
on Contract Theory and Applications |
| By: | Jean-Gabriel Lauzier |
| Abstract: | We examine the trade-off between the provision of incentives to exert costly effort (ex-ante moral hazard) and the incentives needed to prevent the agent from manipulating the profit observed by the principal (ex-post moral hazard). Formally, we build a model of two-stage hidden actions where the agent can both influence the expected revenue of a business and manipulate its observed profit. We show that manipulation-proofness is sensitive to the interaction between the manipulation technology and the probability distribution of the stochastic output. The optimal contract is manipulation-proof whenever the manipulation technology is linear. However, a convex manipulation technology sometimes leads to contracts with manipulations in equilibrium. Whenever the distribution satisfies the monotone likelihood ratio property, we can always find a manipulation technology for which the optimal contract is not manipulation-proof. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.06811&r= |
| By: | Atayev, Atabek |
| Abstract: | We analyze competition on nonlinear prices in homogeneous goods markets with consumer search. In equilibrium firms offer two-part tariffs consisting of a linear price and lump-sum fee. The equilibrium production is socially efficient as the linear price of equilibrium two-part tariffs equals to the production marginal cost. Firms thus compete in lump-sum fees, which are dispersed in equilibrium. We show that sellers enjoy higher profit, whereas consumers are worse-off with two-part tariffs than with linear prices. The competition softens because with two-part tariffs firms can make effective per-consumer demand less elastic than the actual demand. |
| Keywords: | Nonlinear prices,consumer search,homogeneous goods |
| JEL: | D11 D43 D83 L13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21092&r= |
| By: | Achyuta Adhvaryu; Jean-François Gauthier; Anant Nyshadham; Jorge A. Tamayo |
| Abstract: | We study relational contracts among managers using unique data that tracks transfers of workers across teams in Indian ready-made garment factories. We focus on how relational contracts help managers cope with worker absenteeism shocks, which are frequent, often large, weakly correlated across teams, and which substantially reduce team productivity. Together these facts imply gains from sharing workers. We show that managers respond to shocks by lending and borrowing workers in a manner consistent with relational contracting, but many potentially beneficial transfers are unrealized. This is because managers’ primary relationships are with a very small subset of potential partners. A borrowing event study around main trading partners’ separations from the firm reinforces the importance of relationships. We show robustness to excluding worker moves least likely to reflect relational borrowing responses to idiosyncratic absenteeism shocks. Counterfactual simulations reveal large gains to reducing costs associated with forming and maintaining additional relationships among managers. |
| JEL: | D23 D86 L14 L23 M54 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29581&r= |
| By: | Cappelletti, Matilde; Giuffrida, Leonardo M. |
| Abstract: | Public spending (i.e., 'G') enables governments to fulfill their fiscal policies. This paper takes a micro perspective and quantifies the impact of procurement spending - a specific component of G - on firm survival. We find that firms that receive public contracts survive longer, ceteris paribus, and that this effect accrues over time, reaching 20 percentage points after ten years. Our results are based on a novel dataset for Italy that combines balance sheet data on the universe of limited liability firms with administrative records on market entry and exit and quasi-universe of public contract data between 2008 and 2018. For construction auctions, we also rely on bid-level data to inform a regression discontinuity analysis. We find that the survival rate of winners relative to marginal losers is 70% higher after 36 months - or after two years and half of the median contract expiration. We explore several alternative channels that could rationalize our findings. We find that recipients do not become more productive, and their earnings become increasingly dependent on sales to public customers. |
| Keywords: | firm survival,firm dynamics,government demand,public procurement,demandshocks,productivity,auctions,regression discontinuity design |
| JEL: | D44 H32 H57 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21093&r= |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Olmstead, Derek E.H. (University of Calgary) |
| Abstract: | A challenge in setting regulated rates for default retail electricity products is the presence of both price and quantity risk faced by retailers. To address this challenge, regulators have been increasingly employing competition via full-load (load following) auctions to value these risks. In a full-load auction, firms bid to supply a fixed percentage of the regulated utility's hourly demand at a fixed price. In this paper, we develop a model of break-even pricing of electricity forward products under risk aversion, based on a mean-variance utility function. We use this model to evaluate the performance of full-load auctions in Alberta, where the largest regulated retail provider adopted such auctions in December 2018. We find that winning full-load bids exceed break-even levels, even allowing for risk-aversion, but that the difference falls over time. This reduction coincides with an increase in the number of bidders active in the full-load auctions. Our paper highlights the importance of sufficient participation for the success of full-load auctions and the potential role for competitive markets in determining the value of risk faced by retailers. |
| Keywords: | Electricity; Forward Contracts; Regulation; Procurement Auctions |
| JEL: | L51 L94 Q48 |
| Date: | 2021–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2021_014&r= |
| By: | JaeBin Ahn; Jee-Hyeong Park |
| Abstract: | An exploration of Korean MNCs¡¯ foreign affiliate-level data reveals that a signi`ficant portion of manufacturing foreign affiliates sell both to related and unrelated firms at the same time. We refer to this as hybrid vertical FDI. We rationalize the presence of hybrid vertical FDI by modifying the otherwise standard property?rights model of global sourcing with the subsidiarylevel option of supplying inputs to unrelated customers in addition to related firms. Given the positive production externality from serving additional customers?that is proportional to the MNC¡¯s productivity?and the costs of getting such benefit?that are increasing in relationship-specificity of the outsourced inputs, the model predicts a couple of testable hypotheses that are robustly confirmed by our subsequent empirical analysis. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no140-1&r= |
| By: | Brown, David P. (University of Alberta, Department of Economics); Sappington, David E.M. (University of Florida) |
| Abstract: | We examine the distinct impacts of forward contracting on generators and buyers of electricity. Increased forward contracting systematically reduces the variance of a generator's profit but can increase the variance of a buyer's profit. Consequently, increased risk aversion or market uncertainty can lead buyers, but not generators, to prefer reduced levels of forward contracting. We examine how the extent of equilibrium forward contracting varies with industry conditions, including the number of generators, the number of buyers, their aversion to profit variation, and the structure of retail electricity prices. |
| Keywords: | forward contracting; risk aversion; electricity sector |
| JEL: | L51 L94 Q28 Q40 |
| Date: | 2021–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2021_012&r= |