Wikipedia:Articles for deletion/Efficient contract theory


 * The following discussion is an archived debate of the proposed deletion of the article below. Please do not modify it. Subsequent comments should be made on the appropriate discussion page (such as the article's talk page or in a deletion review).  No further edits should be made to this page.

The result was no consensus defaulting to keep and w/o prejudice to a future renomination. I have read this through a couple of times and I can't discern anything resembling a viable consensus. Having been relisted twice, it is time to move on. If there are strong feelings that this should go, I suggest waiting a bit and renominating. Ad Orientem (talk) 01:26, 26 February 2019 (UTC)

Efficient contract theory

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Declined PROD, pinging as decliner. Original reason for nomination was Appears to be a neologism generated from original research.  SITH   (talk)   22:57, 3 February 2019 (UTC)
 * leaning to keep - I have to say that this is not my area and my terminology might get in the way. But there definitely is a fairly large area in economics called Contract theory and the goal in it will be to get an efficient allocation.  It's part of Welfare economics and related to the Coase theorem.  It might just need to be merged into contract theory.  And, in any case, there should be major improvements made in the text.  Smallbones( smalltalk ) 23:51, 3 February 2019 (UTC)
 * Keep or merge. The concept of Pareto efficiency as applied to markets has been around for more than a century. Efficient contracts can also refer to the idea allocative efficiency. GScholar and GBook searches show many sources over the decades. This article could be developed further, but a lot of the discussion of this concept already exists in the article Pareto efficiency. Merging there may provide better context for the topic. Or as Smallbones mentioned above, an efficiency section in Contract theory may be the way to go. -- 19:03, 4 February 2019 (UTC)
 * Note: This discussion has been included in the list of Business-related deletion discussions. Coolabahapple (talk) 03:58, 5 February 2019 (UTC)
 * Note: This discussion has been included in the list of Finance-related deletion discussions. Coolabahapple (talk) 03:58, 5 February 2019 (UTC)


 * Delete the two previous voters, with respect, appear to be engaging in speculation about what this topic could be without any references supporting their claims. The article reads like telephone tag from a college student's lecture notes.  The Lyons reference talks of optimal incentives for both investment and trade, which is entirely different from if a contract exists, then it must be efficient due to survivorship bias in the article.  There's nothing verifiable here and this should be deleted outright. power~enwiki ( π,  ν ) 05:02, 7 February 2019 (UTC)
 * I pretty much agree with Power~enwiki. The article as written doesn't do much for anybody.  I'd hate to think though that a potentially important topic (or sub-topic of Contract theory) would just be swept away. But given the 3 choices of leaving up the non-article as is, merging to another article, or deletion, I'd choose one of the last 2 choices.  Merging might be a case of "merge-to-delete" in any case. I generally take "merge-to-delete" as a fairly devious way of dealing with a problem, so I guess that leaves delete even though there ultimately might be a good article on the topic.  Smallbones( smalltalk ) 20:35, 9 February 2019 (UTC)
 * Obviously, you missed my reference above. There was no speculation on the Pareto aspect. -- 20:59, 9 February 2019 (UTC)
 * Delete. This almost feels like it is made-up.  Can't find any decent references to this term that reflect the description in the article.  I am very familiar with Efficient capital markets theory, which this "theory" is trying to mimic, but have never come across "Efficient contract theory".  Are we sure this is not a hoax article? Britishfinance (talk) 21:21, 9 February 2019 (UTC)

Keep per the significant coverage in multiple independent reliable sources.     

