Choice of Contracts in the British National Health Service: An Empirical Study

Following major reforms of the British National Health Service (NHS) in 1990, the roles of purchasing and providing health services were separated, with the relationship between purchasers and providers governed by contracts. Using a mixed multinomial logit analysis, we show how this policy shift led to a selection of contracts that is consistent with the predictions of a simple model, based on contract theory, in which the characteristics of the health services being purchased and of the contracting parties influence the choice of contract form. The paper thus provides evidence in support of the practical relevance of theory in understanding health care market reform.

Dynamic Relational Contracts under Complete Information

This paper considers a long-term relationship between two agents who both undertake a costly action or investment that together produces a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. Two cases are considered: (i) where agents are risk neutral and are subject to limited liability constraints and (ii) where agents are risk averse, have quasi-linear preferences in consumption and actions but where limited liability constraints do not bind. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. In the risk-neutral case, there may be an initial phase in which one agent overinvests and the other underinvests. However, both actions and surplus converge monotonically to a stationary state in which there is no overinvestment and surplus is at its maximum subject to the constraints. In the risk-averse case, there is no overinvestment. For this case, we establish that dynamics may or may not be monotonic depending on whether or not it is possible to sustain a first-best allocation. If the first-best allocation is not sustainable, then there is a trade-off between risk sharing and surplus maximization. In general, surplus will not be at its constrained maximum even in the long run.

Memory in contracts: the experience of the EBRD (1991-2003)

The objective of this paper is to identify the role of memory as a screening device in repeated contracts with asymmetric information in financial intermediation. We use an original dataset from the European Bank for Reconstruction and Development. We propose a simple empirical method to capture the role of memory using the client's reputation. Our results unambiguously isolate the dominant effect of memory on the bank's lending decisions over market factors in the case of established clients.

Optimal coexistence of long-term and short-term contracts in labor Markets

We consider a market where firms hire workers to run their projects and such projects differ in profitability. At any period, each firm needs two workers to successfully run its project: a junior agent, with no specific skills, and a senior worker, whose effort is not verifiable. Senior workers differ in ability and their competence is revealed after they have worked as juniors in the market. We study the length of the contractual relationships between firms and workers in an environment where the matching between firms and workers is the result of market interaction. We show that, despite in a one-firm-one-worker set-up long-term contracts are the optimal choice for firms, market forces often induce firms to use short-term contracts. Unless the market only consists of firms with very profitable projects, firms operating highly profitable projects offer short-term contracts to ensure the service of high-ability workers and those with less lucrative projects also use short-term contracts to save on the junior workers' wage. Intermediate firms may (or may not) hire workers through long-term contracts.

Growth, selection and appropriate contracts

We study a dynamic model where growth requires both long-term investment and the selection of talented managers. When ability is not ex-ante observable and contracts are incomplete, managerial selection imposes a cost, as managers facing the risk of being replaced tend to choose a sub-optimally low level of long-term investment. This generates a trade-off between selection and investment that has implications for the choice of contractual relationships. Our analysis shows that rigid long-term contracts sacrificing managerial selection may be optimal at early stages of economic development and when access to information is limited. As the economy grows, however, knowledge accumulation increases the return to talent and makes it optimal to adopt flexible contractual relationships, where managerial selection is implemented even at the cost of lower investment. Better institutions, in the form of a richer contracting environment and less severe informational frictions, speed up the transition to short-term relationships.

Decentralization of contracts with interim sidecontracting

This paper gives a new explanation for the phenomena of subcontracting. A model in which a principal contracts two agents who work in a sequence on a project, have soft information and can collude is considered. Side-contracts between agents can be signed at any stage of the game. Due to limited liability and moral hazard agents obtain a rent. The principal’s problem is to find the preferable contracting structure. It is shown that in this setting a decentralized contracting structure can be superior to a centralized structure for the principal. The paper derives the conditions under which this holds. Journal of Economic Literature Classification Numbers: D23, D82, L14, L22. Keywords: Contract delegation, Collusion, Interim side-contracting, Moral hazard.

Do Swiss adolescents perceive the negative effects of their illegal substance use?

This study explores adolescents' perceptions of adverse consequences linked to their illegal psychoactive substance (IPS) use, as they are often thought to minimise them. From a Swiss nationally representative sample of 8740 adolescents aged 16 to 20 pursuing post-mandatory education, 2515 participants reported IPS use in the past month on a self-administered anonymous questionnaire. The percentages of participants reporting problems in four areas (individual, school, relationships and sexual) were assessed, depending on the type of IPS consumption over the last 30 days: occasional cannabis users: ≤2 times; regular cannabis users: ≥3 times; and poly-consumers: cannabis plus at least one other substance used. The percentages varied significantly across these three groups with 26.9% of occasional users, 53.8% of regular users, and 73.3% of poly-consumers reporting at least one problem. Compared to occasional cannabis users, poly-consumers were more likely to report problems in all four categories [relative risk ratio (RRR): 3.38 to 5.44], while regular cannabis users often reported only school and relationship problems [RRR: 2.43 to 3.23]. Thus, many adolescents seem to perceive the negative effects of their IPS use, with heavier consumption being associated with increasing problems. Physicians should feel confident questioning adolescents on the adverse consequences of their IPS consumption, as they are likely to be responsive on this issue.

An Inquiry into the use of illegal electoral practices and effects of political violence

This article investigates whether vote-buying and the instigation of violence in the disputed 2007 Kenyan elections were strategically motivated, and whether those affected by electoral violence changed their views towards ethno-politics and the use of violence. To answer these questions, a panel survey conducted before and after the elections is combined with external indicators of electoral violence. We find that political parties targeted vote-buying towards specific groups to weaken the support of their political rivals and to mobilize their own supporters. Furthermore, parties instigated violence strategically in areas where they were less likely to win. Although the victims of violence would prefer that parties are no longer allowed to organize in ethnic or religious lines, they are more likely to identify in ethnic terms, support the use of violence and avoid relying on the police to resolve disputes. The overall findings suggest an increased risk of electoral-violence reoccurring.

Iowa Department of Transportation Office of Contracts Letting Summary, July 1, 2002 - June 30, 2003

Summary of contracts let by Iowa DOT Office of Contracts in 12 regular and three emergency/special lettings during FY 2003 for construction and maintenance work. It also contains a comparison of quantities and unit contract prices for various items of highway construction work for projects let in fiscal years 2000, 2001, 2002 and 2003.

A Review of Service Contracts for Selected State Agencies

State Agency Audit Report

Department of Administrative Services, Information Technology Enterprise, A Review of Selected Service Contracts, April 1, 1998 - June 30, 2003

Other Audit Reports - Special Report

Iowa Department of Transportation Office of Contracts Letting Summary - July 1, 2003, thru June 30, 2004

A summary of the 12 regularly scheduled lettings and three emergency/special lettings held by the Iowa Department of Transportation for construction and maintenance work during the period July 1, 2003, through June 30, 2004.

Iowa Department of Transportation Office of Contracts Letting Summary - July 1, 2004 through June 30, 2005

A summary of the regularly scheduled lettings and emergency/special lettings held by the Iowa Department of Transportation for construction and maintenance work during the period July 1, 2004, through June 30, 2005.