|
on Contract Theory and Applications |
| By: | Jun Nakabayashi |
| Abstract: | Regarding optimal design in the private value environment, there is an unsolved discrepancy in the literature regarding asymmetric auctions and auctions with endogenous participation; Literature on the former suggests that well-designed distortive mechanisms are optimal (revenue maximizing) assuming the bidding costs are negligible, while that on the latter insists that the mechanisms with free entry and no distortion are optimal provided that the potential bidders are ex ante symmetric.This paper is the first attempt to reconcile the two views by establishing a model for asymmetric auctions with costly participation. The main findings are threefold; First, an optimal outcome is possible if and only if the mechanism is ex post efficient. Second, without any participation control, a coordination problem is likely in which only the weak bidders participate and the strong bidders stay out. Finally, there is an entry fee/subsidization scheme which, together with an ex post efficient mechanism, induces the optimal outcome as a unique equilibrium. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:tsu:tewpjp:2010-002&r=cta |
| By: | Pio Baake; Vanessa von Schlippenbach |
| Abstract: | This paper examines how delivery tariffs and private quality standards are determined in vertical relations that are subject to asymmetric information. We consider an infinitely repeated game where an upstream firm sells a product to a downstream firm. In each period, the firms negotiate a delivery contract comprising the quality of the good as well as a non-linear tariff. Assuming asymmetric information about the actual quality of the product and focusing on incentive compatible contracts, we show that delivery contracts are more efficient the lower the firms' outside options, i.e. the higher their mutual dependency. Buyer power driven by a reduced outside option of the upstream firm enhances the efficiency of vertical relations, while buyer power due to an improved outside option of the downstream firm implies less efficient outcomes. |
| Keywords: | Quality Uncertainty, Private Standards, Vertical Relations, Buyer Power |
| JEL: | D82 L14 L15 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp968&r=cta |
| By: | Caccioli, Fabio; Marsili, Matteo |
| Abstract: | The authors study a simple model of an asset market with informed and non-informed agents. In the absence of non-informed agents, the market becomes information efficient when the number of traders with different private information is large enough. Upon introducing non-informed agents, the authors find that the latter contribute significantly to the trading activity if and only if the market is (nearly) information efficient. This suggests that information efficiency might be a necessary condition for bubble phenomena - induced by the behavior of non-informed traders - or conversely that throwing some sands in the gears of financial markets may curb the occurrence of bubbles. -- |
| Keywords: | Interacting agents models,market efficiency,market stability,statistical mechanics of financial market |
| JEL: | G14 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20103&r=cta |
| By: | Alberto Bennardo (Università di Salerno, CSEF, and CEPR); Pierre-André Chiappori (Columbia University); Joon Song (University of Essex) |
| Abstract: | The finance literature views perks either as productivity enhancing expenditures or as a result of poor managerial control by shareholders. Using a corporate jet to attend a business meeting may be justified because of the returns generated for the firm; but flying on the same jet to reach a vacation resort reflects a misappropriation of the firm’s resources by the manager. Our paper challenges this view. We argue that complementarity between leisure and wages creates difficult incentive problems, because the bonuses or stock options that reward success increase the marginal disutility of effort. In such a context, we show that whenever there exist commodities (‘perks’) that are substitute to leisure (or even less complementary to leisure than money), the optimal incentive scheme involves overprovision of such commodities, in the sense that the agent should consume more of them that she would elect to, should she be given a choice between money and perks at the current market prices. This conclusion is valid even when perks must be provided independently of the manager’s performace. Finally, we discuss the role of governance by introducing manipulations a la Peng and Röell (2006), and show that, in contrast with standard intuition, perks are used even when governance is perfect, and poorer governance may result in less perks being offered to the agent. |
| Keywords: | Perks, Moral Hazard, Incentives, Second Best |
| JEL: | D23 D82 D83 |
| Date: | 2010–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:244&r=cta |
| By: | Tamada, Yasunari; Tsai, Tsung-Sheng |
| Abstract: | This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority, or delegate it to the agent, who has better information. An outside evaluator who forms the principal's reputation cannot observe who makes the decision. The key feature of this paper is that the principal can in°uence her reputation through her delegation policy. With reputation concerns, we show that the principal tends to keep too much the authority from the evaluator's point of view, even though sometimes her information is not good enough for her to make the decision on her own. |
| Keywords: | Decision-making authority; delegation; reputation concerns |
| JEL: | D23 L14 D82 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20225&r=cta |
| By: | Chiara Donnini (Università di Napoli Parthenope); Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Maria Laura Pesce (Università di Napoli Federico II) |
| Abstract: | This paper studies the notion of fairness in pure exchange economies involving uncertainty and asymmetric information. We propose a new concept of coalitional fair allocation in order to solve the tension that may exist between efficiency and envy-freeness when the equity of allocations is evaluated at the {\it interim} stage. Some characterizations of constrained market equilibria are derived extending the analysis to economies that have both an atomic and an atomless sector. |
| Keywords: | Mixed markets, coalitional fairness, envy, efficiency, asymmetric information |
| JEL: | C71 D51 D82 |
| Date: | 2010–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:245&r=cta |
| By: | Hoff, Karla |
| Abstract: | This paper shows how badly a market economy may respond to a positive productivity shock in an environment with asymmetric information about project quality: some, all, or even more than all the benefits from the increase in productivity may be dissipated. In the model, based on Bernanke and Gertler (1990), entrepreneurs with a low default probability are charged the same interest rate as entrepreneurs with a high default probability. The implicit subsidy from good types to bad means that the marginal entrant will have a negative-value project. An example is presented in which, after a positive productivity shock, the presence of enough bad types forces the interest rate so high that it drives all entrepreneurs out of the market. This happens in an industry in which there are good projects that are productive. The problem is that they are contaminated in the capital market by bad projects because of the banks’ inability to distinguish good projects from bad. One possible explanation for the lack of development in some countries, is that screening institutions are sufficiently weak that impersonal financial markets cannot function. If industrialization entails learning spillovers concentrated within national boundaries, and if initially informational asymmetries are sufficiently great that the capital market does not emerge, then neither industrialization nor the learning that it would foster will occur. |
| Keywords: | Debt Markets,Access to Finance,Economic Theory&Research,Banks&Banking Reform,Markets and Market Access |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5183&r=cta |
| By: | Carlos Chávez (Departamento de Economía, Universidad de Concepción); Mauricio Villena (Escuela de Negocios, Universidad Adolfo Ibáñez); Johan Stranlund |
| Abstract: | We analyze the cost of enforcing a system of firm specific emissions standards vis a vis a transferable emissions permit system in the context of complete and incomplete information. We also examine the optimality of a transferable emissions permit system when abatement costs and enforcement costs are considered. We show that under incomplete information, regulation based on each firm-specific emissions standards cannot be less costly than a transferable emissions permit system. In addition, we found that the distribution of emissions that minimize aggregate program costs differ from the distribution of emissions generated by a competitive transferable emissions permit system. |
| Keywords: | Environmental policy, cost-effectiveness, enforcement costs, incomplete information. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:cnc:wpaper:01-2009&r=cta |