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on Contract Theory and Applications |
| By: | Johannes Boehm; Ezra Oberfield |
| Abstract: | The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale. |
| Keywords: | production networks, intermediate inputs, misallocation, productivity, contract enforcement, value chains |
| JEL: | E23 O11 F12 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1572&r=cta |
| By: | Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF); Markus Reisinger (Frankfurt School of Finance & Management) |
| Abstract: | A manufacturer chooses the optimal retail market structure and bilaterally and secretly contracts with each (homogeneous) retailer. In a classic framework without asymmetric information, the manufacturer sells through a single exclusive retailer in order to eliminate the opportunism problem. When retailers are privately informed about their (common) marginal cost, however, the number of competing retailers also affects their information rents and the manufacturer may prefer an oligopolistic market structure. We characterize how the manufacturer’s production technology, the elasticity of final demand, and the size of the market affect the optimal number of retailers. Our results arise both with price and quantity competition, and also when retailers’ costs are imperfectly correlated. |
| Keywords: | asymmetric information, distribution network, opportunism, retail market structure, vertical contracting. |
| JEL: | D43 L11 L42 L81 |
| Date: | 2018–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:509&r=cta |
| By: | Keith Marzilli Ericson; Justin R. Sydnor |
| Abstract: | Insurance affects the variability of consumption over time, which is not captured in standard expected utility of wealth models. We develop a consumption-utility model that shows how liquidity constraints and borrowing costs impact the value of insurance. Liquidity constraints generate high insurance demand when premiums are due smoothly, sometimes leading to seemingly dominated choices. Conversely, a risk-averse person may value insurance below its expected value and appear risk loving when premiums are due in a single payment. Moreover, optimal insurance contracts take different forms with liquidity constraints. We show empirical insurance analysis using the standard model can generate misleading counterfactuals and welfare estimates. Finally, we demonstrate the model’s feasibility and importance with an application to evaluating cost-sharing reductions on the health insurance exchanges. |
| JEL: | D01 D81 G22 I13 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24993&r=cta |
| By: | Andreas Ziegler (University of Kassel) |
| Abstract: | Based on data from a large-scale computer-based survey among more than 3700 German citizens, this paper empirically disentangles the determinants of the general change of electricity contracts and the specific change to green electricity contracts. Our econometric analysis reveals a strong relevance of behavioral factors and individual values and norms. For example, patience (which was measured by an incentivized experiment included in the survey) has a significantly positive effect on both general switches to alternative electricity contracts and specific switches to green electricity contracts. Furthermore, trust and (less robust) social preferences (also measured by an incentivized experiment) have additional significantly positive effects on the specific change to green electricity contracts. Our estimation results also imply an important role of political identification, i.e. an ecological policy orientation is strongly significantly positively correlated with the change to green electricity contracts. Furthermore, several household specific factors like relocation decisions as well as socio-demographic and socio-economic variables like household income are also relevant. The empirical analysis thus provides new explanation patterns for the phenomenon that relatively few households regularly change their electricity contracts and specifically switch to green electricity contracts, although they have high stated preferences for such changes. Our insights suggest several directions for policy and electricity suppliers to increase these switching rates. For example, the high importance of trust for the change to green electricity contracts suggests transparency initiatives of electricity suppliers to decrease concerns against renewable energies. |
| Keywords: | Switching electricity contracts, green electricity, behavioral factors, artefactual field experiments, individual values and norms |
| JEL: | A13 C93 D12 D91 Q41 Q42 Q50 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201827&r=cta |