Incomplete Contracts and the Theory of Contract Design
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Training Contracts, Employee Turnover, and the Returns from Firm-Sponsored General Training
DISCUSSION PAPER SERIES IZA DP No. 10835 Training Contracts, Employee Turnover, and the Returns from Firm-Sponsored General Training Mitchell Hoffman Stephen V. Burks JUNE 2017 DISCUSSION PAPER SERIES IZA DP No. 10835 Training Contracts, Employee Turnover, and the Returns from Firm-Sponsored General Training Mitchell Hoffman University of Toronto and NBER Stephen V. Burks University of Minnesota, Morris and IZA JUNE 2017 Any opinions expressed in this paper are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but IZA takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. The IZA Institute of Labor Economics is an independent economic research institute that conducts research in labor economics and offers evidence-based policy advice on labor market issues. Supported by the Deutsche Post Foundation, IZA runs the world’s largest network of economists, whose research aims to provide answers to the global labor market challenges of our time. Our key objective is to build bridges between academic research, policymakers and society. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. IZA – Institute of Labor Economics Schaumburg-Lippe-Straße 5–9 Phone: +49-228-3894-0 53113 Bonn, Germany Email: [email protected] www.iza.org IZA DP No. 10835 JUNE 2017 ABSTRACT Training Contracts, Employee Turnover, and the Returns from Firm-Sponsored General Training* Firms may be reluctant to provide general training if workers can quit and use their gained skills elsewhere. -
Contract Theory and the Limits of Contract Law
Columbia Law School Scholarship Archive Faculty Scholarship Faculty Publications 2003 Contract Theory and the Limits of Contract Law Alan Schwartz Robert E. Scott Columbia Law School, [email protected] Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship Part of the Contracts Commons Recommended Citation Alan Schwartz & Robert E. Scott, Contract Theory and the Limits of Contract Law, 113 YALE L. J. 541 (2003). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/339 This Article is brought to you for free and open access by the Faculty Publications at Scholarship Archive. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of Scholarship Archive. For more information, please contact [email protected]. Article Contract Theory and the Limits of Contract Law Alan Schwartz* and Robert E. Scottt* CONTENTS I. IN TROD U CTION ................................................................................. 543 II. JUSTIFYING AN EFFICIENCY THEORY OF CONTRACT ........................ 550 A . W hat Firms M axim ize .................................................................. 550 B. Why the State Should Help Firms ................................................ 555 III. THE ENFORCEMENT FUNCTION ........................................................ 556 A. Enforcement Often Is Unnecessary.............................................. 557 B. EncouragingRelation-Specific Investment .................................. 559 C. -
The Federal Trade Commission and Online Consumer Contracts
SMITH – FINAL THE FEDERAL TRADE COMMISSION AND ONLINE CONSUMER CONTRACTS Hilary Smith Consumer contracts have long posed a challenge for traditional contract enforcement regimes. With the rise in quick online transactions involving clickwrap and browsewrap contracts, these challenges only become more pressing. This Note identifies the problems inherent in the current system and explores proposals and past attempts to improve online consumer contract interpretation and enforcement. Ultimately, this Note identifies the Federal Trade Commission (“FTC”) as an appropriate and effective agency to provide the much-needed change to online consumer contract enforcement. Based upon its authority under Section 5 of the Federal Trade Commission Act to regulate unfair business practices, the broad discretion that Congress has afforded the FTC, and its successful incursion into the related field of online privacy law, the FTC is uniquely situated to promulgate a new online consumer contracting regime. This Note illustrates the basis and precedent for such a step and explores the form and effects of FTC involvement in online consumer contracts. I. Introduction ............................................................... 513 II. Background on End User License Agreements and Consumer Contracts .................................................. 514 A. Impact of Online Contracting on Consumer Contracts ............................................................. 514 B. Problems with Online Consumer Contracts ....... 517 J.D. Candidate 2017, Columbia Law School; B.A. 2014, Columbia University. Many thanks to Professor Robert Scott for his guidance throughout the research and writing process. Additional thanks to the staff and editors of the Columbia Business Law Review for their assistance in preparing this Note for publication. SMITH – FINAL No. 2:512] THE FTC AND ONLINE CONSUMER CONTRACTS 513 III. -
4000 Contract Law: General Theories
