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on Contract Theory and Applications |
| By: | Venky Venkateswaran; Luis Llosa (UCLA) |
| Abstract: | We study the efficiency of information acquisition decisions in models with dispersed information and strategic considerations. Our main result is that information choice is typically inefficient because agents do not fully internalize the effects of their information on others. This ex-ante suboptimality is obtained even in environments where information is used efficiently ex-post. We demonstrate this finding in 3 benchmark environments. In a beauty contest model `a la Morris and Shin (1998), incentives to invest in information can diverge from the socially optimal level because the absolute level of the plannerâÂÂs welfare criterion is different from that of the private payoff function. In a RBC framework with dispersed information about technology shocks, distortions due to imperfect substitutability have no effect on incentives to respond to information, but distort the private value of information, leading to an inefficiently low level of information acquired in equilibrium. Finally, in a monetary model with nominal price-setting by heterogeneously informed firms, inefficiencies arise in both the use and the acquisition of information. Importantly, the latter persist even when the former are removed. We also discuss optimal policy response to address these inefficiencies. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:660&r=cta |
| By: | Miglo, Anton |
| Abstract: | We analyze equity financing for a two-stage investment and consider different informational structures. When private information is short-term, equilibria are consistent with signalling theory and pecking-order theory. When private information is long-term, equilibria may exist where high quality firms issue equity. The model explains the link between debt-equity choice and subsequent performance after issue (short-term versus long-term). A set of new predictions is generated regarding the link between the extent of asymmetric information and equity issues, macroeconomic performance and equity issues and market timing. |
| Keywords: | equity issues, long-term asymmetric information, multi-stage investment, pecking-order theory, signalling |
| JEL: | D82 G32 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46692&r=cta |
| By: | Garcia, Jorge H.; Wei, Jiegen |
| Abstract: | A prevailing view in the literature is that social sanctions can support, in equilibrium, high levels of obedience to a costly norm. The reason is that social disapproval and stigmatization faced by the disobedient are highest when disobedience is the exception rather than the rule in society. In contrast, the (Bayesian) model introduced here shows that imperfect information causes the expected social sanction to be lowest precisely when obedience is more common. This, amongst other fi?ndings, draws a distinct line between social and moral sanctions, both of which may depend on others' ?behavior but not on action observability. |
| Keywords: | social interactions, social norms, asymmetric information |
| JEL: | D82 K42 L51 |
| Date: | 2013–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-13-04-efd&r=cta |
| By: | Federico Boffa (Institut d'Economia de Barcelona); Giacomo A.M. Ponzetto (Centre de Recerca en Economia Internacional - CREi); Amedeo Piolatto (Universidad de Alicante) |
| Abstract: | This paper studies fiscal federalism when voter information varies across regions. We develop a model of political agency with heterogeneously informed voters. Rent-seeking politicians provide public goods to win the votes of the informed. As a result, rent extraction is lower in regions with higher information. In equilibrium, electoral discipline has decreasing returns. Thus, political centralization reduces aggregate rent extraction. When the central government provides public goods uniformly across space, the model predicts that a region’s benefits from centralization are decreasing in its residents’ information. We test this prediction using panel data on pollutant emissions and newspaper circulation across the United States. The 1970 Clean Air Act centralized environmental policy at the federal level. In line with our theory, we find that centralization induced a faster decrease in pollution in less informed states. |
| Keywords: | Political centralization, Government accountability, Imperfect information, Interregional heterogeneity, Elections, Environmental policy, Air pollution. |
| JEL: | D72 D82 H73 H77 Q58 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2013-03&r=cta |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Fabian Winter (Max Planck Institute of Economics, Strategic Interaction Group) |
| Abstract: | Similar to Kübler et al. (2008, GEB 64, p. 219-236), we compare sorting in games with asymmetric incomplete information theoretically and experimentally. Rather than distinguishing two very different sequential games, we use the same game format and capture the structural difference of screening and signaling only via their payoff specification. The experiment thus relies on the same verbal instructions. Although the equilibrium outcomes coincide, greater efficiency losses off the equilibrium play due to sorting under signaling, compared to screening, is predicted and confirmed experimentally. |
