Implicit Contracts Research Articles

Now You See It, Now You Don't: Explicit Contract Benefits In Extralegal Exchanges

To enhance performance, buying firms often use supplier governance mechanisms, such as explicit contracts, to coordinate efforts. Yet, it is unclear how these governance mechanisms would perform in extralegal exchanges, whereby suppliers may renege on the contract with little or no legal recourse. Furthermore, there is a paucity of studies examining these extralegal exchanges in the presence of an external market willing to pay higher prices, thus tempting suppliers to renege on existing agreements. Accordingly, we seek insight into the effectiveness of implicit and explicit contracts juxtaposed with the evolving payoff for a supplier's reneging. We do so with a dataset from a buying firm and its suppliers in the for‐hire trucking industry. Our results reveal that implicit contracts do, indeed, enhance performance (i.e., suppliers reject business offerings less often), eventhough the buying firm has no viable legal recourse for rejected business offerings. Likewise, we find that explicit contracts (i.e., providing more specificity to the supplier) further enhance performance; yet, as the external market conditions change in the supplier's favor, more explicit contracts’ effectiveness drastically weakens. Indeed, when external market prices reach their highest, our results suggest that explicit contracts’ benefits virtually disappear. Overall, our results provide a rare look into implicit and explicit contracts’ outcomes in an extralegal exchange when suppliers’ reneging becomes more/less threatening, thereby offering insight for researchers and managers.

LONG-WAVE DYNAMICS IN THE CONTEXT OF THE DEVELOPMENT OF INSTITUTIONAL ECONOMIC THEORY

The subject of the study is the long-wave dynamics due to the impact of scientific and technological progress and examined from the standpoint of institutional economics. The goal of the paper is identification of the features of the long-wave dynamics phases from the standpoint of technological, institutional and world-wide structures. Analytical and logical methods of institutional analysis have been used. The need of correcting the long-wave dynamics notions, caused as by objective changes of economic development as well as by the evolving nature of institutional theory has been identified. The results can be used by executive power authorities relating to strategic management of the development and connecting with the design of social and economic institutions that support self-organization and sustainable functioning of ecosystems. It has been proved that the development of economic systems depends on the relevant selection of technological, institutional and world-wide economic structures and ways of managing them. It has been shown that intra-firm transactions are based on the implicit ternary contracts, market with the mediators on the explicit ternary contracts, market without mediators on the explicit binary contracts, and the network transactions in ecosystems are based on the implicit binary contracts.

Career concerns and earnings management

Motivated by the disconnect between survey evidence documenting that executives prioritize implicit contracting (i.e., labor market-based career concerns) when making earnings management decisions (Graham et al., 2005) and the extant literature’s focus on explicit contracting to explain earnings manipulation, we analytically examine the role of managerial career concerns in earnings management. Building on Holmstrom (1982, 1999), we present a career concerns-based earnings management model that incorporates the unique reversing nature of earnings management. A key insight derived from the model is that whether the predictions of a traditional career concerns model prevail, which is to say that managers engage in more income-increasing behavior in their early years, critically depends upon the reversal characteristics of the earnings management vehicle chosen.

Agile predators: private equity and the spread of shareholder value strategies to US for-profit colleges

AbstractI argue that growth in private equity and publicly traded ownership of US for-profit colleges has created new shareholder-value pressures for schools to maximize returns for investors. Privately held firms, which had long dominated the sector, were converted to private equity ownership through 88 buyouts since 1987. Private equity managers then used IPOs to establish 20 of 35 publicly traded firms that operated in the sector. I use longitudinal panel analyses of 14,212 federally qualified colleges to show that schools under these ownership forms featured unusually high debts and low graduation rates for students. The results (a) provide some of the most robust evidence to date that shareholder value strategies of cost-cutting and implicit contract violations can adversely affect non-labor stakeholders; and (b) help to theorize the growing but understudied role of private equity as a transitional ownership form that spreads shareholder value strategies to privately held firms.

