Pretia ex Machina? Prices and Process in Long-Term Contracts

Crocker, Keith J.; Masten, Scott E.

doi:10.1086/467219

Cited by 266 publications

(138 citation statements)

References 11 publications

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“…Hence, the cash flow generated at the time of actual delivery (time t +1) is certain. Thus, a fixed-price contract reduces the volatility of cash flows between channel members (e.g., Crocker and Masten 1991). 2 The role of fixedprice contracts in industrial marketing channels is significant, as many channel relations are characterized by a chain of fixed-price contracts between two or more channel members.…”

Section: Channel Member's Contract Behavior On Both the Selling mentioning

confidence: 99%

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures

Pennings

Wansink²

2004

J BUS

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Section: Channel Member's Contract Behavior On Both the Selling mentioning

confidence: 99%

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures

Pennings

Wansink²

2004

J BUS

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“…The factors influencing the price adjustment processes are discussed by Crocker and Masten (1991), who analyze the economic tradeoff between flexibility and completeness in contractual agreements. Using the database they exploited in their 1988 paper, Crocker and Masten find that renegotiation of prices introduces important flexibility in contracts.…”

Section: Price Flexibility and Renegotiationmentioning

confidence: 99%

Longterm Contracts and Take-or-Pay Clauses in Natural Gas Markets

Cretì¹,

Villeneuve²

2004

Energy Studies Review

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This paper surveys the existing theoretical and empirical research on long term contracts inspired by the American experience. We analyze the role of take-or-pay clauses and price indexation rules, questioning whether regulation distorts optimal contract duration. The models we summarize allows us to discuss the economic fundamentals of the ED provisions on long-term contracts in the natural gas industry, pointing out that the ED position on long-term contracting seems to mix up contract duration and flexibility. L LONG TERM TAKE-DR-PAY CONTRACTSAccording to Williamson (1979), when a transaction entails one party committing capital that has little value for other uses, the other party has a strong incentive to appropriate the rents arising from the relationship through opportunistic behavior. Anticipating this risk, also called the "hold-up" problem, buyers and sellers sign long-term contracts.The main drawback of simplistic long-term contracting is inflexibility in the face of demand and supply fluctuations. To mitigate this problem, parties will therefore stipulate specific clauses. In practice, an initial price constitutes a floor on the value of the contract. Prices are rigid downward, but they can raise following price escalators, like predefined increases per year or petroleum price index. In addition, redetermination clauses permit renegotiation of the terms ofthe contract at predetermined intervals.

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“…CAAA, through Title IV, initiated a system of tradable permits for SO 2 emissions in two phases that apply to most coal-burning power plants in the U.S. 4 All of the Phase I boilers affected had previously been unregulated, at least at the federal level, and generally burned high sulfur coal and emitted large amounts of SO 2 . Even though the federal government was taking control of SO 2 regulations, state governments could alter how boilers complied through incentives in economic regulation [19].…”

mentioning

confidence: 99%

Contract renegotiation and rent re-distribution: Who gets raked over the coals?

Kosnik

Lange

2011

Journal of Environmental Economics and Management

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Policy shocks affect the rent distribution in long-term contracts, which can lead to such contracts being renegotiated. We seek an understanding of what aspects of contract design, in the face of a substantial policy shock, affect the propensity to renegotiate. We test our hypotheses using data on U.S. coal contracts after the policy shock of the 1990 Clean Air Act Amendments. Contracts are divided into two categories, those that were renegotiated following the shock and those that were not. Characteristics of the contract are used to explain whether or not the contract was ultimately renegotiated. Results provide guidance on rent re-distribution and contract renegotiation more generally and are applicable to contemporary policy issues such as climate change legislation.JEL Codes: L51, Q48, D23, K32

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Pretia ex Machina? Prices and Process in Long-Term Contracts

Cited by 266 publications

References 11 publications

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, And Channel Members' Market Structures

Longterm Contracts and Take-or-Pay Clauses in Natural Gas Markets

Contract renegotiation and rent re-distribution: Who gets raked over the coals?

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