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on Contract Theory and Applications |
| By: | Ian Jewitt; Clare Leaver; Heski Bar-Isaac |
| Abstract: | This paper develops a framework for the analysis of how asymmetric information impacts on adverse selection and market efficiency.� We adopt Akerlof's (1970) unit-demand model extended to a setting with multidimensional public and private information.� Adverse selection and efficiency are defined quantitatively as real valued random variables.� We characterize how public information disclosure and private information acquisition affect the relationship between adverse selection and efficiency.� These results are applied to inform welfare and empirical analysis and, in an employer learning setting, to study the endogenous choice of information structures.� Equilibrium information structures impose adverse selection efficiently.� We show that this makes adverse selection hard to detect using standard positive correlation tests. |
| Keywords: | asymmetric information, adverse selection, information structures, information acquisition, information disclosure, employer learning |
| JEL: | D82 J30 |
| Date: | 2014–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:695&r=cta |
| By: | Mehmet Ekmekci; Nenad Kos |
| Abstract: | We analyze the value of information in the market for corporate control. The raider and the shareholders are privately and imperfectly informed about the post-takeover value of the firm. We show that public information provision reduces the dispersion of the shareholders’ beliefs resulting in a transfer of surplus from the raider to the shareholders. What is more, if the raider is privately informed all his private information is revealed through the price offer, hence he prefers not to acquire private information, provided that the shareholders do not engage in information acquisition. The target shareholders, on the other hand, have incentives to acquire information—solicit a fairness opinion—after the raider makes a price offer. However, when both parties have access to an information market, they both have incentives to acquire information. Keywords: takeovers, fairness opinion, tender offers, lemons problem, large shareholder. JEL Classification Numbers: D82, G34. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:510&r=cta |
| By: | Talia Bar (University of Connecticut); Sidartha Gordon (Département d'économie) |
| Abstract: | We study mechanisms for selecting up to m out of n projects. Project managers’ private information on quality is elicited through transfers. Under limited liability, the optimal mechanism selects projects that maximize some function of the project’s observable and reported characteristics. When all reported qualities exceed their own project-specific thresholds, the selected set only depends on observable characteristics, not reported qualities. Each threshold is related to (i) the outside option level at which the cost and benefit of eliciting information on the project cancel out and (ii) the optimal value of selecting one among infinitely many ex ante identical projects. |
| Keywords: | adverse selection, information acquisition, mechanism design, project selection, limited liability, R&D. |
| JEL: | D82 O32 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7o52iohb7k6srk09n8t49coi7&r=cta |
| By: | Mikel Berdud (Departamento de Economía-UPNA); Juan M. Cabasés Hita (Departamento de Economía-UPNA); Jorge Nieto (Departamento de Economía-UPNA) |
| Abstract: | This paper explores optimal incentive schemes in public health institutions when agents (doctors) are intrinsically motivated. We develop a principal-agent dynamic model with moral hazard in which agents’ intrinsic motivation could be promoted (crowding-in) by combining monetary and non-monetary rewards, but could also be discouraged (crowding-out) when the health manager uses only monetary incentives. We discuss the conditions under which investing in doctors’ motivational capital by the use of well designed nonmonetary rewards is optimal for the health organizations manager. Our results show that such investments will be more efficient than pure monetary incentives in the long run. We will also prove that when doctors are riskaverse, it is profitable for the health manager to invest in motivational capital. |
| Keywords: | contracts, moral hazard, intrinsic motivation, crowding effects, motivational capital |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nav:ecupna:1402&r=cta |
| By: | Sidartha Gordon (Département d'économie); Ying Chen (Key Laboratory of Inorganic Functional Materials and Devices) |
| Abstract: | We introduce a “nestedness” relation for a general class of sender-receiver games and compare equilibrium properties, in particular the amount of information transmitted, across games that are nested. Roughly, game is nested in game if the players’s optimal actions are closer in game. We show that under some conditions, more information is transmitted in the nested game in the sense that the receiver’s expected equilibrium payoff is higher. The results generalize the comparative statics and welfare comparisons with respect to preferences in the seminal paper of Crawford and Sobel (1982). We also derive new results with respect to changes in priors in addition to changes in preferences. We illustrate the usefulness of the results in three applications: (i) delegation to an intermediary with a different prior, the choice between centralization and delegation, and two-way communication with an informed principal. |
| Keywords: | sender-receiver games, information transmission, nestedness, inter- mediary, delegation, informed principal. |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5adcidkke9omt0s9p6m01j1rh&r=cta |
| By: | Ennio Bilancini; Leonardo Boncinelli |
