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on Contract Theory and Applications |
| By: | Jose Garcia-Louzao; Laura Hospido; Alessandro Ruggieri |
| Abstract: | In this paper we study how labor market duality affects human capital accumulation and wage trajectories of young workers. Using rich administrative data for Spain, we follow workers since their entry into the labor market to measure experience accumulated under different contractual arrangements and we estimate their wage returns. We document lower returns to experience accumulated in fixed-term contracts compared to permanent contracts and show that this difference is neither due to unobserved firm heterogeneity nor match quality. Instead, we provide evidence that the gap in returns is due to lower human capital accumulation while working under fixed-term contracts. In line with skill-learning complementarity, our results suggest that the widespread use of fixed-term work arrangements reduces skill acquisition of high-skilled workers, holding back life-cycle wage growth by up to 16 percentage points after 15 years since labor market entry. |
| Keywords: | labor market duality, human capital, earnings dynamics |
| JEL: | J30 J41 J63 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10032&r=cta |
| By: | Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida) |
| Abstract: | It has been suggested that increasing (or eliminating) the caps on short-term wholesale prices will increase long-term forward contracting for electricity. We find that a higher price cap often enhances the incentives of electricity buyers (e.g., load-serving entities) to undertake forward contracting. However, a higher cap can diminish the incentives of electricity generators to engage in forward contracting. Consequently, higher wholesale price caps are not certain to increase industry forward contracting. |
| Keywords: | wholesale price caps; forward contracting; electricity markets |
| JEL: | L51 L94 Q28 Q40 |
| Date: | 2022–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2022_012&r=cta |
| By: | Lasse Brune; Xavier Giné; Dean Karlan |
| Abstract: | Microcredit promised business growth for small firms lacking access to banking loans. Yet while reaching millions, recent randomized evaluations suggest limited average business impacts. Critics often blame contract rigidity, specifically the fixed and frequent installments, for the lack of productive risk-taking. But such rigidity may instill borrower discipline. We partnered with a Colombian lender that offered first-time borrowers a flexible loan that permitted delaying up to three monthly repayments. We find null effects for revenue and profits but increases in loan defaults. The evidence thus aligns with established microlender practice of offering rigid contracts to first-time borrowers. |
| JEL: | G21 O21 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30634&r=cta |
| By: | Krähmer, Daniel (University of Bonn); Strausz, Roland (HU Berlin) |
| Abstract: | We consider a dynamic screening model where the agent may go bankrupt due to, for example, cash constraints. We model bankruptcy as a verifiable event that occurs whenever the agent makes a per period loss. This leads to less stringent truth-telling constraints than those considered in the existing literature. We show that the weaker constraints do not af- fect optimal contracting in private values settings but may do so with interdependent values. Moreover, we develop a novel method to study private values settings with continuous types and identify a new regularity condition that ensures that the optimal contract is deterministic. |
| Keywords: | dynamic screening; bankruptcy; verifiability; mean preserving spread; |
| JEL: | D82 H57 |
| Date: | 2022–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:348&r=cta |
| By: | Christopher M. Snyder; Kendall Hoyt; Dimitrios Gouglas |
| Abstract: | We derive the optimal funding mechanism to incentivize development and production of vaccines against diseases with epidemic potential. In the model, suppliers' costs are private information and investments are noncontractible, precluding cost-reimbursement contracts, requiring fixed-price contracts conditioned on delivery of a successful product. The high failure risk for individual vaccines calls for incentivizing multiple entrants, accomplished by the optimal mechanism, a (w+1)-price reverse Vickrey auction with reserve. Our analysis determines the optimal number of entrants and required funding level. Based on a distribution of supplier costs estimated from survey data, we simulate the optimal mechanism's performance in scenarios ranging from a small outbreak, causing harm in the millions of dollars, to the Covid-19 pandemic, causing harm in the trillions. We assess which mechanism features contribute most to its optimality. |
| JEL: | D47 H44 I18 L65 O31 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30619&r=cta |
| By: | Maximilian Andres; Lisa Bruttel; Jana Friedrichsen |
| Abstract: | This paper sheds new light on the role of communication for cartel formation. Using machine learning to evaluate free-form chat communication among firms in a laboratory experiment, we identify typical communication patterns for both explicit cartel formation and indirect attempts to collude tacitly. We document that firms are less likely to communicate explicitly about price fixing and more likely to use indirect messages when sanctioning institutions are present. This effect of sanctions on communication reinforces the direct cartel-deterring effect of sanctions as collusion is more difficult to reach and sustain without an explicit agreement. Indirect messages have no, or even a negative, effect on prices. |
| Keywords: | cartel, collusion, communication, machine learning, experiment |
| JEL: | C92 D43 L41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10024&r=cta |