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on Contract Theory and Applications |
| By: | Debraj Ray; Marek Weretka |
| Abstract: | This paper studies contracting between a principal and multiple agents. The setup is classical except for the assumption that agents have interdependent preferences. We characterize cost effective contracts, and relate the direction of co-movement in rewards — “joint liability” (positive) or “tournaments” (negative) — to the assumed structure of preference interdependence. We also study the implications of preference interdependence for the principal’s payoffs. We identify two asymmetries. First, the optimal contract leans towards joint liability rather than tournaments, especially in larger teams, in a sense made precise in the paper. Second, when the mechanism-design problem is augmented by robustness constraints designed to eliminate multiple equilibria, the principal may prefer teams linked via adversarial rather than altruistic preferences. |
| JEL: | D21 D90 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32290&r=cta |
| By: | Yotam Gafni; Ronen Gradwohl; Moshe Tennenholtz |
| Abstract: | Two firms are engaged in a competitive prediction task. Each firm has two sources of data -- labeled historical data and unlabeled inference-time data -- and uses the former to derive a prediction model, and the latter to make predictions on new instances. We study data-sharing contracts between the firms. The novelty of our study is to introduce and highlight the differences between contracts that share prediction models only, contracts to share inference-time predictions only, and contracts to share both. Our analysis proceeds on three levels. First, we develop a general Bayesian framework that facilitates our study. Second, we narrow our focus to two natural settings within this framework: (i) a setting in which the accuracy of each firm's prediction model is common knowledge, but the correlation between the respective models is unknown; and (ii) a setting in which two hypotheses exist regarding the optimal predictor, and one of the firms has a structural advantage in deducing it. Within these two settings we study optimal contract choice. More specifically, we find the individually rational and Pareto-optimal contracts for some notable cases, and describe specific settings where each of the different sharing contracts emerge as optimal. Finally, in the third level of our analysis we demonstrate the applicability of our concepts in a synthetic simulation using real loan data. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.17515&r=cta |
| By: | Attar, Andrea; Bozzoli, Lorenzo; Strausz, Roland |
| Abstract: | We develop a new approach to contract renegotiation under informational frictions. Specically, we consider mediated mechanisms which cannot be contingent on any subsequent offer, but can generate a new source of asymmetric information between the contracting parties. Taking as a reference the canonical framework of Fudenberg and Tirole (1990), we show that, if mediated mechanisms are allowed, the corresponding renegotiation game admits only one equilibrium allocation, which coincides with the second-best one. Thus, the inefficiencies typically associated to the threat of renegotiation may be completely offset by the design of more sophisticated trading mechanisms. |
| JEL: | D43 D82 D86 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129278&r=cta |
| By: | Ricardo Dahis (Department of Economics, Monash University); Bernardo Ricca (Insper); Thiago Scot (Development Impact (DIME), World Bank) |
| Abstract: | We provide evidence of a new channel through which politicians can exchange favors with campaign donors: earlier payment in procurement contracts. We exploit an electoral reform in Brazil that bans corporate contributions and partially breaks down the relationship between donors and politicians. Using a within-firm difference-in-differences identification strategy, we find that connected firms experience longer payment terms post-reform. The effect is larger in municipalities with low liquidity, where payment delays are more common, and for contracts awarded through a competitive tendering process. Our results point to the importance of designing rules that curb discretion over the contract execution process in government purchases. |
| Keywords: | Payment timeliness, public procurement, political connections |
| JEL: | D72 H57 H72 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2024-07&r=cta |
| By: | Pham, Hien |
| Abstract: | A monopolistic seller jointly designs allocation rules and (new) information about a pay-off relevant state to a buyer with private types. When the new information flips the ranking of willingness to pay across types, a screening menu of prices and threshold disclosures is optimal. Conversely, when its impact is marginal, bunching via a single posted price and threshold disclosure is (approximately) optimal. While information design expands the scope for random mechanisms to outperform their deterministic counterparts, its presence leads to an equivalence result regarding sequential versus. static screening. |
| Keywords: | mechanism design, information design, sequential screening, random mechanisms, bunching. |
| JEL: | D42 D82 D86 L15 |
| Date: | 2023–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120462&r=cta |