Optimal Defaults, Limited Enforcement and the Regulation of Contracts

Zo\"e Hitzig and Benjamin Niswonger

Papers from arXiv.org

Abstract: We study how governments promote social welfare through the design of contracting environments. We model the regulation of contracting as default delegation: the government chooses a delegation set of contract terms it is willing to enforce, and influences the default terms that serve as outside options in parties' negotiations. Our analysis shows that limiting the delegation set principally mitigates externalities, while default terms primarily achieve distributional objectives. Applying our model to the regulation of labor contracts, we derive comparative statics on the optimal default delegation policy. As equity concerns or externalities increase, in-kind support for workers increases (e.g. through benefits requirements and public health insurance). Meanwhile, when worker bargaining power decreases away from parity, support for workers increases in cash (e.g. through cash transfers and minimum wage laws).

Date: 2022-03, Revised 2022-05
New Economics Papers: this item is included in nep-cta, nep-des, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2203.01233 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2203.01233

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().