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on Contract Theory and Applications |
| By: | Bartling, Björn (University of Zurich); Fehr, Ernst (University of Zurich); Schmidt, Klaus M. (University of Munich) |
| Abstract: | In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These "high-performance work systems" are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees. |
| Keywords: | job design, high-performance work systems, screening, reputation, competition, trust, control, social preferences, complementarities |
| JEL: | C91 D86 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4710&r=cta |
| By: | Ishikawa, Ryuichiro; Kudoh, Noritaka |
| Abstract: | In this paper, we study a dynamic Gaussian financial market model in which the traders form higher-order expectations about the fundamental value of a single risky asset. Rational uninformed traders are introduced into an otherwise standard differential information economy to investigate the impact of asymmetric information. In a two-period economy, there is a unique linear equilibrium; beauty contests under asymmetric information do not introduce excess volatility driven by self-fulfilling multiple equilibria. Under certain conditions, there is a nonmonotonic relationship between price volatility and the proportion of uninformed traders. |
| Keywords: | higher-order expectations, asset prices, asymmetric information, |
| JEL: | D82 D84 G12 G14 |
| Date: | 2010–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:hok:dpaper:218&r=cta |
| By: | Marc Labie (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and Faculté Warocqué, Université Mons-Hainaut.); Pierre-Guillaume Méon (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.); Roy Mersland (University of Agder, Norway and Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Ariane Szafarz (Centre Emile Bernheim, CERMi, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.) |
| Abstract: | This paper studies the relationship between a microfinance institution and its credit officers when the latter are biased against a subgroup of the clientele. Using survey data from Uganda, we provide evidence that credit officers are more biased against disabled borrowers than other employees. In line with the evidence, we then build an agency model of a non-profit MFI and a discriminatory credit officer. Since incentives are costly, and the MFI’s budget is limited, even a non discriminating welfare-maximizing MFI may prefer paying smaller incentives, and letting its credit officer discriminate to some extent. |
| Keywords: | Microfinance, Discrimination, Credit Officers, Incentives. |
| JEL: | G21 O16 J33 L3 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:10-007&r=cta |
| By: | Juergen Jung (Department of Economics, Towson University); Chung Tran (Department of Economics, University of New South Wales) |
| Abstract: | In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program. |
| Keywords: | Public health insurance, private health insurance, vouchers, dynamic stochastic general equilibrium model, endogenous health production. |
| JEL: | H51 I18 I38 E6 E21 E62 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2010-03&r=cta |
| By: | Dror Lellouche; Assaf Romm |
| Abstract: | Should an auctioneer start a rising auction from some starting price or set it as a reservation price? Under what circumstances might a bidder find it rational to raise the current offer by a substantial factor instead of making just a small increase above the highest bid? This paper aims to answer both of these questions by exploring the implications of jump bidding over the information sets available to the bidders. Our motivation is to find whether hiding the information about other players' signals might be beneficial for one of the bidders. We first show that it is better for the auctioneer to set a reservation price rather than "jump" to the starting price. We then prove that in a very general setting and when bidders are risk-neutral there exist no equilibrium with jump bidding (in non-weakly dominated strategies). Finally, we demonstrate that jump bidding might be a rational consequence of risk aversion, and analyze the different effects at work. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp526&r=cta |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics) |
| Abstract: | This paper concerns optimal nonlinear taxation in an OLG model with two ability-types, where people care about their own consumption relative to (i) other people’s current consumption, (ii) own past consumption, and (iii) other people’s past consumption. We show that intertemporal consumption comparisons affect the marginal income tax structure in the same qualitative way as comparisons based on other people’s current consumption. Based on available empirical estimates, comparisons with other people’s current and previous consumption tend to substantially increase the optimal marginal labor income tax rates, while they may either increase or decrease the optimal marginal capital income tax rates. |
| Keywords: | Optimal income taxation; asymmetric information; relative consumption; status; habit formation; positional goods |
| JEL: | D62 H21 H23 H41 |
| Date: | 2010–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0800&r=cta |
| By: | J.J.A. Kamphorst; E. Mendys-Kamphorst; B. Westbrock |
| Abstract: | It is well-known in the IO literature that incumbent firms may want to deter entry by behaving as if they are efficient. In this paper we show that incumbents may sometimes prefer to encourage entry by mimicking the behaviour of a less efficient firm for the following reason. If the incumbent cannot deter potential efficient entrants, he may want to elicit entry by an inefficient firm who would not enter if he knows that the incumbent is efficient. The presence of the additional firm in the market prevents further entry. The incumbent then faces a less efficient competitor in the long run. |
| Keywords: | Duopoly competition, entry deterrence, signalling weakness |
| JEL: | D43 D82 L11 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1002&r=cta |