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on Contract Theory and Applications |
| By: | Jellal, Mohamed |
| Abstract: | In this paper, we examine the consequences of imperfect information on the pattern of transfers from parents to children. Drawing on the theory of mechanism design, we consider a model of family contract with two levels of effort. We prove that equal transfers among children are expected under perfect information, while the second-best contract implies risksharing between the two generations, so that poor families experience higher agency costs.. |
| Keywords: | Education; Asymmetric Information; Family Financial Incentives; Inequality |
| JEL: | D63 J1 D82 A2 D1 |
| Date: | 2009–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17434&r=cta |
| By: | Matthew Baker (Hunter College); Ingmar Nyman (Hunter College) |
| Abstract: | We study a labor market in which principals and agents must search for a trading partner, and agents have private information about the value of a match. We show that competitive pressure can induce agents to lie and overstate the value of the match. This leads to insufficient frictional unemployment and search, and lower average utility. The resulting social loss increases with the accuracy of the private information and the ease with which matches are created, and decreases with the time-value of money. An unemployment subsidy can eliminate the inefficiency. Changing how the surplus is split between principal and agent, by contrast, has no effect on the agents’ incentive to lie. |
| Keywords: | Search, Private Information, Competition |
| JEL: | D82 D83 J64 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:htr:hcecon:426&r=cta |
| By: | Christopher J. Waller |
| Abstract: | The objective of this paper is to study optimal fiscal and monetary policy in a dynamic Mirrlees model where the frictions giving rise to money as a medium of exchange are explicitly modeled. The framework is a three period OLG model where agents are born every other period. The young and old trade in perfectly competitive centralized markets. In middle age, agents receive preference shocks and trade amongst themselves in an anonymous manner. Since preference shocks are private information, in a record-keeping economy, the planner's constrained allocation trades off efficient risk sharing against production efficiency in the search market. In the absence of record-keeping, the government uses flat money as a substitute for dynamic contracts to induce truthful revelation of preferences. Inflation affects agents' incentive constraints and so distortionary taxation of money may be needed as part of the optimal policy even if lump-sum taxes are available. |
| Keywords: | Money ; Taxation |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-035&r=cta |
| By: | Edward Cartwright; Joris Gillet; Mark Van Vugt |
| Abstract: | We analyze a coordination game characterised by varying degrees of conflict of interest, incentive to coordinate and information asymmetry. The primary objective is to question whether endogenous leadership better enables coordination. A secondary objective is to question whether preference and information asymmetries cue who should lead. Both experimental and theoretical results are provided. We find that in theory leadership should allow coordination, whether or not preferences are common knowledge. In practice we found that leadership did enable coordination but information about others preferences also helped. This was explained as due to some participants being too eager to lead. Which may be surprising given that we find, both in theory and in practice, leaders get relatively low payoffs, particularly when preferences are private information. |
| Keywords: | Coordination game; Conflict of interest; leadership |
| JEL: | C72 D11 D80 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:0913&r=cta |
| By: | Florian Schuett |
| Abstract: | The objective of patent examination is to separate the wheat from the chaff. Good applications - those satisfying the patentability criteria, particularly novelty and nonobviousness - should be accepted, while bad applications should be rejected. How should incentives for examiners be designed to further this objective? This paper develops a theoretical model of patent examination to address the question. It argues that examination can be described as a moral-hazard problem followed by an adverse-selection problem: the examiner must be given incentives to exert effort (looking for evidence to reject), but also to truthfully reveal the evidence he finds (or lack thereof). The model can explain the puzzling compensation scheme in use at the U.S. patent office, where examiners are essentially rewarded for granting patents, as well as variation in compensation schemes across patent offices. It also has implications for the retention of examiners and for administrative patent review. |
| Keywords: | innovation, patent office, soft information, intrinsic motivation, incentives for bureaucrats |
| JEL: | O31 O38 D73 D82 L50 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2009/28&r=cta |
