Procrastination in Teams, Contract Design and Discrimination

We study a dynamic model of team production with moral hazard. We show that the players begin to invest effort only shortly before the time limit when the reward for solving the task is shared equally. We explore how the team can design contracts to mitigate this form of procrastination and show that the second-best optimal contract is discriminatory. We investigate how limited liability or the threat of sabotage influences the team’s problem. It is further shown that players who earn higher wages can be worse off than teammates with lower wages and that present-biased preferences can mitigate procrastination.Moral Hazard, team production, partnerships, procrastination, contract design, discrimination

Moral Hazard and Ambiguity

We consider a principal-agent model with moral hazard where the agent’s knowledge about the performance measure is ambiguous and he is averse towards ambiguity. We show that the principal may optimally provide no incentives or contract only on a subset of all informative performance measures. That is, the Informativeness Principle does not hold in our model. These results stand in stark contrast to the ones of the orthodox theory, but are empirically of high relevance.financial crisis, Basel Accord, banking regulation, capital requirements, modelbased approach, systemic risk

Persistence of Monopoly and Research Specialization

We examine the persistence of monopolies in markets with innovations when the outcome of research is uncertain. We show that for low success probabilities of research, the incumbent can seldom preempt the potential entrant. Then the efficiency effect outweighs the replacement effect. It is vice versa for high probabilities. Moreover, the incumbent specializes in “safe” research and the potential entrant in “risky” research. We also show that the probability of entry has an inverted U-shape in the success probability. Since even at the peak entry is rather unlikely, the persistence of the monopoly is high.Persistence of Monopoly, Efficiency Effect, Replacement Effect, Stochastic Innovations

Increasing Workload in a Stochastic Environment

We show that a steeply increasing workload before a deadline is compatible with time-consistent preferences. The key departure from the literature is that we consider a stochastic environment where success of effort is not guaranteed.Increasing Workload, Deadline, Stochasticity

The Optimality of Simple Contracts: Moral Hazard and Loss Aversion

This paper extends the standard principal-agent model with moral hazard to allow for agents having reference- dependent preferences according to Köszegi and Rabin (2006, 2007). The main finding is that loss aversion leads to fairly simple contracts. In particular, when shifting the focus from standard risk aversion to loss aversion, the optimal contract is a simple bonus contract, i.e. when the agent's performance exceeds a certain threshold he receives a fixed bonus payment. Moreover, if the agent is sufficiently loss averse, it is shown that the first-order approach is not necessarily valid. If this is the case the principal may be unable to fine-tune incentives. Strategic ignorance of information by the principal, however, allows to overcome these problems and may even reduce the cost of implementation.Agency Model; Moral Hazard; Reference-Dependent Preferences; Loss Aversion

Local political institutions and electoral context influence levels of campaign spending in mayoral elections

Campaign spending is a perennial concern in both national and local elections, especially since the 2010 Citizens United Supreme Court ruling. Proponents argue that more spending increases interest in elections, while detractors claim that it creates biases in representation and public policy. Using an original dataset, Aaron C. Weinschenk examines campaign spending levels in mayoral elections, finding that the electoral context and local political institutions play the most important role in shaping levels of campaign spending across city elections. From these results, he identifies several ways to reduce campaign spending in mayoral elections, but notes that these changes may have unintended consequences. If levels of campaign spending decline due to institutional changes, cities elections, which often suffer from low voter turnout rates, might experience even lower levels of turnout

A sense of civic duty is influenced by deeply rooted personality traits

Voter turnout is a perennial concern for political scientists and politicians alike. Even with extensive campaigns to “get out the vote,” turnout for most elections lingers around half of the eligible population. Aaron C. Weinschenk examines the idea that the propensity to vote is influenced by deeply rooted personality traits that cultivate a sense of civic duty. He finds that a number of the “Big Five” personality traits, Conscientiousness, Extraversion, Agreeableness, and Openness, are positively correlated with a perceived duty to vote