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Multilateral Contracting and the Employment Relationship,” The Quarterly (2002)

by Jonathan Levin
Venue:Journal of Economics,
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Contracting with Repeated Moral Hazard and Private

by William Fuchs - Evaluations, American Economic Review , 2007
"... This work is distributed as a Discussion Paper by the ..."
Abstract - Cited by 60 (1 self) - Add to MetaCart
This work is distributed as a Discussion Paper by the

Are Elite Universities Losing Their Competitive Edge?’. NBER Working Paper 12245

by E. Han Kim, Stephen M. Ross, Adair Morse, Luigi Zingales, E. Han Kim, Adair Morse, Luigi Zingales - The Journal of Political Economy
"... We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top 25 universities in the last three decades. We find that there was a positive effect of being affiliated with an elite university in the 1970s; this effect wea ..."
Abstract - Cited by 39 (1 self) - Add to MetaCart
We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top 25 universities in the last three decades. We find that there was a positive effect of being affiliated with an elite university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s. We decompose this university fixed effect and find that its decline is due to the reduced importance of physical access to productive research colleagues. We also find that salaries increased the most where the estimated externality dropped the most, consistent with the hypothesis that the de-localization of this externality makes it more difficult for universities to appropriate any rent. Our results shed some light on the potential effects of

Productivity and credibility in industry equilibrium. Working paper

by Michael Powell , 2011
"... I analyze a model of production in a competitive environment with heterogeneous …rms. E ¢ cient production requires individuals within the organization to take noncontractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises em ..."
Abstract - Cited by 9 (0 self) - Add to MetaCart
I analyze a model of production in a competitive environment with heterogeneous …rms. E ¢ cient production requires individuals within the organization to take noncontractible actions for which rewards must be informally promised rather than contractually assured. The credibility of such promises emerges from a …rm’s future competitive rents. Equilibrium competitive rents are ine ¢ ciently concentrated at the top. I explore several policy and empirical implications of this result. (JEL D21, D24, L14, L22)

The Impact of Envy on Relational Employment Contracts

by Jenny Kragl, Florian Englmaier, Oliver Fabel , 2009
"... We study the e¤ects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which re‡ects an agent’s individual contribution to …rm value. Both agents exhibit horizontal disadvantageous inequ ..."
Abstract - Cited by 8 (1 self) - Add to MetaCart
We study the e¤ects of envy on relational employment contracts in a standard moral hazard setup with two agents. Performance is evaluated via an observable, but non-contractible signal which re‡ects an agent’s individual contribution to …rm value. Both agents exhibit horizontal disadvantageous inequity aversion. In contrast to the literature, we …nd that inequity aversion may be bene…cial: In the presence of envy, for a certain range of interest rates relational contracts may be more pro…table. For some interest rates reputational equilibria exist only with envious agents.

Relational Contracts and the Value of Loyalty

by Simon Board - American Economic Review , 2011
"... This paper examines how relational contracting affects the pattern of trade across the econ-omy. We suppose a firm (principal) repeatedly chooses among of a set of potential trading partners (agents) under the threat of holdup. The possibility of ex–post opportunism al-lows agents to collect rents, ..."
Abstract - Cited by 8 (0 self) - Add to MetaCart
This paper examines how relational contracting affects the pattern of trade across the econ-omy. We suppose a firm (principal) repeatedly chooses among of a set of potential trading partners (agents) under the threat of holdup. The possibility of ex–post opportunism al-lows agents to collect rents, which act like a fixed cost that the principal must pay when initiating a new relationship. The principal responds by dividing agents into “insiders”, with whom she has previously traded, and “outsiders”, with whom she has never traded. If the principal is sufficiently patient, the profit–maximising contract then uses insiders effi-ciently, while being biased against outsiders. This optimal strategy can be implemented by a “maintenance contract ” that is robust to asymmetric information. 1

A Theory of Disagreement in Repeated Games with Bargaining

by David A. Miller, Joel Watson , 2011
"... This paper proposes a new approach to the problem of equilibrium selection in repeated games with transfers, by supposing that in each period the players bargain over how to play. Although the bargaining phase is cheap talk (which follows a generalized alternating-offer protocol), sharp predictions ..."
Abstract - Cited by 6 (3 self) - Add to MetaCart
This paper proposes a new approach to the problem of equilibrium selection in repeated games with transfers, by supposing that in each period the players bargain over how to play. Although the bargaining phase is cheap talk (which follows a generalized alternating-offer protocol), sharp predictions arise from three axioms. Two axioms allow the players to meaningfully discuss whether to deviate from their plan; the third embodies a “theory of disagreement”—that play under disagreement should not vary with the manner in which bargaining broke down. Equilibria satisfying these axioms exist for all discount factors and are simple to construct, and all equilibria attain the same joint value. Optimal play under agreement generally requires suboptimal play under disagreement. Whether patient players attain efficiency depends on both the stage game and the bargaining power that they derive from the details of the bargaining protocol. The theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors, and yields new insights into classic

