Informal Contracts Research Articles

The effects of strategic news sources on media coverage

Media firms regularly depend on contacts with well-informed news sources when they cover business and government affairs. However, news sources might have their own agendas and prefer that some information is hidden from the public. In this paper, we model the relationship between news sources and media firms as informal contracts based on trust and punishment. The interactions between these two types of agents may have a significant impact on the completeness of news coverage in the media. Profit maximizing media firms may deliberately hide information from their audiences in order to maintain a long-term relationship with a source. We find that this cunning behavior might become more intensified the tougher the competitive pressure in the media market, since a newspaper risks to lose the source to a rival if it does not withhold information to please the source.

Social Capital and Contracting: Experimental Evidence

Informal contracting is widely spread, but what makes it work in the absence of institutional enforcement and repetition? According to game-theoretic models of social capital, informal relationships can help agents self-enforce contracts when third-party enforcement is not available, because agents can use network links as a form of “collateral”. While recent empirical studies find a link between network proximity and the ability to self-enforce contracts, it is unclear whether this effect is mediated by agents behaving altruistically or whether they are responding to incentives to preserve their network status. Additionally, the endogeneity of natural networks makes econometric identification of these effects challenging. In this study, I estimate a structural decision model in which both mechanisms are present but distinct, using experimental gameplay data from the administration of an Optional Prisoner’s Dilemma. The game is framed to mimic a situation of informal exchange. I find the gameplay to be consistent with the “social collateral” channel, but not with the “directed altruism” channel.

Formal and Informal Contracting: Theory and Evidence

In this article, we review the emerging economic literature on formal and informal contracting. Two patterns emerge from this literature. First, the use of informal contracts to complement formal ones is widespread, both within and between firms. Second, informal contracts are limited by the expectation of future collaborations between the parties. Our review suggests that there are significant opportunities for further integrated research in economics, law, and social sciences to enhance our understanding of the interaction between formal and informal contracting within firms, as well as in nonfirm organizations.

English

Wheat’s production chain is one of the sectors that have received a lot of attention not only by the Mozambican government, but also by its national and international partners alike. This is due to the interest of the government and its partners to raise production levels and as such, lower the need of importing these goods in the coming years. Due to efforts from Mozambican government to elevate production levels of wheat, the objectives of this research are to analyze the organizational and institutional effects on the development of Mozambican wheat production chain. The foundation of this project consists mainly of a new institutional economy as this institution recognizes the economic development of certain institutions. The primary and secondary data have been collected through interviews conducted with wheat producers and members of research institutes in the agrarian field in Mozambique. Some of the data have also been collected using the internet. Through the data collected and compiled, it was discovered that Mozambique in fact does not have specific policies concerned with the production of wheat, but rather information related to this exact matter are found in a greater policy which concerns itself with the promotion of agriculture itself. Therefore, the data indicates that concerning the production of wheat, there have been certain failures in the process of commercializing it, such as the inexistence of formal contracts, as well as failure in compliance with the few informal contracts which are in place. There has also been poor negotiation of pricing by the producers themselves, thus the need for an intervention in the matter by the Mozambican government. Key words: Mozambique, agricultural policies, wheat production in Mozambique.

Formality and informality in an Indian urban waste economy

PurposeThe purpose of this paper is to contribute original evidence about the conditions for formal and informal contracts for commodities and labour in the waste economy of a South Indian town.Design/methodology/approachField research was exploratory, based on snowball sampling and urban traversing. The analysis follows capital and labour in the sub-circuits of capital generating waste in production, distribution, consumption, the production of labour and the reproduction of society.FindingsRegardless of legal regulation, which is selectively enforced, formal contracts are limited to active inspection regimes; direct transactions with or within the state; and long-distance transactions. Formal labour contracts are least incomplete for state employment, and for relatively scarce skilled labour in the private sector.Research limitations/implicationsThe research design does not permit quantified generalisations.Practical implicationsWaste management technology evaluations neglect the social costs of displacing a large informal labour force.Social implicationsWhile slowly dissolving occupational barriers of untouchability, the waste economy is a low-status labour absorber of last resort, exit from which is extremely difficult.Originality/valueThe first systematic exploration of formal and informal contracts in an Indian small-town waste economy.

