|
on Contract Theory and Applications |
| By: | Aggey Semenov (Department of Economics, University of Ottawa, 120 University St., Ottawa,Ontario) |
| Abstract: | We consider a delegation problem with a biased and potentially uninformed agent when the principal cannot use monetary payments. If the bias between the principal and the agent is large then the optimal delegation set is an interval. When the bias is small or medium the optimal delegation set is no longer connected. It can be one of two types: 1) with an interval and low option, 2) with two intervals. In all cases the agent has less discretion. However, in the case of medium bias the principal delegates in a wider range than in the case of an informed agent |
| Keywords: | energy; Information, bias, non-informed agent, delegation set |
| JEL: | D82 D86 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1215e&r=cta |
| By: | J. Philipp Reiß (Department of Economics, University of Maastricht, The Netherlands); Irenaeus Wolff (Thurgau Institute of Economics at the University of Konstanz, Department of Economics, Germany) |
| Abstract: | We examine the incentive effects of funding contracts on entrepreneurial effort decisions and allocative efficiency. We experiment with funding contracts that differ in the structure of investor repayment and, therefore, in the incentives for entrepreneurial effort provision. Theoretically the replacement of a standard debt contract by a repayment-equivalent non-monotonic contract reduces effort distortions and increases efficiency. Likewise the replacement of outside equity by a repayment-equivalent standard-debt contract mitigates distortions. We test both hypotheses in the laboratory. Our results reveal that the incentive effects of funding contracts need to be experienced before they reflect in observed behavior. With sufficient experience observed behavior is consistent with the theoretical predictions and supports both hypotheses. If we allow for entrepreneur-sided manipulations of the project outcome we find that non-monotonic contracts lose its appeal. |
| Keywords: | hidden information, funding contracts, incentives, experiment, standard debt contract, non-monotonic contract, state manipulation |
| JEL: | C91 D82 G21 |
| Date: | 2012–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1226&r=cta |
| By: | Hitoshi Matsushima (Faculty of Economics, University of Tokyo) |
| Abstract: | We incorporate social influence into implementation theory, and highlight the manner in which an informed agent feels guilty with regard to disobeying an uninformed principal's wishes. The degree of this feeling depends on the agent's expectation of others' behavioral modes. We demonstrate a method of process manipulation, through which the principal employs psychological tactics for incentivizing agents to announce information in keeping with his/her wishes. We indicate that with a version of incentive compatibility, the principal can implement any alternative that he/she wishes as the unique Nash equilibrium without employing any contractual devices. Each agent's psychological cost would be negligible. |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2012cf870&r=cta |
| By: | Yuichi Yamamoto (Department of Economics, University of Pennsylvania) |
| Abstract: | We investigate whether two players in a long-run relationship can maintain cooperation when the details of the underlying game are unknown. Specifically, we consider a new class of repeated games with private monitoring, where an unobservable state of the world influences the payoff functions and/or the monitoring structure. Each player privately learns the state over time, but cannot observe what the opponent learns. We show that there are robust equilibria where players eventually obtain payoffs as if the true state were common knowledge and players played a “belief-free” equilibrium. The result is applied to various examples, including secret pricecutting with unknown demand. |
| Keywords: | repeated game, private monitoring, incomplete information, belief-free equilibrium, ex-post equilibrium, individual learning |
| JEL: | C72 C73 |
| Date: | 2012–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-044&r=cta |
| By: | Jeanne Hagenbach (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Frédéric Koessler (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris); Eduardo Perez-Richet (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X) |
| Abstract: | This article asks when communication with certi able information leads to complete information sharing. We consider Bayesian games augmented by a pre-play communication phase in which announcements are made publicly. We characterize the augmented games in which there exists a full disclosure sequential equilibrium with extremal beliefs (i.e., any deviation is attributed to a single type of the deviator). This characterization enables us to provide di erent sets of su cient conditions for full information disclosure that encompass and extend all known results in the literature, and are easily applicable. We use these conditions to obtain new insights in senders-receiver games, games with strategic complementarities, and voting with deliberation. |
| Keywords: | Strategic Communication; Hard Information; Information Disclosure; Masquerade Relation; Belief Consistency; Single Crossing Di erences; Supermodular Games |
| Date: | 2012–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:hal-00753473&r=cta |
| By: | Laruelle, Annick; Iñarra García, María Elena; Zuazo Garín, Peio |