4000 CONTRACT LAW: GENERAL THEORIES Richard Craswell Professor of Law, Stanford Law School © Copyright 1999 Richard Craswell Abstract When contracts are incomplete, the law must rely on default rules to resolve any issues that have not been explicitly addressed by the parties. Some default rules (called ‘majoritarian’ or ‘market-mimicking’) are designed to be left in place by most parties, and thus are chosen to reflect an efficient allocation of rights and duties. Others (called ‘information-forcing’ or ‘penalty’ default rules) are designed not to be left in place, but rather to encourage the parties themselves to explicitly provide some other resolution; these rules thus aim to encourage an efficient contracting process. This chapter describes the issues raised by such rules, including their application to heterogeneous markets and to separating and pooling equilibria; it also briefly discusses some non- economic theories of default rules. Finally, this chapter also discusses economic and non-economic theories about the general question of why contracts should be enforced at all. JEL classification: K12 Keywords: Contracts, Incomplete Contracts, Default Rules 1. Introduction This chapter describes research bearing on the general aspects of contract law. Most research in law and economics does not explicitly address these general aspects, but instead proceeds directly to analyze particular rules of contract law, such as the remedies for breach. That body of research is described below in Chapters 4100 through 4800. There is, however, some scholarship on the general nature of contract law’s ‘default rules’, or the rules that define the parties’ obligations in the absence of any explicit agreement to the contrary. -
Module 4: Moral Hazard - Linear Contracts
Module 4: Moral Hazard - Linear Contracts Information Economics (Ec 515) George Georgiadis · A principal employs an agent. ◦ Timing: ◦ 1. The principal o↵ers a linear contract of the form w (q)=↵ + βq. – ↵ is the salary, β is the bonus rate. 2. The agent chooses whether the accept or reject the contract. – If the agent accepts it, then goto t =3. – If the agent rejects it, then he receives his outside option U, the principal receives profit 0, and the game ends. 3. The agent chooses action / e↵ort a A [0, ]. 2 ⌘ 1 4. Output q = a + " is realized, where " (0,σ2) ⇠N 5. The principal pays the agent, and the parties’ payo↵s are realized. The principal is risk neutral. His profit function is ◦ E [q w (q)] − The agent is risk averse. His utility function is ◦ r(w(q) c(a)) U (w, a)=E e− − − ⇥ ⇤ with a2 c (a)=c 2 Rationality assumptions: ◦ 1. Upon observing the contract w ( ), the agent chooses his action to maximize his · expected utility. 1 2. The principal, anticipating (1), chooses the contract w ( ) to maximize his expected · profit. First Best Benchmark: Suppose the principal could choose the action a. ◦ – We call this benchmark the first best or the efficient outcome. – Equivalent to say that the agent’s action is verifiable or contractible. Principal solves: ◦ max E [a + ✏ w (q)] a,w(q) − r(w(q) c(a)) s.t. E e− − U Individual Rationality (IR) − ≥ ⇥ ⇤ Solution approach: ◦ rx rEx[x] – Jensen’s inequality = Ex [ e− ] e− ) − – Because the principal chooses the action, optimal wage must be independent of q; i.e., w (q)=↵ – Because a higher w (q) decreases the principal’s profit and increases the agent’s payo↵, (IR) must bind. -
Corporate Finance, Incomplete Contracts, and Corporate Control*
Corporate Finance, Incomplete Contracts, and Corporate Control Patrick Boltony Columbia University This version: June 27, 2013 Abstract This essay in celebration of Grossman and Hart (1986) (GH) discusses how the introduction of incomplete contracts has fundamentally changed economists’perspec- tives on corporate finance and control. Before GH, the dominant theory in corporate finance was the tradeoff theory pitting the tax advantages of debt (relative to equity) against bankruptcy costs. After GH, this theory has been enriched by the introduc- tion of control considerations and investor protection issues. This essay assesses how our understanding of corporate finance has been improved as a result and where the incomplete contracts perspective has not yet been successfully applied. I am grateful to two anonymous referees and the editor (Al Klevorick) for very helpful comments. yColumbia University, 804 Uris Hall, 3022 Broadway, New York, NY 10027, e-mail: [email protected], http://www0.gsb.columbia.edu/faculty/pbolton This is a pre-copyedited, author-produced PDF of an article accepted for publication in the Journal of Law, Economics, and Organization following peer review. The version of record: Bolton, Patrick. "Corporate Finance, Incomplete Contracts, and Corporate Control." Journal of Law, Economics, and Organization 30, suppl 1 (May 2014): i64-i81, is available online at < http://dx.doi.org/10.1093/jleo/ ewt010 >. It is a great pleasure to write this essay in celebration of Sandy Grossman’sand Oliver Hart’s classic 1986 article “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration”. To appreciate the importance and novelty of their contribution it is helpful to put it into context of their earlier research and the state of economic theory at the time. -
