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on Contract Theory and Applications |
| By: | Juan-José Ganuza; José Penalva |
| Abstract: | A celebrated result in auction theory is that the optimal reserve price in the standard private value setting does not depend on the number of bidders. We modify the framework by considering that the seller controls the accuracy with which bidders learn their valuations, and show that in such a case, the greater the number of bidders the more restrictive the reserve price. We also show that the auctioneer provides more information when using an optimal auction mechanism than when the object is always sold. |
| Keywords: | Auctions, Private values, Information disclosure |
| JEL: | C72 D44 D82 D83 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:cte:idrepe:id-14-02&r=cta |
| By: | Atakan, Alp Enver; Ekmekci, Mehmet |
| Abstract: | We study an infinitely repeated game where two players with equal discount factors play a simultaneous-move stage game. Player one monitors the stage- game actions of player two imperfectly, while player two monitors the pure stage- game actions of player one perfectly. Player one’s type is private information and he may be a “commitment type,” drawn from a countable set of commitment types, who is locked into playing a particular strategy. Under a full-support assumption on the monitoring structure, we prove a reputation result for repeated moral hazard games: if there is positive probability that player one is a particular type whose commitment payoff is equal to player one’s highest payoff, consistent with the players’ individual rationality, then a patient player one secures this type’s commitment payoff in any Bayes-Nash equilibrium of the repeated game. |
| Keywords: | Repeated Games, Reputation, Equal Discount Factor, Long-run Players, Imperfect Monitoring, Complicated Types, Finite Automaton |
| JEL: | C7 C72 C73 D0 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:54427&r=cta |
| By: | Chen, Josie I; Kamei, Kenju |
| Abstract: | Recent experimental research has shown that when rating systems are available, buyers are more generous in accepting unfair offers made by sellers. It has also shown that sellers make fairer decisions when they are rated, while some studies show that they are little affected by the rating systems. These studies are conducted under complete information settings. However, asymmetric information about the values of traded commodities between sellers and buyers may change their perception of fairness and thus may change sellers’ decisions. We conduct ultimatum game experiments in which only the sellers are informed of the size of pies. We find that when rating systems are available to the buyers, the buyers become more amenable to potentially unfair offers. We also find that sellers attempt to sell the commodity at higher prices, taking advantage of the buyers’ openness to potentially unfair offers, contrary to the past studies with complete information. |
| Keywords: | Experiments, Ultimatum Game, Incomplete Information, Emotion, Rating, Social Approval, Social Disapproval |
| JEL: | C91 D03 D82 M21 |
| Date: | 2014–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:54405&r=cta |
| By: | Forssbaeck, Jens (Lund University); Oxel, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Transparency has become a catchword and in the economic-political debate is often seen as a universal remedy for all sorts of problems. In this paper, we analyze and discuss the meaning and use of the concept of transparency in economic research. We look for common denominators across different areas where the concept is used, and find that transparency in essence is about reductions in information asymmetries, and therefore entails the transfer of information from a sender to a receiver. Transparency goes beyond mere information disclosure in that it has a demand-side dimension: the information transferred should be trustworthy and have a value to the receiver. We emphasize the distinction between ex ante transparency – related to predictability – and ex post transparency – related to accountability. In economics, increased transparency is mostly rationalized on grounds of improving efficiency, but sometimes transparency is properly viewed simply as a right to know. Complementarities between different types of transparency are pervasive, and its causes and effects typically co-determined – i.e. transparency is endogenous. As a means to improve competitiveness and economic growth, transparency of economic policy and corporate as well as institutional transparency interact. We challenge the view that more transparency is always better and argue for concave net benefits and the existence of optimal transparency, but optimality varies across policy areas, institutional settings, industries and individual firms. |
| Keywords: | Asymmetric Information; Transfer of Information; Moral Hazard; Adverse Selection; ransparency; Optimal Transparency; Ex Ante Transparency; Ex Post Transparency; Predictability; Accountability; Economic Policy; Economic Growth |
