nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2022‒02‒14
four papers chosen by
Guillem Roig
University of Melbourne

  1. StableSims: Optimizing MakerDAO Liquidations 2.0 Incentives via Agent-Based Modeling By Andrew Kirillov; Sehyun Chung
  2. Indirect Savings from Public Procurement Centralization By Clarissa Lotti; Giancarlo Spagnolo
  3. Altruism Networks, Income Inequality, and Economic Relations By Yann Bramoullé; Rachel E Kranton
  4. Gender Differences in Private and Public Goal Setting By Jordi Brandts; Sabrine El Baroudi; Stefanie Huber; Christina Rott

  1. By: Andrew Kirillov; Sehyun Chung
    Abstract: The StableSims project set out to determine optimal parameters for the new auction mechanism, Liquidations 2.0, used by MakerDAO, a protocol built on Ethereum offering a decentralized, collateralized stablecoin called Dai. We developed an agent-based simulation that emulates both the Maker protocol smart contract logic, and how profit-motivated agents ("keepers") will act in the real world when faced with decisions such as liquidating "vaults" (collateralized debt positions) and bidding on collateral auctions. This research focuses on the incentive structure introduced in Liquidations 2.0, which implements both a constant fee (tip) and a fee proportional to vault size (chip) paid to keepers that liquidate vaults or restart stale collateral auctions. We sought to minimize the amount paid in incentives while maximizing the speed with which undercollateralized vaults were liquidated. Our findings indicate that it is more cost-effective to increase the constant fee, as opposed to the proportional fee, in order to decrease the time it takes for keepers to liquidate vaults.
    Date: 2022–01
  2. By: Clarissa Lotti (University of Rome "Tor Vergata"); Giancarlo Spagnolo (Stockholm University, University of Rome Tor Vergata, EIEF, and CEPR)
    Abstract: An influential study by Bandiera, Prat and Valletti (2009) exploits the introduction of a central purchasing agency in Italy to identify the amount and sources of public waste. Among other findings, it estimates that purchasing through a central agency directly saves 28% on prices. We find that centralized prices also have significant indirect effects, leading to a 17.7% reduction among non-centralized ones. The indirect effects of centralization appear driven by informational externalities – rather than an improved outside option – on less competent public buyers purchasing more complex goods. Accounting for indirect savings also increases the estimate of direct ones.
    Keywords: Centralization, Informational externalities, Procurement, Public Contracts
    JEL: D44 H11 H57 H83 L38 L88
    Date: 2022–02–01
  3. By: Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Rachel E Kranton (Duke University, Durham, US)
    Abstract: What patterns of economic relations arise when people are altruistic rather than strategically self-interested? This paper introduces an altruism network into a simple model of choice among partners for economic activity. With concave utility, agents effectively become inequality averse towards friends and family. Rich agents preferentially choose to work with poor friends despite productivity losses. Hence, network inequality-the divergence in incomes within sets of friends and family-is key to how altruism shapes economic relations and output. Skill homophily also plays a role; preferential contracts and productivity losses decline when rich agents have poor friends with requisite skills.
    Date: 2022–02
  4. By: Jordi Brandts; Sabrine El Baroudi (Vrije Universiteit Amsterdam); Stefanie Huber (University of Amsterdam); Christina Rott (Vrije Universiteit Amsterdam)
    Abstract: We conduct a field and an online classroom experiment to study gender differences in self-set performance goals and their effects on performance in a real-effort task. We distinguish between public and private goals, performance being public and identifiable in both cases. Participants set significantly more ambitious goals when these are public. Women choose lower goals than men in both treatments. Men perform better than women under private and public goals as well as in the absence of goal setting, consistent with the identifiability of performance causing gender differences, as found in other studies. Compared to private goal setting, public goal setting does not affect men’s performance at all but it leads to women’s performance being significantly lower. Comparing self-set goals with actual performance we find that under private goal setting women’s performance is on average 67% of goals, whereas for men it is 57%. Under public goal setting the corresponding percentages are 43% and 39%, respectively.
    Keywords: gender differences, goal setting, public observability, experiment
    JEL: C91 J01 J16 J82
    Date: 2022–01–28

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