512 research outputs found
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Reputational concerns in arbitration: Decision bias and information acquisition
We analyze how reputational concerns of arbitrators affect the quality of their decision process, in particular, information acquisition and bias. We assume that arbitrators differ in their ability to observe the state of the world and that information acquisition is costly and unobservable. We show that reputational concerns increase incentives for information acquisition but may induce arbitrators to bias their decisions towards one party in the dispute. This decision bias is greater when the dispute proceedings are confidential rather than public.
Building on these results, we study the circumstances under which the parties to a contract choose to employ arbitration rather than litigation in court to resolve their disputes
The theory of incentives applied to the transport sector
Building upon Iossa and Martimort (2008), we study the main incentive issues and the form of optimal contracts for Public Private Partnerships (PPPs) in transports. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses unobservable efforts in infrastructure and service quality. We begin by analyzing the effect on incentives and risk transfer of bundling building and operation into a single contract. We consider the factors that affect the optimal allocation of demand risk and their implications for the choice of contract length. We discuss the dynamics of PPP contracts and how the risk of regulatory opportunism affects contract design and incentives
The simple micro-economics of public-private partnerships
We build a unified theoretical framework to analyze the main incentive issues in Public Private Partnerships (PPPs) and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multitask environment in which a risk-averse agent chooses unobservable efforts in cost reduction and quality improvement. We begin by studying the effect on incentives and risk transfer of bundling building and operation into a single contract, allowing for different assumptions on the contractual framework and the quality of the information held by the government. We then extend the basic model in several directions. We consider the factors that affect the optimal allocation of demand risk and their implications for the use of user charges and the choice of contract length. We study the relationship between the operator and its financiers and the impact of private finance. We discuss the trade-off between incentive and flexibility in long-term PPP agreements and the dynamics of PPP contracts, including cost overruns. We also consider how the institutional environment, and specifically the risk of regulatory opportunism, affects contract design and incentives. We conclude with some policy implications on the desirability of PPPs
Vertical integration and costly demand information in regulated network industries
We study how vertical integration in regulated network industries affects the acquisition and transmission of socially valuable information on demand. We consider a regulated upstream monopoly with downstream unregulated Cournot competition and demand uncertainty. Demand information serves to set the access price and to foster competition in the unregulated segment but demand realizations can be observed at some cost only by the upstream monopolist; information acquisition is also unobservable. We show that vertical integration favours acquisition of demand information because of the transmission of information generated by the public nature of the regulatory mechanism. This holds both when access to information is easier for the upstream firm and when it is easier for downstream firms
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Lender Liability in the Consumer Credit Market
In many countries consumer credit legislation provides for the extension
of liability for product failure to the financial institution that
advances credit to the consumer. In particular, lender liability is imposed
on those credit grantors who closely operate with the supplier
of the good.
This paper provides a rationale for lender-responsibility in the consumer
credit market. It shows that, when judicial enforcement is inefficient
or there is risk of seller liquidation, lender-liability helps to
protect consumers who systematically underestimate the probability
of product failure and overestimate the extent to which they can obtain
compensation
The market for lawyers: The value of information on the quality of legal services
We study the value of information on the quality of legal services by analyzing
the incentives of litigants to hire high-quality lawyers, the incentives of lawyers
to invest in quality-enhancing activities and the effect of legal representation on
the decision-making behaviour of adjudicators.
In a setting where adjudicators have reputational concerns, we show that
better information over the quality of legal representation generates a tradeoff.
On the one hand, it allows for a better match between the value of a legal
dispute and the quality of the legal representation. This also has the effect
of increasing the incentives of lawyers to invest in quality-enhancing training.
On the other hand, better information over the quality of legal representation
may induce adjudicators to bias their decisions in favour of the litigant with
the highest-quality lawyer and this generates allocative inefficiency. We discuss
the implications of these effects on the desirability of quality certification system
(such as the Queen’s Counselor system) in the market for the legal professions
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Optimism and lender liability in the consumer credit market
Credit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller.
We study the rationale for this principle in situations where market failure arises because consumers underestimate the risk of product failure - for example due to seller misrepresentation - and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products
Decision rules and information provision: monitoring versus manipulation
The paper focuses on the organization of institutions designed to
resolve disputes between two parties, when some information is not
veri…able and decision makers may have vested preferences. It shows
that the choice of how much discretional power to grant to the decision
maker and who provides the information are intrinsically related. Direct
involvement of the interested parties in the supply of information
enhances monitoring over the decision maker, although at the cost of
higher manipulation. Thus, it is desirable when the decision maker is
granted high discretion. On the contrary, when the decision maker has
limited discretional power, information provision is better assigned to
an agent with no direct stake. The analysis helps to rationalize some
organizational arrangements that are commonly observed in the context
of judicial and antitrust decision-makin
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Contracts as threats: On a rationale for rewarding A while hoping for B
In this paper we explore theoretically the relationship between explicit and implicit/relational contracting distinguishing between the ex-ante decision to sign an explicit contract and the ex-post decision wheter to actually apply it. We show, among other things, that the relational efficient explicit contract tends to display overcontracting on tasks or qualitative requirements (A) that are verifiable but apparently of little use for the principal. The ex-post (non)implementation of such explicit contract can then be discretionally exchanged against the provision of non contractible tasks (B) that are highly valuable for the principal.
An empirical implication of the result, consistent with casual observation in procurement, is that penalties for infringements established by explicit contracts are seldom exercised, even though violations take place and are easy to monitor and verify
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