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on Contract Theory and Applications |
| By: | Yuji Tamura |
| Abstract: | This study contributes to the small theoretical literature on human smuggling by assuming for the first time asymmetric information in analysis. The assumption raises the possibility of an adverse selection equilibrium where only exploitative smugglers are employed at a low fee even though migrants are willing to pay nonexploitative smugglers a high fee. More importantly, I find that improved inland apprehension of migrants may increase the incidence of migrant exploitation while failing to decrease smuggling attempts. Furthermore, improved border apprehension of migrants and smugglers may not affect the market at all. |
| Keywords: | illegal migration, people smuggling, migrant exploitation, human trafficking, adverse selection |
| JEL: | F22 J68 D82 L15 K42 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-605&r=cta |
| By: | Kräkel, Matthias (University of Bonn) |
| Abstract: | The paper analyzes how the choice of organizational structure leads to the best compromise between controlling behavior based on authority rights and minimizing costs for implementing high efforts. Concentrated delegation and hierarchical delegation turn out to be never an optimal compromise. If the CEO is more efficient than the division heads (i.e., the CEO's costs from exerting high effort are smaller than those of the division heads), the owner will prefer full delegation to the divisions to replace high incentive pay for motivating the division heads by incentives based on private benefits of control. In that situation, the importance of cooperative behavior between the firm's divisions determines whether decentralization or cross-authority delegation is the optimal form of full delegation. If, however, the division heads are more efficient than the CEO, then centralization or partial delegation can also be optimal. |
| Keywords: | authority, centralization, contracts, decentralization, moral hazard |
| JEL: | D21 D23 D86 L22 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7271&r=cta |
| By: | Louis-Gaëtan Giraudet (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); S. Houde (MS&E - Department of Management Science and Engineering [Stanford] - Stanford University) |
| Abstract: | Moral hazard issues can deter profitable investments in energy efficiency. Energy-savings insurance and quality standards can mitigate the problem - yet not eliminate it. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00799725&r=cta |
| By: | Akiko Maruyama (National Graduate Institute for Policy Studies) |
| Abstract: | This paper examines the movement of an individuals reservation level over time in a two-sided search model with two-sided imperfect self-knowledge, where agents are vertically heterogeneous and do not know their own types. Agents who do not know their own types update their beliefs about their own types through the o¤ers or rejections they receive from others. The results in this paper show that an agent with imperfect self-knowledge revises his or her reservation level downward when the agent receives a rejection that has some information about his or her own type. In contrast, an agent with imperfect self-knowledge revises his or her reservation level upward when the agent receives an o¤er from an agent of the opposite sex who is of lower type than the reservation level. This upward revision of an agents reservation level is due to the environment of two-sided imperfect self-knowledge. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:12-24&r=cta |
| By: | Ronen Gradwohl |
| Abstract: | In most implementation frameworks, agents care only about the outcome and not at all about the way in which it was obtained. Additionally, typical mechanisms for full implementation involve the complete revelation of all private information to the planner. In this paper I consider the problem of full implementation with agents who may prefer to protect their privacy. I analyze the extent to which privacy-protecting mechanisms can be constructed under various assumptions about agents' predilection for privacy and the permissible game forms. JEL Classification Numbers: D82, C72 |
| Keywords: | Nash implementation, subgame perfect implementation, privacy |
| Date: | 2013–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1561&r=cta |
| By: | Hitoshi Matsushima (The University of Tokyo); Tomomi Tanaka (Economic Development & Global Education, LLC); Tomohisa Toyama (Kogakuin University) |
| Abstract: | We examine repeated prisoners’ dilemma with imperfect private monitoring and random termination where the termination probability is low. We run laboratory experiments and show subjects retaliate more severely when monitoring is more accurate. This experimental result contradicts the prediction of standard game theory. Instead of assuming full rationality and pure self-interest, we introduce naivete and social preferences, i.e., reciprocal concerns, and develop a model that is consistent with, and uniquely predicts, the observed behavior in the experiments. Our behavioral model suggests there is a trade-off between naivete and reciprocity. When people are concerned about reciprocity, they tend to make fewer random choices. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf309&r=cta |
| By: | Kei Kawakami |
| Abstract: | This paper studies endogenous market formation in a ?nancial trading model where strategic traders face information asymmetries and aggregate shocks. First, we show that negative participation externalities can arise for a large class of assets. In a decentralized process of market formation, the negative externalities limit competition between intermediaries. The model predicts that free entry into intermediation causes market fragmentation, but it is Pareto-superior to a single market. The model also predicts that the more intense the information asymmetry, the more a security tends to trade in fragmented markets. |
| Keywords: | Asymmetric information; Aggregate shock; Imperfect competition; Market fragmentation; Network externality puzzle |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:1168&r=cta |
| By: | Schmitz, Patrick W. |
| Abstract: | We reconsider the property rights approach to the theory of the firm based on incomplete contracts. We explore the implications of different degrees of relationship-specificity when there are two parties, A and B, who can make investments in physical capital (instead of human capital). If relationship-specificity is exogenously given, it turns out that joint asset ownership can be optimal only if the degree of relationship-specificity is sufficiently small. If relationship-specificity can be freely chosen and if party A's investments are more productive, then the parties deliberately choose a strictly positive level of relationship-specificity and they always agree on sole ownership by party A. |
