Specificity revisited: The role of cross-investments

Previous analysis has shown that traders may opt for specific technologies with no joint productivity advantage as a way to commit themselves to trading jointly, but only when long-term contracting is infeasible. This paper proves that speciÞcity can also be optimal (by relaxing the budget-balance constraint) in settings with long-term contracting. Traders will opt for specificity when one trader makes a cross-investment and either (1) this cross-investment has a direct externality on the other trader, (2) both parties invest, or (3) private information is present. The specificity (e.g. from non- salvageable investments, specific assets and technologies, narrow business strategies, and exclusivity restrictions) is equally effective regardless of which trader's alternative trade payoff is reduced. Specificity supports long-term contracts in a broad range of settings - both with and without renegotiation. The theory also offers a novel perspective on franchising and vertical integration.Specificity, hostages long-term contracting, cross-investments, budget-balance, renegotiation

The optimal length of contracts with application to outsourcing

This paper resolves three empirical puzzles in outsourcing by formalizing the adaptation cost of long-term performance contracts. Side-trading with a new partner alongside a long- term contract (to exploit an adaptation-requiring investment) is usually less effective than switching to the new partner when the contract expires. So long-term contracts that prevent holdup of specific investments may induce holdup of adaptation investments. Contract length therefore trades of specific and adaptation investments. Length should increase with the importance and specificity of self-investments, and decrease with the importance of adaptation investments for which side-trading is ineffective. My general model also shows how optimal length falls with cross-investments and wasteful investments.Contract length, market forces, incomplete contracts, holdup

Does privatising public service provision reduce accountability?

This paper studies how privatising service provision (shifting control rights and contractual obligations to providers) affects accountability. There are two main effects. (1) Privatisation demotivates governments from investigating and responding to public demands, since providers then hold up service adaptations. (2) Privatisation demotivates the public from mobilising to pressure for service adaptations, since providers then indirectly holdup the public by inflating the government’s cost of implementing these adaptations. So, when choosing governance mode, politicians may be biased towards privatising as a way to escape public attention; relatedly, privatising utilities may reduce public pressure and increase consumer prices.Public Services, Privatisation, Voter Mobilisation, Accountability, Government Responsiveness, Contract Length, Incomplete Contracts, Holdup

The donor problem

Donors often rely on local intermediaries to deliver benefits to target beneficiaries. Each selected recipient observes if the intermediary under-delivers to them, so they serve as natural monitors. However, they may withhold complaints when feeling unentitled or grateful to the intermediary for selecting them. Furthermore, the intermediary may distort selection (e.g. by picking richer recipients who feel less entitled) to reduce complaints. We design an experimental game representing the donor’s problem. In one treatment, the intermediary selects recipients. In the other, selection is random - as by an uninformed donor. In our data, random selection dominates delegation of the selection task to the intermediary. Selection distortions are similar, but intermediaries embezzle more when they have selection power and (correctly) expect fewer complaints.Development, Entitlement, Experiments, Fairness, Intermediaries, Monitoring, Targeting, Punishment.

What do the papers sell?

We model the market for news as a two-sided market where newspapers sell news to readers who value accuracy and sell space to advertisers who value advert-receptive readers. We show that monopolistic newspapers under-report or bias news that sufficiently reduces advertiser profits. Newspaper competition generally reduces the impact of advertising. In fact, as the size of advertising grows, newspapers may paradoxically reduce advertiser bias, due to increasing competition for readers. However, advertisers can counter this effect of competition by committing to news-sensitive cut-off strategies, potentially inducing as much under-reporting as in the monopoly case.Two-sided markets, advertising, media accuracy, media bias, media economics.

Electoral competition under the threat of political unrest

We study elections in which one party (the strong party) controls a source of political unrest; e.g., this party could instigate riots if it lost the election. We show that the strong party is more likely to win the election when there is less information about its ability to cause unrest. This is because when the weak party is better informed, it can more reliably prevent political unrest by implementing a ``centrist'' policy. When there is uncertainty over the credibility of the threat, ``posturing'' by the strong party leads to platform divergence.Electoral competition, political unrest, asymmetric information, platform divergence

Organisational structure, communication and group ethics

This paper investigates experimentally how organisational decision processes affect the moral motivations of actors inside a firm that must forego profits to reduce harming a third party. In a "vertical" treatment, one insider unilaterally sets the harm-reduction strategy; the other can only accept or quit. In a "horizontal" treatment, the insiders decide by consensus. Our 2-by-2 design also controls for communication effects. In our data, communication makes vertical firms more ethical; voice appears to mitigate "responsibility-alleviation" in that subordinates with voice feel responsible for what their firms do. Vertical firms are then more ethical than the horizontal firms for which our bargaining data reveal a dynamic form of responsibility-alleviation and our chat data indicate a strong "insider-outsider" effect.experimental economics, group decision-making, organisational structure,

Choosing and not choosing with and without communication: Experimental results on contract design and selection

This paper studies selection and procedural effects in experimental contracting when sellers choose unenforceable trade quality after a possible cost shock. Br and ts, Charness, and Ellman (2016) investigate how communication affects behavior and outcomes in contractswith rigid prices, relative to contractswhere buyers can raise prices after observing the shock. An important remaining question is how behavior is affected by whether contract type is endogenous or experimenterimposed. Different sorts of buyersmay select contract types differently and sellers may respond differently when contract type is endogenous. Surprisingly, we find only modest effects. We draw lessons for experimental design.Peer Reviewe

Electoral Competition under the Threat of Political Unrest

We study elections in which one party (the strong party) controls a source of political unrest; e.g., this party could instigate riots if it lost the election. We show that the strong party is more likely to win the election when there is less information about its ability to cause unrest. This is because when the weak party is better informed, it can more reliably prevent political unrest by implementing a "centrist" policy. When there is uncertainty over the credibility of the threat, "posturing" by the strong party leads to platform divergence

Fathers, Divorce, and Child Custody

A great many fathers will have their fathering eliminated, disrupted, or vastly changed because they become divorced from the child’s mother. In fact, between 40% and 50% of marriages end in divorce (Cherlin, 2010). Although the divorce rate (measured as divorces per 1,000 people) is high by the standards prior to the late 1960s, it has actually fallen more than 30% since its peak in 1980. The decline in divorce rates in recent years has, however, been concentrated among the college-educated portion of the population; divorce rates among the less well educated may have even increased (Cherlin, 2010). But for both groups, divorce remains the most prevalent reason for changes in paternal parenting opportunities. For almost all divorced fathers (as well as for most mothers and children), divorce is a life-defining event, around which all other experiences are organized: before the divorce versus after the divorce. Although mothers’ parenting is generally changed by divorce, the revision to the parent-child interaction patterns is generally not as far-reaching as it is to fathers’ (Braver & Lamb, in press; Braver, Shapiro, & Goodman, 2005; Fabricius, Braver, Diaz, & Velez, 2010). The reason, of course, is the radical difference between the two parents’ custodial arrangements that typically occurs. As will be documented more precisely below, mothers generally become chief custodians of children, with fathers having visiting rights only. Although that situation has changed in recent years, due in large part to the fact that research has accumulated that illuminates the unintended negative consequences of that practice on fathers and children, it remains normative. Thus, no review of fathers and divorce can be complete or enlightening unless it also considers custody matters, as we do here