Swapnendu Banerjee

Rent a Womb: Surrogate Selection, Investment Incentives and Contracting

We develop a model of gestational surrogacy, in which a childless couple faces heterogeneous prospective surrogates. High-type surrogates add more value but also have higher outside options. Surrogates can make specific investments for the overall well-being (care) of the unborn child. We show that, under noncontractibility, surrogates invest less (take less care) than the first-best. Couples are also more likely to choose low-type surrogates, who need less compensation for foregoing cheaper outside options. Hence the popular practice of making surrogacy contracts unenforceable might put the unborn child at risk.

Gestational Surrogacy Contracts: Altruistic or Commercial? A Contract Theoretic Approach

We in this paper provide an analytical structure to endogenize the optimal gestational surrogacy contract in terms of a simple moral hazard framework. We show that altruistic surrogacy is optimal only if the surrogate has lower outside option and is sufficiently altruistic. Otherwise commercial surrogacy is optimal. We also show that for lower outside option greater social ignominy makes the surrogacy contract relatively more altruistic but the reverse happens when the surrogate has higher outside option. We also point to alternative model specifications and find situations where commercial surrogacy is always optimal irrespective of altruism, outside option and social ignominy.

Corruption, Pricing of Public Services and Entrepreneurship in Economies with Leakage

The paper presents a theoretical model with bureaucratic corruption where bribe income can leak out of an economy. In such an economy given its perception about the extent of leakage the government sets the price of public services required for entrepreneurship by maximizing the welfare of the economy. We show that the corruption persists at the equilibrium. The government prices its services at a level higher than their unit cost of provision in high leakage economies. However, the price falls to unit cost level in more prosperous economies. We also find that the number of entrepreneurs starting business and the total income received as bribe are non-increasing functions of the prosperity level and the extent of leakage from the economy. The predictions of the model generate interesting policy implications: for example it clearly shows that in low prosperity economies the control of leakage may induce higher level of corruption, while the opposite is true in the high prosperity economies.We consider the case of entry into a business based on complementary licenses, the supply of which is controlled by monopolist bureaucrats who therefore face identical demands. We consider the impact of liberalisation on welfare and corruption when such bureaucrats engage in Nash or sequential interaction in the price space. We also examine how a government with awareness of the results of these interactions in regard to corruption, government revenue and welfare can affect these by choosing official prices of licenses. In the process of our examination we experiment with different objective functions of the government.

Optimal Patent Length In A North-South Framework: A Comment

We show that under some conditions, it is optimal for the non-innovating south to give patent protection for a longer period than the innovating north. However, a cooperative patent agreement involves a larger protection by each country compared to the non-cooperative situation.

Incentives ‘and’ Status

This paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. With the help of a moral hazard framework with limited liability we show that for agents with lower outside option increased status leads to lower incentive pay whereas exactly the opposite happens for agents with higher outside option. For agents with very high status such that the limited liability doesn’t bind, an exogenous increase in status level leads to an unambiguous decrease in optimal incentive payment.

Surrogacy Contracting and Intermediation

We develop a model of commercial gestational surrogacy in which a childless couple approaches an infertility clinic for selection of a prospective surrogate, and for monitoring her further during the period of gestation. If the agency’s effort is noncontractible, then it is found to put in suboptimal monitoring effort, and hence the chapter focuses on the intermediate agency’s moral hazard. The intermediate agency’s monitoring is positively related to the surrogate’s altruism, for surrogates with low outside option. For surrogates with higher outside option, the agency’s monitoring is independent of the surrogate’s altruism and is only dependent on the surrogate’s reservation utility.

An Example of Innovation-Inducing Tariff Protection

This chapter illustrates how in a vertically differentiated domestic market with two types of consumers, tariff protection raises the incentive for quality innovation by a domestic monopolist. Similar in spirit to the Schumpeterian idea, this result is in sharp contrast to the oft-quoted argument that trade liberalization is conducive to quality innovation.

Other-Regarding Principal and Moral Hazard

Using the classic moral hazard problem with limited liability we characterize the optimal contracts when an other-regarding principal interacts with a self-regarding agent. The optimal contract differs considerably when the principal is ‘inequity averse’ vis-a-vis the self-regarding case. Also the agent is generally (weakly) better-off under an ‘inequity- averse’ principal compared to a ‘status seeking’ principal.

Status, incentives and random favouritism

The paper identifies a condition under which favouritism is beneficial to the principal even when the favoured agent is selected randomly. This paper also characterizes how the optimal incentive scheme changes in presence of random favouritism. Using a moral hazard framework with limited liability it is shown that in presence of favouritism principal can optimally decrease monetary incentive when the potentially favoured group size is small. Inspite of a fall in optimal effort the paper predicts that favouritism can emerge as an optimal outcome when return of the firm is low.