The Bonding Effect of Deferred Compensation: Worker Separations from a Large Firm in Early Transition Russia

Deferred payments, as implicit contracts, are predicted to bind workers to firms as long as workers believe that firms adhere to these implicit contracts. We employ a unique personnel data set from a Russian manufacturing firm to investigate whether wage arrears, delayed payments of wages, induce bonding effects. We find that workers' separation rates decrease dramatically when workers experience wage arrears, providing evidence for the bonding effects of deferred compensation schemes. After workers are repaid nominal wages, but have suffered real wage losses due to unexpectedly high inflation, we observe that workers affected by wage arrears again become much more likely to separate during and after the repayment period of a second episode of wage arrears, providing evidence for the weakening of the bonding effect after the firm's reputation for adequately compensating for deferred payments has been jeopardized.

Vaccine hesitancy among general practitioners in Southern France and their reluctant trust in the health authorities

ABSTRACT Purpose: Vaccine hesitancy is common in France, including among general practitioners (GPs). We aimed to understand vaccine hesitant GPs’ views towards vaccines. Method: We conducted in-depth interviews that were thematically analysed. Result: We found that, facilitated by health scandals and vaccine controversies—that according to participants were not effectively handled by health authorities—the implicit contract existing between health authorities and GPs has been ruptured. This contract implies that health authorities support GPs in making vaccine recommendations by addressing GPs’ own concerns, providing them with adequate and up-to-date information and advice, and involving them in vaccine decision-making. In turn, GPs encourage vaccination to reach vaccine coverage targets. Conclusion: The rupture of this implicit contract has led to a breach in trust in the health authorities and the vaccines that they recommend.

‘Discrete’ and ‘Relational’ Approaches in Implied Contractual Relationships

Abstract In the commercial field, the practice of doing business through a series of fixed-term contracts that are renewed from time to time between the same parties, but not expressed in any framework contract, is a fairly frequent phenomenon – usually known as ‘implied contractual relationships’ or ‘implicit contracts’ – which, however, does not seem to be always recognised in the courtrooms of many legal systems. It is usually believed that a ‘discrete’ approach to the contract – to recall Macneil’s famous distinction between discrete and relational contracts – can more easily result in the non-recognition of the legal value of implicit contractual relationships, while a ‘relational’ perspective would allow to look more closely at the economic transaction as a whole, thus leading to the acknowledgment of implicit contracts. In this paper I will try to examine the same issue from the discrete perspective (with reference to the English system), the relational perspective (with reference to the Japanese legal system) and a third perspective taken by the Italian system, in order to show the actual differences between the relational and discrete approaches to the contract and what remedies are most effective.

Employee treatment and corporate fraud

This paper examines the association between a firm’s relations with its employees and its likelihood of committing fraud. We find that firms treating their employees fairly (as measured by employee treatment index) have a lower likelihood of committing fraud since labor-friendly firms have incentives to signal their willingness to fulfill implicit contracts and maintain long-term relationships with employees. Further analysis shows that employee involvement and cash profit-sharing are the most important components in employee treatment to determine our results. Moreover, we show that the negative association between employee treatment and fraud propensity is more prominent when a firm is in a high-tech industry, when a firm in a less competitive industry, and when employees have less outside employment opportunities. Finally, we show that our results are not driven by the employee’s moral sensitivity or other labor related factors (i.e. labor wage, pension benefits, and labor union power).

Corporate Culture As an Implicit Contract

We develop a measure of corporate culture using coworker connectivity on LinkedIn's platform, and show it is strongly correlated with positive employee relations and satisfaction. Using state-level changes to employment agreements as shocks to explicit contracts, we find that these changes significantly impact employees in weakly connected firms, but have little to no effect on those at strongly connected firms. Our results suggest that firms with strong corporate culture are less dependent on explicit contracts to retain human capital. We document implications for firms' investment decisions and other outcomes.

Mixed linear and non-linear recursive types

We describe a type system with mixed linear and non-linear recursive types called LNL-FPC (the linear/non-linear fixpoint calculus). The type system supports linear typing which enhances the safety properties of programs, but also supports non-linear typing as well which makes the type system more convenient for programming. Just like in FPC, we show that LNL-FPC supports type-level recursion which in turn induces term-level recursion. We also provide sound and computationally adequate categorical models for LNL-FPC which describe the categorical structure of the substructural operations of Intuitionistic Linear Logic at all non-linear types, including the recursive ones. In order to do so, we describe a new technique for solving recursive domain equations within the category CPO by constructing the solutions over pre-embeddings. The type system also enjoys implicit weakening and contraction rules which we are able to model by identifying the canonical comonoid structure of all non-linear types. We also show that the requirements of our abstract model are reasonable by constructing a large class of concrete models that have found applications not only in classical functional programming, but also in emerging programming paradigms that incorporate linear types, such as quantum programming and circuit description programming languages.

