Labour contracts in a stock market economy

In this paper, labour contracts are examined in the context of a general stock market economy where all shareholders are risk averse, and firms act in shareholders interest. The problem considered is whether some firm can offer a wage contract that will make all its shareholders better off. We show by example that, contrary to the arguments in the partial equilibrium framework, it is possible that no such contract will exist, even when there are potential gains to risk sharing. A sufficient condition for the existence of a feasible pareto improving contract is given. It is shown that contract trading will arise provided some firm has no large shareholders.     

Managerial incentives and the decision to hire managers in markets with public and private firms

This paper considers the managerial incentive contract when public and private firms compete in the same market. Social welfare is enhanced when all firms hire managers, but for different reasons than when all firms are privately owned. Incentives to hire managers differ in private and public firms; in equilibrium, only private firms hire managers.     

Coexistence of long-term and short-term contracts

We study the length of agreements in a market in which infinitely-lived firms contract with agents that live for two periods. Firms differ in the expected values of their projects, as do workers in their abilities to manage projects. Worker effort is not contractible and worker ability is revealed during the relationship. The market dictates the trade-off between sorting and incentives. Short- and long-term contracts often coexist: The best firms always use short-term contracts to hire high-ability senior workers, firms with less profitable projects use short-term contracts to save on the cost of hiring junior workers, whereas intermediate firms use long-term agreements to provide better incentives to their workers. We relate our results to the optimal assignment literature that follows Becker (1973).     

Regulatory design and technical efficiency: public transport in France

The provision of local public transport in France involves private and public firms and the use of incentive contracts to regulate them. We study the effect of these institutional features on the sector’s efficiency using a long panel data of firms, with a two-stage estimation procedure. First, we use nonparametric data envelopment analysis techniques to estimate input usage efficiency, following a conditional approach that controls for differences in the environments in which the firms operate. Second, we estimate semiparametric censored regressions, using fixed effects to control for unobserved sources of heterogeneity. Our results point to a differential effect of private and mixed public-private companies. In particular, having the performance of public operators as the benchmark, efficiency is relatively higher for private firms, but lower when the service is delegated to a mixed public-private firm. In the latter case, the effects diverge by contract type: when the contract is of the cost reimbursement type, performance is lower than the public firm benchmark, while for other contract types, there are no statistically significant differences.     

LONG‐TERM AND SHORT‐TERM CONTRACT IN A MIXED MARKET*

With a two‐period mixed oligopolistic framework, this paper analyses the interaction between the length of incentive contracts and market behaviour. Assuming an environment in which firms choose either a long‐term or short‐term contract, we examine how contracts differ between public and private firms. The results show that the contracts would differ completely among firms; public firm prefers to make a short‐term contract while private firm makes a long‐term contract.     

ON EMPLOYMENT CONTRACTS WITH ENDOGENOUS ON-THE-JOB SEARCH

We consider an equilibrium search model and employment contracts when workers have endogenous on-the-job search. When a firm tries to retain an employee by matching outside offers, variable search intensity leads to a moral hazard problem. We first consider workers with identical productivities. We derive an equilibrium where firms commit not to respond to outside offers and workers search less. Second, we investigate the case with heterogeneous workers and asymmetric information. Assuming that firms can commit to retain all workers irrespective of their ability, we establish conditions under which it is optimal to do so. This policy again reduces the incentive for active on-the-job search. We discuss an equilibrium where all firms use these so-called ‘pooling’ contracts.     

When Redistribution Leads to Regressive Taxation

We introduce labor contracts in a framework of optimal redistribution: firms have some local market power and try to discriminate among heterogeneous workers. In this setting we show that if the firms have perfect information, i.e., they perfectly discriminate against workers and take all the surplus, the best tax function is flat. If firms have imperfect information, i.e., if they offer incentive contracts, then (under some assumptions) the best redistributive taxation is regressive.     

股权激励能够抑制大股东掏空吗?

