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on Contract Theory and Applications |
| By: | F. Barigozzi; N. Burani |
| Abstract: | We study optimal non-linear contracts offered by two firms competing for the exclusive services of workers, who are privately informed about their ability and motivation. Firms differ in their organizational form, and motivated workers are keen to be hired by the non-profit firm because they adhere to its mission. If the for-profit firm has a competitive advantage over the non-profit firm, the latter attracts fewer high-ability workers with respect to the former. Moreover, workers exert more effort at the for-profit than at the non-profit firm despite the latter distorts effort levels upwards. Finally, a wage penalty emerges for non-profit workers which is partly due to compensating effects (labor donations by motivated workers) and partly due to the negative selection of ability into the non-profit firm. The opposite results hold when it is the non-profit firm that has a competitive advantage. |
| JEL: | D82 D86 J24 J31 M55 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1072&r=cta |
| By: | Vanessa Kummer (University of Zurich); Maik Meusel (University of Zurich); Philipp Renner (Stanford University - The Hoover Institution on War, Revolution and Peace); Karl Schmedders (University of Zurich) |
| Abstract: | In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision. |
| Keywords: | Career concerns, dynamic agent model, multi-period contracts |
| JEL: | D21 D23 D86 L24 L51 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1632&r=cta |
| By: | Juan Sanchez (Federal Reserve Bank of St. Louis); Alexander Monge-Naranjo (Federal Reserve Bank of St. Louis); Lance Lochner (University of Western Ontario) |
| Abstract: | This study develops a quantitative lifecycle framework to study dynamic student loan contracts that account for problems associated with moral hazard, limited commitment, and costly income verification. Within this environment, we study how optimal student loan limits should be set as functions of observable borrower characteristics and how loan repayments should be structured as functions of current income, past payments, and student debt. We calibrate our quantitative model using previous estimates of earnings and employment dynamics in the U.S. and to match various moments derived from longitudinal data on American borrowing and repayment behavior. Our calibrated model is used to characterize constrained efficient credit contracts and to compare the nature of those contracts with current GSL programs in the U.S. as well as frequently discussed income-based alternatives. We not only compare the contracts themselves, but we also study their implications in terms of borrowing, schooling, and repayment behavior. Our analysis considers both the efficiency of various lending regimes as well as their distributional consequences across ability and wealth groups. Importantly, we discuss general lessons that can be used in the practical development of GSL programs. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:343&r=cta |
| By: | Timothy Kehoe (University of Minnesota); Sewon Hur (University of Pittsburgh); Kim Ruhl (New York University Stern School of Busi); Jose Asturias (Georgetown University) |
| Abstract: | In what order should a developing country adopt policy reforms? Do some policies complement each other? Do others substitute for each other? To address these questions, we develop a two-country dynamic general equilibrium model with entry and exit of firms that are monopolistic competitors. Distortions in the model include barriers to entry of firms, barriers to international trade, and barriers to contract enforcement. We find that a reform that reduces one of these distortions has different effects depending on the other distortions present. In particular, reforms to trade barriers and barriers to the entry of new firms are substitutable, as are reforms to contract enforcement and trade barriers. In contrast, reforms to contract enforcement and the barriers to entry are complementary. Finally, the optimal sequencing of reforms requires reforming trade barriers before contract enforcement. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:316&r=cta |