 <li> The book notes: "The catalyst for this renewed interest was the 'rediscovery' of the notion of efficient contracts between unions and employers, and particularly the contribution of McDonald and Solow (1981). Efficient contract theory, which is commonly attributed to Leontieff (1946) and Fellner (1947, 1949) but was in fact present in Edgeworth (1881), depicts unions and employers as rational agents negotiating Pareto-efficient bargains covering multiple aspects of the employment relationship. By providing a coherent model in which to view union bargaining, these models solved one of the major theoretical problems identified in Johnson's earlier survey." The sources cited are:<ol><li>Fellner, W. (1947) "Prices and Wages under Bilateral Monopology", Quarterly Journal of Economics, 61 (3), August, 503–532.</li><li>Fellner, W. (1949) Competition Among the Few: Oligopoly and Similar Market Structures, Alfred A Knopf, New York.</li><li>Leontieff, W. (1946) "The Pure Theory of the Guaranteed Annual Wage Contract", Journal of Political Economy, 54 (1), February, 54 (1), February 76–79.</li><li>McDonald, I.M. and R.M. Solow (1981) "Wage Bargaining and Employment", American Economic Review, 71 (5), December 896–908.</li><li>Edgeworth, F.Y. (1881) Mathematical Psychics, London</li></ol></li> <li> The article discusses survorship bias and efficient contract theory: "According to these researchers, cognitive limits on information-processing capabilities preclude people from designing optimal contracts (Langlois 1992). Moreover, people design contracts of varying quality because of differences in information about how to design efficient contracts. As a result, at any point in time, the efficiency of contract provisions varies across firms, as in the form of a controlled experiment. Because contract provisions are costly to change, and because firms must recognize that policies are flawed before they can change them, those firms unfortunate enough to have selected suboptimal arrangements face a higher risk of failure. Thus, over time, efficient contracts are established because misaligned firms tend to fail, while those with efficient designs tend to survive (Alchian 1950)." In a section titled "Efficient Contracting Theory", the article notes: "In recent years, much empirical research has found support for the propositions of efficient contract theory (see Lafontaine and Slade 1997 and Shelanski and Klein 1995 for reviews). In particular, Williamson (1975) and his colleagues (Joskow 1987, Masten 1996) have amassed considerable evidence of transaction-cost-minimizing con-tracts in cross-sectional studies of firms with equilibrium assumptions. However, many organizational theorists (e.g., Granovetter 1985), have taken issue with the functionalism of efficient contracting arguments, contending that firms, like all institutions, do not arise automatically in the form that is optimal for external circumstances. In particular, organizational theorists have presented three challenges to efficient contracting theory. First, efficient contract theory assumes that all parties are equally able to design contracts. However, different people possess different information (Hayek 1945), creating variance among economic actors in knowledge about how best to design contracts. Moreover, these differential endowments of information also influence the cost of searching for better information (Stigler 1961) because people's endowments of information influence their ability to absorb additional information (Cohen and Levinthal 1989). Therefore, the assumption that all people are able to design optimal contracts is inconsistent with received wisdom about human capital ... Second, efficient contracting theory assumes that people consider complementarities between a wide range of contract provisions when they design contracts (Holmstrom and Milgrom 1994)." </li> <li> The article notes: "These results are consistent with the theory of demand stimulation. They may also offer some insight into efficient contract theory, in the context of public sector unionism. In principle, employment levels in unionized departments would exceed labor demand at negotiated compensation levels if governments and their unions were to negotiate efficient labor contracts (McDonald and Solow, 1981; Hall and Lilien, 1979). Eberts and Stone (1986) demonstrate that at least in the case of public school teachers in New York state, efficient contracts occur in the local public sector. With efficient contracts, the observed employment—compensation locus—which need not be the contract curve (Johnson, 1986—lies to the right of the actual demand curve. However, it may still have negative, infinite, or positive slope. As stronger unions attain higher points on this locus, a negative slope implies a negative relationship between union strength and employment, relative to nonunion employment levels. A vertical locus—a special case of particular interest (Hall and Lilien, 1979; Brown and Ashenfelter, 1980)—implies no relationship. The effects of associations on employment per capita and monthly payrolls per employee may be consistent with vertical loci. ... Contracts which are efficient in the strict economic sense require unions to sacrifice compensation in return for employment. Contracts which are also efficient in the political sense may eventually allow unions to increase both employment and compensation through the stimulation of demand for local public services. The positive employment effects of local public sector bargaining units suggest that local public sector unions are efficient in both senses."</li> <li> The article notes: "The findings indicate that competitive banks will not break even using 7%, all else the same. The efficient contract theory asserts, however, that all else is not the same and competition in other dimensions will adjust the IPO contract to a '7% equivalent'. Here, I investigate two implications of this theory." The article later notes: "The evidence thus far favors the efficient contract theory over the cartel theory. Nevertheless, there remains the important prospect that a subtler form of collusion is present that is undetectable by the above tests."</li> </ol>

There is sufficient coverage in reliable sources to allow efficient contract theory to pass Notability, which requires "significant coverage in reliable sources that are independent of the subject". Cunard (talk) 11:33, 10 February 2019 (UTC)</li></ul>
 * "Efficient contract theory" is an established term. It has been the subject of research such as the March 2001 article by Robert S. Hansen in the Journal of Financial Economics. The definition given in the Wikipedia article about efficient contract theory discusses survivorship bias. Survivorship bias is one of the applications of efficient contract theory as discussed by Scott Shane's March–April 2001 Organization Science article. The article does not violate No original research. But it can be improved by having a broadened scope to discuss the general topic and other applications of the concept such as efficient contracts between public sector unions and governments (see Jeffrey S. Zax's Winter 1989 article in Industrial Relations). Cunard (talk) 11:33, 10 February 2019 (UTC)
 * Comment. The above are widely dispirate uses of the term and re-inforce the point that the term, as defined in this article, does not exist. In fact, it is not even clear that these sources are trying to create a defined term, outside of the phrase "an efficient contract".  If "Efficient contract" was a defined term (as per "Efficient markets" theory), there would be loads of references with "Efficient contract" theory in the title and a description that meets the description in this article.  However, there are none.  This is WP:SYN (and largely made-up). Britishfinance (talk) 10:49, 11 February 2019 (UTC)
 * Comment. There is already a WP article on Contract theory that does not mention "Efficient contract theory". Here is investopedia (which has no "Efficient contract theory" entry) on "Contract theory" – again, no mention of "Efficient contract theory" .  Here is an article on the 2016 winners of a Nobel Prize for "Contract theory", and again, no mention of "Efficient contract theory" . The only reference in Google scholar is to the 1996 paper referred to in the article .  After that, nothing. Britishfinance (talk) 11:19, 11 February 2019 (UTC)

<div class="xfd_relist" style="border-top: 1px solid #AAA; border-bottom: 1px solid #AAA; padding: 0px 25px;"> Relisted to generate a more thorough discussion and clearer consensus.

Please add new comments below this notice. Thanks, Ad Orientem (talk) 00:12, 11 February 2019 (UTC) <div class="xfd_relist" style="border-top: 1px solid #AAA; border-bottom: 1px solid #AAA; padding: 0px 25px;"> Relisted to generate a more thorough discussion and clearer consensus.

Please add new comments below this notice. Thanks,  Sandstein   14:45, 18 February 2019 (UTC)
 * Note to closers. The above needs careful reading, as this article has a specific definition taken from one 1996 paper that was never adopted by other sources. Arguements have been put for other uses of "Efficient Contract" but these are different definitions, and uses (some are not definitions but just use of the phrase "an efficient contract"). Britishfinance (talk) 20:02, 18 February 2019 (UTC)


 * The above discussion is preserved as an archive of the debate. <b style="color:red">Please do not modify it.</b> Subsequent comments should be made on the appropriate discussion page (such as the article's talk page or in a deletion review). No further edits should be made to this page.