Marta Troya Martinez | New Economic School (original) (raw)
Drafts by Marta Troya Martinez
International Journal of Industrial Organization
Trade credit plays a very important role in inter-firm transactions. Because formal contracts are... more Trade credit plays a very important role in inter-firm transactions. Because formal contracts are often unavailable, it is granted within an ongoing relationship. We characterize the optimal self-enforcing contract, when the ability to repay is unknown to the supplier and the threat of trade suspension is used to discipline the buyer. The optimal contract resembles a debt contract: if the fixed repayment is met, the contract is renewed. Otherwise, the supplier demands the highest feasible repayment and suspends trade for some time. The length of the trade suspension is contingent on the repayment. We provide a novel explanation for why the quantity is undersup-plied, even when a repayment is met.
Games and Economic Behavior
This paper considers a model in which two heterogeneous principals need to concur to approve a pr... more This paper considers a model in which two heterogeneous principals need to concur to approve a project proposed by an agent. The agent provides them with information about the project's desirability and the principals can agree to share it. We seek to understand the impact of such an agreement when the agent can secretly choose the vagueness of the information reported to the principals. We show that when the project is controversial and the principals retain their veto power, information-sharing makes the agent use very vague information. In these circumstances, both principals are willing to extend cooperation to decision-making in order to extract more precise information from the agent.
Journal of Economics and Management Strategy
This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice a... more This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' hetero-geneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet in a variety of organizations relationships are overseen by an intermediary such as a manager. Such arrangements open the door for collusion between the
manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts differ from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager's commitment problem. When commitment is difficult, this can result in higher agent effort than the principal could incentivize directly. Second, making relationships more valuable enables more collusion and hence can reduce effort. We also
analyze the principal's delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
This article explores the link between productive relational contracts and corruption. Responsibi... more This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agent, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
Papers by Marta Troya Martinez
Social Science Research Network, Jul 1, 2019
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet in a variety of organizations relationships are overseen by an inter- mediary such as a manager. Such arrangements open the door for collusion between the manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts di_er from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager's commitment problem. When commitment is di_cult, this can result in higher agent effort than the principal could incen- tivize directly. Second, making relationships more valuable enables more collusion and hence can reduce e_ort. We also analyze the principal's delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
SSRN Electronic Journal, 2015
This article explores the link between productive relational contracts and corruption. Responsibi... more This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agent, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
Journal of the European Economic Association
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet, in a variety of organizations, relationships are overseen by an intermediary such as a manager. Such arrangements open the door for collusion between the manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts differ from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager’s commitment problem. When commitment is difficult, this can result in higher agent effort than the principal could incentivize directly. Second, making relationships more valuable enables more collusion and hence can reduce effort. We also analyze the principal’s delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public. Using the level-k model, we exploit the within subject design to show how individuals decrease their level-k in public communication. Surprisingly, we find that individuals become more sophisticated when they communicate privately with two receivers rather than one. JEL Classification: C72; C92; D83.
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public. Using the level-k model, we exploit the within subject design to show how individuals decrease their level-k in public communication. Surprisingly, we find that individuals become more sophisticated when they communicate privately with two receivers rather than one. JEL Classification: C72; C92; D83.
International Journal of Industrial Organization, 2017
Trade credit plays a very important role in inter-…rm transactions. Because formal contracts are ... more Trade credit plays a very important role in inter-…rm transactions. Because formal contracts are often unavailable, it is granted within an ongoing relationship. We characterize the optimal self-enforcing contract, when the ability to repay is unknown to the supplier and the threat of trade suspension is used to discipline the buyer. The optimal contract resembles a debt contract: if the …xed repayment is met, the contract is renewed. Otherwise, the supplier demands the highest feasible repayment and suspends trade for some time. The length of the trade suspension is contingent on the repayment. We provide a novel explanation for why the quantity is undersupplied, even when a repayment is met.