| JEL: | D82 E24 E27 E37 E52 E58 E62 G38 M10 |
| Date: | 2014–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1013&r=cta |
| By: | Beyhaghi, Mehdi (College of Business, University of Texas at San Antonio); Mahmoudi, Babak (School of Humanities and Social Sciences, Nazarbayev University); Mohammadi, Ali (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | We provide empirical evidence of both (1) price dispersion and (2) credit rationing in the corporate loan market. We argue that these properties are caused by two factors: an adverse selection resulting from the information asymmetry between lenders and borrowers, and search frictions in matching borrowers with lenders. We develop a model of loan markets in which lenders post an array of heterogeneous contracts, then borrowers tradeoff terms of loan contracts and matching probability between themselves. We show that a unique separating equilibrium exists where each type of borrower applies to a certain type of contract. |
| Keywords: | loan contract; capital structure; debt heterogeneity; adverse selection; competitive search |
| JEL: | D86 G20 G21 G32 |
| Date: | 2014–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0350&r=cta |
| By: | Fiocco, Raffaele |
| Abstract: | We investigate the incentive for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when the retailers are privately informed about their production costs and engage in differentiated good price competition. Partial vertical integration entails an “information vertical effectâ€: the partial misalignment of pro.t objectives within a partially integrated manufacturer-retailer hierarchy involves costs from asymmetric information that reduce the hierarchy’s profitability. This translates into an opposite “competition horizontal effectâ€: the partially integrated hierarchy commits to a higher retail price than under full integration, which strategically relaxes competition. The equilibrium degree of vertical integration trades o¤ the benefits of softer competition against the informational costs. |
| Keywords: | asymmetric information; partial vertical integration; product differentiation; vertical mergers; vertical restraints |
| JEL: | D82 L13 L42 |
| Date: | 2014–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:455&r=cta |
| By: | Burkhard S; Hee Yeul Woo (Department of Economics, University of California Davis) |
| Abstract: | In modern elections, ideologically motivated candidates with a wealth of information about individual voters and sophisticated campaign strategies are faced by voters who lack awareness of some political issues and are uncertain about the exact political positions of candidates. We study to what extent electoral campaigns can raise awareness of issues and unravel information about candidates' political positions. We allow for microtargeting in which candidates target messages to subsets of voters. A candidate's message consists of a subset of issues and some information on her political position in the multi-dimensional policy subspace spanned by this subset of issues. The information provided can be vague, it can be even silent on some issues, but candidates are not allowed to bluntly lie about their ideology. Every voter votes for the candidate she expects to be closest to her but takes into account only the subspace spanned by the issues that come up during the campaign. We show that any prudent rationalizable election outcome is the same as if voters have full awareness of issues and complete information of policy points, both in parliamentary and presidential elections. We show by examples that these results may break down when there is lack of electoral competition, when candidates are unable to use microtargeting, or when voters have limited abilities of political reasoning. Allowing for negative campaigning restores the positive results if voters' political reasoning abilities are limited. It can even be achieved with just public campaign message in the presidential elections while parliamentary elections still require microtargeting of voters. |
| Keywords: | electoral competition, multidimensional policy space, microtargeting, dog-whistle politics, negative campaigning, ideological candidates, presidential elections, parliamentary elections, persuasion games, verifiable information, unawareness, framing, prudent rationalizability, forward-induction |
| JEL: | C72 D71 P16 |
| Date: | 2014–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:14-8&r=cta |
| By: | Simon Cornée |
| Abstract: | In this paper, to begin with, we define soft information as qualitative, subjective information produced by banks through the establishment of long-term lending relationships. We then highlight the importance of soft information for cooperative and social banks in the screening, pricing and monitoring of their borrowers as a result of their institutional features (governance, values, etc.) and the specificities of their clientele. We finally emphasise the value of qualitative (economic, social and/or environmental) factors stemming from the production of soft information in predicting credit default events. |
