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on Contract Theory and Applications |
| By: | Cl\'emence Alasseur; Ivar Ekeland; Romuald Elie; Nicol\'as Hern\'andez Santib\'a\~nez; Dylan Possama\"i |
| Abstract: | We study the optimal design of electricity contracts among a population of consumers with different needs. This question is tackled within the framework of Principal-Agent problem in presence of adverse selection. The particular features of electricity induce an unusual structure on the production cost, with no decreasing return to scale. We are nevertheless able to provide an explicit solution for the problem at hand. The optimal contracts are either linear or polynomial with respect to the consumption. Whenever the outside options offered by competitors are not uniform among the different type of consumers, we exhibit situations where the electricity provider should contract with consumers with either low or high appetite for electricity. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1706.01934&r=cta |
| By: | Thibaut Mastrolia |
| Abstract: | In this paper, we study moral hazard problems in contract theory by adding an exogenous Planner to manage the actions of Agents hired by a Principal. We provide conditions ensuring that Pareto optima exist for the Agents using the scalarization method associated with the multi-objective optimization problem and we solve the problem of the Principal by finding optimal remunerations given to the Agents. We illustrate our study with a linear-quadratic model by comparing the results obtained when we add a Planner in the Principal/multi-Agents problem with the results obtained in the classical second-best case. More particularly in this example, we give necessary and sufficient conditions ensuring that Pareto optima are Nash equilibria and we prove that the Principal takes the benefit of the action of the Planner in some cases |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1706.01254&r=cta |
| By: | Andreas Schabert |
| Abstract: | This paper shows that central bank interventions in secondary markets for private debt can enhance social welfare. We apply a model with idiosyncratic risk and limited contract enforcement, while abstracting from unusually large disruptions in financial market. By purchasing debt at above-market prices the central bank induces an increase in credit supply, by which rather borrowers than debt holders gain. We show that asset purchases can not only replicate a tax/subsidy that addresses pecuniary externalities induced by a collateral constraint, but can even improve upon the constrained efficient allocation. We further demonstrate that countercyclical asset purchases are desirable under aggregate risk, which reduce the build-up of debt in favorable times. |
| Date: | 2017–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0094&r=cta |
| By: | Luis Garicano; Luis Rayo |
| Abstract: | We study how relational contracts mitigate Becker's classic problem of providing general (non-firm-specific) human capital when training contracts are incomplete. The firms profit-maximizing agreement is a multi-period "apprenticeship" in which the novice is trained gradually over time and eventually receives all knowledge. The firm adopts a "1/e rule" whereby at the beginning of the relationship the novice is trained, for free, just enough to produce a fraction 1/e of the efficient output. After that, the novice earns all additional knowledge with labor. This rule causes inefficiently lengthy relationships that grow longer the more patient the players. We discuss policy interventions. |
| JEL: | N0 R14 J01 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:79076&r=cta |
| By: | Vikas Mehrotra; Randall Morck |
| Abstract: | Economic models routinely assume firms maximize shareholder wealth; however common law legal systems only require that officers and directors pursue the interests of the corporation, leaving this ill-defined. Economic arguments for shareholder wealth maximization derived from shareholders’ status as residual claimants are vulnerable on several fronts. Share valuations fluctuate as sentiment shifts. Introductory finance casts firms as maximizing expected net present values, which are quasirents, expected earnings beyond expected costs of capital from investors, to which shareholders have no obvious claim. Other stakeholders – entrepreneurial founders or CEOs, employees, employees, customers, suppliers, communities or governments, having made firm-specific investments, may exert stronger claims than atomistic public shareholders have to shares of their firms’ quasirents. Consistent with this, their contractual claims are often augmented by residual claims and liabilities. Still, shareholder value maximization constitutes something of a bright line; whereas stakeholder welfare maximization is an ill-defined charge to assign boards that gives self-interested insiders broader scope for private benefits extraction. The common law concept of “the interests of the corporation” captures this ambiguity. |
| JEL: | G3 K12 K22 L2 P1 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23460&r=cta |