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on Contract Theory and Applications |
| By: | Andrea Attar; Eloisa Campioni; Gwenaël Piaser (CREFI-LSF, University of Luxembourg); Uday Rajan |
| Abstract: | In multiple-principal multiple-agent models of moral hazard, we provide sufficient conditions for the outcomes of pure-strategy equilibria in direct mechanisms to be preserved when principals can offer indirect communication schemes. The conditions include strong robustness in the direct mechanism game, as developed in the literature on competing mechanisms by Peters (2001) and Han (2007a), and a no-correlation property we define. We provide a rationale for restricting attention to take-it or leave-it offers, as is typically done in applications. We show via examples that it is necessary to allow direct mechanisms to be stochastic and to include private recommendations from principals to agents to preserve the corresponding equilibrium outcomes, and that the no-correlation condition is tight. |
| Keywords: | Moral hazard, multiple principal, multiple agent, direct mechanisms. |
| JEL: | D82 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:07-01&r=cta |
| By: | Andrea Attar; Eloisa Campioni; Gwenaël Piaser (CREFI-LSF, University of Luxembourg); Uday Rajan |
| Abstract: | A the present paper we show that messages may improve efficiency even in model of complete information. Messages are useful two main reasons. First, if the principal is not allowed to use stochastic mechanisms, mechanisms with messages can induced mixed strategies and hence indirectly a stochastic outcome. Second, even if stochastic mechanisms are allowed, messages can allow correlation between efforts and outcome. We then argue that indirect mechanisms can be interpreted as delegation and show how simple indirect mechanisms can improve efficiency in a simple model of moral hazard. |
| Keywords: | Efficiency, Moral Hazard, Messages, Correlated Equilibrium, Recommendation, Delegation. |
| JEL: | D82 D83 D86 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:crf:wpaper:08-01&r=cta |
| By: | Matteo Galizzi (Centre for Health Economics, University of York, UK and University of Brescia, Italy); Marisa Miraldo (Centre for Health Economics, University of York) |
| Abstract: | We study the impact of different contractual arrangements within the hospital on the optimal contracts designed by third party payers when severity is hospital's private information. We develop a multi-issue bargaining process between doctors and managers within the hospital. Results are then compared with a scenario where doctors and managers decide independently by maximizing their own profit, with managers proposing to doctors a take-it-or leave-it offer. Results show that, when the cost of capital is sufficiently low, the informational rent arising on information asymmetry is higher in a set up where managers and doctors decide together through a strategic bargaining process than when they act as two decision-making units. |
| Keywords: | Strategic Bargaining; Optimal Contracts; Hospitals; Asymmetric Information |
| JEL: | I11 I18 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:chy:respap:37cherp&r=cta |
| By: | Ouidad Yousfi |
| Abstract: | We consider a double moral hazard model with three agents : The entrepreneur, the LBO fund and the bank. The entrepreneur and the LBO fund have to exert efforts in order to improve the productivity of their project ; efforts are not observable. We show that the payment of the bank decreases with the outcome of the project. When the project is not very risky, the entrepreneur and the LBO funds exert first best efforts and they get equal shares of the project outcome. When it is highly risky, they exert second best efforts. Debt gives high powered incentives to the two agents to provide efforts. Moreover, the entrepreneur prefers relying on the bank and the LBO fund to asking the latter for advice and money. When the LBO fund does not invest strictly positive amount into the project, efforts are less efficient than those exerted when all agents provide funds. |
| Keywords: | LBO, double moral hazard, debt, capital structure |
| JEL: | G23 G24 G32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-17&r=cta |
| By: | PROTOPOPESCU DAN |
| Abstract: | The objective of this paper is to re-evaluate the attitude to effort of a risk-averse decision-maker in an evolving environment. In the classic analysis, the space of efforts is generally discretized. More realistic, this new approach emploies a continuum of effort levels. The presence of multiple possible efforts and performance levels provides a better basis for explaining real economic phenomena. The traditional approach (see, Laffont, J. J. & Tirole, J., 1993, Salanie, B., 1997, Laffont, J.J. and Martimort, D, 2002, among others) does not take into account the potential effect of the system dynamics on the agent's behavior to effort over time. In the context of a Principal-agent relationship, not only the incentives of the Principal can determine the private agent to allocate a good effort, but also the evolution of the dynamic system. The incentives can be ineffective when the environment does not incite the agent to invest a good effort. This explains why, some effici |
