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on Contract Theory and Applications |
| By: | Krähmer, Daniel; Strausz, Roland |
| Abstract: | We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agent’s ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling. |
| Keywords: | information rents; sequential screening; information disclosure |
| JEL: | D82 H57 |
| Date: | 2013–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:406&r=cta |
| By: | Gregory Pavlov (University of Western Ontario) |
| Abstract: | We study cheap-talk pre-play communication in the static all-pay auctions. For the case of two bidders, all correlated and communication equilibria are payoff equivalent to the Nash equilibrium if there is no reserve price, or if it is commonly known that one bidder has a strictly higher value. Hence, in such environments the Nash equilibrium predictions are robust to preplay communication between the bidders. If there are three or more symmetric bidders, or two symmetric bidders and a positive reserve price, then there may exist correlated and communication equilibria such that the bidders’ payoffs are higher than in the Nash equilibrium. In these cases, pre-play cheap talk may affect the outcomes of the game, since the bidders have an incentive to coordinate on such equilibria. |
| Keywords: | Communication; Collusion; All-pay auctions |
| JEL: | C72 D44 D82 D83 L41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:uwowop:20132&r=cta |
| By: | Hart, Robert A. (University of Stirling); Ma, Yue (City University of Hong Kong) |
| Abstract: | We present a wage-hours contract designed to minimize costly job turnover given investments in on the job training combined with firm and worker information asymmetries. It may be optimal for the parties to work 'long hours' remunerated at premium rates for guaranteed overtime hours. Based on British plant and machine operatives, we test three predictions. First, trained workers with longer job tenure are more likely to work overtime. Second, hourly overtime pay exceeds the value of marginal product while the basic hourly wage is less than the value of marginal product. Third, the basic hourly wage is negatively related to the overtime premium. |
| Keywords: | paid overtime, wage-hours contract, plant and machine operatives |
| JEL: | J41 J33 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7560&r=cta |
| By: | Peter Spencer |
| Abstract: | This paper shows that the standard and deferred filtration structural models of corporate default are isomorphic, allowing the insights of the standard full information setting to be carried over to the more complex case of asymmetric information. It shows that the accounting lag, which provides a general indicator of uncertainty and opacity in the deferred filtration model, plays a role analogous to that of forward maturity in the standard model. The comparative static properties of the standard model carry over mutatis mutandis and can also be used to sign the effect of signals upon the effective accounting lag and drift parameters. |
| Keywords: | Corporate bond pricing, Incomplete information, Deferred filtration, Default intensity, Comparative statics |
| JEL: | G12 G13 G33 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:13/23&r=cta |
| By: | Pei Kuang (University of Birmingham) |
| Abstract: | I develop an equilibrium model with collateral constraints in which rational agents are uncertain and learn about the equilibrium mapping between fundamentals and collateral prices. Bayesian updating of beliefs by agents can endogenously generate booms and busts in collateral prices and largely strengthen the role of collateral constraints as an amplification mechanism through the interaction of agents?' beliefs, collateral prices and credit limits. Over-optimism or pessimism is fueled when a surprise in price expectations is interpreted partially by the agents as a permanent change in the parameters governing the collateral price process and is validated by subsequently realized prices. I show that the model can quantitatively account for the recent US boom-bust cycle in house prices, household debt and aggregate consumption dynamics during 2001-2008. I also demonstrate that the leveraged economy with a higher steady state leverage ratio is more prone to self-reinforcing learning dynamics. |
| Keywords: | Booms and Busts, Collateral Constraints, Learning, Leverage, Housing |
| JEL: | D83 D84 E32 E44 |
| Date: | 2013–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1303&r=cta |