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on Contract Theory and Applications |
| By: | Papakonstantinou, A.; Bogetoft, P. |
| Abstract: | This paper discusses the design of a novel multi-dimensional mechanism which allows a principal to procure a single project or an item from multiple suppliers through a two-step payment. The suppliers are capable of producing different qualities at costs which cannot exceed a certain value and the mechanism balances between the costs faced by the suppliers and the benefit the principal achieves from higher qualities. Iniatially, the principal implements a standard second score auction and allocates the project to a single supplier based its reported cost and quality, while then it elicits truthful reporting of the quality by issuing a symmetric secondary payment after observing the winner’s production. We then provide an alternate mechanism in which the principal issues an asymmetric secondary payment which rewards agents for producing higher qualities, while it penalises them for producing lower qualities than they reported. We prove that for both mechanisms truthful revelation of costs and qualities is a dominant strategy (weakly for costs) and that they are immune to combined misreporting of both qualities and costs. We also show that the mechanisms are individually rational, and that the optimal payments received by the winners of the auctions are equal to the payment issued by the standard second score auction. |
| Keywords: | multi-dimensional auctions; procurement; contract theory; auction theory |
| JEL: | D86 D82 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43563&r=cta |
| By: | Schmitz, Patrick W. |
| Abstract: | An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor's investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor's investment incentives may be decreasing in his bargaining power. |
| Keywords: | hold-up problem; incomplete contracts; research and development; limited liability |
| JEL: | D86 L23 O31 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43407&r=cta |
| By: | Rannenberg, Ansgar |
| Abstract: | I add a moral hazard problem between banks and depositors as in Gertler and Karadi (2009) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke et al. (1999) (BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows my model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated combination of balance sheet shocks produces a downturn of a magnitude similar to the "Great Recession". -- |
| JEL: | E20 E44 E30 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc12:62035&r=cta |
| By: | Nicola Pavoni; Ofer Setty; Giovanni L. Violante |
| Abstract: | Some existing welfare programs (“work-first”) require participants to work in exchange for benefits. Others (“job search-first”) emphasize private job-search and provide assistance in finding and retaining a durable employment. This paper studies the optimal design of welfare programs when (i) the principal/government is unable to observe the agent’s effort, but can assist the agent’s job search and can mandate the agent to work, and (ii) agents’ skills depreciate during unemployment. In the optimal welfare program, assisted search is implemented between an initial spell of private search (unemployment insurance) and a final spell of pure income support where search effort is not elicited. To be effective, job-search assistance requires large reemployment subsidies. The optimal program features compulsory work activities for low levels of program’s generosity (i.e., its promised utility or available budget). The threat of mandatory work acts like a punishment that facilitates the provision of search incentives without compromising consumption smoothing too much. |
| JEL: | D82 H21 J24 J64 J65 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18666&r=cta |
| By: | Pierre M. Picard (CREA, University of Luxembourg and CORE, Université Catholique de Louvain); Ridwan D. Rusli (CREA, University of Luxembourg) |
| Abstract: | In this paper we study the role of private debt financing in disciplining a state owned firm operating for a government that incurs a cost of public financing. We show that debt contracts allow the government to avoid socially costly subsidies by letting unprofitable state- owned firms default. Debt is never used when the firm and government share the same information about the firm. By contrast, when the state-owned firm has private information, the government has an incentive to use debt to reduce the firm's information rents. We identify the conditions under which a positive debt level benefits governments. They depend on the cost of public funds, the interbank funding rate, the share of foreign investors, the level and uncertainty of the firm's cost. |
| Keywords: | State-owned firms, privatization, debt, information asymmetry |
| JEL: | L33 G32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:12-10&r=cta |
| By: | Jovanovic, Dragan |
| Abstract: | We analyze the impact of partial public ownership (PPO) on managerial incentives. A novelty of the paper is that it explicitly considers competition in the product market. We find that PPO negatively affects managerial incentives when all firms are partially owned by the government. When partially public firms compete with private firms, the effects on managerial incentives crucially depend on the degree of competitive pressure. Thereby, PPO induces either partially public firms or their private competitors to offer stronger managerial incentives. This result is essentially confirmed even if the government's primary concern is consumer protection rather than social welfare. -- |
| JEL: | D82 H32 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc12:62039&r=cta |
| By: | Simone Moriconi (ITEMQ, Università Cattolica di Milano and CREA, University of Luxembourg) |
| Abstract: | This paper analyzes the impact of taxation on economic effciency when contracts are incomplete. We assume firms operate in a perfect competitive market and can choose between integrated or non-integrated governance to cope with contract incompleteness. Taxation reduces incentives to pursue intra-firm coordination, thus the effciency of firm's production process under non-integration. This is not the case under integration, since production decisions are transferred to the Headquarters, at a fixed integration cost. Taxation may then induce firms to change their organization at the industry equilibrium. We show that a tax that induces firms to choose integration rather than non-integration may serve a corrective function if integration costs and market prices are not too high. |
| Keywords: | taxation, incomplete contracts and economic effciency |
| JEL: | H21 L22 H32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:12-08&r=cta |
| By: | Igan, Deniz; Pinheiro, Marcelo |
| Abstract: | We analyze the implications of linking the compensation of fund managers to the return of their portfolio relative to that of a benchmark. In the presence of such relative-performance-based objectives, investors have reduced expected utility but markets are typically more informative and deeper. Furthermore, in a multiple asset/market framework we show that (i) relative performance concerns lead to an increase in the correlation between markets (financial contagion); (ii) benchmark inclusion leads to increases in price volatility; (iii) home bias emerges as a rational outcome. Finally, when information is costly, information acquisition is hindered and this attenuates the effects on informativeness and depth of the market. |
| Keywords: | Delegated portfolio management; Informativeness; Liquidity; Contagion; Home bias |
| JEL: | G11 G23 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43452&r=cta |
| By: | Anastasia Danilov (University of Cologne); Torsten Biemann (University of Cologne); Thorn Kring (Steinbeis University of Berlin); Dirk Sliwka (University of Cologne) |
| Abstract: | In an experiment with professionals from the financial services sector, we investigate the impact of a team incentive scheme on recommendation quality of investment products when advisors benefit from advising lower quality products. Experimental results reveal that, when group affiliation is strong, worse products are recommended significantly more often under team incentives than under individual incentives. |
| Keywords: | deception, team incentives, professionals, financial advice, experiment |
| JEL: | C90 D82 J30 M52 |
| Date: | 2012–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:03-13&r=cta |