| Keywords: | Controlled stochastic environment, optimal trajectory, closed-loop strategy, rational decision-maker, endogenous dynamic active learning, adaptive effort management, optimal effort threshold, effort aversion, excessive behavior, learning of preferences. |
| JEL: | C91 D78 D82 D83 |
| Date: | 2008–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:739.08&r=cta |
| By: | Hendrik Hakenes (Max Planck Institute for Research on Collective Goods, Bonn); Martin Peitz (University of Mannheim) |
| Abstract: | We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases. |
| Keywords: | Umbrella branding, certification, signalling |
| JEL: | L14 L15 M37 D82 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2008_10&r=cta |
| By: | Alan Krause |
| Abstract: | This paper examines a two-period model of optimal nonlinear income taxation with learning-by-doing, in which second-period wages are an increasing function of first-period labour supply. We consider the cases when the government can and cannot commit to its second-period tax policy. In both cases, the canonical Mirrlees/Stiglitz results regarding optimal marginal tax rates no longer apply. In particular, if the government cannot commit and skill-type information is revealed, it is optimal to distort the high-skill consumer's labour supply downwards through a positive marginal tax rate to relax the incentive-compatibility constraint. Alternatively, if the government cannot commit and skill-type information is concealed, it is optimal to distort the high-skill consumer's labour supply upwards to relax the incentive-compatibility constraint, but due to some other factors at work the high-skill consumer's marginal tax rate cannot be signed. Our analysis therefore identifies a setting in which a positive marginal tax rate on the highest-skill individual can be justified, despite its depressing effect on labour supply and wages. |
| Keywords: | Income taxation, learning-by-doing, commitment. |
| JEL: | H21 H2 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:08/08&r=cta |
| By: | Felix Bierbrauer (Max Planck Institute for Research on Collective Goods, Bonn); Marco Sahm (University of Munich) |
| Abstract: | We study the interdependence of optimal tax and expenditure policies. An optimal policy requires that information on preferences is made available. We first study this problem from a general mechanism design perspective and show that efficiency is possible only if the individuals who decide on public good provision face an own incentive scheme that differs from the tax system. We then study democratic mechanisms with the property that tax payers vote over public goods. Under such a mechanism, efficiency cannot be reached and welfare from public good provision declines as the inequality between rich and poor individuals increases. |
| Keywords: | Public goods, optimal taxation, two-dimensional heterogeneity, asymmetric information |
| JEL: | H41 D71 D72 D82 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2008_9&r=cta |
| By: | Chiara D'Alpaos (Universita' di Padova); Michele Moretto (Universita' di Padova); Paola Valbonesi (Universita' di Padova) |
| Abstract: | Our aim in this paper is to provide a general framework in which to determine the optimal penalty fee inducing the contractor to respect the contracted delivery date in public procurement contracts (PPCs). We do this by developing a real option model that enables us to investigate the contractor's value of investment timing flexibility which the penalty rule - de facto - introduces. We then apply this setting in order to evaluate the range of penalty fees in the Italian legislation on PPCs: according to our calibration analysis, there is no evidence that the substantial delays recorded in the execution times of Italian investments are to be due to incorrectly set penalty fees. This result opens the way for other explanations of delays in PPCs: we thus extend our model to include the probability that the penalty is ineffectively enforced and study how calibration results are accordingly affected. We finally show how our model can be used to investigate both the case of a penalty/premium rule and the one of an optimal penalty fee in a concession contract. |
| Keywords: | public procurement contracts, penalty fee, investment timing flexibility, investment irreversibility, contract incompleteness, enforceability of rules. |
| JEL: | L33 H57 D81 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0074&r=cta |