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on Contract Theory and Applications |
| By: | Olivier Basdevant; Aly Abdou; Mihaly Fazekas; Elizabeth David-Barrett |
| Abstract: | Public procurement can be highly vulnerable to corruption. This paper outlines a methodology and results in assessing corruption risks in public procurement and their impact on relative prices, using large databases on government contracts and tenders. Our primary contribution is to analyze how price differential in public procurement contracts can be explained by corruption risk factor (aggregated in a synthetic corruption risk index). While there are intrinsic limitations to our study (price differentials can come from structural reasons, such as a limited number of potential suppliers) it still provides a guiding tool to assess where corruption risks would have the biggest budgetary impact. Such analysis helps inform mitigating policies owing to the granular data used. |
| Keywords: | public procurement; corruption; corruption risks; procurement cost; price differential; corruption risk; price impact; procurement contract; data collection methodology; Global |
| Date: | 2022–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2022/094&r= |
| By: | Wiechers, Hermien E.; Coyle-Shapiro, Jacqueline A.M.; Lub, Xander D.; ten Have, Steven |
| Abstract: | Adopting an intra-individual process, we explore the dynamics that underlie the emergence of a psychological contract breach. Thirty-seven unique storylines expose how selected stimuli shake employees' psychological contracts to attention and give rise to perceptions of breach as a result of an iterative process of disrupting (introducing triggers that prompt a shift from automatic processing to conscious attention of psychological contract terms), appraisal (revealing elements—goals, attribution, fairness, and resources—playing a role in appraising and making sense of triggers), and (problem-focused and emotion-focused) coping. We discuss the implications of accounting for breach in the absence of a discrete event and draw on selective attention theory to differentiate when stimuli become triggers with the capacity to activate the psychological contract. We extend existing research by revealing the unique role that triggers, and their interconnectedness play in the cognition of contract breach, building up pressure until a threshold has been surpassed and breach is perceived. Our study highlights the need for managers to use strategies to deescalate the accumulation of triggers. |
| Keywords: | dynamics; process research; psychological contract breach; triggers; within-person |
| JEL: | J50 |
| Date: | 2022–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115315&r= |
| By: | Onur A. Koska (University of Canterbury); Frank Stähler |
| Abstract: | This paper discusses the role of secret versus public reserve prices when bidders’ valuations depend positively on the seller’s private signal. A public reserve price is announced before the auction starts, and a secret reserve price is disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payoff-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a secret (public) reserve price design qualifies as an equilibrium if the distortion is large (small). |
| Keywords: | Auctions; Interdependent values; Optimal reserve prices; Rational signaling |
| JEL: | D44 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:22/10&r= |
| By: | Döpper, Hendrik; Sapi, Geza; Wey, Christian |
| Abstract: | This paper analyzes vertical integration incentives in a bilaterally duopolistic industry where input market outcomes are determined by bargaining. Vertical integration incentives are a combination of horizontal integration incentives up- and downstream and depend on the strength of substitutability or complementarity and the shape of the unit cost function. In contrast to the widely prevailing view in competition policy, vertical integration can under particular circumstances convey more bargaining power to the merged entity than a horizontal merger to monopoly. In a bidding game for an exogenously determined target firm, a vertical merger can dominate a horizontal one, while pre-emption does not occur. |
| Keywords: | Bargaining,Vertical Mergers,Shapley Value |
| JEL: | L13 L22 L42 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:389&r= |
| By: | Antonio Estache; Renaud Foucart; Tomas Serebrisky |
| Abstract: | We study the feasibility, challenges, and potential benefits of adding a lottery component to standard negotiated and rule-based procurement procedures. For negotiated procedures, we introduce a “discrete lottery” in which local bureaucrats negotiate with a small number of selected bidders and a lottery decides who is awarded the contract. We show that the discrete lottery performs better than a standard negotiated procedure when the pool of firms to choose from is large and corruption is high. For rule-based auction procedures, we introduce a “third-price lottery” in which the two highest bidders are selected with equal probability and the project is contracted at a price corresponding to the third highest bid. We show that the third-price lottery reduces the risks from limited liability and renegotiation. It performs better than a standard second-price or ascending auction when the suppliers’ pool size, the risk of cost overrun, delays and non-delivery of the project are high. The choice between a second-price auction, a third price lottery and a lottery amongst all bidders also depends on the weight placed on producer surplus, including for instance the desire to increase the participation of local SMEs in public sector services markets. |
| Keywords: | rules, discretion, procurement, lotteries, corruption, auctions |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/345092&r= |
| By: | Clara Graziano; Annalisa Luporini |
| Abstract: | We analyze the effects of optimism and overconfidence when the manager’s compensation package includes severance pay and the CEO has bargaining power. We find that optimism does not affect incentive pay but increases severance pay with a negative effect on profit. Overconfidence, on the contrary, reduces incentive pay as shown by the previous literature, while its effect on severance pay depends on the intensity of the bias. High values of overconfidence yield an inefficient level of investment which in turn increases severance pay with a negative impact on firm profit. Thus, the attempt to exploit managerial overconfidence to reduce incentive pay may back.re if the manager is replaced and severance agreements come into effect. Our model explains the large severance payments documented by empirical literature by showing that discretionary pay in excess of contractual severance pay may represent a form of efficient contracting when the manager is overconfident and optimist. |
| Keywords: | overconfidence, optimism, managerial compensation, severance pay, entrenchment |
| JEL: | J33 D86 D90 L21 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9801&r= |