| Keywords: | sorting, screening, signaling, wage bargaining, off-equilibrium play |
| JEL: | C9 D82 J24 J40 |
| Date: | 2013–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-017&r=cta |
| By: | Kunio Tsuyuhara (University of Calgary) |
| Abstract: | This paper proposes a search theoretic model of optimal employment contract under repeated moral hazard. The model integrates two important attributes of the labour market: workers' work incentive on the job and their mobility in the labour market. The optimal long-term contract is characterized by an increasing wage-tenure profile. The labour productivity of a match also increases with tenure due to a worker's increasing effort provision. Even though all workers and firms are ex ante homogeneous, these two outcomes jointly generate endogenous heterogeneity of the wages and labour productivity. It is also shown that the interaction of these factors provides novel implications for wage dispersion, and the calibrated model generates significantly larger wage dispersion than previous studies. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:630&r=cta |
| By: | Ronald Wolthoff (University of Toronto); Benjamin Lester (Federal Reserve Bank of Philadelphia) |
| Abstract: | This paper studies the effect of screening costs on the equilibrium allocation of workers with different productivities to firms with different technologies. In the model, a worker's type is private information, but can be learned by the firm during a costly screening or interviewing process. We characterize the planner's problem in this environment and determine its solution. A firm may receive applications from workers with different productivities, but should in general not interview them all. Once a sufficiently good applicant has been found, the firm should instead make a hiring decision immediately. We show that the planner's solution can be decentralized if workers direct their search to contracts posted by firms. These contracts must include the wage that the firm promises to pay to a worker of a particular type, as well as a hiring policy which indicates which types of workers will be hired immediately, and which types will lead the firm to keep interviewing additional applicants. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:631&r=cta |
| By: | Castilla, Carolina |
| Abstract: | I present a model of intra-household allocation to show that when income is not perfectly observed by both spouses, hiding of income can occur even when revelation increases bargaining power. I draw data from Ghana and exploit the variation in the degree |
| Keywords: | incomplete information, income-hiding, non-cooperative family bargaining |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2013-007&r=cta |
| By: | Bhowmik, Anuj |
| Abstract: | Consider a pure exchange differential information economy with an atomless measure space of agents and a Banach lattice as the commodity space. If the commodity space is separable, then it is shown that the private core coincides with the set of Walrasian expectations allocations. In the case of non-separable commodity space, a similar result is also established if the space of agents is decomposed into countably many different types. |
| Keywords: | Differential information economy; Extremely desirable bundle; Private core. |
| JEL: | D41 D51 D82 |
| Date: | 2013–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46796&r=cta |
| By: | Maria Laura Pesce (Università di Napoli Federico II) |
| Abstract: | We establish new characterizations of Walrasian expectations equilibria based on the veto mechanism in the framework of differential information economies with a finite number of states of nature and a measure space of agents that may have atoms. We show that it is enough to consider the veto power of a single coalition, consisting of the entire set of agents, to obtain the Aubin private core. Moreover, we investigate on the veto power of arbitrary small and big coalitions, providing an extension to mixed markets of the well known Schmeidler [20] and Vind’s [22] results in terms of Aubin private core allocations. |
| Date: | 2013–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:331&r=cta |
| By: | Poggi, Ambra |
| Abstract: | The aim of this paper is to provide fresh empirical evidence of the mechanisms through which wage inequality affects worker satisfaction. Theoretically, wages of others may affect workers' utility for two main reasons: Workers may derive well-being from their social status (comparison hypothesis) and/or they may use others wages to help predict their own future wage (information hypothesis). Both hypotheses are tested. To achieve her aims, the author models individual utility from pay as a function of a worker's own wage and the earnings of all other workers within the same establishment, and she estimates the model using British employer-employee data. Incomplete information about others wages is assumed. The author finds that the comparison effects matter. Of most interest, she provides some first evidence about a positive relation between well-being and inequality. Her results are robust within the different specifications and different definitions of the reference group. -- |
| Keywords: | satisfaction,comparison income,co-workers,inequality,incomplete information |
| JEL: | J28 J31 J33 C25 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201328&r=cta |