| Keywords: | ownership, incomplete contracts, relationship-specificity, theory of the firm, investment incentives |
| JEL: | C78 D23 D86 L14 L22 L24 M21 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45243&r=cta |
| By: | Robertas Zubrickas |
| Abstract: | We introduce reward money into the provision point mechanism with refunds. Reward money is distributed among the contributors in proportion to their con- tributions only when the provision point is not reached. In environments without aggregate uncertainty, the provision point is always reached in equilibrium as competition for reward money and preference for the public good induce sufficient contributions. Importantly, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, we obtain a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems. |
| Keywords: | Public goods, private provision, provision point mechanism, distributional efficiency, collective action problem |
| JEL: | D82 H41 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:114&r=cta |
| By: | Zhang, Lei (University of Warwick); Zhang, Lin (Southwestern University of Finance and Economics); Zheng, Yong (Southwestern University of Finance and Economics) |
| Abstract: | We use the global games approach to study key factors a?ecting the credit risk associated with roll-over of bank debt. When creditors are heterogenous, these include the extent of short-term borrowing and capital market liquidity for repo ?nancing. Speci?cally, in a model with a large institutional creditor and a continuum of small creditors independently making their roll-over decisions based on private information, we ?nd that increasing the proportion of short-term debt and/or decreasing market liquidity reduces the willingness of creditors to roll over. This raises credit risk in equilibrium. The presence of a large creditor does not always reduce credit risk, however, unless it is better informed. |
| Keywords: | Credit Risk; Coordination; Debt Crisis; Private information; Global games |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:123&r=cta |
| By: | Liang, Pinghan |
| Abstract: | This paper studies the optimal design of delegation rule in a three-tier principal-intermediary-agent hierarchy. In this hierarchy, monetary transfer is not feasible, delegation is made sequentially, and all players are strategic. We characterize the optimal delegation mechanism. It is shown that the single-interval delegation a la Holmstrom is optimal only when the intermediary is moderately biased. Otherwise, as responses to the distortion caused by a biased intermediary, the optimal delegation set may involve a hole. Thus, multi-interval delegation set would arise when subordinates have opposing biases. This result sheds some light on policy threshold effects: "slight" changes in the underlying state cause a jump in the policy responses. |
| Keywords: | Delegation, Intermediary, Hierarchies |
| JEL: | D73 D78 D86 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45271&r=cta |
| By: | Gaurab Aryal; Ronald Stauber |
| Abstract: | We introduce and analyze three definitions of equilibrium for finite extensive games with imperfect information and ambiguity averse players. In a setting where players' preferences are represented by maxmin expected utility as characterized in Gilboa and Schmeidler (1989), our definitions capture the intuition that players may consider the possibility of slight mistakes, analogous to the intuition leading to trembling-hand perfect equilibrium as introduced in Selten (1975). We prove existence for two of our equilibrium notions, and relate our definitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to distinct behavioral implications, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies. |
| Keywords: | Extensive games; Ambiguity; Maxmin |
| JEL: | C72 D81 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-606&r=cta |
| By: | Liang, Pinghan |
| Abstract: | We develop a multi-agent communication model with participation decisions to address the customer complaining behavior and the corresponding management policy. Privately informed customers choose among costly complain, keep silence, and exit, and a firm decides complaining barriers and whether to undertake a corrective action. It is shown that customers truthfully complain only under a moderate complaining barrier. The observed low complaint/dissatisfaction ratio and costly complaint arise as one equilibrium outcome. Customers' expectations, the precision of signals, and the temptation of outside options are identified as the determinants of complaint management policy. Firms are likely to set socially excessive complaining barriers. |
| Keywords: | Customer complaint management, Communication, Exit |
| JEL: | D82 L15 L51 M31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:45268&r=cta |
| By: | Viral Acharya (New York University); Marco Pagano (University of Naples "Federico II" and EIEF); Paolo Volpin (London Business School) |
| Abstract: | We present a model in which managers are risk-averse and firms compete for scarce managerial talent (“alpha”). When managers are not mobile across firms, firms provide efficient compensation, which allows for learning about managerial talent and for insurance of low-quality managers. When instead managers can move across firms, firms cannot offer co-insurance among employees. In anticipation, risk-averse managers may churn across firms or undertake aggregate risks in order to delay the revelation of their true quality. The result is excessive risk-taking with pay for short-term performance and an accumulation of long-term risks. We conclude with a discussion of policies to address the inefficiency in compensation. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1303&r=cta |
| By: | Viral V. Acharya; Marco Pagano; Paolo Volpin |
| Abstract: | We present a model in which managers are risk-averse and firms compete for scarce managerial talent (“alpha”). When managers are not mobile across firms, firms provide efficient compensation, which allows for learning about managerial talent and for insurance of low-quality managers. When instead managers can move across firms, firms cannot offer co-insurance among employees. In anticipation, risk-averse managers may churn across firms or undertake aggregate risks in order to delay the revelation of their true quality. The result is excessive risk-taking with pay for short-term performance and an accumulation of long-term risks. We conclude with a discussion of policies to address the inefficiency in compensation. |
| JEL: | D62 G01 G2 G32 G38 J38 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18891&r=cta |