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on Contract Theory and Applications |
| By: | Mehdi Ayouni; Franck Bien; Thomas Lanzi |
| Abstract: | In a principal-agent model with monetary transfers, we show that the delegation principle always fails even if preferences are perfectly aligned. This result holds if (i) an action that is payoff-relevant for both the principal and the agent has to be taken even if the agent rejects the proposed contract and (ii) the principal can contractually extract surplus from the agent. |
| Keywords: | Contract; Delegation; Information; Transfers. |
| JEL: | D23 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2022-14&r= |
| By: | Guillermo Alonso Alvarez; Sergey Nadtochiy; Kevin Webster |
| Abstract: | This paper constructs optimal brokerage contracts for multiple (heterogeneous) clients trading a single asset whose price follows the Almgren-Chriss model. The distinctive features of this work are as follows: (i) the reservation values of the clients are determined endogenously, and (ii) the broker is allowed to not offer a contract to some of the potential clients, thus choosing her portfolio of clients strategically. We find a computationally tractable characterization of the optimal portfolios of clients (up to a digital optimization problem, which can be solved efficiently if the number of potential clients is small) and conduct numerical experiments which illustrate how these portfolios, as well as the equilibrium profits of all market participants, depend on the price impact coefficients. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.05403&r= |
| By: | Fabian Herweg; Maximilian Kähny |
| Abstract: | An entrepreneur chooses a relationship bank or market finance. The advantage of bank finance is that the quality of the entrepreneur’s project is identified early, allowing to liquidate low-quality projects. The loan contract induces an efficient continuation decision if the entrepreneur has sufficient wealth. If the entrepreneur is cash constrained, the loan contract is such that the bank continues inefficient projects, i.e., zombie lending occurs. In the short run - for a given contract - a drop in the market interest rate increases zombification. The bank adapts the contract to this drop in the long run, and zombification diminishes. |
| Keywords: | evergreening, interest rates, relationship banking, Zombie firms |
| JEL: | D82 D86 G21 G33 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9628&r= |
| By: | Thomas Sampson |
| Abstract: | Firm-to-firm relationships in global value chains create opportunities for North-South technology diffusion. This paper studies technology transfer in value chains when contracts are incomplete and input production technologies are imperfectly excludable. The paper introduces a new taxonomy of value chains based on whether or not the headquarters firm benefits from imitation of its supplier’s technology. In inclusive value chains, where imitation is beneficial, the headquarters firm promotes technology diffusion. By contrast, in exclusive value chains headquarters seeks to limit supplier imitation. The paper analyzes how this distinction affects the returns to offshoring, the welfare effects of technical change and the social efficiency of knowledge sharing. Weaker intellectual property rights over input production technologies raise welfare when value chains are inclusive, but have the opposite effect under exclusive value chains. |
| Keywords: | technology transfer, global value chains, incomplete contracts, intellectual property rights, imitation |
| JEL: | D23 F10 F23 O34 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9532&r= |