International contracts are difficult to enforce, in particular in the presence of weak instituti... more International contracts are difficult to enforce, in particular in the presence of weak institutions. Resource rich economies can hold-up multinational oil companies by renegotiating tax payments after investments occurred. Anticipating such events, firms can avoid such hold-ups by devising self-enforcing agreements and relying on future gains from trade. Theoretically, this can be achieved by back-loading investments, production and tax flows. Using the universe of contracts between resource rich economies and the seven largest multinationals (Big Oil) since 1950, we show that contracts between the multinationals and resource rich economies with weak institutions are back-loaded relative to countries with strong institutions. This pattern is robust to a variety of definitions, choices of sub-samples and a large number of controls. By exploiting the timing of the first oil price shock, we show that the back-loading in countries with weak institutions only emerges in the data in earl...
SSRN Electronic Journal
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public.
SSRN Electronic Journal, 2000
This paper analyzes the incentives of a seller to provide (un)biased and (im)precise advice about... more This paper analyzes the incentives of a seller to provide (un)biased and (im)precise advice about a complex product such as insurance, banking and telecommunication services. Misleading the buyers by biasing the advice upwards increases the revenues but also the expected …ne imposed by the authority. Making the advice less precise does not a¤ect the revenues in equilibrium but interferes with the authority's inference and a¤ects the expected …ne in a non-monotonic way. In particular, making the advice less precise makes it harder to convict the seller but increases the expected …ne when the seller is found guilty. We …nd that, in the equilibrium, biasing the advice and making it noisier are complements; in particular, a higher buyers' heterogeneity, a stricter standard of proof employed by the authority and a larger share of credulous consumers make the advice more biased and less precise.
International Journal of Industrial Organization
Trade credit plays a very important role in inter-firm transactions. Because formal contracts are... more Trade credit plays a very important role in inter-firm transactions. Because formal contracts are often unavailable, it is granted within an ongoing relationship. We characterize the optimal self-enforcing contract, when the ability to repay is unknown to the supplier and the threat of trade suspension is used to discipline the buyer. The optimal contract resembles a debt contract: if the fixed repayment is met, the contract is renewed. Otherwise, the supplier demands the highest feasible repayment and suspends trade for some time. The length of the trade suspension is contingent on the repayment. We provide a novel explanation for why the quantity is undersup-plied, even when a repayment is met.
Games and Economic Behavior
This paper considers a model in which two heterogeneous principals need to concur to approve a pr... more This paper considers a model in which two heterogeneous principals need to concur to approve a project proposed by an agent. The agent provides them with information about the project's desirability and the principals can agree to share it. We seek to understand the impact of such an agreement when the agent can secretly choose the vagueness of the information reported to the principals. We show that when the project is controversial and the principals retain their veto power, information-sharing makes the agent use very vague information. In these circumstances, both principals are willing to extend cooperation to decision-making in order to extract more precise information from the agent.
Journal of Economics and Management Strategy
This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice a... more This paper analyzes a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' hetero-geneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet in a variety of organizations relationships are overseen by an intermediary such as a manager. Such arrangements open the door for collusion between the
manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts differ from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager's commitment problem. When commitment is difficult, this can result in higher agent effort than the principal could incentivize directly. Second, making relationships more valuable enables more collusion and hence can reduce effort. We also
analyze the principal's delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
This article explores the link between productive relational contracts and corruption. Responsibi... more This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agent, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
Social Science Research Network, Jul 1, 2019
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet in a variety of organizations relationships are overseen by an inter- mediary such as a manager. Such arrangements open the door for collusion between the manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts di_er from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager's commitment problem. When commitment is di_cult, this can result in higher agent effort than the principal could incen- tivize directly. Second, making relationships more valuable enables more collusion and hence can reduce e_ort. We also analyze the principal's delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
SSRN Electronic Journal, 2015
This article explores the link between productive relational contracts and corruption. Responsibi... more This article explores the link between productive relational contracts and corruption. Responsibility for a contract is delegated to a supervisor who cares about both production and kickbacks paid by the agent, neither of which are explicitly contractible. We characterize the optimal supervisor-agent relational contract and show that the relationship between joint surplus, kickbacks and production is nonmonotonic. Delegation may benefit the principal when relational contracting is difficult by easing the time inconsistency problem of paying incentive payments. For the principal, the optimal supervisor has incentives that are partially, but not completely, aligned with her own.