Organizing strategies of the milk production chain in Paraná

The aim of this study was to understand some of the factors that influence the dynamics and efficiency of hybrid forms in the relationship between producers and buyers of the milk production chain in Paraná, state of Brazil. For this, we used the theoretical contribution of the Transaction Costs Economy and the Measurement Costs Economy. This study is qualitative, descriptive, and inductive, with a transversal cut. To achieve the objective, we used documentary, bibliographic and field research. The data were collected in the state of Paraná, through semi-structured interviews, and data analysis was conducted using the Content Analysis Method. The results showed the influence of the formal regulation (IN 62) and informal regulation (price) given by the institutional environment, and distinguished the categories of technification of the producers, as well as the efficiency of the hybrid governance in the level of technification. Hybrid forms were treated, being classified by category of technification of the producers and by type of contracting, in which different perspectives of efficiency in the transaction were identified. In the discussion chapter, it was possible to attribute efficiency to the formal contracts, associated to producers with high level of technification. The results also identified that this form of hiring guarantees the protection of legal property rights, minimizing the possibility of opportunistic behavior and maximizing the value of the transacted assets. In addition, we identified efficiency gaps in informal contracts, related to medium and low technology producers, mainly in the absence of guarantee of legal and economic rights. The non-inclusion of some dimensions of the asset and, therefore, its non-remuneration, allowed that conclusion.

‘We wander in your footsteps’—reciprocity and contractility in Lebanese personality-centred parties

This contribution questions the widespread assumption of Lebanese parties being mere ‘instruments’ in their leaders’ hands by asking what partisans see through their chairmen. It describes an informal social contract between partisans and leaders, outlining reciprocity in interpreting the ‘cause’, being symbolized by the latter. The core of this contract is made up by a particular interpretation of a global normativity of the modern nation-state and reciprocity. Whereas the latter might be deeply felt, it often lacks institutionalized control within the party. Finally, the contribution highlights some noticeable restrictions of this informal contractility.

Intertemporal Choice and Income Regularity: Non-Fungibility in a Lab-in-The-Field Experiment

Motivated by evidence of mental accounting, this paper tests whether the choice of when to be paid depends on the income type. A lab-in-the-field experiment in Kenya asked dairy cooperative members to allocate both their regular milk payments and an irregular windfall between two dates. We find that participants allocated milk payments to the later of the two dates but allocated the windfall to the earlier date. Most participants self-reported deferring their milk payments in order to save for lump-sum expenses. Those planning to use milk payments for smaller, more frequent purchases were less likely to defer payments. Farmers hence appeared to earmark regular milk payments, but not the irregular windfall, for bulky expenditures. This behavior potentially explains why discount rates elicited using experimenter money are often higher than those inferred from observed choices over regular income. Given that compliance with informal contracts depends on whether the timing of payments aligns with recipient preferences, these findings also have implications for contract design in rural value chains.

Board Composition and Relationship‐Specific Investments by Customers and Suppliers

Firms are more likely to include a supplier‐customer on the board if the supplier‐customer invests more in relationship‐specific assets. The results are stronger when the firm has poorer financial reporting quality or is financially distressed, as well as post‐SOX. Suppliers‐customers also increase their relationship‐specific investment following their appointment to the board. Directorships help avoid underinvestment and mitigate contracting frictions by reducing information risks and strengthening informal contracts with the firm.

Rewards and punishments: Informal contracting through social preferences

This paper develops a positive model of informal contracting in which rewards and punishments are not determined by an ex ante optimal plan but instead express the ex post moral sentiments of the arbitrating party. We consider a subjective performance evaluation problem in which a principal can privately assess the contribution of an agent to the welfare of a broader group. In the absence of formal contingent contracts, the principal chooses ex post transfers that maximize her social preferences. We characterize the incentives induced by the principal's preferences, contrast them with ex ante optimal contracts, and derive novel testable predictions about the way externalities are internalized in informal settings.

