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on Contract Theory and Applications |
| By: | Simone Alfarano (Dpto. de Economía); Andrea Morone (Dipartimento di Economia); Eva Camacho (Dpt. Economia) |
| Abstract: | The main advantages of a laboratory financial market with respect to field data are: (i) it allows us a perfect monitoring of the available information to each subject at any moment in time, and (ii) it gives us the possibility of recording subjects' trading activity in the market. In our experimental design the information distribution is endogenous, since the subjects can buy costly private information. Inspired by the debate on the role of rating agencies in the recent financial crisis, additional to the private information we introduce an imperfect public signal. The study of the interplay between public and private information constitutes our contribution to the experimental literature on laboratory financial markets. In particular, in this paper we study the perturbation created by the introduction of a public signal on the information acquisition process and on the price efficiency in transmitting information. We conclude that the public signal might drive the market price if private information is not of good quality, leaving the financial market in “the hands" of the institution which releases the public information. |
| Keywords: | experiments, financial markets, private and public information, rating agencies |
| JEL: | C92 D82 G14 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-06&r=cta |
| By: | Guido Maretto |
| Abstract: | I study two way effects between financial markets and other contractual agreements, such as compensation packages within a firm, or mortgages and loans. I construct a model with many Units, in which one of the contracting individuals, the Agent, has private information, while the uninformed individual, the Principal, has the opportunity to trade with those in the other Units. I give general conditions under which financial markets induce a transfer of risk from Agents to Principals. These conditions boil down to a limited amount of correlation among Units' returns. Under the same conditions, I show that markets induce a transfer of welfare from the best Agents to Principals. Conversely, the information problem within firms leads to excessive aggregate risk. However, this problem vanishes in a large economy. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/76053&r=cta |
| By: | Ioana Chioveanu (Universidad de Alicante); Ugur Akgun (Charles Rivers Associates) |
| Abstract: | This paper considers the use of loyalty inducing discounts in vertical supply chains. An upstream manufacturer and a competitive fringe sell differentiated products to a retailer who has private information about the level of stochastic demand. We provide an analysis of the market outcomes when the manufacturer uses two-part tariffs (2PT), all-unit discounts (AU) and market share discounts (MS). We show that retailer’s risk attitude affects manufacturer’s preferences over these three pricing schemes. When the retailer is risk-neutral, it bears all the risk and all three schemes lead to the same outcome. When the retailer is risk-averse, 2PT performs the worst from manufacturer’s perspective but it leads to the highest total surplus. For a wide range of parameter values (but not for all) the manufacturer prefers MS to AU. By limiting retailer’s product substitution possibilities MS makes the demand for manufacturer’s product more inelastic. This reduces the amount (share of profits) the manufacturer needs to leave to the retailer for the latter to participate in the scheme. |
| Keywords: | vertical contracts, loyalty discounts, private information, market share discounts. |
| JEL: | J42 J12 J13 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-03&r=cta |
| By: | Börgers, Tilman; Hernando-Veciana, Angel; Krähmer, Daniel |
| Abstract: | The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates com- plementarity and substitutability to a Blackwell comparison of two auxiliary signals. In a setting with a binary state space and binary signals, we find an explicit characteriza- tion that permits an intuitive interpretation of complementarity and substitutability. We demonstrate how these conditions extend to more general settings. |
| Keywords: | Information; signals; complementarity; substitutability. |
| JEL: | D80 |
| Date: | 2010–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29124&r=cta |
| By: | Axel Ockenfels; Peter Werner |
| Abstract: | We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper "Welt am Sonntag", employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', supporting the notion that some agents' beliefs directly enter the social utility function. |
| Keywords: | dictator game, psychological games, incomplete information, newspaper experiment |
| Date: | 2011–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0051&r=cta |
| By: | Stefani, Gianluca; Giudicissi, Eufrasia |
| Abstract: | We reviewed some moral hazard (MH) models applied to agri-environmental policies and identified the main methodological aspects of the literature on this topics. Imperfect vs incomplete monitoring , static vs dynamic and single vs multiple agents models are the main lines along which the literature has been organised analysing each component of a MH model. Most papers point out the role of farmers' risk aversion in mitigating MH. Others highlight that the observed high rate of compliance is still somewhat paradoxical given current enforcement strategies with low fines and monitoring levels. Cross compliance confirm these findings and urges further studies on dynamic models and farmers' non profit maximising behaviour. |
| Keywords: | Cross-compiance, Moral Hazard, Enforcement, Agri-environjeljmental schemes, Agricultural and Food Policy, Q15, Q58, D82, |
| Date: | 2011–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:eaa122:99597&r=cta |
| By: | Fraser, Rob |
| Abstract: | This paper extends the multi-period agri-environmental contract model of Fraser (2004) so that it contains a more realistic specification of the inter-temporal penalties for noncompliance, and therefore of the inter-temporal moral hazard problem in agrienvironmental policy design. On this basis it is shown that a farmer will have an unambiguous preference for cheating early over cheating late in the contract period based on differences in the expected cost of compliance. It is then shown how the principal can make use of this unambiguous preference to target monitoring resources intertemporally, and in so doing, to encourage full contract duration compliance. |
| Keywords: | Environmental Economics and Policy, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aare11:100550&r=cta |
| By: | Nadine Chalß (Friedrich-Schiller-University Jena, Germany) |
| Abstract: | Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality. |
| Keywords: | imperfect information, common value auction, price-quality relation |
| JEL: | D61 D82 L13 |
| Date: | 2011–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2011-011&r=cta |
| By: | Reito, Francesco |
| Abstract: | This paper shows that the positive assortative matching of Ghatak (1999) and Van Tassel (1999) is not a general result and always depends on the distribution of safe and risky types. Some new implications are: (i) borrowers may be better off by forming mixed groups. (ii) a mixed pooling equilibrium is possible when homogeneous pooling equilibria do not exist, and even when the reservation income of borrowers is equal to zero. |
| Keywords: | joint liability lending; assortative matching; screening |
| JEL: | D81 G20 O12 |
| Date: | 2011–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28881&r=cta |