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on Contract Theory and Applications |
| By: | Ouidad Yousfi (MRM - Montpellier Recherche en Management - Université Montpellier II : EA4557 - Université Montpellier I - Université Paul Valéry - Montpellier III - Groupe sup de Co Montpellier) |
| Abstract: | Discussion of Islamic private equity (PE) financing modes rarely provides detailed analytical insights into their properties: there is no rigorous analysis of their features. The current paper analyzes how and when Profit Loss Sharing (PLS) financing methods can solve asymmetric information problems. I focus on Mudarabah and Musharakah financing schemes and consider agency models under moral hazard. The model shows some interesting results. First, I show that Mudarabah financing provide powerful incentive schemes to the entrepreneur. As the Islamic PE fund is not actively involved in the project and the project success depends on the entrepreneur's effort, it leads to the first best solution. Second, my results provide evidence that Musharakah financing cannot solve moral hazard problem. One explanation could be the fact that the project is jointly funded by the two parties and that both of them provide non-contractible efforts which diminish their incentives. |
| Keywords: | Islamic private equity; PLS principle; Moral hazard; Shari'ah; incentives. |
| Date: | 2103 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00785325&r=cta |
| By: | Hoppe, Eva I.; Schmitz, Patrick W. |
| Abstract: | Principal-agent models in which the agent has access to private information before a contract is signed are a cornerstone of contract theory. We have conducted an experiment with 720 participants to explore whether the theoretical insights are reflected by the behavior of subjects in the laboratory and to what extent deviations from standard theory can be explained by social preferences. Investigating settings with both exogenous and endogenous information structures, we find that agency theory is indeed useful to qualitatively predict how variations in the degree of uncertainty affect subjects' behavior. Regarding the quantitative deviations from standard predictions, our analysis based on several control treatments and quantal response estimations shows that agents' behavior can be explained by social preferences that are less pronounced than in conventional ultimatum games. Principals' own social preferences are not an important determinant of their behavior. However, when the principals make contract offers, they anticipate that social preferences affect agents' behavior. |
| Keywords: | Agency theory; Adverse selection; Information gathering; Ultimatum game; Social preferences; Experiment |
| JEL: | D86 D82 C72 C91 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44240&r=cta |
| By: | Kazunori Miwa (Graduate School of Economics, Osaka University) |
| Abstract: | This study experimentally investigates the interaction between firmfs information acquisition choice and mandatory disclosure in the presence of proprietary costs. The results demonstrate that mandatory disclosure diminishes firmfs incentive to acquire industry-wide demand information when information acquisition is costly and endogenous. Further, I also show that firmfs production decision is improved by acquiring information. Taken together, although acquiring information improves firmfs production decision, mandatory disclosure diminishes firmfs incentive to do so, and thus, deteriorates firmfs information environment. This leads to inefficient production, which in turn, might have a substantial impact on market outcomes. |
| Keywords: | Information Acquisition; Mandatory Disclosure; Duopoly; Proprietary Cost; Experiment |
| JEL: | M41 M48 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1301&r=cta |
| By: | Basuchoudhary, Atin; Conlon, John R. |
| Abstract: | This paper studies how cartel stability is influenced by asymmetric information and communication about demand. Firms in a cartel face fluctuating demand in a repeated game framework. In each period, one randomly chosen firm knows current demand. In this context we consider two different equilibria -- one where the informed firm communicates its information to its partners and another where it does not. We show that cartels are extremely unstable when the informed firm communicates with the uninformed firms. However, when the informed firm does not communicate with the uninformed firms cartels can be as stable as when there are no demand fluctuations at all. |
| Keywords: | cartels; communication; stability; |
| JEL: | D82 C72 L00 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44246&r=cta |
| By: | Papakonstantinou, A.; Bogetoft, P. |
| Abstract: | This article addresses two important issues in crowd-sourcing: ex ante uncertainty about the quality and cost of different workers and strategic behaviour. We present a novel multi-dimensional auction that incentivises the workers to make partial enquiry into the task and to honestly report quality-cost estimates based on which the crowd-sourcer can choose the worker that offers the best value for money. The mechanism extends second score auction design to settings where the quality is uncertain and it provides incentives to both collect information and deliver desired qualities. |
| Keywords: | crowd-sourcing; Multi-dimensional auctions; Yardstick competition; Score functions; Strictly proper scoring rules; |
| JEL: | D86 D84 D81 D82 |
| Date: | 2013–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44236&r=cta |
| By: | Sandeep Baliga; Eran Hanany; Peter Klibanoff |
| Abstract: | We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given agreement on conditional signal likelihoods, we show that polarization is impossible under Bayesian updating or after observing extreme signals. However, we also show that polarization can arise after intermediate signals as ambiguity averse individuals implement their optimal prediction strategies. We explore when this polarization will occur and the logic underlying it. |
| Keywords: | Ambiguity aversion, Ellsberg, beliefs, updating, dynamic consistency |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1558&r=cta |
| By: | Ju Hu (Department of Economics, University of Pennsylvania) |
| Abstract: | This paper studies the reputation effect in which a long-lived player faces a sequence of uninformed short-lived players and the uninformed players receive informative but noisy exogenous signals about the type of the long-lived player. We provide an explicit lower bound on all Nash equilibrium payoffs of the long-lived player. The lower bound shows when the exogenous signals are sufficiently noisy and the long-lived player is patient, he can be assured of a payoff strictly higher than his minmax payoff. |
| Keywords: | Reputation, repeated games, learning, relative entropy |
| JEL: | C73 D82 D83 |