本文检验了股权激励对大股东掏空的抑制作用,结果发现,在控制了其他公司治理要素对大股东占款的影响之后,总经理持股或股权激励安排确实能够抑制大股东对上市公司的侵占,但是,股权激励的抑制效果不是线性增长的,即总经理持股比例与大股东侵占度不成线性关系。本文没有发现总经理持股比例超过5%时会产生堑壕效应,也没有发现所有制形式对股权激励效果有重大影响。本文的研究结果为正在进行的股权激励政策提供经验证据的支持,也丰富了股权激励的相关文献。     

Strategic delegation under quality competition

This paper examines strategic manipulations of incentive contracts in a model where firms compete in quality as well as in price. Compensation schemes for managers are based on a linear combination of profits and sales. For a given level of quality, a firm desires to reduce the manager's compensation when product sales increase; this serves as the firm's commitment to raise prices. Nevertheless, in general, a manager has a stronger incentive to produce goods of higher quality if he is compensated according to sales. Therefore, a compensation scheme that penalizes a manager when sales increase may result in products that are inferior to those of its rival. We show that, depending on the nature of quality, a positive weight on sales may be desirable when firms compete in quality and price. Welfare implications are also explored.     

Electricity market mergers with endogenous forward contracting

We analyze the effects of electricity market mergers in an environment where firms endogenously choose their level of forward contracts prior to competing in the wholesale market. We apply our model to Alberta’s wholesale electricity market. Firms have an incentive to reduce their forward contract coverage in the more concentrated post-merger equilibrium. We demonstrate that endogenous forward contracting magnifies the price increasing impacts of mergers, resulting in larger reductions in consumer surplus. Current market screening procedures used to analyze electricity mergers consider firms’ pre-existing forward commitments. We illustrate that ignoring the endogenous nature of firms’ forward commitments can yield biased conclusions regarding the impacts of market structure changes such as mergers. In particular, we show that the price effects of mergers can be largely underestimated when forward contract quantities are held at pre-merger levels. Whether the profits of the merged firm are greater with fixed or endogenous forward quantities is ambiguous.     

Section 365, mandatory bankruptcy rules and inefficient continuance

Section 365 of the Bankruptcy Code prohibits enforcement ofthe once common 'ipso facto clause.' The clause excuses thesolvent party from performance of the contract when the otherparty becomes insolvent. We show that the ability of insolventfirms to continue bad projects is enhanced by the absence ofipso facto clauses. Without such a clause, the firm can exploitthe inability of courts always to assess expectation damagesaccurately to compel a solvent party to stay in a bad deal.An ipso facto clause would preclude this outcome because theclause permits the solvent party to exist costlessly. Further,an ipso factor clause improves the managers' incentive to exerteffort to avoid financial distress. These results have two broaderimplications. First, that the important mandatory rule regulatingthe ability of solvent parties to exit is inefficient suggeststhat the justifications for the Bankruptcy Code's other mandatoryrules should be rethought. Second, our analysis suggests thatstakeholders such as contract partners of bankrupt firms mayhave important roles to play in inducing efficient bankruptcydecisions through their abilities to stop unproductive projectsthat bankrupt firms may otherwise continue.     

Negotiation and take it or leave it in common agency

This paper contrasts models of common agency in which principals compete in incentive contracts (that is, they make take it or leave it offers) with models where principals offer agents menus of incentive contracts from which the final contract is negotiated. It is shown that pure strategy equilibria in incentive contracts are robust to the possibility that principals might offer menus. In addition, a no-externalities condition is given such that any pure strategy equilibrium allocation with menus can be supported with competition in incentive contracts. The no-externalities condition is restrictive, but it is shown that it applies in most well-known common agency problems, including, for example, the Bertrand pricing problem.     