| By: | Paulo F. C. Tilles; Fernando F. Ferreira; Gerson Francisco; Carlos de B. Pereira; Flavia Mori Sarti |
| Abstract: | In this work we study an economic agent based model under different asymmetric information degrees. This model is quite simple and can be treated analytically since the buyers evaluate the quality of a certain good taking into account only the quality of the last good purchased plus her perceptive capacity \beta . As a consequence the system evolves according to a stationary Markovian stochastic process. The value of a product offered by the seller increases with quality according to the exponent \alpha, which is a measure of technology. It incorporates all the technological capacity of production systems such as education, scientific development and techniques that change the productivity growth. The technological level plays an important role to explain how the asymmetry of information may affect the market evolution in this model. We observe that, for high technological levels, the market can control adverse selection. The model allows us to compute the maximum asymmetric information degree before market collapse. Below this critical point the market evolves during a very limited time and then dies out completely. When \beta is closer to 1(symmetric information), the market becomes more profitable for high quality goods, although high and low quality markets coexist. All the results we obtained from the model are analytical and the maximum asymmetric information level is a consequence of an ergodicity breakdown in the process of quality evaluation. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:0905.0468&r=cta |
| By: | Pierre Picard (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X) |
| Abstract: | We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market model with adverse selection when insurers can offer either non- participating or participating policies, i.e. insurance contracts which may involve policy dividends or supplementary calls for premium. The equilibrium coincides with the Miyazaki- Spence-Wilson equilibrium, which may involves cross-subsidization between contracts within subgroups of individuals. The paper establishes that participating policies act as an implicit threat that dissuades deviant insurers who aim at attracting low risk individuals only. The model predicts that the mutual corporate form should be prevalent in insurance markets or submarkets where second-best Pareto efficiency requires cross-subsidization between risk types. Stock insurers and mutuals may coexist, with stock insurers offering insurance coverage at actuarial price and mutuals cross-subsidizing risks. |
| Date: | 2009–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00413825_v1&r=cta |
| By: | Antonio Nicita; Massimiliano Vatiero |
| Abstract: | When renegotiation under incomplete contracts follows the outside option principle, hold-up may occur as the ex-post degree of competition increases on investor’s side. However, under this framework, asset specificity may play the counterintuitive role of an entry deterrence device, thus decreasing the probability of hold-up. Our result contrasts with standard literature in three respects: i) an equilibrium with overinvestment may emerge; ii) the 'intimidating effect' of overinvestment acts as an endogenous enforcement device; iii) a pervasive trade-off may emerge between ex-post efficient entry and ex-ante efficient specific investments |
| Keywords: | strategic and specific investments, hold-up, outside options, entry deterrence |
| JEL: | D23 D85 L14 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:566&r=cta |
| By: | Jean Pinquet (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Georges Dionne (HEC Montréal - HEC MONTRÉAL); Charles Vanasse (TD Asset Management -); Mathieu Maurice (HEC Montréal - HEC MONTRÉAL) |
| Abstract: | Les politiques de sécurité routière utilisent souvent des mécanismes incitatifs basés sur les infractions pour améliorer le comportement des conducteurs. Ces mécanismes sont par exemple des amendes, des primes d'assurance ou des permis à points. Nous analysons l'efficacité incitative de ces mécanismes. Nous obtenons leurs propriétés théoriques par rapport au nombre de points associés aux infractions et par rapport au temps contrat. Ces propriétés sont ensuite testées empiriquement avec des données issues du système public d'assurance au Québec. Nous concluons à la présence d'aléa moral dans les données, qui traduit le fait que les conducteurs qui accumulent les points deviennent plus prudents car ils sont plus sous risque de perdre leur permis. Par ailleurs, la prime indicée sur les points introduite en 1992 a réduit de 15% la fréquence d'infractions. Nous utilisons ce résultat pour calculer des équivalents monétaires pour les infractions et les retraits de permis. |
| Keywords: | Mécanismes incitatifs; permis à points; sécurité routière |
| Date: | 2009–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00414479_v1&r=cta |
| By: | MARTIMORT, David; POUDOU, Jean-Christophe; SAND-ZANTMAN, Wilfried |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:21004&r=cta |