Keith B. Leffler

The Role of Market Forces in Assuring Contractual Performance

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.

Transactions Costs and the Efficient Organization of Production: A Study of Timber-Harvesting Contracts

A transaction costs framework is developed to explain the choice between lump-sum and per unit payment provisions in private timber-harvesting contracts. Predictions about which contract type minimizes the transaction costs of presale measurement and contract enforcement and monitoring are derived and tested using private timber sales contracts from North Carolina. The empirical results provide strong support for the transaction costs approach and also reject several predictions from a risk-based model. The transaction costs framework also provides insights into the choice between negotiated and competitive sales procedures.

Economic and legal analysis of medical ethics

In the last decade, the antityrust authorities have stricken one after another of the ethical rules of professional societies. Underlying this pokicy is the widelyaccepted notion that ethics are simply devices designed by the professions to limit competition and thereby to benefit their pecuniary interests. The antitrust assault does not consider the longstanding, nearly universal consumer support for controls on the activities of certain professions. In this paper, the narrow view ofcompetition adopted by the courts is assailed. Focusing on the case ofrestrictions on interactions between physicians and other nonmedical health care providers, some procompetitive effects of medical ethics are analyzed. Generally, professional ethics can only change the form of competition but not eliminate it. A proper legal policy requires recognition of the consumer concern with the form of competition and therefore requires a careful balancing of the beneficial competitive effects against any attendant limits on intraprofessional competition.

Signalling: Efficiency and equilibrium

Abstract This paper explores the differences with respect to the existence of equilibrium in continuous versus discrete signalling models. Contrary to prior claims, we show that there is no qualitative difference; in either case efficient and/or inefficient equilibria can exist.