| Keywords: | Relationship Lending; Soft Information; Credit Rating; Cooperative and Social Banking |
| JEL: | G21 L22 M21 P13 |
| Date: | 2014–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/156300&r=cta |
| By: | Czarnitzki, Dirk; Hall, Bronwyn H.; Hottenrott, Hanna |
| Abstract: | Information about the success of a new technology is usually held asymmetrically between the research and development (R&D)-performing firm and potential lenders and investors. This raises the cost of capital for financing R&D externally, resulting in financing constraints on R&D especially for firms with limited internal resources. Previous literature provided evidence for start-up firms on the role of patents as signals to investors, in particular to Venture Capitalists. This study adds to previous insights by studying the effects of firms' patenting activity on the degree of financing constraints on R&D for a panel of established firms. The results show that patents do indeed attenuate financing constraints for small firms where information asymmetries may be particularly high and collateral value is low. Larger firms are not only less subject to financing constraints, but also do not seem to benefit from a patent quality signal. -- |
| Keywords: | Patents,Quality Signal,Research and Development,Financial Constraints,Innovation Policy |
| JEL: | O31 O32 O38 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:133&r=cta |
| By: | Szwagrzak, Karol (Department of Business and Economics) |
| Abstract: | Consider a market for a resource under disequilibrium prices where suppliers and demanders are privately informed about their optimal supply and consumption levels. Strategy-proof market clearing mechanisms give suppliers and demanders dominant strategy incentives to truthfully reveal this information. We describe the class of strategy-proof and efficient mechanisms responding well to changes in supplies and demands, as formalized by the "replacement principle" (Thomson, 2007). Since no symmetry or anonymity conditions are imposed, these mechanisms can implement a wide array of distributional objectives in both indivisible and divisible resource allocation situations. These mechanisms apply to allocation problems involving network constraints modeling necessary conditions for a transfer of the resource from a supplier to a demander. |
| Keywords: | Strategy-proofness; Replacement principle; Network constraints; Indivisible resourcces |
| JEL: | C70 D61 D63 |
| Date: | 2014–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2014_004&r=cta |
| By: | Anno, Hidekazu; Kurino, Morimitsu |
| Abstract: | We consider the problem of allocating several types of indivisible goods when preferences are separable and monetary transfers are not allowed. Our finding is that the coordinatewise application of strategy-proof and non-wasteful rules yields a strategy-proof rule with the following efficiency property: no strategy-proof rule Pareto-dominates the rule. Such rules are abundant as they include the coordinate-wise use of the two well-known priority-based rules of the top trading cycles (TTC) and the deferred acceptance (DA). Moreover, our result supports the current practice in Market Design that separately treats each type of market for its design. -- |
| Keywords: | strategy-proofness,second-best incentive compatibility,top trading cycles rules,deferred acceptance rules |
| JEL: | C78 D71 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2014201&r=cta |
| By: | Mohammadi, Ali (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Shafizadeh, Mohammadmehdi (Management, Economics and Industrial Engineering, Politecnico di Milano); Johan, Sofia (Schulich School of Buisiness, York University.) |
| Abstract: | This paper investigates how early termination of venture capital (VC) investment in entrepreneurial ventures affect the ability of these young ventures into acquiring further resources necessary for survival and growth. We propose that young entrepreneurial ventures face a higher cost of external financing if existing investors stop investing in the next rounds of financing. Future investors, faced with great unobservable qualities of young companies and the uncertainty surrounding their financial prospect, rely on observable characteristics to appraise a company; The continuation of investment by existing investors confers a positive signal about the quality of young ventures and that young ventures, as endorsed by further commitment of capital, are more likely to perform better than otherwise comparable ventures that lack such escalated commitment. |
| Keywords: | Information Asymmetry; Signaling Theory; Venture Capital; Discontinued Investment |
| JEL: | D80 G24 |
| Date: | 2014–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0349&r=cta |