“Turning the Social Contract Inside Out: Neoliberal Governance and Human Capital in Two
“Turning the Social Contract Inside Out: Neoliberal Governance and Human Capital in Two Days, One Night” Robert E. Watkins, PhD Associate Professor of Political Science and Cultural Studies Columbia College Chicago For Presentation at the Annual Meeting of The Western Political Science Association San Diego, California March 24-27, 2016 Please do not cite without permission of the author (rwatkins[at]colum.edu) Introduction In place of the social contractarian promise—that the political aggregate (or an authorized precipitate of it) will secure the individual against life-threatening danger from without and within—individual homo economicus may now be legitimately sacrificed to macroeconomic imperatives. Instead of being secured or protected, the responsibilized citizen tolerates insecurity, deprivation, and extreme exposure to maintain the competitive positioning, growth, or credit rating of the nation as firm. Wendy Brown, Undoing the Demos Film critic and scholar Girish Shambu finds an increased willingness to critique capitalism in mainstream media and culture (2015). Films dealing the 2008 financial and housing crisis like The Big Short (2015), 99 Homes (2015), and Money Monster (2016) approach neoliberalism through the lens of headline narratives about money, credit, and houses as they try to bring into focus a large and complex system, particularly in the American context. Approaching the neoliberal economy from a different perspective than these other recent releases, the 2014 film from the Dardenne brothers Two Days, One Night (2014) tells an altogether smaller and symptomatic, but no less significant story that focuses on the fate of one woman’s job in one particular company over the course of one weekend. -
Economic Analysis of Contract Law After Three Decades: Success Or Failure? Eric A
University of Chicago Law School Chicago Unbound Coase-Sandor Working Paper Series in Law and Coase-Sandor Institute for Law and Economics Economics 2002 Economic Analysis of Contract Law after Three Decades: Success or Failure? Eric A. Posner Follow this and additional works at: https://chicagounbound.uchicago.edu/law_and_economics Part of the Law Commons Recommended Citation Eric Posner, "Economic Analysis of Contract Law after Three Decades: Success or Failure?" (John M. Olin Program in Law and Economics Working Paper No. 146, 2002). This Working Paper is brought to you for free and open access by the Coase-Sandor Institute for Law and Economics at Chicago Unbound. It has been accepted for inclusion in Coase-Sandor Working Paper Series in Law and Economics by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. CHICAGO JOHN M. OLIN LAW & ECONOMICS WORKING PAPER NO. 146 (2D SERIES) Economic Analysis of Contract Law after Three Decades: Success or Failure? Eric A. Posner THE LAW SCHOOL THE UNIVERSITY OF CHICAGO This paper can be downloaded without charge at: The Chicago Working Paper Series Index: http://www.law.uchicago.edu/Lawecon/index.html The Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract_id=304977 Economic Analysis of Contract Law After Three Decades: Success or Failure? Eric A. Posner1 Abstract: Law and economics has failed to produce plausible descriptive theories of contract doctrines. This paper documents these failures and suggests that they are due to a methodological problem involving the concept of transaction costs. If transaction costs refer to writing or information costs, then rational individuals would agree to complex contracts that are not in fact observed, and contract law would, for the most part, have no other function than that of specifically enforcing contracts. -
World Bank Document
Public Disclosure Authorized 2 -.: Public Disclosure Authorized ?,...,,.LC! :I. :;;.;;her:, ar.8 Joseph E. Stic1i.t~ Public Disclosure Authorized Public Disclosure Authorized WAGE RIGIDITY, IMPLICIT CONTRACTS, AVD ECONOMIC EFFICIEKCY: ARE MARKET WGES TOO FLEXIBLE?* David M. Kewbery Develophent Research Department The World Bank and Joseph E. Stiglitz Department of Economics Princeton University August 1982 Revised June 1983 . &Preliminary and Confidential: Not for quotation or attribution wtthout prior ~leciilci~l~eir~u LIZ dutnars. ;'ie;js exp;~,,cld d:~:i;c;e of Th,e ~arhcr-,J~Z 33 not necessarily reflect those oathe World aank or Princeton University. lie - are indebted to Richard Arnott,$ostas Azariadis, Sandy Grossman, Oliver hut * and Arthur Hosios. a m WAGE RIGIDITY, IbIPLICIT CONTRACTS, AND ECONOYIC EFFICIENCY: ARE MARKET WAGES TOO FLEXIBLE? Abstract The analysis of implicit contracts between risk-averse workers and risk-neutral firms must recognize that (i) the contract is implicit, not explicit, (ii) it may only be conditioned on observable variables, and (iii) . there are limits to contract complexity. If contracts are perfectly flexible than neither the constraint of enforceability nor observability result in unemp:oyment. However, even with perfect enforceability and flexibility, linitations on con2racc flexibility may generate unemployment. Finally, even \ with flexible enforceable contracts anti no unemployment the market equilibrium is inefficient. We construct some simple general equilibrium models and explore the consequences of restrictions, on the set of feasible contracts, at the same time comment!ag on the present state of implicit contract theory. The implicit contract theory of wages argues that workers are -re risk averse than firms, and that firms will therefore find it less costly to hire labour if they provide some degree of income insurance against fluctuations in demand which would otherwise lead to fluctuations in the demand price of labour. -
