nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2011‒09‒05
five papers chosen by
Simona Fabrizi
Massey University, Albany

  1. Wage Dispersion and Labor Turnover with Adverse Selection By Carrillo-Tudela, Carlos; Kaas, Leo
  2. Asymmetric information and market collapse: Evidence from the Chinese Market By Paresh Kumar Narayan; Xinwei Zheng
  3. Information Aggregation, Investment, and Managerial Incentives By Elias Albagli; Christian Hellwig; Aleh Tsyvinski
  4. Information Manipulation, Coordination, and Regime Change By Chris Edmond
  5. Robust Mechanism Design: An Introduction By Dirk Bergemann; Stephen Morris

  1. By: Carrillo-Tudela, Carlos (University of Essex); Kaas, Leo (University of Konstanz)
    Abstract: We consider a model of on-the-job search where firms offer long-term wage contracts to workers of different ability. Firms do not observe worker ability upon hiring but learn it gradually over time. With sufficiently strong information frictions, low-wage firms offer separating contracts and hire all types of workers in equilibrium, whereas high-wage firms offer pooling contracts designed to retain high-ability workers only. Low-ability workers have higher turnover rates, they are more often employed in low-wage firms and face an earnings distribution with a higher frictional component. Furthermore, positive sorting obtains in equilibrium.
    Keywords: adverse selection, on-the-job search, wage dispersion, sorting
    JEL: D82 J63 J64
    Date: 2011–08
  2. By: Paresh Kumar Narayan; Xinwei Zheng
    Abstract: In this paper, using data for the period January 1995 to May 2009 for the Shanghai stock exchange (SHSE), we show that aggregate illiquidity is a priced risk factor. We develop the relationship between the illiquidity factor, asymmetric information, and market collapse. Our empirical results show that while the illiquidity factor is a source of asymmetric information on the SHSE, asymmetric information does not trigger a market collapse
    Keywords: Illiquidity Factor; Asymmetric Information; Market Collapse
    Date: 2011–08–29
  3. By: Elias Albagli; Christian Hellwig; Aleh Tsyvinski
    Date: 2011–08–25
  4. By: Chris Edmond
    Abstract: This paper presents a model of information and political regime change. If enough citizens act against a regime, it is overthrown. Citizens are imperfectly informed about how hard this will be and the regime can, at a cost, engage in propaganda so that at face-value it seems hard. This coordination game with endogenous information manipulation has a unique equilibrium and the paper gives a complete analytic characterization of its comparative statics. If the quantity of information available to citizens is suciently high, then the regime has a better chance of surviving. However, an increase in the reliability of information can reduce the regime's chances. These two effects are always in tension: a regime benefits from an increase in information quantity if and only if an increase in information reliability reduces its chances. The model allows for two kinds of information revolutions. In the first, associated with radio and mass newspapers under the totalitarian regimes of the early twentieth century, an increase in information quantity coincides with a shift towards media institutions more accommodative of the regime and, in this sense, a decrease in information reliability. In this case, both effects help the regime. In the second kind, associated with diffuse technologies like modern social media, an increase in information quantity coincides with a shift towards sources of information less accommodative of the regime and an increase in information reliability. This makes the quantity and reliability effects work against each other. The model predicts that a given percentage increase in information reliability has exactly twice as large an effect on the regime's chances as the same percentage increase in information quantity, so, overall, an information revolution that leads to roughly equal-sized percentage increases in both these characteristics will reduce a regime's chances of surviving.
    Keywords: global games; hidden actions; signal-jamming; propaganda; bias; media
    JEL: C7 D7 D8
    Date: 2011
  5. By: Dirk Bergemann; Stephen Morris
    Date: 2011–08–19

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