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on Contract Theory and Applications |
| By: | Andrea Attar (University of Rome "Tor Vergata"); Thomas Mariotti (Toulouse School of Economics); François Salanié (Toulouse School of Economics) |
| Abstract: | Consider a seller of a divisible good, facing several identical buyers. The quality of the good may be low or high, and is the seller's private information. The seller has strictly convex preferences that satisfy a single-crossing property. Buyers compete by posting arbitrary menus of contracts. Competition is non-exclusive in that the seller can simultaneously and secretly trade with several buyers. We fully characterize conditions for the existence of an equilibrium. Equilibrium aggregate allocations are unique. Any traded contract must yield zero profit. If a quality is indeed traded, then it is traded efficiently. Depending on parameters, both qualities may be traded, or only one of them, or the market may break down completely to a no-trade equilibrium. |
| Keywords: | Adverse Selection, Competing Mechanisms, Non-Exclusivity |
| JEL: | D43 D82 D86 |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:192&r=cta |
| By: | Raffaele Fiocco; Mario Gilli |
| Abstract: | We consider the regulation of a monopolistic market when the prin- cipal delegates to a regulatory agency two tasks: the supervision of the firm's unknown costs and the arrangement of a pricing mechanism. As usual, the agency may have an incentive to hide information from the principal to share the informative rent with the firm. The novelty of this paper is that both the regulatory mechanism and the side con- tracting between the agency and the firm are modelled as a bargaining process. This negotiation between the regulator and the monopoly induces a radical change in the extraprofit from private information, which is now equal to the standard informational rent weighted by the agency’ bargaining power. This in turn a¤ects the collusive stage, in particular the firm has the greatest incentive to collude when fac- ing an agency with the same bargaining power. Then, we focus on the optimal organizational responses to the possibility of collusion. In our setting, where incompleteness of contracts prevents the design of a screening mechanism between the agency’ types and thus Tirole’ equivalence principle does not apply, we prove that the stronger the agency in the negotiation process, the greater the incentives for the principal to tolerate collusion in equilibrium. |
| Keywords: | regulation, bargaining, collusion. |
| JEL: | D73 D82 L51 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:207&r=cta |
| By: | Leonard J. Mirman; Marc Santugini (IEA, HEC Montréal) |
| Abstract: | We present diagrammatic analysis of price signaling quality. We first study the behavior of the monopoly when price conveys information about quality. We then show the effect of information flows on welfare, i.e., profit and consumer surplus. |
| Keywords: | Asymmetric information, learning, monopoly, quality, signaling |
| JEL: | D21 D42 D82 D83 D84 L12 L15 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:1104&r=cta |
| By: | David Blake; John Cotter; Kevin Dowd |
| Abstract: | This paper discusses the financial risks faced by the UK Pension Protection Fund (PPF) and what, if anything, it can do about them. It draws lessons from the regulatory regimes under which other financial institutions, such as banks and insurance companies, operate and asks why pension funds are treated differently. It also reviews the experience with other government-sponsored insurance schemes, such as the US Pension Benefit Guaranty Corporation, upon which the PPF is modelled. We conclude that the PPF will live under the permanent risk of insolvency as a consequence of the moral hazard, adverse selection, and, especially, systemic risks that it faces. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1103.5978&r=cta |
| By: | Florian Morath |
| Abstract: | Private provision of public goods often takes place as a war of attrition: individuals wait until someone else volunteers and provides the good. After a certain time period, however, one individual may be randomly selected. If the individuals are uncertain about their cost of provision, but can find out about this cost ahead of the volunteering game, a strategic value is attached to the information, and individuals may prefer not to learn their cost of provision. If the time horizon is sufficiently short, in equilibrium only one individual may acquire information about his cost. For a long time horizon, acquiring information is strictly dominant. The time limit is an important instrument in influencing the efficiency of the volunteering game. |
| Keywords: | War of attrition, Volunteering, Discrete public goods, Asymmetric information, Information acquisition |
| JEL: | H41 D44 D82 D83 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:mpi:wpaper:volunteering_and_the_strategic_value_of_ignorance&r=cta |
| By: | Emmanuelle GABILLON (GREThA, CNRS, UMR 5113) |
| Abstract: | Following Quiguin (1994), we propose a general model of preferences that accounts for individuals\' regret concerns. By confronting the commonly-accepted additive and multiplicative regret utility functions to this model, we establish certain characteristics that these utility functions require to be in conformity with our preferences model. Equally, as regret is intrinsically related to the concept of information about the foregone alternatives, we generalize our framework so that it can accomodate any information structure. We show that the less informative that structure is, the higher the utility of a regretful individual. This result means that an individual prefers not to be exposed to ex post information about the foregone alternatives. We also focus on information value, and consider two cases. That of flexibility, where information arrives before the choice and can be used to determine the optimal strategy; that of non-flexibility, where information arrives after the choice. We show that information value is negative when there is no flexibility, and that it can also be negative when there is flexibility. |
| Keywords: | , information, choice under uncertainty, bivariate risk aversion |
| JEL: | D81 D82 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:grt:wpegrt:2011-15&r=cta |
| By: | Zudenkova, Galina |
| Abstract: | This paper studies party discipline in a congress within a political agency framework with retrospective voting. Party discipline serves as an incentive device to induce office-motivated congress members to perform in line with the party leadership's objective of controlling both the executive and the legislative branches of government. I show first that the same party is more likely to control both branches of government (i.e., unified government) the stronger the party discipline in the congress is. Second, the leader of the governing party imposes more party discipline under unified government than does the opposition leader under divided government. Moreover, the incumbents' aggregate performance increases with party discipline, so a representative voter becomes better off. |
| Keywords: | Party discipline; Political agency; Retrospective voting; Office-motivated politicians. |
| JEL: | D72 |
| Date: | 2011–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:29890&r=cta |
| By: | Duygu Yengin (School of Economics, University of Adelaide) |
| Abstract: | In the problem of assigning indivisible goods and monetary transfers, we characterize welfare-egalitarian mechanisms (that are decision-efficient and incentive compatible) with an axiom of solidarity under preference changes and a fair ranking axiom of order preservation. This result is in line with characterizations of egalitarian rules with solidarity in other economic models. We also show that we can replace order-preservation with egalitarian-equivalence or no-envy (on the subadditive domain) and still characterize the welfare-egalitarian class. We show that, in the model we consider, the welfare-egalitarian mechanisms appear to be the best candidates to satisfy several different fairness and solidarity requirements as well as generating bounded deficits. |
| Keywords: | egalitarianism, solidarity, order preservation, egalitarian-equivalence, no-envy, distributive justice, NIMBY problems, imposition of tasks, allocation of indivisible (public) goods and money, the Groves mechanisms, strategy-proofness |
| JEL: | C79 D61 D63 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2011-20&r=cta |