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on Contract Theory and Applications |
| By: | Renaud Bourlès (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579); Dominique Henriet (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579) |
| Abstract: | This paper examines the impact of risk heterogeneity and asymmetric information on mutual risk-sharing agreements. It displays the optimal incentive compatible sharing rule in a simple two-agent model with two levels of risk. When individual risk is public information, equal sharing of wealth is not achievable when risk heterogeneity is too large or when risk aversion is too low. However the mutualization principle still holds as agents only bear aggregate risk. This result no longer holds when risk is private information. Moreover, the asymmetry of information (i) makes equal sharing unsustainable when both individuals are low risk types (ii) induces some exchanges when agents have the same level of initial wealth and (iii) induces changes in the direction of transfer with respect to the complete information benchmark in some states of nature when risk types are independent and absolute risk aversion is decreasing and convex. |
| Keywords: | Mutual agreements; Asymmetric information; Mechanism Design |
| Date: | 2008–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00278178_v1&r=cta |
| By: | Paula Sarmento (CETE and Faculty of Economics, University of Porto); António Brandão (CETE and Faculty of Economics, University of Porto) |
| Abstract: | In this paper we compare the costs of two regulatory policies about the entry of new firms. We consider an incumbent firm that has more information about the market demand than the regulator. Then, the incumbent firm can use this advantage to persuade the regulator to make entry more difficult. With the first regulatory policy the regulator uses the incumbent price pre-regulation to get information about the demand. With the second regulatory policy the regulator design a mechanism to motivate the incumbent firm to price truthfully. We conclude that, for enough high values of the probability of low demand, the welfare is higher with the second (more active) regulatory policy. |
| Keywords: | asymmetric information, entry regulation, signalling, adverse selection |
| JEL: | C73 D82 L13 L51 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:0802&r=cta |
| By: | Max Blouin; Jean-Marc Bourgeon |
| Abstract: | We examine an economy where professionals provide services to clients and where a professional can sell his practice to another. Professionals vary in quality, and clients in their need (or willingness-to-pay) for high-quality service. Efficiency is measured as the number of matches between high-quality professionals and high-need clients. However, agent types are unobservable a priori. We find that trade in practices can facilitate the transmission of information about agent types; sometimes full efficiency is achieved. In cases where it is not, a tax on the sale of practices (based on the seller's age) can be used to achieve full efficiency. In addition, a ceiling on the price of services can be used to adjust the distribution of surplus between clients and professionals, while preserving efficiency. |
| Keywords: | Signaling, professional services, practices, goodwill |
| JEL: | C73 D82 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0805&r=cta |
| By: | Gabrielle Demange |
| Abstract: | This paper analyzes the efficient design of insurance schemes in the presence of aggregate shocks and moral hazard. The population is divided into groups, the labour force in different sectors for instance. In each group, individuals are ex ante identical but are subject to idiosyncratic shocks. Without moral hazard, optimality requires (1) full insurance against idiosyncratic shocks, which gives rise to a representative agent for each group and (2) optimal sharing of macro-economic risks between these representative agents. The paper investigates what remains of this analysis when the presence of moral hazard conflicts with the full insurance of idiosyncratic shocks. In particular, how is the sharing of macro-economic risks across groups affected by the partial insurance against idiosyncratic risks? The design of unemployment insurance schemes in different economic sectors, and the design of pension annuities in an unfunded social security system are two potential applications. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2008-27&r=cta |
| By: | Benito Arruñada |
| Abstract: | Computerised databases and the Internet have recently made publication of company accounts potentially less costly and more useful, thanks to electronic filing and universal online access to credit information systems. These developments advise against simplification policies that would reduce the scope of mandatory publication. Instead, they encourage policies pursuing a broader efficiency goal, achievable by reducing costs and enhancing value through administrative reforms of filing, archive and retrieval systems. Survey and registry evidence on how the information in the accounts is valued and used by firms fully supports these claims. |
| Keywords: | Financial disclosure, company accounts, credit registries, business simplification |
| JEL: | G32 K22 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1090&r=cta |
| By: | Alvaro Sandroni (Department of Economics, University of Pennsylvania); Wojciech Olszewski (Department of Economics, Northwestern University) |
| Abstract: | We examine the fundamental concept of Popper’s falsifiability within an economic model in which a tester hires a potential expert to produce a theory. Payments are made contingent on the performance of the theory vis-a-vis future realizations of the data. We show that if experts are strategic, then falsifiability has no power to distinguish legitimate scientific theories from worthless theories. We also show that even if experts are strategic there are alternative criteria that can distinguish legitimate from worthless theories. |
| Keywords: | Testing Strategic Experts |
| JEL: | D81 C11 |
| Date: | 2008–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:08-016&r=cta |