LNL-FPC: The Linear/Non-linear Fixpoint Calculus

We describe a type system with mixed linear and non-linear recursive types called LNL-FPC (the linear/non-linear fixpoint calculus). The type system supports linear typing, which enhances the safety properties of programs, but also supports non-linear typing as well, which makes the type system more convenient for programming. Just as in FPC, we show that LNL-FPC supports type-level recursion, which in turn induces term-level recursion. We also provide sound and computationally adequate categorical models for LNL-FPC that describe the categorical structure of the substructural operations of Intuitionistic Linear Logic at all non-linear types, including the recursive ones. In order to do so, we describe a new technique for solving recursive domain equations within cartesian categories by constructing the solutions over pre-embeddings. The type system also enjoys implicit weakening and contraction rules that we are able to model by identifying the canonical comonoid structure of all non-linear types. We also show that the requirements of our abstract model are reasonable by constructing a large class of concrete models that have found applications not only in classical functional programming, but also in emerging programming paradigms that incorporate linear types, such as quantum programming and circuit description programming languages.

Insider Trading As Fraud

Federal insider-trading law consists, for the most part, of federal common law rooted in a statutory regime that prohibits fraud in connection with the purchase or sale of securities. Commentators have long lamented this fact, viewing the law’s grounding in an anti-fraud statute as a quirk of history with little to recommend it. After all, what does fraud have to do with insider trading? A lot, it turns out. In this article, I develop a theory explaining and defending the fraud-based nature of federal insider trading law. Specifically, I argue that Rule 10b-5, the anti-fraud rule in question, should be understood as altering the common law rule barring parties from contracting for fraud liability. As contract scholars have shown, this common law rule prevents contracting parties from effectively deterring certain hard-to-detect breaches of which insider trading is but one example. Rule 10b-5, I argue, reverses the common law rule, allowing contracting parties to contract for fraud liability and the accompanying extra-compensatory damages for insider trading. The implications of this new theory of insider trading law are significant. First, this theory helps us explain the law as it’s been received, something that competing theories simply can’t do. Second, it implies that insider trading liability under Rule 10b-5 should not be limited to fiduciaries but should include trading by at least some non-fiduciaries as well. Third, this theory provides courts with a tractable way of determining the scope of Rule 10b-5 – they must ask whether the trader and the information source are likely to have contracted for insider trading liability under Rule 10b-5, an inquiry that turns in part on the availability of alternatives to fraud liability for deterring insider trading. Fourth, and finally, the contractual fraud theory of insider trading law implies that, interpreting these implicit contracts over information, the SEC can cast a broader liability net than courts. Consequently, this theory explains not just the Supreme Court’s insider trading jurisprudence but also rules promulgated by the SEC, like rule 10b5-2, which are thought to go beyond the limits of the Court’s interpretation of the statute. This theory implies that the SEC is well within its authority to adopt Rule 10b5-2, a proposition that has been called into question by some federal courts.

Rewarding the Top: Citizens' Opposition to Higher Pay for Politicians

The rewards of politicians are a key part of the implicit contract between politicians and citizens, and the effect of these rewards on democratic legitimacy and political recruitment is a central concern in public debate and democratic theory. Using a survey experiment, we show how citizens respond to hypothetical changes in politicians’ pay. The results indicate that citizens express lower levels of trust in the politicians when these politicians award themselves higher pecuniary rewards. However, our results also show that a devious strategy in which the rewards for politicians are less transparent ensures lower opposition from citizens than open and transparent strategies. Based on this, we outline a reinvigoration of the research agenda on “rewards at the top.”