Topics in Microeconomics ECON 5210 ( Part II $ Contract Theory )
Topics in Microeconomics ECON 5210 ( Part II - Contract Theory ) Tapas Kundu & Tore Nilssen University of Oslo Spring Semester 2009 Kundu & Nilssen (UiO) Contract Theory Spring Semester 2009 1 / 28 Private information on I on what the agent does (hidden actions) I on who the agent is (hidden information) Information and sequence of actions I Adverse Selection models : F Screening - The un-informed party (UP), who is imperfectly informed about the informed party (IP), moves …rst F Signaling - Same informational situation as before, but IP moves …rst I Moral Hazard models : UP, who is imperfectly informed about IP’s action, moves …rst Introduction Introduction Strategic interaction between privately informed agents I Inadequacy of general equilibrium set up Kundu & Nilssen (UiO) Contract Theory Spring Semester 2009 2 / 28 Information and sequence of actions I Adverse Selection models : F Screening - The un-informed party (UP), who is imperfectly informed about the informed party (IP), moves …rst F Signaling - Same informational situation as before, but IP moves …rst I Moral Hazard models : UP, who is imperfectly informed about IP’s action, moves …rst Introduction Introduction Strategic interaction between privately informed agents I Inadequacy of general equilibrium set up Private information on I on what the agent does (hidden actions) I on who the agent is (hidden information) Kundu & Nilssen (UiO) Contract Theory Spring Semester 2009 2 / 28 Introduction Introduction Strategic interaction between privately informed agents I Inadequacy -
Lectures in Contract Theory1
Lectures in Contract Theory1 Steve Tadelis and Ilya Segal2 UC Berkeley and Stanford University Preliminary and Incomplete December 2005 1These notes were prepared for a second year graduate course in Contract theory at Stanford University (Econ 282/291) and UC Berkeley (Econ 206). They are preliminary and incomplete. Thanks also to Debbie Johnston for typing the first version and to Scott Hemphill for excellent research assistance. 2Copyright c 1998-2005 by Steven Tadelis and Ilya Segal. All rights reserved. No part of these° notes may be reproduced in any form by any electronuic or mechanical means without writen permission from the author. Contents IIntroduction 5 0.1Tradewithsmallnumbersofagents............... 6 0.2 Incentives ............................. 7 0.3BoundedRationality....................... 8 0.4Contracts,Mechanisms,Institutions............... 8 II Hidden Information 10 1 The Principal-Agent Model 12 1.1Setup................................ 12 1.1.1 Preferences........................ 12 1.1.2 Contracting........................ 13 1.2Single-CrossingandtheMonotonicityofChoice........ 13 1.3TheFullInformationBenchmark................ 16 1.4TheRevelationPrinciple..................... 18 1.5SolutionwithTwoTypes..................... 20 1.5.1 ManyDiscreteTypes................... 24 1.6SolutionwithaContinuumofTypes.............. 25 1.6.1 TheRelaxedProblem................... 28 1.6.2 Whattodoifmonotonicitybinds(technical)...... 31 1.7ApplicationsoftheModel.................... 32 1.7.1 SecondDegreePriceDiscrimination.......... -
Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production
Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Antràs, Pol. 2014. Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production. Journal of Law, Economics, and Organization 30, suppl 1: i118–i175. Published Version doi:10.1093/jleo/ews023 Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:12220386 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#OAP Grossman-Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production Pol Antr`as∗ Harvard University May 16, 2012 Abstract I survey the influence of Grossman and Hart’s (1986) seminal paper in the field of Interna- tional Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I also review empirical work suggestive of the empirical relevance of the property- rights theory. Along the way, I develop novel theoretical results and also outline some of the key limitations of existing contributions. ∗This survey was prepared for the “Grossman and Hart at 25” conference held in Brussels on June 24-26, 2011. I am grateful to Lucia Antras, Davin Chor, Arnaud Costinot, Oliver Hart, and an anonymous referee for very helpful comments and to Elhanan Helpman for many conversations on this topic over the years.