nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2011‒08‒02
four papers chosen by
Simona Fabrizi
Massey University, Albany

  1. Invader Strategies in the War of Attrition with Private Information By Lars Peter Metzger
  2. Contracts for Agents with Biased Beliefs: Some Theory and an Experiment By Anja Sautmann
  3. Paying Positive to Go Negative: Advertisers' Competition and Media Reports By A. Blasco; P. Pin; F. Sobbrio
  4. Private Valuation of a Public Good in Three Auction Mechanisms. By Dragicevic, Arnaud; Ettinger, David

  1. By: Lars Peter Metzger
    Abstract: Second price allpay auctions (wars of attritions) have an evolutionarily stable equilibrium in pure strategies if valuations are private information. I show that for any level of uncertainty there exists a pure deviation strategy close to the equilibrium strategy such that for some valuations the equilibrium strategy has a selective disadvantage against the deviation if the population mainly plays the deviation strategy. There is no deviation strategy with this destabilizing property for all valuations if the distribution of valuations has a monotonic hazard rate. I argue that in the Bayesian game studied here, a mass deviation can be caused by the entry of a small group of agents. Numeric calculations indicate that the closer the deviation strategy to the equilibrium strategy, the less valuations are destabilizing. I show that the equilibrium strategy does not satisfy continuous stability.
    Keywords: Continuous Strategies, Evolutionary Stability, War of Attrition, Strict Equilibrium, Neighborhood Invader Strategy, Continuous Stability, Evolutionary Robustness
    JEL: C72 C73 D44
    Date: 2011–07
  2. By: Anja Sautmann
    Abstract: This paper experimentally tests the predictions of a principal-agent model in which the agent has biased beliefs about his ability. Overcondent workers are found to earn lower wages than undercondent ones because they overestimate their expected payo, and principals adjust their oers accordingly. Moreover, the prot-maximizing contract distorts eort by varying incentives according to self-condence, although only the most successful principals use this strategy. These ndings have implications for the labor market; in particular, self-condence is often correlated with gender, implying that principals would prefer to hire men over women simply because they are more overcondent.
    Keywords: #
    Date: 2011
  3. By: A. Blasco; P. Pin; F. Sobbrio
    Abstract: This paper analyzes a two-sided market for news where advertisers may pay a media outlet to conceal negative information about the quality of their own product (paying positive to avoid negative) and/or to disclose negative information about the quality of their competitors' products (paying positive to go negative). We show that whether advertisers have negative consequences on the accuracy of news reports or not ultimately depends on the extent of correlation among advertisers' products. Specifically, the lower the correlation among the qualities of the advertisers' products, the (weakly) higher the accuracy of the media outlet' reports. Moreover, when advertisers' products are correlated, a higher degree of competition in the market of the advertisers' products may decrease the accuracy of the media outlet's reports.
    JEL: L82 D82
    Date: 2011–07
  4. By: Dragicevic, Arnaud; Ettinger, David
    Abstract: We evaluate the impact of three auction mechanisms – the Becker–DeGroot–Marschak (BDM) mechanism, the second-price auction (SPA), and the random nth-price auction (NPA) – in the measurement of private willingness-to-pay and willingness-to-accept for a pure public good. Our results show that the endowment effect is lower with the BDM mechanism. In this market mechanism, the effect disappears after a few repetitions. Yet, on a logarithmic scale, the random nth-price auction yields the highest speed of convergence towards equality of welfare indices. We also observe that subjects value public goods in reference to their private subjective benefit derived from their public good funding.
    Keywords: auction mechanisms; WTP-WTA disparity; private provisions; public goods;
    JEL: Q53 C91 D44
    Date: 2011

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