Employment in family managed firms: Less but safe? Analysing labour demand of German family managed firms with a treatment model for panel data

AbstractThis paper analyses the differences in labour demand between family and non‐family managed firms. These firms seem to have better employment performance than non‐family controlled companies. Therefore, this study applies a treatment model for panel data controlling for endogeneities of being a family managed firm or not. The results of the estimations indicate that labour demand is possibly larger because of family members joining the firms as extra employees. Moreover, labour turnover is lower, supporting the assumption that family firms offer some kind of implicit labour contracts. However, in opposite to previous results, it seems that only small family managed firms show different employment behaviour.

Older Workers and the Gig Economy

As the workforce ages, how will the work lives of older people evolve? One way to ease into retirement is to move to the gig economy where workers choose hours and intensity of work that fit their needs and capabilities. However, older workers are often reaping the benefits of the latter end of an implicit contract while gig economy workers are paid their marginal product. We show that age/earnings profiles in the traditional labor market are different than for Uber drivers. While the move to the gig economy generates flexibility, older workers are paid less than their younger coworkers.

Voluntary Job Separations and Traditional versus Flexible Workplace Savings Plans: Evidence from Canada

In this article, we provide new insights into the longstanding empirical issue of whether the type of workplace savings plan offered by employers affects voluntary job separations by employees. In particular, we compare traditional registered pension plans (RPPs)—commonly DB plans with lock-in provisions and benefit schedules that are back-loaded in job tenure—and flexible group registered retirement savings plans (group RRSPs)—low-cost, portable, DC plans, as well as plans that offer a hybrid arrangement of the two. To this end, we use a Canadian employer–employee matched dataset that provides information on both job transitions and the types of workplace savings plans held by employees and offered by employers. This dataset makes it possible to control directly for a potential confounder that besets the related literature, namely that workers with different propensities to stay in their jobs may self-select into firms on the basis of the type of savings plan offered, by accounting for firm-level provisions and including firm fixed effects. The standard prediction from implicit contract theory is that traditional pensions reduce quit rates but flexible plans have little effect because of their portability. The results are partially consistent with this prediction. In particular, not having a workplace savings plan increases the quit rate by around 1.5 percentage points—an approximately 20 percent increase relative to belonging to a traditional pension plan. We observed little difference between having a flexible plan versus no coverage at all, on average, although imprecision of the estimator means the possibility that flexible plans induce staying behaviour also cannot be rejected. We found that hybrid arrangements, which are relatively common in Canada compared with flexible plans and are designed to jointly offer elements of traditional coverage and greater flexibility to workers, affect quitting the same as traditional pensions only. The results are robust to using different estimation techniques and controlling for the possibility that workers do not fully understand their plan type by accounting for the availability of plans within firms as reported by employers. Implications of these findings for current public policy are discussed.

Material Parameters of Happiness and the Role of an Implicit Contract in its Formation

Material Parameters of Happiness and the Role of an Implicit Contract in its Formation

Common Fixed Point Theorems via Implicit Contractions in Soft Quasi Metric Spaces

Some common fixed point results involving implicit contractions on soft quasi metricspaces are presented in this research article. Also, the well posedness property of thecommon fixed point problem of mappings is defined and a theorem is given about it.Finally, some fixed point results on soft G-metric spaces are indicated to be urgentoutcomes of main theorems are given in this article .

Subjective performance of patent examiners, implicit contracts, and self‐funded patent offices

Self‐funded patent offices should be concerned with patent quality (patents should be granted to only deserving innovations) and quantity (as revenues come from fees paid by applicants). In this context, we investigate what is the impact of the self‐funded constraint on different bonus contracts and how these contracts affect the examiners' incentive to prosecute patent applications. We consider contracts in which a patent office offers bonuses on quantity quotas (explicit contract) and on quality outcome (either an implicit contract or an explicit contract based on a quality proxy). We find that a self‐funded constrained agency should make different organization choices of incentives. For a low quality proxy precision, an agency facing a tight budget operates well with implicit contracts. However, by only relaxing moderately the budget constraint, the agency might be worse off simply because this will preclude implicit contracts. Only very large patenting fees might allow the agency to compensate for the loss of implicit contracts.

Promise, Trust and Betrayal: Costs of Breaching an Implicit Contract

We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company’s 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman’s (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke’s introduction was a response to the implicit contract breach.