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on Contract Theory and Applications |
| By: | David Rietzke (Lancaster University); Yu Chen (University of Graz, Austria) |
| Abstract: | We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both an observable and unobservable input. We characterize the optimal contracts, and explore the trade-offs between high and low-powered incentive schemes. We discuss the implications for push and pull programs used to encourage R&D activity, but our results are relevant in other contexts. |
| Keywords: | Pay for Performance; Moral Hazard; Adverse Selection; Observable Action; Principal-Agent Problem |
| JEL: | D82 D86 O31 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2018-12&r=cta |
| By: | Xi Chen (Nanjing University, China); Yu Chen (University of Graz, Austria); Xuhu Wan (Hong Kong University of Science and Technology, Hong Kong) |
| Abstract: | This paper explores a new continuous-time principal-agent problem for a firm with both moral hazard and adverse selection. Adverse selection appears at random times. The agent finds projects sequentially by exerting costly effort. Each project brings output to the firm, subject to the agent’s private shocks. These serial shocks are i.i.d and independent of the arrival time of new projects and the agent’s efforts. The shocks and efforts constitute the agent’s asymmetric information. We provide a full characterization of optimal contracts in which moral hazard effect and adverse selection effects interact. The second-best contract with moral hazard can achieve first-best efficiency, and third-best contract with the moral hazard and adverse selection can achieve second-best efficiency under pure adverse selection, if the agent is expectably rich enough. The payment is front-loaded under pure moral hazard. When moral hazard is combined with adverse selection, the payment can be backloaded or front-loaded, depending on the level of expectable wealth. |
| Keywords: | Dynamic Contract; Continuous Time; Moral Hazard; Adverse Selection; Project Search |
| JEL: | C61 D82 D86 J30 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2018-11&r=cta |
| By: | John K. Dagsvik; Zhiyang Jia (Statistics Norway) |
| Abstract: | This paper modifies and extends the aggregate equilibrium models for matching markets developed earlier in the literature. Agents in the matching market search for a match among potential partners, including agreements about a flexible contract, such as hours and wage combinations in the labor market. Under general utility representations that are non-transferable and assuming the matching is stable, we derive a probabilistic framework for the probability of realizing a particular match, including the choice of contract. We also show that the popular transferable utility model with transferable utilities can be viewed as a limiting case within our modelling framework. The framework is practical to apply for empirical analysis and is at the same time sufficiently general to accommodate essential features of matching markets with heterogeneous agents. |
| Keywords: | Matching markets; Aggregation; Latent choice sets; Random utility matching models |
| JEL: | J22 C51 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:875&r=cta |
| By: | Ashraf, Nava; Bau, Natalie; Low, Corinne; McGinn, Kathleen |
| Abstract: | Using a randomized control trial, we examine whether offering adolescent girls non-material resources - specifically, negotiation skills -can improve educational outcomes in a low-income country. In so doing, we provide the first evidence on the effects of an intervention that increased non-cognitive, interpersonal skills during adolescence. Long-run administrative data shows that negotiation training significantly improved educational outcomes over the next three years. The training had greater effects than two alternative treatments (offering girls a safe physical space with female mentors and offering girls information about the returns to education), suggesting that negotiation skills themselves drive the effect. Further evidence from a lab-in-the-field experiment, which simulates parents' educational investment decisions, and a midline survey suggests that negotiation skills improved girls' outcomes by moving households' human capital investments closer to the efficient frontier. This is consistent with an incomplete contracting model, where negotiation allows daughters to strategically cooperate with parents. |
| Keywords: | Gender; Human Capital; Intrahousehold Allocation; non-cognitive skills; strategic cooperation |
| JEL: | D13 I24 J16 O15 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12939&r=cta |
| By: | Fay, Marianne; Martimort, David; Straub, Stéphane |
| Abstract: | The paper addresses the issue of the feasible level of private finance in a contract- ing model of infrastructure funding and financing. It characterizes the structure of financial contracts, deriving the conditions under which both public and private finance coexist. A key feature is that access to outside finance and the regulatory decision on pricing and the amount of public subsidy, hence the extent of price recovery, are jointly determined. Mobilizing private finance requires a combination of price for the service and subsidy to the service provider that is large enough, exacerbating the fundamental tension between financial viability through cost recovery and social inclusion. The paper then shows that the feasibility trade-off responds in non-trivial ways to changes in the economic and institutional environment likely to occur along the development path. While improvements along some of these dimensions, notably in the efficiency of bankruptcy procedures, appear to ease access to private finance, others, such as the cost of public funds, actually makes public finance more efficient. Using project data from the PPI database including information on the financial structure, we uncover an inverse U-shaped pattern in the share of private finance, peaking for countries in the upper-middle income range, which echoes our theoretical findings. |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:32706&r=cta |
| By: | Bruce Shearer; Nibene Habib Somé; Bernard Fortin |
| Abstract: | We measure the response of physicians to monetary incentives using matched administrative and time-use data on specialists from Québec (Canada). These physicians were paid fee-for-service contracts and supplied a number of different services. Our sample covers a period during which the Québec government changed the prices paid for clinical services. We apply these data to a multitasking model of physician labour supply, measuring two distinct responses. The first is the labour-supply response of physicians to broad-based fee increases. The second is the response to changes in the relative prices of individual services. Our results confirm that physicians respond to incentives in predictable ways. The own-price substitution effects of a relative price change are both economically and statistically significant. Income effects are present, but are overridden when prices are increased for individual services. They are more prominent in the presence of broad-based fee increases. In such cases, the income effect empirically dominates the substitution effet, which leads physicians to reduce their supply of clinical services. |
| Keywords: | Physician labour supply, multitasking, incentive pay |
| JEL: | I10 J22 J33 J44 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:crrecr:1809&r=cta |