Journal of the European Economic Association
Relational contracts are typically modeled as being between a principal and an agent, such as a f... more Relational contracts are typically modeled as being between a principal and an agent, such as a firm owner and a supplier. Yet, in a variety of organizations, relationships are overseen by an intermediary such as a manager. Such arrangements open the door for collusion between the manager and the agent. This paper develops a theory of such managed relational contracts. We show that managed relational contracts differ from principal-agent ones in important ways. First, kickbacks from the agent can help solve the manager’s commitment problem. When commitment is difficult, this can result in higher agent effort than the principal could incentivize directly. Second, making relationships more valuable enables more collusion and hence can reduce effort. We also analyze the principal’s delegation problem and show that she may or may not benefit from entrusting the relationship to a manager.
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public. Using the level-k model, we exploit the within subject design to show how individuals decrease their level-k in public communication. Surprisingly, we find that individuals become more sophisticated when they communicate privately with two receivers rather than one. JEL Classification: C72; C92; D83.
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public. Using the level-k model, we exploit the within subject design to show how individuals decrease their level-k in public communication. Surprisingly, we find that individuals become more sophisticated when they communicate privately with two receivers rather than one. JEL Classification: C72; C92; D83.
International Journal of Industrial Organization, 2017
Trade credit plays a very important role in inter-…rm transactions. Because formal contracts are ... more Trade credit plays a very important role in inter-…rm transactions. Because formal contracts are often unavailable, it is granted within an ongoing relationship. We characterize the optimal self-enforcing contract, when the ability to repay is unknown to the supplier and the threat of trade suspension is used to discipline the buyer. The optimal contract resembles a debt contract: if the …xed repayment is met, the contract is renewed. Otherwise, the supplier demands the highest feasible repayment and suspends trade for some time. The length of the trade suspension is contingent on the repayment. We provide a novel explanation for why the quantity is undersupplied, even when a repayment is met.
International contracts are difficult to enforce, in particular in the presence of weak instituti... more International contracts are difficult to enforce, in particular in the presence of weak institutions. Resource rich economies can hold-up multinational oil companies by renegotiating tax payments after investments occurred. Anticipating such events, firms can avoid such hold-ups by devising self-enforcing agreements and relying on future gains from trade. Theoretically, this can be achieved by back-loading investments, production and tax flows. Using the universe of contracts between resource rich economies and the seven largest multinationals (Big Oil) since 1950, we show that contracts between the multinationals and resource rich economies with weak institutions are back-loaded relative to countries with strong institutions. This pattern is robust to a variety of definitions, choices of sub-samples and a large number of controls. By exploiting the timing of the first oil price shock, we show that the back-loading in countries with weak institutions only emerges in the data in earl...
SSRN Electronic Journal
In this paper we experimentally test strategic information transmission between one informed and ... more In this paper we experimentally test strategic information transmission between one informed and two uninformed agents in a cheap-talk game. We find evidence of the "disciplining" effect of public communication as compared to private; however, it is much weaker than predicted by the theory. Adding a second receiver naturally increases the complexity of strategic thinking when communication is public.
SSRN Electronic Journal, 2000
This paper analyzes the incentives of a seller to provide (un)biased and (im)precise advice about... more This paper analyzes the incentives of a seller to provide (un)biased and (im)precise advice about a complex product such as insurance, banking and telecommunication services. Misleading the buyers by biasing the advice upwards increases the revenues but also the expected …ne imposed by the authority. Making the advice less precise does not a¤ect the revenues in equilibrium but interferes with the authority's inference and a¤ects the expected …ne in a non-monotonic way. In particular, making the advice less precise makes it harder to convict the seller but increases the expected …ne when the seller is found guilty. We …nd that, in the equilibrium, biasing the advice and making it noisier are complements; in particular, a higher buyers' heterogeneity, a stricter standard of proof employed by the authority and a larger share of credulous consumers make the advice more biased and less precise.