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on Contract Theory and Applications |
| By: | Olivier Bos |
| Abstract: | Recent literature has shown that all-pay auctions raise more money for charity than winner-pay auctions. We demonstrate that the first-price and second-price winner-pay auctions outperform the first-price and second-price all-pay auction when bidders are sufficiently asymmetric. To prove it, we consider a framework with complete information. Complete information is realistic and corresponds to events that occur, for instance, in a local service club (such as a voluntary organization) or in a show business dinner. |
| Keywords: | All-pay auctions, charity, complete information, externalities |
| JEL: | D44 D62 D64 |
| Date: | 2010–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0045&r=cta |
| By: | Â Leif Brandes (Institute for Strategy and Business Economics, University of Zurich); Â Egon Franck (Institute for Strategy and Business Economics, University of Zurich); Â Erwin Verbeek (Institute for Strategy and Business Economics, University of Zurich) |
| Abstract: | Â Measuring the (private) information content of stock trades is an important topic in market microstructure research. A common problem of stock markets is that it is ex-ante not possible to separate phases where the scope for asymmetric information is likely to be broader from those, where there is less exposure to traders with superior information. Such a distinction is needed to directly test the reliability of the proposed measures. This paper applies a unique data set from the betting market to provide such a direct test. We exploit the fact that betting occurs preplay, i.e. before match start, as well as inplay. We test the hypothesis that measures of private information will be less pronounced for inplay betting quotations (where all actions on the court are publicly observable, and trading on private information is unlikely) than for preplay betting quotations. Based on more than 23,000 transactions for the 2008 Wimbledon final, and five additional matches, we present first empirical support for this relation. |
| Keywords: | betting; market microstructure; asymmetric information; vector autoregressive model |
| JEL: | G14 C33 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:iso:wpaper:0120&r=cta |
| By: | Caroline Hillairet (CMAP); Ying Jiao (PMA) |
| Abstract: | We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations, especially about the default threshold. Different information structures are distinguished using the framework of enlargement of filtrations. We specify risk neutral probabilities and we evaluate default sensitive contingent claims in these cases. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1002.3256&r=cta |
| By: | Christophe J. Godlewski (LaRGE Research Center, Université de Strasbourg); Frédéric Lobez (European Center for Corporate Control Studies, Université de Lille Nord de France); Jean-Christophe Statnik (European Center for Corporate Control Studies, Université de Lille Nord de France; GREGOR, Sorbonne Graduate Business School, Université Paris 1) |
| Abstract: | We investigate the relationship between borrower quality and the structure of the pool of banks. First, we develop a theoretical model where the size of the banking pool is a credible signal of firm quality. We argue that better borrowers seek to disclose their quality in a credible way through the structure of the banking pool involving fewer banks. Second, we test our prediction using a sample of more than 3,000 loans from 19 European countries. We perform regressions of the number of bank lenders on various proxies of borrower quality. Our empirical tests corroborate the theoretical redictions. The size of the banking pool is a signal of borrower quality. Hence, good quality firms have fewer lenders in their banking pools. |
| Keywords: | Bank lending, borrower quality, multiple banking, number of lenders, signaling, Europe. |
| JEL: | D82 G21 G32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2010-02&r=cta |
| By: | Gerard Padró i Miquel; Pierre Yared |
| Abstract: | This paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority. We develop a dynamic principal-agent model in which a principal (a government) delegates the prevention of a disturbance—such as riots, protests, terrorism, crime, or tax evasion—to an agent who has an advantage in accomplishing this task. Our setting is a standard dynamic principal-agent model with two additional features. First, the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players. Second, the principal suffers from limited commitment. Using recursive methods, we derive a fully analytical characterization of the likelihood, intensity, and duration of intervention. The first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium. This is because they serve as a punishment to induce the agent into desired behavior. The second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal’s inability to commit. Finally, we derive sharp predictions regarding the impact of various factors on likelihood, intensity, and duration of intervention. We discuss these results in the context of some historical episodes. |
| JEL: | D02 D82 H1 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15748&r=cta |
| By: | Giuseppe Moscarini (Cowles Foundation, Yale University); Fabien Postel-Vinay (University of Bristol and Paris School of Economics) |
| Abstract: | We analyze a stochastic equilibrium contract-posting model. Firms post employment contracts, wages contingent on all payoff-relevant states. Aggregate productivity is subject to persistent shocks. Both employed and unemployed workers search randomly for these contracts, and are free to quit at any time. An equilibrium of this contract-posting game is Rank-Preserving [RP] if larger firms offer a larger value to their workers in all states of the world. We show that every equilibrium is RP, and equilibrium is unique, if firms differ either only in their initial size, or also in their fixed idiosyncratic productivity but more productive firms are initially larger, in which case turnover is always efficient, as workers always move from less to more productive firms. The RP equilibrium stochastic dynamics of firm size provide an explanation for the empirical finding that large employers are more cyclically sensitive (Moscarini and Postel-Vinay, 2009). RP equilibrium computation is tractable, and we simulate calibrated examples. |
| Keywords: | Equilibrium job search, Dynamic contracts, Stochastic dynamics |
| JEL: | J64 J31 D86 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1754&r=cta |
| By: | Bobtcheff, Catherine (Toulouse School of Economics (CNRS, LERNA)); Mariotti, Thomas (Toulouse School of Economics (CNRS, GREMAQ, IDEI)) |
| Abstract: | We consider a preemption game with two potential competitors who come into play at some random secret times. The presence of a competitor is revealed to a player only when the former moves, which terminates the game. We show that all perfect Bayesian equilibria give rise to the same distribution of players' moving times. Moreover, there exists a unique perfect Bayesian equilibrium in which each player's behavior from any time on is independent of the date at which she came into play. We find that competitive pressure is nonmonotonic over time, and that private information tends to alleviate rent dissipation. Our results have a natural interpretation in terms of eroding reputations. |
| JEL: | C73 D82 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:21999&r=cta |
| By: | Stéphanie Lemaitre (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 (EHESS) - CNRS : UMR6579); Hubert Stahn (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 (EHESS) - CNRS : UMR6579) |
| Abstract: | This paper deals with the cost of treatment of the ultimate waste, that is waste which cannot, in the absence of recycling opportunities, be reduced by a suitable taxation scheme. We propose a new way to handle this waste based on aWaste Management Contracts (WMC) which largely implicates the households in the cost reduction process. Within a set of feasible, i.e. budget balancing, incentive compatible and acceptable, contracts we characterize the optimal WMC and compare this system to a more standard one based on an Advanced and a Disposal Fee |
| Keywords: | Waste Management, Disposal Fee Policy, Household Effort, Contracts |
| Date: | 2010–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00449538_v1&r=cta |