| Abstract: | We assume that 2 x 2 matrix games are publicly known and that players perceive a dichotomous characteristic on their opponents which defines two types for each player. In turn, each type has beliefs concerning her opponent's types, and payoffs are assumed to be type-independent. We analyze whether the mere possibility of different types playing different strategies generates discriminatory equilibria. Given a specific information structure we find that in equilibrium a player discriminates between her types if and only if her opponent does so. We also find that for dominant solvable 2x2 games no discriminatory equilibrium exists, while under different conditions of concordance between players' beliefs discrimination appears for coordination and for competitive games. A complete characterization of the set of Bayesian equilibria is provided. |
| Keywords: | incomplete information, 2x2 matrix games |
| JEL: | C72 |
| Date: | 2012–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:ikerla:9099&r=cta |
| By: | Di Maggio, Marco; Pagano, Marco |
| Abstract: | We study a model where some investors (“hedgers”) are bad at information processing, while others (“speculators”) have superior information-processing ability and trade purely to exploit it. The disclosure of financial information induces a trade externality: if speculators refrain from trading, hedgers do the same, depressing the asset price. Market transparency reinforces this mechanism, by making speculators’ trades more visible to hedgers. As a consequence, asset sellers will oppose both the disclosure of fundamentals and trading transparency. This is socially inefficient if a large fraction of market participants are speculators and hedgers have low processing costs. But in these circumstances, forbidding hedgers’ access to the market may dominate mandatory disclosure. |
| Keywords: | financial disclosure; information processing; liquidity; market transparency; rational inattention |
| JEL: | D83 D84 G18 G38 K22 M48 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9207&r=cta |
| By: | Juan M. Gallego |
| Abstract: | This paper investigates the role of works councils in a simple agency framework in which works councils are supposed to monitor manager’s information on behalf of the workforce, but they are independent agents who might pursue their private interest. First, we consider that workers can incentivize works councils through contingent monetary payments. In order to deter collusion, workers must pay higher compensations in states of nature where they can be expropriated by potential coalitions among works councils and management. Collusion makes contingent payments costly and reduces workers’ payoffs. Second, when elections are the exclusive mechanisms to align works councils’ interest, only well compensated representatives would face an intertemporal tradeoff between accepting management’s transfers at first period and losing rents at the second period. Elections increase the cost of entering on collusive behavior with management and works councils will try to behave on the employees’ interest. |
| Date: | 2012–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:010092&r=cta |
| By: | Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M. |
| Abstract: | Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz’s (1972) critique of the Coasian approach. |
| Keywords: | theory of the firm; transaction cost economics; authority; power abuse; employment relation; fairness; reputation |
| JEL: | C91 D23 D86 M5 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14243&r=cta |
| By: | Andrea Repetto (Escuela de Gobierno, Universidad Adolfo Ibáñez) |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:uai:wpaper:wp_024&r=cta |
| By: | Volker Hahn (Department of Economics, University of Konstanz, Germany) |
| Abstract: | What is the optimal size of expert committees? To address this question, I present a model of a committee of experts with career concerns. Each expert may observe an argument about the state of the world but be unsure about the argument's soundness. Experts may remain silent or compete for the opportunity to announce an argument. I show that experts become more reluctant to speak in larger committees. This effect is sufficiently strong to make small groups of experts optimal. At the same time, a small committee may be superior to an individual expert. |
| Keywords: | experts, committees, career concerns, veriable information, information aggregation. |
| JEL: | D71 D82 |
| Date: | 2012–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1224&r=cta |
| By: | Geys, Benny; Vermeir, Jan |
| Abstract: | In federal countries, competence for policy matters is often shared between various levels of government. As only overall outcomes are observed, this might blur accountability by decreasing voters' ability to infer information about the performance of their leaders. In this article, we analyse how party cues (i.e., politicians' party membership acting as a cue towards their characteristics) affect voters' incomplete information about politicians in a federal setting. We first of all show that party cues allow indirect inference regarding politicians using observed policy outcomes, alleviating the accountability problem. Empirical evidence from US presidential election results across all 50 US states over the period 1972-2008 provides support for this proposition. Yet, while the availability of party cues in a federal setting increases the national incumbents' effort in some cases, it may reduce effort particularly when the regional incumbent if of a different party. -- |
| Keywords: | federalism,accountability,multilevel governance,party cues |
| JEL: | D72 H30 H77 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbfff:spii2012107&r=cta |