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on Contract Theory and Applications |
| By: | Lydia Mechtenberg; Johannes Münster |
| Abstract: | This note reconsiders communication between an informed expert and an uninformed decision maker with a strategic mediator in a dis- crete Crawford and Sobel (1982) setting. We show that a strategic mediator may improve communication even when he is biased into the same direction as the expert. The mediator improves communica- tion, however, only if some information transmission is possible with unmediated communication. |
| Keywords: | Communication, Information, Cheap talk, Mediation |
| JEL: | C72 D82 D83 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2011-012&r=cta |
| By: | Ludwig Ensthaler (Humboldt University at Berlin, School of Business and Economics); Thomas Giebe (Humboldt University at Berlin, School of Business and Economics) |
| Abstract: | A budget-constrained buyer wants to purchase items from a short-listed set. Items are differentiated by observable quality and sellers have private reserve prices for their items. The buyer’s problem is to select a subset of maximal quality. Money does not enter the buyer’s objective function, but only his constraints. Sellers quote prices strategically, inducing a knapsack game. We derive the Bayesian optimal mechanism for the buyer’s problem. We find that simultaneous take-it-or-leave-it offers are optimal. Hence, somewhat surprisingly, ex-post competition is not required to implement optimality. Finally,we discuss the problem in a detail free setting. |
| Keywords: | Mechanism Design, Subsidies, Budget, Procurement, Knapsack Problem |
| JEL: | D21 D44 D45 D82 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:351&r=cta |
| By: | Hertel, Johanna; Smith, John |
| Abstract: | We model an interaction between an informed sender and an uninformed receiver. As in the classic cheap talk setup, the informed player sends a message to an uninformed receiver who is to take an action which affects the payoffs of both players. However, in our model the sender can communicate only through the use of discrete messages. The messages are ordered by the cost incurred by the sender upon its transmission. We characterize the resulting equilibria under a weak out-of-equilibrium condition. We apply the stronger no incentive to seperate (NITS) condition to our model. We show that if the sender and receiver have aligned preferences regarding the action of the receiver then NITS only admits the most informative equilibrium. When the preferences between players are not aligned, we show that NITS does not guarantee uniqueness and we provide an example where an increase in communication costs can improve communication. As we show this improvement can occur to such an extent that an equilibrium outperforms the Goltsman et. al. (2009) upper bound for payoffs in mediated communication. |
| Keywords: | information transmission; cheap talk; equilibrium selection |
| JEL: | D82 D83 C72 |
| Date: | 2011–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29148&r=cta |
| By: | Domenico Colucci (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze); Nicola Doni (Dipartimento di Sciense Economiche - Università degli Studi di Firenze); Vincenzo Valori (Dipartimento di Matematica per le Decisioni - Università degli Studi di Firenze) |
| Abstract: | This work studies a model of multidimensional auction in which a buyer needs to procure a given good from either of two potential suppliers whose quality is the buyer's private information and whose production costs are heterogeneous. Costs asymmetries constitute a novelty in this framework and extend e.g. the model of Gal-Or et al. (2007). We compare the outcomes of different procurement policies from the viewpoint of both efficiency and the buyer's payoff. A trade-off between efficiency and rent-extraction emerges. The buyer will maximize her expected utility by selecting a first score auction and either concealing or privately revealing suppliers' quality - the optimal choice depending on the degree of heterogeneity in suppliers' costs and qualities. However, neither of these auction mechanisms will be efficient: efficiency calls for a second score auction or a first score auction with public disclosure of suppliers' quality. The findings hinge on the equivalence between auction models and models of horizontal differentiation and take advantage of results for asymmetric auctions developed by Maskin & Riley (2000). |
| Keywords: | multidimensional auctions, procurement policies, endogenous information, horizontal differentiation, asymmetric auctions. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:flo:wpaper:2011-02&r=cta |
| By: | Bognar, Katalin; Börgers, Tilman; Meyer-ter-Vehn, Moritz |
| Abstract: | We consider the design of an optimal voting system when voting is costly. For a private values model with two alternatives we show the optimality of a voting system that combines three elements: (i) there is an arbitrarily chosen default decision and non-participation is interpreted as a vote in favor of the default; (ii) voting is sequential; (iii) not all voters are invited to participate in the vote. We show the optimality of such a voting system by first arguing that it is first best, that is, it maximizes welfare when incentive compatibility constraints are ignored, and then showing that individual incentives and social welfare are sufficiently aligned to make the first best system incentive compatible. The analysis in this paper involves some methods that are new to the theory of mechanism design, and it is also a purpose of this paper to explore these new methods. |
| Keywords: | Voting; mechanism design; committees. |
| JEL: | D70 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29123&r=cta |