Promissory Estoppel and the Origins of Contract Law

Contrary to Samuel Williston’s description of the ALI’s formal restatement of contract law as merely presenting the law “as it is, not as a new law,” the doctrine of promissory estoppel set forth in Section 90 thereof does not represent an ancient principle of contract law. Rather, it constitutes a relatively recent and largely artificial innovation by Williston and his colleague Arthur Corbin. To overcome potential objections to such novelty, Williston and Corbin advocated for their new doctrine on the basis of specific claims of historical authority therefor. In particular, they asserted that promissory estoppel was doctrinally and philosophically consonant with the origins of English contract law during the Middle Ages. Those claims are not well-founded.Specifically, Williston, Corbin and other proponents of promissory estoppel have focused on the fact that during the period from roughly 1350 to 1600 litigants and courts incrementally turned for the enforcement of contract to the tort writ of trespass on the case sounding in assumpsit in substitution for the use of well-established, preexisting contractual writs. Yet these proponents of promissory estoppel have ignored the underlying reasons for, and limitations of, that historical development. Contrary to their implication, there occurred no fundamental doctrinal rejection of preexisting contract law, to which the doctrine of promissory estoppel would have been wholly alien. Rather, this circumvention of the preexisting contractual writs by means of assumpsit came to pass as the direct result of specific jurisdictional and procedural limitations that had hobbled the use of those contractual writs.Moreover, and critically, both prior to and during the period of this creative extension of assumpsit the fundamental principle of reciprocity in contract was repeatedly asserted by the courts and commentators. The major extension of assumpsit in the mid-1500s into the realm of the principal preexisting contractual writ for informal contracts, debt upon contract, was temporally coupled with and limited by this principle, which came to be expressed as the doctrine of consideration. Promissory estoppel, which rejects at its core the principle of reciprocity in contract, is antithetical to this history.

An Empirical Analysis of Self-Enforcement Mechanisms: Evidence from Hotel Franchising

The relational contracts literature suggests that a principal can improve contract self-enforceability by specifying initial requirements that increase the agent’s ex post rents. Initial requirements specified in hotel franchise agreements—size and quality tier of the hotel—offer a unique empirical setting to test this. Using proprietary data on 5,547 new franchised hotels and their revenues, we find that hotels far away from their franchisor’s headquarters are larger, more likely to belong to a high quality tier, and generate higher revenues ex post. This supports the idea that the agent’s ex post rents can serve as a substitute to the principal’s monitoring intensity in the mitigation of agency problems. Our findings shed light on how formal contract terms can influence informal (relational) contracts between business partners. This paper was accepted by Bruno Cassiman, business strategy.

The Interaction of Formal and Informal Contracts in the Decision of Cooperation of the Agents

Given the existent risk of opportunism in transactions, formal and informal contracts play a central role in the decision of cooperation of the agents. The s...

New Frontiers in Empirical Research on Informal Contracting

In a standard model of informal contracting (MacLeod and Malcomson 1989; Levin 2003), parties know the value of their relationship and can use discretionary payments to split it. As a result, efficient contracts are stable over time. Recent models have relaxed these simplifying assumptions, shedding light on how informal contracts are built over time, how they are subject to path dependency, and how relational rents are created. In this paper, we investigate how these “non-standard” theories of informal contracts can be tested empirically. We begin by discussing predictions from a selection of representative models, and the strategies that can be adopted to test them. Then, we examine how, and to what extent, existing empirical evidence supports these predictions, as well as how available data may be used for further testing.

An Empirical Analysis of Self-Enforcement Mechanisms: Evidence from Hotel Franchising

The relational contracts literature suggests that a principal can improve contract self-enforceability by specifying initial requirements that increase the agent’s ex-post rents. Initial requirements specified in hotel franchise agreements — size and quality-tier of hotel — offer a unique empirical setting to test this. Using proprietary data on 5,547 new franchised hotels and their revenues, we find that hotels far away from their franchisor’s headquarters are larger, more likely to belong to a high-quality tier, and generate higher revenues ex-post. This supports the idea that the agent’s ex-post rents can serve as a substitute to the principal’s monitoring intensity in the mitigation of agency problems. Our findings shed light on how formal contract terms can influence informal (relational) contracts between business partners.

