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on Contract Theory and Applications |
| By: | Julie Ing (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | We study the optimal contracts (payment and extraction path) implemented by a regulator unable to commit to long term contracts that delegates the extraction of a nonrenewable resource to a firm. The regulator wishes to maximize the tax revenue and does not know the firm’s efficiency which is private information. As the regulator is unable to commit, the ratchet effect appears. We show that the contracts implemented depend on which types of firms exhaust the stock. If both types exhaust the stock, the contracts are fully separating and similar to those implemented under full commitment. The efficient firm produces the first best and gets an informational rent whereas the inefficient one produces lower quantity. If the stock is not exhausted, the contracts are semi separating and the inefficient firm produces higher quantity than under full commitment and the tax revenue is lower. However, those contracts may not be incentive compatible if the discount factor and the second period price are high and thus the regulator may be forced to implement a pooling contract. |
| Keywords: | Nonrenewable resources, commitment, asymmetric information |
| JEL: | Q38 D82 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1205&r=cta |
| By: | Bell, Peter N |
| Abstract: | This paper develops a model to study corporate investment decisions using the principal-agent framework. The model has asymmetric information where the agent knows the true value of the company and the principal does not. The model also has uncertainty where the company is presented an investment opportunity with a certain cost and random benefit. The agent must decide whether they will sell stock to the principal and make the investment. Results show that the information asymmetry imposes a cost on the principal because the agent will forgo some profitable projects or undertake some with expected losses. A procedure for the principal to distinguish undervalued and overvalued companies is presented. |
| Keywords: | Decision making; Investment project; private information; uncertainty; |
| JEL: | D82 G30 |
| Date: | 2012–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38348&r=cta |
| By: | Saak, Alexander E. |
| Abstract: | In this paper we study incentives to report clinically suspect situations in a simple model of an infectious animal disease with limited diagnostic resource. We characterize a transfer scheme that sustains credible reporting and implements an efficient test allocation. In a game without monetary transfers, credible reporting and first-best targeted testing are achievable in both laissez-faire and efficient disease control regimes when the disease occurrence among few well-informed producers is unlikely. When the number of producers is small, random testing is optimal under mandatory depopulation of untested animals, but credible reporting can be necessary for testing to improve welfare under laissez-faire disease control if private information is sufficiently precise. When the number of producers is large, random testing always improves welfare, and if private information is precise, disease occurrence is unlikely, and testing capacity is small, efficient testing is achievable without transfers in the efficient disease control regime. |
| Keywords: | diagnostic testing, indemnity design, infectious disease, private information, reporting, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1162&r=cta |
| By: | Josheski, Dushko |
| Abstract: | In the past employee interest and influence have been presented mainly through trade unions and collective bargaining (economic regulation). Socially optimal levels of co-determination may be prevented by the existence of high fixed costs of establishing councils. Job security can resolve the adverse selection problem and raise economic efficiency i.e. worker or agent will work efficiently or socially optimal. Co-determination reinforces well functioning social democracy, recent studies discover that consultation and participation increase than innovativeness of the company. The US and EU approach to employment are different under common and civil law, that differ in many ways. The US employment –at- will is liberal individualist model, laissez-faire approach and any regulation is considered to be potentially welfare reducing. And mandatory employment rights model; EU model that seeks it’s rationale in the previously mentioned market failures (agency problems, hold-up problems) caused by asymmetric information and incomplete employment contracts, and the presence of monopolies, monopsonies that reduce workers mobility. Harmonious relations between” social partners” – labor and management are the aim of the European Work Council directive. European law continues to focus on workers and shareholders interest. |
| Keywords: | Asymmetric informations; European model; Employee councils; Co-determination; European Work Council Directive |
| JEL: | M50 |
| Date: | 2012–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38196&r=cta |
| By: | Jellal , Mohamed; Souam, Said |
| Abstract: | We analyze a situation where an antitrust authority delegates to an audit inspector the mission of gathering the sufficient information to condemn a cartel. The authority has two instruments at her disposal: rewarding the inspector with a proportion of the collected fine or providing him with information which enhances the probability of the success of the prosecution. More precisely, we explore the efficiency consequences of a contest between the audit inspector and the cartel. Both of them bid to win the contest by expending efforts. We show that the race issue depends positively on the financial incentives proposed to the inspector but the impact of an increase of the level of the fine, to be paid once an illegal agreement is detected, is ambiguous. Moreover, we show that the optimal combination of the two instruments consists in two regimes. When the marginal cost of providing the relevant information is relatively high, the antitrust authority equally shares the collected fine and does not provide the inspector with any information. Conversely, when this marginal cost is relatively small, the authority uses the two instruments. She has to provide him with the maximum level of information consistent with winning the contest with certainty |