| Date: | 2013–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-009&r=cta |
| By: | Pierre Pestieau; Maria Racionero |
| Abstract: | Should special pension provisions be offered to workers in harsh occupations? We address this question in an optimal tax setting where individuals differ in longevity and occupation. Longevity is private information but workers in harsh occupations have on average shorter lifes than workers in safe occupations. We adopt a weighted utilitarian social objective to partially redress the implicit redistribution from short- to long-lived individuals that the unweighted utilitarian objective entails. We show that there is a case for differentiating the social security policy by occupation. We also show that short-lived workers are induced to overconsume when young and to retire early in order to prevent mimicking by long-lived ones. This is achieved by taxing, often quite heavily, the savings and the earnings from prolonging activity of short-lived individuals. |
| Keywords: | longevity, retirement, harsh occcupations, tagging |
| JEL: | H21 H55 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:678&r=cta |
| By: | Yosuke Furukawa (Kyoto University) |
| Abstract: | In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child. |
| Keywords: | Optimal taxation, intergenerational inequality, private information |
| JEL: | E22 E62 H21 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:846&r=cta |
| By: | Hitoshi Matsushima (Faculty of Economics, University of Tokyo) |
| Abstract: | We investigate an infinitely repeated prisoners' dilemma with imperfect monitoring and projects the possibility that the interlinkage of the players' distinct activities enhances implicit collusion. We show a necessary and sufficient condition for the existence of generous tit-for-tat Nash equilibrium. Such an equilibrium, if it exists, is unique. This equilibrium achieves approximate efficiency when monitoring is almost perfect, where the discount factors are fixed. |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2013cf875&r=cta |
| By: | Sigl-Grüb, C.; Schiereck, D. |
| Date: | 2013–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:60397&r=cta |
| By: | Marco Pagnozzi (University of Napoli "Federico II" and CSEF); Krista Jabs Saral (Webster University) |
| Abstract: | We analyze the effects of resale through bargaining in multi-object uniform-price auctions with asymmetric bidders. The possibility of resale affects bidders’ strategies, and hence the allocation of the objects on sale and the seller’s revenue. Our experimental design consists of four treatments: one without resale and three resale treatments that vary both the bargaining mechanism and the amount of information available in the resale market. As predicted by theory: (i) without resale, asymmetry among bidders reduces demand reduction; (ii) resale increases demand reduction by high-value bidders; (iii) low-value bidders speculate by bidding more aggressively with resale. Therefore, resale induces speculation and demand reduction which reduce auction efficiency. In contrast to what is usually argued, resale does not necessarily increase final efficiency and may not reduce the seller’s revenue. Features of the resale market that tend to increase its efficiency also reduce the seller’s revenue. |
| Keywords: | multi-object auctions, resale, asymmetric bidders, bargaining, economic experiments |
| JEL: | D44 C90 |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:328&r=cta |
| By: | Victor Aguirregabiria; Pedro Mira |
| Abstract: | This paper deals with the identification and estimation of discrete games of incomplete information with multiple equilibria when we allow for three types of unobservables for the researcher: (a) payoff-relevant variables that are players' private information; (b) payoff-relevant variables that are common knowledge to all the players; and (c) non-payoff-relevant or "sunspot" variables which are common knowledge to the players. The specification of the payoff function is nonparametric, and the probability distributions of the unobservables is also nonparametric but with finite support (i.e., finite mixture model). We show that if the number of players in the game is greater than two and the number of discrete choice alternatives is greater than the number of mixtures in the distribution of the unobservables, then the model is nonparametrically identified under the same type of exclusion restrictions that we need for identification without unobserved heterogeneity. In particular, it is possible to separately identify the relative contributions of payoff-relevant and "sunspot" type of unobserved heterogeneity to observed players' behavior. We also present results on the identification of counterfactual experiments using the estimated model. |
| Keywords: | Discrete games of incomplete information; Multiple equilibria in the data; Unobserved heterogeneity; Sunspots; Finite mixture models. |
| JEL: | C13 C35 |
| Date: | 2013–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-474&r=cta |
| By: | Valerie Smeets (Department of Economics and Business, Aarhus University); Michael Waldman (Johnson Graduate School of Management, Cornell University); Frederic Warzynski (Department of Economics and Business, Aarhus University) |
| Abstract: | There is an extensive theoretical literature based on what is called the scale-of-operations effect, i.e., the idea that the return to managerial ability is higher the more resources the manager influences with his or her decisions. This idea leads to various testable predictions including that higher ability managers should supervise more subordinates, or equivalently, have a larger span of control. And although some of this theory’s predictions have been empirically investigated, there has been little systematic investigation of the theory’s predictions concerning span of control. In this paper we first extend the theoretical literature on the scale-of-operations effect to allow firms’ beliefs concerning a manager’s ability to evolve over the manager’s career, where much of our focus is the determinants of span of control. We then empirically investigate testable predictions from this theoretical analysis using a unique single firm dataset that contains detailed information concerning the reporting relationships at the firm. Our investigation provides strong support both for the model’s predictions concerning wages, wage changes, and probability of promotion, and also for the model’s predictions concerning span of control including predictions derived from the learning component of the model. Overall, our investigation supports the notion that the scale-of-operations effect and additionally learning are important determinants of the internal organization of firms including span of control. |
| Keywords: | performance, career dynamics, span of control |
| JEL: | J31 M5 |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2013-02&r=cta |