| By: | Fuzhou Gong; Hong Liu |
| Abstract: | In this paper, we present a multi-period trading model in the style of Kyle (1985)'s inside trading model, by assuming that there are at least two insiders in the market with long-lived private information, under the requirement that each insider publicly discloses his stock trades after the fact. Based on this model, we study the influences of "public disclosure" and "competition among insiders" on the trading behaviors of insiders. We find that the "competition among insiders" leads to higher effective price and lower insiders' profits, and the "public disclosure" makes each insider play a mixed strategy in every round except the last one. An interesting find is that as the total number of auctions goes to infinity, the market depth and the trading intensity at the first auction are all constants with the requirement of "public disclosure", while the market depth at the first auction goes to zero and the trading intensity of the first period goes to infinity without the requirement of "public disclosure".Moreover, we give the exact speed of the revelation of the private information, and show that all information is revealed immediately and the market depth goes to infinity immediately as trading happens infinitely frequently. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1103.0894&r=cta |
| By: | Berger, Johannes (University of Cologne); Herbertz, Claus (University of Cologne); Sliwka, Dirk (University of Cologne) |
| Abstract: | This paper investigates the effects of managerial incentives on favoritism in promotion decisions. First, we theoretically show that favoritism leads to a lower quality of promotion decisions and in turn lower efforts. But the effect can be mitigated by pay-for-performance incentives for managers who decide upon promotion. Second, we analyze matched employer-employee survey data with detailed firm level information on managerial incentive schemes and find that perceived promotion quality is indeed substantially higher when managers receive performance-related pay or participate in gain sharing plans. |
| Keywords: | incentives, favoritism, nepotism, tournaments |
| JEL: | J33 M51 M52 M54 J71 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5543&r=cta |
| By: | Rene Kirkegaard (Department of Economics,University of Guelph) |
| Abstract: | The revenue ranking of asymmetric auctions with two heterogenous bidders is examined. The main theorem identifies a general environment in which the first-price auction is more profitable than the second-price auction. By using mechanism design techniques, the problem is simplified and several extensions are made possible. Roughly speaking, the first-price auction is more profitable when the strong bidder's distribution is flatter and more disperse than the weak bidder's distribution. These sufficient conditions turn out to have appealing geometric and economic interpretations. The theorem applies to certain environments with multi-dimensional types. It is also possible, for the first time, to extend the ranking to auctions with reserve prices and to auctions with more bidders. Implications for contests architecture and other auction formats are also pursued. |
| Keywords: | Asymmetric Auctions, Convex Transform Order, Dispersive Order, Multi-dimensional types, Revenue Ranking, Star order. |
| JEL: | D44 D82 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2011-01.&r=cta |
| By: | KOBAYASHI Keiichiro |
| Abstract: | We propose a simple model of financial crises, which may be useful for the unified analysis of macro and financial policies implemented during the 2008-2009 financial crisis. A financial crisis is modeled as the disappearance of inside money due to the lemon problem à la Akerlof (1970), in a simplistic variant of Lucas and Stokey's (1987) Cash-in-Advance economy, where both cash and capital stocks work as media of exchange. The exogenous emergence of a huge amount of bad assets represents the occurrence of a financial crisis. Information asymmetry regarding the good assets(capital stocks) and the bad assets causes the good assets to cease functioning as inside money. The private agents have no proper incentive to dispose of the bad assets, and the crisis could be persistent, because the lemon problem is an external diseconomy. Macroeconomic policy (e.g., fiscal stimulus) provides outside money for substitution, and financial stabilization (e.g., bad-asset purchases) restores the inside money by resolving information asymmetry. The welfare-improving effect of the macro policy may be nonexistent or temporary, while the bad-asset purchases may have a permanent effect to shift the economy out of the crisis equilibrium. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:11011&r=cta |
| By: | Guillaume Plantin (Toulouse School of Economics and CEPR (E-mail: guillaume.plantin@tse-fr.eu)) |
| Abstract: | I use a simple banking model to study the circumstances under which excessive and inefficient securitization may occur. I first stress that increasing securitization rates that reduce banks' incentives to screen borrowers and thus lead to more defaults need not be inefficient. This may be an efficient response to higher gains from trade between banks and fixed-income markets in the presence of bank moral hazard. I then argue that if reaping such higher gains from trade induces a reduction in the informational efficiency of the securitization market, then there is room for excessive securitization. The model points at increased transparency and informational efficiency of the securitization market as key improvements for the future of the banking system. |
| Keywords: | banking; securitization; liquidity |
| JEL: | G18 G21 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:11-e-04&r=cta |