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on Contract Theory and Applications |
| By: | Matthias Lang |
| Abstract: | Subjective evaluations are widely used, but call for different contracts from traditional moral-hazard settings. Previous literature shows that contracts require payments to third parties, which real-world contracts rarely use. I show that the implicit assumption of deterministic contracts makes payments to third parties necessary. This paper studies stochastic contracts, like uncertain arbitration procedures or payments in stock options. These contracts incentivize employees without the need for payments to third parties. In addition, stochastic contracts can make the principal better off compared to deterministic contracts. My results also address the puzzle about the prevalence of labor contracts with stochastic compensation. |
| Keywords: | subjective evaluations, stochastic contracts, budget-balanced contracts, moral hazard, subjective performance measures, incentives |
| JEL: | D80 J41 J70 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9458&r= |
| By: | Jean-Gabriel Lauzier |
| Abstract: | We design the insurance contract when the insurer faces arson-type risks. The optimal contract must be manipulation-proof. It is therefore continuous, it has a bounded slope, and it satisfies the no-sabotage condition when arson-type actions are free. Any contract that mixes a deductible, coinsurance and an upper limit is manipulation-proof. We also show that the ability to perform arson-type actions reduces the insured's welfare as less coverage is offered in equilibrium. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.06817&r= |
| By: | Hunold, Matthias; Schlütter, Frank (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | With forward ownership, an upstream supplier internalizes the effect of its supply contracts on the downstream firms, which is so far understood to decrease prices. We show that instead downstream prices generally increase if firms use two-part tariffs. The price-increasing effect of forward ownership occurs with both observable and secret two-part tariffs, albeit for different economic reasons. The results arise under both quantity and price competition as well as for different belief refinements. Partial forward ownership can be more profitable and more harmful for consumers than a full vertical merger between an upstream and a downstream firm. |
| Keywords: | Vertical relations ; minority shareholding ; partial forward ownership |
| JEL: | L22 L40 L8 |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2022003&r= |
| By: | Buehler, Benno; Hunold, Matthias; Schlütter, Frank (Université catholique de Louvain, LIDAM/CORE, Belgium) |
| Abstract: | We analyze the effects of no-challenge clauses that prevent licensees from challenging the validity of patents. Contrary to popular arguments, we show that banning these clauses does not necessarily improve the frequency of successful patent challenges. Depending on the patent strength, patent holders may profitably offer license contracts that incentivize licensees to not challenge the patent. Even worse, such a strategy can lead to higher running royalties and lower consumer surplus compared to contracts with no-challenge clauses. We demonstrate that measures that aim at improving the prospects of patent challenges, such as prohibiting termination-upon-challenge clauses, can cause additional detrimental effects. |
| Keywords: | No-challenge clause ; probabilistic patents ; license contracts |
| JEL: | K11 K41 L24 L42 |
| Date: | 2021–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2021032&r= |