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on Contract Theory and Applications |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We define a notion of correlated equilibrium for games with incomplete information in a general setting with finite players, finite actions, and finite states, which we call Bayes correlated equilibrium. The set of Bayes correlated equilibria of a fixed incomplete information game equals the set of probability distributions over actions, states and types that might arise in any Bayes Nash equilibrium where players observed additional information. We show that more information always shrinks the set of Bayes correlated equilibria. |
| Keywords: | Correlated equilibrium, Incomplete information, Robust predictions, Information structure |
| JEL: | C72 D82 D83 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1822&r=cta |
| By: | Scharf, Kimberley Ann |
| Abstract: | We describe a model of fundraising in social groups, where private information about quality of provision is transmitted by social proximity. Individuals engage in voluntary provision of a pure collective good that is consumed by both neighbors and non-neighbors. We show that, unlike in the case of private goods, better informed individuals face positive incentives to incur a cost to share information with their neighbors. These incentives are stronger, and provision of the pure public good greater, the smaller are individuals’ social neighborhoods. |
| Keywords: | private provision of public goods; social learning |
| JEL: | D6 D7 H1 L3 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8607&r=cta |
| By: | Ian A. MacKenzie (ETH Zurich, Switzerland); Markus Ohndorf (ETH Zurich, Switzerland) |
| Abstract: | Project-based emissions trading schemes, like the Clean Development Mechanism, are particularly prone to problems of asymmetric information between project parties and the regulator. In this paper, we extend the general framework on incomplete enforcement of policy instruments to reflect the particularities of credit-based mechanisms. The main focus of the analysis is to determine the regulator’s optimal spot-check frequency given plausible assumptions of incomplete enforcement under asymmetric information on reduction costs and heterogeneous verifiability of projects. We find that, depending on the actual abatement cost and penalty schemes, optimal monitoring for credit-based systems is often discontinuous and significantly differs from the one to be applied for cap-and-trade schemes or environmental taxes. We conclude that, in a real-world context, project admission should ultimately be based on the criterion of verifiability. |
| Keywords: | Environmental regulation, Project-based emissions trading systems, Audits and compliance. |
| JEL: | K32 D42 D82 Q58 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:11-152&r=cta |
| By: | Maria Laura Pesce (Università di Napoli Federico II and CSEF) |
| Abstract: | In most economies, a fair allocation does not exist. Thus, it seems that we are condemned to live in an unfair world, since we are not happy with what we have and we look at the others with envious eyes. In this paper we want to give an hope for a more equitable society. |
| Keywords: | Asymmetric information; fair allocation; constrained market equilibrium; Maximin and Bayesian expected utility function. |
| JEL: | D63 D82 |
| Date: | 2011–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:292&r=cta |
| By: | John Thanassoulis |
| Abstract: | This study outlines a new theory linking industrial structure to optimal employment contracts and value reducing risk taking. Firms hire their executives using optimal contracts derived within a competitive labour market. To motivate effort firms must use some variable remuneration. Such remuneration introduces a myopic risk taking problem: an executive would wish to inflate early expected earnings at some risk to future profits. To manage this some bonus pay is deferred. Convergence in size amongst the largest firms makes the cost of managing the myopic risk taking problem grow faster than the cost of managing the moral hazard problem. Eventually the optimal contract jumps from one achieving zero myopic risk taking to one tolerating the possibility of myopic risk taking. Under some conditions the industry partititions: the largest firms hire executives on contracts tolerant of myopic risk taking, smaller firms ensure myopia is ruled out. |
| Keywords: | Myopic risk taking, Moral hazard, Compensation, Bonuses, Bankers' pay, Tail risk, Industrial structure |
| JEL: | G21 G34 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:571&r=cta |
| By: | Li, Han Hao; Miller, Marcus; Zhang, Lei |
| Abstract: | The traditional theory of commercial banking explains maturity transformation and liquidity provision assuming no asymmetric information and no excess profits. It captures the possibility of bank runs and business cycle risk; but it ignores the moral hazard problems connected with risk-taking by large banks counting on state bail outs. In this paper market concentration and risk-shifting is incorporated in an analytically tractable fashion; and the modified framework is used to consider measures to restore competition and stability--including, in particular, those recommended for the UK by the Independent Commission on Banking (2011), chaired by Sir John Vickers. |
| Keywords: | bailouts; money and banking; regulation; risk-taking; seigniorage |
| JEL: | E41 E58 G21 G28 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8602&r=cta |