|
on Contract Theory and Applications |
| By: | Attar, Andrea; Casamatta, Catherine; Chassagnon, Arnold; Décamps, Jean-Paul |
| Abstract: | We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games. |
| Keywords: | Multiple Lending; Menus; Strategic Default; Common Agency; Bank Competition. |
| JEL: | D43 D82 G33 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31786&r=cta |
| By: | Korbinian Dress; Stefan Lessmann; Hans-J\"org von Mettenheim |
| Abstract: | Leasing is a popular channel to market new cars. Pricing a leasing contract is complicated because the leasing rate embodies an expectation of the residual value of the car after contract expiration. To aid lessors in their pricing decisions, the paper develops resale price forecasting models. A peculiarity of the leasing business is that forecast errors entail different costs. Identifying effective ways to address this characteristic is the main objective of the paper. More specifically, the paper contributes to the literature through i) consolidating and integrating previous work in forecasting with asymmetric cost of error functions, ii) systematically evaluating previous approaches and comparing them to a new approach, and iii) demonstrating that forecasting with asymmetric cost of error functions enhances the quality of decision support in car leasing. For example, under the assumption that the costs of overestimating resale prices is twice that of the opposite error, incorporating corresponding cost asymmetry into forecast model development reduces decision costs by about eight percent, compared to a standard forecasting model. Higher asymmetry produces even larger improvements. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1707.02736&r=cta |
| By: | S. Bolatto; L. Lambertini |
| Abstract: | We investigate the possibility for two vertically related firms to at least partially collude on the wholesale price over an infinite horizon to mitigate or eliminate the effects of double marginalisation, thereby avoiding contracts which might not be enforceable. We characterise alternative scenarios envisaging different deviations by the upstream firm and different punishments. This allows us to show that the most efficient case is that in which the upstream firm deviates along its best reply function and the punishment prescribes the disruption of the vertical relation for good after a deviation from the collusive path. |
| JEL: | D43 L13 L42 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1103&r=cta |
| By: | Atal, Juan Pablo (University of Pennsylvania); Fang, Hanming (University of Pennsylvania); Karlsson, Martin (University of Duisburg-Essen); Ziebarth, Nicolas R. (Cornell University) |
| Abstract: | We study theoretically and empirically how consumers in an individual private longterm health insurance market with front-loaded contracts respond to newly mandated portability requirements of their old-age provisions. To foster competition, effective 2009, the German legislature made the portability of standardized old-age provisions mandatory. Our theoretical model predicts that the portability reform will increase internal plan switching. However, under plausible assumptions, it will not increase external insurer switching. Moreover, the portability reform will enable unhealthier enrollees to reoptimize their plans. We find confirmatory evidence for the theoretical predictions using claims panel data from a big private insurer. |
| Keywords: | individual private health insurance, portability, old-age provisions, health plan switching, switching costs, health policy reform, consumer bargaining, retention |
| JEL: | G22 I11 I18 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10871&r=cta |
| By: | Fahn, Matthias (LMU Munich and CESifo); Wamser, Georg (University of Tuebingen and CESifo); Merlo, Valeria (University of Tuebingen and CESifo) |
| Abstract: | Existing theories of a firm\'s optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for firms that show a strong commitment towards their workforce and are popular among employees. We demonstrate that such financing behavior may be driven by implicit arrangements made between a firm and its managers or employees. Equity financing generally strengthens a firm\'s credibility to honor implicit promises. Debt, however, has an adverse effect on the enforceability of these arrangements because too much debt increases the firm\'s reneging temptation, as some of the negative consequences of breaking implicit promises can be shifted to creditors. Our analysis provides an explanation for why some firms only use little debt financing. Predictions made by our theory are in line with a number of empirical results, which seem to stay in contrast to existing theories on capital structure. |
| Keywords: | relational contracts; capital structure; corporate finance; debt financing; |
| JEL: | C73 D24 D86 G32 |
| Date: | 2017–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:41&r=cta |