Pablo Casas-Arce

Owning Versus Leasing: Do Courts Matter?

We develop a legal contract enforcement theory of the decision to own or lease. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). We then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross section of countries. We argue that this association is not the result of reverse causation from a developed rental market to more investor protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence for the importance of legal contract enforcement for market development and the optimal allocation of property rights.

Women and Power: Unpopular, Unwilling, or Held Back?

We use Spain’s Equality Law to test for the existence of agency problems between party leaders and their constituents. The law mandates a 40 percent female quota on electoral lists in towns with populations above 5,000. Using pre- and postquota data by party and municipality, we implement a triple-difference design. We find that female quotas resulted in slightly better electoral results for the parties that were most affected by the quota. Our evidence shows that party leaders were not maximizing electoral results prior to the quota, suggesting the existence of agency problems that hinder female representation in political institutions.

The Performance Effect of Feedback Frequency and Detail: Evidence from a Field Experiment in Customer Satisfaction

This paper presents the results from a field experiment that examines the effects of nonfinancial performance feedback on the behavior of professionals working for an insurance repair company. We vary the frequency (weekly and monthly) and the level of detail of the feedback that the 800 professionals receive. Contrary to what we would expect if these professionals conformed to the model of the Bayesian decision maker, more (and more frequent) information does not always help improve performance. In fact, we find that professionals achieve the best outcomes when they receive detailed but infrequent (monthly) feedback. The treatment groups with frequent feedback, regardless of how detailed it is, perform no better than the control group (with monthly and aggregate information). The results are consistent with the information in the latest feedback report being most salient and professionals in the weekly treatments overweighting their most recent performance, hampering their ability to learn.

Job Design in the Presence of Career Concerns

We reconsider the job design theory of Holmstrom and Milgrom to include career concerns. When agents are motivated by their reputation, the discretion to pursue outside activities plays an integral part in the incentive scheme. Discretion can be a useful instrument to enhance incentives and prevent the adverse selection of low‐ability agents. We argue that these synergies are useful in explaining, among other examples, the employment of US faculty members and of physicians in dual health care systems.

Do Courts Matter? Rental Markets and the Law

We argue that the allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement is costly, there will be a shift from contractual arrangements that rely on such enforcement (such as a rental agreement) towards other forms that do not (such as direct ownership). We then test this prediction on data on the rental housing market, and show that costly enforcement of rental contracts hampers the development of such a market in a cross-section of countries. We argue that this association is not the result of reverse causation from a developed rental market to more investor-protective enforcement. The results provide supportive evidence on the importance of contract enforcement for the development of financial and other markets.

Contracting with Opportunistic Partners: Theory and Application to Technology Development and Innovation

After a contract is signed, contracting partners may engage in opportunistic behavior aimed at circumventing the original intention of the agreement governing their business relationship, complying with the letter but not the spirit of the contract. We use an incomplete contracts approach to show that the anticipation and observability of such behavior are typically not enough to prevent it when parties can renegotiate contractual outcomes. This is because contractually specified incentives inevitably have conflicting effects: they simultaneously increase the likelihood of welfare-improving investments and welfare-reducing opportunistic behavior. The possibility of such opportunism thus limits the effectiveness of contractual incentives. We also discuss how our results relate to contracting practices observed in industries characterized by rapid innovation, such as information technology. This paper was accepted by Suraj Srinivasan, accounting.

Contracting with Opportunistic Partners: An Incomplete Contracts Approach

After a contract is signed, contracting partners may engage in opportunistic behavior that circumvents the original intention of the agreement governing their business relationship (i.e. complying with the letter but not the spirit of the contract). We use an incomplete contracts approach to show that the anticipation and observability of such behavior are typically not enough to prevent it when parties can renegotiate contractual outcomes. This is because contractually specified incentives inevitably have conflicting effects: they simultaneously increase the likelihood of welfare-improving investments and welfare-reducing opportunistic behavior. The possibility of opportunism thus limits the effectiveness of contractual incentives and may call for simpler (less complete) rather than more complete contractual solutions. We provide general conditions for the optimality of incomplete contracts, a simple characterization of the second-best contract, and some comparative statics. We also discuss implications for vertical integration and make versus buy decisions.