Social norms like the mutual belief in reciprocity facilitate economic exchange. But this reciprocity norm requires trust among traders, which can be challenging to create among strangers even with communication. The honesty oath is a time-honored mechanism that societies use to overcome this challe...
This paper examines how a decision maker might incentivize an expert to reveal novel aspects of the decision problem, expanding the set of contracts from which the decision maker can choose. The chosen contract will determine, along with the resolution of uncertainty, the payoffs to both players. I...
We develop a model of incomplete employment contracts such that employees have some discretion over effort, which depends on their work morale. Nominal wage cuts have a strong negative effect on morale, while employee involvement in workplace decision-making tends to increase morale. We derive predi...
Les fortes variations des prix des matières premières et la chute des prix observée en 2014 pour beaucoup d'entre elles ont, plus que jamais, mis en évidence la contribution des traders physiques dans les filières. En se concentrant sur le secteur pétrolier, cette thèse vise à rendre compte du rôle...
Under moral hazard, most insurance contracts are incomplete, to the extent that they condition the coverage neither on the contingencies under which policyholders choose their behavior, nor on the circumstances of the loss. This incompleteness can be explained by underwriting and auditing costs born...
Oliver Hart and Bengt Holmström were awarded the 2016 Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel for their contributions to the Theory of Contracts. Their works build a theory of firms and organizations that is based on two pillars: (1) Parties exert efforts or incu...
Intergenerational risk sharing is often seen as a strong point of the Dutch pension system. The ability to absorb financial and actuarial shocks through the funding ratio allows for the smoothing of returns over generations. Nevertheless, it implicitly means that generations subsidize each other, wh...
Oliver Hart and Bengt Holmström were awarded the 2016 Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel for their contributions to the Theory of Contracts. Their works build a theory of firms and organizations that is based on two pillars: (1) Parties exert efforts or incu...
Using an incomplete contract framework, we analyse new forms of regulation and private participation in public services. This paper explains contractual efficiency in the absence of financially guaranteed investments in public private partnerships. The example of a number of African countries underl...
We characterize the optimal dynamic contract for a long-term basic service when an uncertain add-on is required later on. Introducing firm risk aversion has two impacts. Profits for the basic service can be backloaded to induce cheaper information revelation for this service: an Income Effect which...
We analyze risk allocation and contractual choices when public procurement is plagued with moral hazard, private information on exogenous shocks, and threat of corruption. Complete contracts entail state-contingent clauses that compensate the contractor for shocks unrelated to his own effort. By imp...
While vertical integration is traditionally seen as a solution to the holdup problem, this article highlights instead that it can generate holdup problems-for rivals. We consider a successive duopoly where downstream firms invest and then secure support from an upstream supplier. We first show that...
Social Choice and game theory provide a quantitative assessment of political power notably through power indexes applied to various institutional settings such as Parliaments. Public Choice does not go as far as formal measurement; it rather uses a model of constitutions, namely a principal-agent re...
"In line with the literature that considers that transaction costs, asset speci- ficity and incomplete contracts play a key role in the “make or buy decision”, this paper seeks to identify the characteristics of offshoring firms that make them more or less likely to integrate their activities in a f...
Environmental Aspects of Resource Extraction Contracts / Hanna Krings, RWTH Aachen University. Joint Discussion Paper Series in Economics n°34-2014, 2014, 29 p. http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/index_html%28magks%29 Author's abstract : This paper analyzes resource partnersh...
Does formal contracting foster cooperation in a buyer-supplier relationship? In line with the literature, we find that a renegotiable contract with relationshipspecific joint investments does not make it possible to reach the first-best. However, we show that a renegotiable contract may induce more coo...
This study develops a property rights explanation of the multi-unit (MU) ownership strategy of the franchise firm. According to the property rights theory, the allocation of residual rights of control (decision and ownership rights) in franchise firms depends on the contractibility of system-specifi...
This paper offers an explanation of rationally incomplete contracts, where incompleteness refers to unforeseen contingencies. Agents enter a two-sided moral hazard relationship, in which a commitment to discard parts of the joint resources may be ex-ante efficient. This happens through costly legal...
This paper investigates the impact of limited commitment on international electricity trade. We build a model where hold-up problems originating from incomplete contracts decrease countries' willingness to trade. In particular, an inability to commit to future trade reduces the specialization of inv...
This article investigates the allocation of demand risk with in an incomplete contract framework. We consider an incomplete contractual relationship between a public authority and a private provider (i.e. a public-private partnership), in which the latter invests in non-verifiable cost-reducing effo...
Departing from the seminal question that Coase raised in his 1937 work, this article discusses and assesses incomplete contracts theories' analyses of the firm's boundaries--notably transaction cost theory and the modern theory of property rights--by investigating the case of the vertical network or...