| Keywords: | Antitrust Enforcement; Collusion; Moral Hazard; Contest |
| JEL: | K42 K21 L4 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:38343&r=cta |
| By: | Marion Oury (THEMA, Universite de Cergy-Pontoise) |
| Abstract: | This paper examines many-player many-action global games with multidimensional state parameters. It establishes that the notion of noise-independent selection introduced by Frankel, Morris and Pauzner (Journal of Economic Theory 108 (2003) 1- 44) for onedimensional global games is robust when the setting is extended to the one proposed by Carlsson and Van Damme (Econometrica, 61, 989-1018). More precisely, our main result states that if an action prole of some complete information game is noise-independently selected in some one-dimensional global game, then it is also noise-independently selected in all multidimensional global games. |
| Keywords: | equilibrium selection, global games, strategic complementarities, robustness. |
| JEL: | C72 D82 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2012-28&r=cta |
| By: | Hanming Fang (Department of Economics, University of Pennsylvania); Xun Tang (Department of Economics, University of Pennsylvania) |
| Abstract: | Bidders’ risk attitudes have important implications for sellers seeking to maximize expected revenues. In ascending auctions, auction theory predicts bid distributions in Bayesian Nash equilibrium does not convey any information about bidders' risk preference. We propose a new approach for inference of bidders’ risk attitudes when they make endogenous participation decisions. Our approach is based on the idea that bidders' risk premium - the difference between ex ante expected profits from entry and the certainty equivalent - required for entry into the auction is strictly positive if and only if bidders are risk averse. We show bidders' expected profits from entry into auctions is nonparametrically recoverable, if a researcher observes the distribution of transaction prices, bidders' entry decisions and some noisy measures of entry costs. We propose a nonparametric test which attains the correct level asymptotically under the null of risk-neutrality, and is consistent under fixed alternatives. We provide Monte Carlo evidence of the finite sample performance of the test. We also establish identification of risk attitudes in more general auction models, where in the entry stage bidders receive signals that are correlated with private values to be drawn in the bidding stage. |
| Keywords: | Ascending auctions, Risk attitudes, Endogenous entry, Nonparametric Test, Bootstrap |
| JEL: | D44 C12 C14 |
| Date: | 2011–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-016&r=cta |
| By: | Damien Besancenot (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234); Delphine Dubart (ESSEC Business School - ESSEC Business School); Radu Vranceanu (Economics Department - ESSEC Business School) |
| Abstract: | Humans can lie strategically in order to leverage on their negotiation power. For instance, governments can claim that a "scapegoat" third party is responsible for reforms that impose higher costs on citizens, in order to make the pill sweeter. This paper analyzes such communication strategy within a variant of the ultimatum game. The first player gets an endowment, and the second player can impose a tax on it. The former can reject the allocation submitted by the tax-setter. A third party is then allowed to levy its own tax, and its intake is private information to the tax-setter. In a frameless experiment, 65% of the subjects in the tax-setter role overstate the tax levied by the third party in order to manipulate taxpayer's expectations and submit less advantageous offers; on average, for every additional currency unit of lie, measured by the gap between the claimed and the actual tax, they would reduce their offer by 0.43 currency units. |
| Keywords: | Ultimatum game ; Taxation ; Lies ; Deception ; Asymmetric information |
| Date: | 2012–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00690409&r=cta |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Ji Shen (Dept. of Finance, London School of Economics); Yun Xu (Dept. of Electrical Engineering, Yale University); Edmund M. Yeh (Dept. of Computer Science and Electrical Engineering, Northeastern University) |
| Abstract: | We analyze a nonlinear pricing model with limited information. Each buyer can purchase a large variety, d, of goods. His preference for each good is represented by a scalar and his preference over d goods is represented by a d-dimensional vector. The type space of each buyer is given by a compact subset of R_d^+ with a continuum of possible types. By contrast, the seller is limited to offer a finite number M of d-dimensional choices. We provide necessary conditions that the optimal finite menu of the social welfare maximizing problem has to satisfy. We establish an underlying connection to the theory of quantization and provide an estimate of the welfare loss resulting from the usage of the d-dimensional M-class menu. We show that the welfare loss converges to zero at a rate proportional to d/M^{2/d}. We show that in higher dimensions, a significant reduction in the welfare loss arises from an optimal partition of the d-dimensional type space that takes advantage of the correlation among the d parameters. |
| Keywords: | Mechanism design, Multi-dimensional private information, Limited information, Nonlinear pricing, Quantization, Information theory |
| JEL: | C72 C73 D43 D83 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1859&r=cta |