Incomplete Contracts and Firm Boundaries: New Directions

by Wouter Dessein - Forthcoming:Journal of Law, Economics, & Organizations , 2012
"... Political Economy 691–19.) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in pro-viding incentives. In this essay, I discuss some new directions that the literature has taken since. As a central challenge, I identify the need ..."
Abstract - Cited by 5 (0 self) - Add to MetaCart
Political Economy 691–19.) made the study of firm boundaries susceptible to formal economic analysis, and illuminated an important role for markets in pro-viding incentives. In this essay, I discuss some new directions that the literature has taken since. As a central challenge, I identify the need to provide a formal theory of the firm in which managerial direction and bureaucratic decision-making play a key role. Merging a number of existing incomplete con-tracting models, I propose two approaches with very different contracting as-sumptions. As in transaction cost economics, a central element in those theories is the presence of a central office that directs and coordinates the actions of subordinates. More novel, I highlight the superior ability of nonintegrated firms to adapt to a changing environment. JEL: D23, D83, D86, L22, L23. 1.

Relational Contracts in Competitive Labor Markets ∗

by Simon Board, Moritz Meyer-ter-vehn , 2011
"... This paper characterizes the distribution of jobs in a relational contracting model where both employed and unemployed workers compete for jobs. In equilibrium, identical firms offer a continuous distribution of contracts, with some firms offering high-wage, high-productivity contracts and others of ..."
Abstract - Cited by 3 (1 self) - Add to MetaCart
This paper characterizes the distribution of jobs in a relational contracting model where both employed and unemployed workers compete for jobs. In equilibrium, identical firms offer a continuous distribution of contracts, with some firms offering high-wage, high-productivity contracts and others offering low-wage, low-productivity contracts. An increase in on-the-job-search affects equilibrium contracts in two ways. First, by decreasing retention rates it leads to a deterioration in the quality of jobs. Second, by reducing the opportunity cost of employment it allows firms to enter at the bottom of the market. If employed workers receive better offers than the unemployed then free entry leads to full employment, and wage dispersion rather than unemployment incentivizes workers. 1

Contracting with heterogeneous externalities

by Shai Bernstein, Eyal Winter, Hamid Sabourian, Ron Segal, Asher Wolinsky - American Economic Journal: Microeconomics , 2012
"... We model situations in which a principal offers a set of contracts to a group of agents to participate in a project (such as a social event or a commercial activity). Agents ’ benefits from participation depend on the identity of other participating agents. We assume multilateral externalities and c ..."
Abstract - Cited by 3 (0 self) - Add to MetaCart
We model situations in which a principal offers a set of contracts to a group of agents to participate in a project (such as a social event or a commercial activity). Agents ’ benefits from participation depend on the identity of other participating agents. We assume multilateral externalities and characterize the optimal contracting scheme. We show that the optimal contracts ’ payoff relies on a ranking of the agents, which can be described as arising from a tournament among the agents (similar to ones carried out by sports associations). Rather than simply ranking agents according to a measure of popularity, the optimal contracting scheme makes use of a more refined two-way comparison between the agents. Using the structure of the optimal contracts we derive results on the principal’s revenue extraction and the role of the level of externalities ’ asymmetry.
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Citation Context

...o 1986a; Kamien, Oren, and Tauman 1992) in which the principal supplies an intermediate good to identical downstream firms (agents), which then produce substitute consumer goods; employment models (=-=Levin 2002-=-) in which a principal provides wages to induce effort in a joint production of a group of workers; exclusive dealing models (Rasmusen, Ramseyer, and Wiley 1991; Segal and Whinston 2000) in which the ...

Individual vs. Relative Performance Pay with Envious Workers and Non-verifiable Performance

by Jenny Kragl , 2009
"... In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and independent bonus contracts when a firm employs two envious workers whose individual performances are not verifiable. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet ..."
Abstract - Cited by 2 (1 self) - Add to MetaCart
In a moral-hazard environment, I compare the profitabilities of a rank-order tournament and independent bonus contracts when a firm employs two envious workers whose individual performances are not verifiable. Whereas the bonus scheme must then be self-enforcing, the tournament is contractible. Yet the former incentive regime outperforms the latter as long as credibility problems are not too severe. This is due the fact that the tournament requires unequal pay across peers with certainty, thereby imposing large inequity premium costs on the firm. For a simple example, I show that the more envious the agents are, the larger is the range of interest rates for which the bonus scheme dominates the tournament.
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