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v0.28.9 — This text is under construction. The structure of the theory, the propositions, and the empirical conclusions may all change. Overview

Appendix C
Correspondences with existing theory

Those components of this work that have counterparts in existing theory are set out here. The contribution specific to this work is confined to the lower tier.

The work divides into three layers. The first is the existing theory explaining each term of κi, introduced as a foundation. The second connects those theories within a single framework, and is where the contribution of this work lies. The third is the organization specific to this work.

Layer one: existing theory explaining each term

Term

Theory

Field
κC > 0, inter-firm

the four types of trade credit [14,  15]

corporate finance
κC < 0, inter-firm

reverse trade credit [12,  7]

corporate finance
κC < 0, to consumers

prepaid contracts and breakage [6,  9,  13]

consumer behaviour
κL < 0

the bonding argument [1]

labour economics
accumulation of a public record

labour-market signalling [16]

economics of information
Table C.1: Correspondences, layer one: existing theory explaining each term of κi.

These literatures do not cite one another (Remark 3.3).

Layer two: the contribution as connection

Connection

Content

Unification through κi

the objects of four fields enter the same sum in (3.8)

Explaining the level through τi

Proposition 5.16, Corollary 5.17

A typology of Φ

Part II; existing theory has no classification of contractual forms

The three-way decomposition of ϕ

equation (6.1); durability by source

Table C.2: Correspondences, layer two: the contribution of this work as connection.

Layer three: individual correspondences with existing theory

Table C.3: Correspondences, layer three (a): individual correspondences.

Content of this work

Corresponding existing theory

The measurability condition for contracts (Chapter 4)

contract theory, the informativeness principle [17]

The empirical difficulty of the risk–incentive trade-off (Section 15.3.5.0)

[24, 25]

Measurement of ϕ𝑐𝑜𝑔 (Section 14.6.1)

[6, 9]

Switching costs of Φ and the value of waiting (Remark 2.18)

irreversible investment and real options [8]

The mechanism by which pooling creates correlation (Remark 2.11)

diversification and systemic risk [30, 19]

Change of goals with the time horizon (Section 8.6.4)

socioemotional selectivity theory [3]

The optimal strength of outcome contingency (Example 4.5)

linear contracts and multitasking [18]

The g⋆ of equation (5.6)

the self-financeable growth rate [4]; distinct from the Higgins-type sustainable growth rate, which fixes the payout ratio and leverage

Equation (3.9) (M = E − W − A)

a standard identity of financial analysis: cash = equity − net operating assets

Proposition 5.2 and Corollary 5.3 (the bound on scale)

a formalization of overtrading; the structure in which working capital is bounded by net worth is isomorphic to [33]

Proposition 6.6 (cash neutrality of cognitive surplus)

transfer from contract liabilities in revenue recognition; standard accounting treatment

Proposition 5.21 (the gap between peak and average)

the peak funding requirement of practice; a standard topic of working-capital management

Corollary 5.19 (non-additivity of CCC)

a general property of aggregating ratios; the shift-share decomposition (16.5) is its difference form

Conditioning on a collider (Proposition A.1)

Berkson’s paradox [2], the framework of causal inference [23], the causal-graph representation of selection bias [11]

Non-identification in equation (12.2)

the age–period–cohort problem [22]

Equation (2.11)

the pooling of variance; a standard result of actuarial science

Heterogeneity of discount factors (Proposition 4.10)

time preference, hyperbolic discounting [21]

The distinction between risk and uncertainty in automation (Chapter 9)

[20]

Organizations absorbing measurability (Section 8.7)

the boundary of the firm [5], property-rights theory [10]

The separation of payer and beneficiary (family 7)

two-sided markets [26]

Proposition A.15 (substitution of capital and credit)

collateral constraints and net worth [33, 36, 37]

The bootstrapping problem for credit (Section 8.5)

ibid.; corresponds to the result that agents with lower net worth face tighter constraints

Enlargement of the contract space by a protocol (premises (1) and (2) of Chapter 10)

distributed consensus and contractibility [31]

The divergence of identifier and agent (Section 10.3)

the Sybil attack [32]

Corollary 10.11 (exclusion of agents holding no assets)

collateral requirements and the limits of financial inclusion [34]

Remark 10.4 (intermediation “outside” the partition)

importing external states and their verifiability [35]

Proposition 10.6 (identifying the beneficiary)

free generation of identifiers and false-name-proofness [38]

Theory that should be connected but is not

Corresponding existing theory

Joint determination of δ¯ and δ (Section 19.4.1)

mechanism design, self-selection and quantity discounts

The screening effect of contracts (ibid.)

the part of contract theory treating adverse selection

Joint determination of DSO and DPO (ibid.)

the theory of trade credit

The relation of size to the quality of placements (Section 15.3.5.0)

intermediation and match quality in labour markets

Table C.4: Correspondences, layer three (b): theory that should be connected but is not.

Organization specific to this work

Correspondence

The correspondence of three indices with three operations (Section 2.6)

this work

The definition through Φ (Chapter 2)

this work

The three-way decomposition of surplus (equation (6.1))

this work

The layer structure (Section 6.3)

this work

The catalogue of types of Φ (Part II)

this work

The six-way taxonomy of verification obstacles (Section 13.2)

this work

Table C.5: Correspondences, layer three (c): organization specific to this work.