J. Luis Guasch

Rural credit markets and institutions in developing countries : lessons for policy analysis from practice and modern theory

This article presents evidence of the failure of government intervention in rural credit markets of LDCs in the past three decades. It then shows how lessons for policy analysis can be drawn from modern theory, particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts. The article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence. It contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets. It presents suggestions for undertaking such an analysis.

Renegotiation of Infrastructure Concessions: An Overview

Numerous renegotiations have plagued Latin American infrastructure concession contracts in the 1990s, to the point that private sector involvement is being questioned in some countries. This issue has been analyzed in a series of papers by Guasch et al. (2003, 2006a, 2006b). After putting these contributions in the context of the theoretical and empirical literature on contract renegotiation, this note surveys the existing evidence on the determinants of these renegotiations and discusses the main policy implications regarding the necessity of efficient regulatory institutions and the adequate type of price regulation.

Capital requirements, screening and interlinked sharecropping and credit contracts

This paper provides one more rationale for interlinking credit and tenancy contracts in the context of production loans. In an environment characterized by a heterogeneous labor pool and imperfect information, landlords will have an incentive to avail themselves of screening devices. By linking tenancy and credit contracts a screening device can be implemented. The equilibrium set of contracts is characterized by a variety of interest rates, some of which might be below the market interest rate; the interest rate-principal schedule is downward sloping, with higher ability tenants choosing larger principals at lower interest rates.

An Equilibrium Analysis of Wage-Productivity Gaps

We develop a model in which each firm chooses a hiring standard as well as a wage schedule and an application fee, we then characterize the set of Nash equilibria, and establish necessary and sufficient conditions for the existence of equilibrium. If the distribution of productivities within each ability type is Gaussian, workers who pass the test will be paid more than the value of their marginal product, while workers who fail the test will receive a wage, net of the application fee, below the value of their marginal product.

A theoretical and empirical analysis of the length of residency discount in the rental housing market

Abstract We present an analysis of occupancy discounts and suggest a decomposition of the discount into two components, a “sit” discount and a length of residency discount. Data from the national longitudinal survey of the Annual Housing Survey in which 75,000 housing units from around the United States were followed from 1974 to 1977 are used to obtain consistent and efficient estimates of those discounts. The econometric models account for censoring in the data by endogenously treating the tenants staying decision. The estimation indicates that neither discount is significant. This result is contrary to the commonly accepted result in the urban literature that landlords offer discounts to their current tenants when contracts are renegotiated.

An analysis of vacancy patterns in the rental housing market

Abstract Empirical evidence and a theoretical model are presented showing that the amount of housing offered for rent by a landlord affects the vacancy rate of that housing. Vacancy rates, frequencies, and durations will not be uniform across a housing market, but rather will vary systematically with such characteristics as tenant mobility, size of housing unit, and number of units in the structure. These variations are shown to be consistent with the empirical evidence provided by the Bureau of the Census in its publication “Housing Vacancies.”

Age of rental housing units and vacancy characteristics A filtering explanation

Abstract Aggregate data on rental units indicate that older units have lower vacancy frequencies and higher vacancy durations than newer units. A formulation consistent with the filtering hypothesis of the housing literature is presented that explains the above empirical regularity.

The Theory of Contracts and Agency

There has been much work recently on the effects of informational asymmetries on allocation and economic welfare. These asymmetries render complete contracting infeasible (or at least unenforceable), and the resulting inefficiency creates incentives for information gathering. Various kinds of contracts emerge from the interaction of these incentives with the costs of contracting. In this survey, we shall attempt a brief critical review of the contracts literature, point out some open questions, and suggest some directions for future research. Section two discusses how moral hazard problems are solved in simple principal-agent models; section three considers adverse selection problems. The fourth section discusses the form of contracts that arise in response to the above problems in labor markets. Finally, in the last section we consider some recent developments and open questions.

Disturbing effects of contracts based on effort supervision

Abstract This paper points out some of the paradoxical and counterfactual results that contracts based on effort supervision may lead into. Specifically it is argued that those contracts may lead to the dismissal of the most able workers and to promoting the least able. An alternative framework is also suggested to eliminate those effects.

Risk, discounts and the pricing of indivisible goods

Abstract We analyze the effect that indivisibilities have on the pricing of goods under imperfect information. We show that risk bearing arguments alone can account for the lower prices per unit of consumption or service of larger indivisible goods or size discounts. This result holds whether or not there are economies of scale in the production of larger goods.