Constraints and Benefits Perceived by Farmers and Contractors in Contract Goat Farming

A study was conducted to analyze the constraints and benefits perceived by the contract goat farmers and the contractors involved in in-formal contract goat farming taking place in Western Odisha region. Sixty contract goat farmers and thirty contractors were interviewed with semi structured interview schedule within a period of 60 days i.e. January 2013 to March 2013. Study revealed that disease outbreak and loss of animal due to predators were the primary constraints for contract farmers. Very few farmers opined that they should get a greater share than the contractors as they are the key persons to look after the care and management of the animals. Cent percent contract farmers found Contract Goat Farming (C.G.F.) as profitable without any capital investment and also it provides them an easy liquidity of their animals at the time of necessity. From contractors’ point of view, communication gap between contractor and farmer which lead to embarrassed situation is the major constraint followed by cheating by farmers at many occasions due to non identification of the contract animals. But, cent per cent contractors agreed that there is easy return from CGF at the end of the year. However, 80% opined that the better linkage with the veterinary professionals and 27% felt no risk of mortality and morbidity so directly benefited in contract goat farming (CGF).

Extraterritoriality Meets Islamic law: Legal pluralism and elements of proof in the International mixed court of Morocco, 1871-1872

This article is a case study of the short-lived international mixed court in Morocco (1871-1872); focusing on the regimes of proof employed in that court, the article examines the encounter between extraterritoriality and Islamic law in the mediterranean. The evidence presented to the Moroccan mixed court was an amalgam of forms; some creditors presented informal contracts which might have held up according to European and North American standards of evidence, but were null and void according to Islamic law as it was practiced in Morocco. Although the court failed, it influenced the ways in which both diplomats and Muslim judicial officials approached elements of proof in their respective institutions. Rather than merely identifying the pluralism of the Moroccan legal system in the late nineteenth century, this study focuses on the mutual influence exerted by coexisting legal orders on one another and the outcomes of this interaction.

The Effect of Formal and Informal Contracting Mechanisms on Implementation Performance in the U.S. Federalist System

The relationship between contract management capacity and implementation success in local government contracting is well established. However, less is known about how specific contract mechanisms are linked to this success. This study uses implementation of the Energy Efficiency and Conservation Block Grant Program to examine the use of formal and informal contract management techniques in the implementation of energy projects. The use of formal contract mechanisms, such as full and open competitive bidding, contact rescission and outcome-based performance measures, exhibits a statistically significant effect on implementation performance. The findings advance contracting theory and have practical implications for local government contracting and implementation success in fiscal federalism.

Attrition from surgical residency training: perspectives from those who left

BackgroundHigh rates of attrition from general surgery residency may threaten the surgical workforce. We sought to gain further insight regarding resident motivations for leaving general surgery residency. MethodsWe conducted in-depth interviews to generate rich narrative data that explored individual experiences. An interdisciplinary team used the constant comparative method to analyze the data. ResultsFour themes characterized experiences of our 19 interviewees who left their residency program. Participants (1) felt an informal contract was breached when clinical duties were prioritized over education, (2) characterized a culture in which there was no safe space to share personal and programmatic concerns, (3) expressed a scarcity of role models who demonstrated better work–life balance, and (4) reported negative interactions with authority resulting in a profound loss of commitment. ConclusionsAs general surgery graduate education continues to evolve, our findings may inform interventions and policies regarding programmatic changes to boost retention in surgical residency.

Why Do Russians Litigate: Economic Determinants of Civil Claims in Russia

Sustainable economic development requires efficient conflict resolution. Determinants of litigation highlight among other the advantages of court in comparison to alternative ways of conflict resolution (for instance pure informal contract resolution or administrative complaints). The paper is the first to empirically analyze the factors of civil litigations in the Russian regions. The regression analysis shows that hypothesis on the positive impact of economic development (measured by GDP) is supported for the overall litigation rate but not for all types of litigations. One important empirical result is that claims to the legal persons positively depend on the rate of the cases settled for the plaintiffs, but this is not true for the claims to physical persons.