|
on Contract Theory and Applications |
| By: | Petrick, Martin |
| Abstract: | By focusing on direct monetary incentives, the traditional literature on motivating workers predicts that high-effort outcomes are unlikely unless workers become residual claimants of profit. However, real world employment contracts typically display a low incidence of profit sharing. In this paper, I extend the canonical model of a revenue sharing contract by integrating two more options for incentivising workers. The literature to date has discussed these strategies in isolation from each other. First, I assume that workers derive utility from following a work norm. The manager can influence workers’ identification with a high-effort work norm at a cost. Second, workers risk being fired if they are observed shirking. Depending on the rigidity of their employment contract, this threat of termination induces them to increase effort. Key drivers of the optimal employment contract are then the variance of output, the costs of inducing worker’s identification with high-effort norms and the rigidity of the labour market. |
| Keywords: | Labor and Human Capital |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iamodp:274821&r=cta |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics) |
| Abstract: | We analyze the effects of commonly employed renewable compensation policies on firm behavior in an imperfectly competitive market. We consider a model where firms compete for renewable capacity in a procurement auction prior to choosing their forward contract positions and competing in wholesale electricity markets. We focus on fixed and premium-priced feed-in tariff (FIT) compensation policies. We demonstrate that the renewable compensation policy impacts both the types of resources that win the renewable auction and subsequent market competition. While firms have stronger incentives to exercise market power in wholesale markets under a premium-priced FIT, they also have increased incentives to sign pro-competitive forward contracts. Despite these countervailing incentives, in net firms have stronger incentives to exercise market power under the premium-priced policy. We find conditions under which renewable resources that are more correlated with market demand are procured under a premium-priced design, while the opposite occurs under a fixed-priced policy. If the cost efficiencies associated with the "more valuable" renewable resources are sufficiently large, then welfare is larger under the premium-priced policy despite the stronger market power incentives in the wholesale market. Finally, we consider incumbent behavior in the renewable auction when competing against entrants with more valuable resources. |
| Keywords: | Electricity; Renewables; Market Power; Regulation; Procurement |
| JEL: | D43 L40 L51 L94 Q48 |
| Date: | 2018–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2018_012&r=cta |
| By: | Amanda Starc; Ashley Swanson |
| Abstract: | Selective contracting is an increasingly popular tool for reducing health care costs, but these savings must be weighed against consumer surplus losses from restricted access. In both public and private prescription drug insurance plans, issuers utilize preferred pharmacy networks to reduce drug prices. We show that, in the Medicare Part D program, drug plans with more restrictive preferred pharmacy networks, and plans with fewer enrollees who are insensitive to preferred pharmacy discounts on copays, pay lower retail drug prices. We then use estimates of plan and pharmacy demand to estimate the first-order costs and benefits of selective contracting in the presence of enrollees with heterogeneous sensitivity to preferred supplier incentives. |
| JEL: | I13 L1 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24862&r=cta |
| By: | Nicolas Caramp (UC Davis); Juan Passadore (Einaudi Institute for Economics and Fina) |
| Abstract: | What are the limits that private information and limited commitment impose on risk sharing? Previous literature considered both problems separately, or modeled the lack of commitment only as participation constraints. However, with private information, lack of commitment does not collapse to participation constraints and requires an extended notion. We argue that this narrow understanding of limited commitment is responsible for the difficulties to find a decentralization for the constrained efficient allocation, which rely on commitment of some parties or unreasonable off-the equilibrium beliefs. We propose a notion of limited commitment involving renegotiation-proofness of the contracts, which provides a more general notion of the lack of commitment in the presence of private information. We show that there can be risk sharing with ex-post efficient contracts, and we decentralize the constrained efficient allocation a la Alvarez & Jermann (2000), but with borrowing constraints that depend on the whole portfolio in all states. Finally, we derive implications for the optimal design of state-contingent sovereign debt, like GDP-linked government bonds. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:207&r=cta |