风险投资家的最优激励契约模型研究--一种基于逆向选择和道德风险条件下的博弈模型分析

为减少风险投资融资中风险投资家的逆向选择和道德风险,风险投资者必须设立一套有效的激励机制来让风险投资家选择,从而根据风险投资家选择的结果来甄别其真实能力类型,同时又能激励其努力工作。文章建立了风险投资家能力类型和努力都是不可观测条件下的最优激励契约模型,并根据显示原理,利用最优控制理论求出了最优解进而进行了分析。得出的结论是:最优激励契约能使高能力风险投资家乐于选择具有高强度激励、低固定收入和风险小的项目,同时又能激励其签约后更加努力工作。     

Moral hazard,land fertility and sharecropping in a rural area of the Philippines

Introducing concerns about land fertility for landlords in a Principal–Agent model of sharecropping with moral hazard, we show that the optimal contract under limited commitment reflects a trade-off between production and land quality maintenance. Using data from the Philippines, a model where the leasing out and contract choices are simultaneous is estimated and avoids the selectivity bias of observed contracts. Landlords prefer to use more incentive contracts for more fertile plots and less incentive ones when crop choices induce land overuse. Empirical tests reject the model of pure risk sharing in production and show the interest of taking land quality maintenance into account.     

Endogenous market structures and contract theory: Delegation, principal-agent contracts, screening, franchising and tying

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern (1) contracts of managerial delegation to non-profit maximizers, (2) incentive principal-agent contracts in the presence of moral hazard on cost-reducing activities, (3) screening contracts in case of asymmetric information on the productivity of the managers, (4) vertical contracts of franchising in case of hold-up problems and (5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry.     

Capital Requirements in a Financially Driven Business Cycle Model

We consider a simple overlapping generations economy where, because of asymmetric information and limited liability both in the loan and the deposits markets, firms have the incentive to undertake less efficient investment projects, while intermediaries have the incentive to monitor a smaller number of firms. Because of the positive relationship between the deposit interest rate and the level of monitoring, the lending activity of intermediaries may cause endogenous fluctuations in the level of economic activity.
In this economy, a higher capital requirement, introduced to render deposit contracts incentive compatible, implies a higher steady state stock of capital, fewer bankruptcies among intermediaries and smaller fluctuations in the level of economic activity.
(J.E.L. E32, D82, G28)     

Does Price Stability Exacerbate Labour Market Rigidities in the EMU?

How will the commitment to price stability affect labour market rigidities in the European Monetary Union? I explore a model where firms choose between fixed wage contracts (where the employer cannot lay off the worker, and the wage can only be changed by mutual consent), or contracts where employment is at will, so that either party may terminate employment (with strong similarities to temporary jobs). A fixed wage contract provides better incentives for investment and training, while employment at will facilitates efficient mobility. Inflation erodes the real value of a fixed contract wage over time, and badly matched workers are more likely to quit for other jobs. Disinflation has opposing effects on labour market rigidity: fixed wage contracts become more rigid in real terms, but fewer firms will choose fixed wage contracts.     

Insider trading legislation and corporate governance

This paper analyzes the impact of insider trading legislation on corporate governance. In a context where large, dominant shareholders can monitor underperforming companies, managers have an incentive to give early warnings about adverse developments to dominant shareholders. This information is effectively a bribe to induce dominant shareholders to sell their stock and refrain from intervention. If insider trading is unregulated, dominant shareholders collude with management at the expense of small shareholders. The optimal regime forces the company to disclose all material information to the market. Private contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment, otherwise large shareholders and managers recontract at the expense of small shareholders. Enforcement also matters. European Union legislation requires inside information to be precise. Such a narrow definition creates a grey zone, where information is private but cannot be classified as inside information. As a result the effectiveness of corporate governance and firm value are reduced. Regulation in the US that treats shareholders with a stake exceeding 10% as insiders is potentially harmful.     

Incentive Contracts for Infrastructure,Litigation and Weak Institutions

In this paper we revisit incentive contract design in a simple setting, after developing a model that captures the fact that in weak institutional settings the procurement of large scale public works through contracts with strong incentives for private firms, may result in excessive litigation over contract terms. This result is possible because we assume that parties in litigation can influence (by purchasing better or more legal services) the observable merits of their case. In weak institutional settings, governments have an inherent disadvantage in these litigation contests. We show that a commitment to a prespecified level of litigation effort by the government, together with weaker incentive contracts, is a more efficient procurement mechanism.Jel Classification: D8, H57, H54, K41, K23, L51