| Abstract: | We present a model of two-sided matching where utility is non-transferable and information about individuals’skills is private, utilities are strictly increasing in the partner’s skill and satisfy increasing differences. Skills can be either revealed or kept hidden, but while agents on one side have verifiable skills, agents on the other side have skills that are unverifiable unless certified, and certification is costly. Agents who have revealed their skill enter a standard matching market, while others are matched randomly. We find that in equilibrium only agents with skills above a cutoff reveal, and then they match assortatively. We show that an equilibrium always exists, and we discuss multiplicity. Increasing differences play an important role to shape equilibria, and we remark that this is unusual in matching models with non-transferable utility. We close the paper with some comparative statics exercises where we show the existence of non-trivial externalities and welfare implications. |
| Keywords: | costly disclosure of information; matching markets; non-transferable utility; partial unraveling; positive assortative matching; increasing differences |
| JEL: | C78 D82 L15 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:094&r=cta |
| By: | Arina Nikandrova (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | Costly information acquisition is introduced into a dynamic trading model of Glosten and Milgrom (1985). The market maker and some traders, called "value traders," value the asset at its fundamental value, which can be either high or low. The remaining traders, called "liquidity traders," have idiosyncratic valuations that are independent of the fundamental. At a cost, each value trader can acquire an informative, but imperfect, signal about the fundamental. In this setting, at equilibrium, each value trader acquires the signal if and only if the uncertainty about the fundamental's value conditional on publicly available information is sufficiently high. Thus, the prices quoted by the market maker are "informationally inefficient," as they do not reveal the value of the fundamental, even in the long-run. Equilibrium amount of information acquisition is either excessive or insufficient relative to the social optimum and results in an inefficient allocation of the asset among the market maker and liquidity traders. |
| Keywords: | Sequential Trading, Cost of Information, Endogenous Information Acquisition. |
| JEL: | D80 D83 D84 G12 G14 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1403&r=cta |
| By: | Javier Rivas (Department of Economics University of Bath); Carmelo Rodríguez-Álvarez (Departamento de Fundamentos del Análisis Económico II (Economía Cuantitativa) Facultad de Ciencias Económicas y Empresariales Universidad Complutense de Madrid; Instituto Complutense de Analisis Economico (ICAE) Facultad de Ciencias Económicas y Empresariales Universidad Complutense de Madrid) |
| Abstract: | We analyse committees of voters who take a decision between two options as a two- stage process. In a discussion stage, voters share non-verifiable information about a private signal concerning what is the best option. In a voting stage, votes are cast and one of the options is implemented. We introduce the possibility of leadership whereby a certain voter, the leader, is more influential than the rest at the discussion stage even though she is not better informed. We study information transmission and characterize the effects of the leader on the deliberation process. We find, amongst others, that both the quality of the decision taken by the committee and how truthful voters are at the discussion stage depends non-monotonically on how influential the leader is. In particular, although a leader whose influence is weak does not disrupt the decision process of the committee in any way, a very influential leader is less disruptive than a moderately influential leader. |
| Keywords: | Committees; Information Aggregation; Leadership; Voting. |
| JEL: | D71 D72 D82 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1404&r=cta |
| By: | Voß, Achim; Lingens, Jörg |
| Abstract: | Many environmental-policy problems are characterized by complexity and uncertainty. Government's choice concerning these policies commonly relies on information provided by a bureaucracy. Environmental bureaucrats often have a political motivation of their own, so they might be tempted to misreport environmental effects in order to influence policy. This transforms a problem of uncertainty into one of asymmetric information. We analyze the ensuing principal-agent relationship and derive the government's optimal contract, which conditions policy and rewards on reported environmental effects. We find that agents who are more environmentalist than the government are rewarded for admitting that the environmental impact is low (and vice versa). With higher uncertainty, the bureaucrat has a stronger influence on policy. For some values of the environmental impact, the bureau is permitted to set its own preferred policy (optimal delegation). -- |
| Keywords: | Environmental Policy,Political Economy,Delegation,Bureaucracy,Regulatory Agency,Mechanism Design,Type-dependent Participation Constraint,Pure State Constraints in Optimal Control |
| JEL: | D73 D82 C61 Q52 Q58 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:67&r=cta |
| By: | Gary Gorton (Department of Economics, Yale University); Guillermo Ordonez (Department of Economics, University of Pennsylvania) |
| Abstract: | Credit booms usually precede financial crises. However, some credit booms end in a crisis (bad booms) and other booms do not (good booms). We document that, while all booms start with an increase in the growth of Total Factor Productivity (TFP), such growth falls much faster subsequently for bad booms. We then develop a simple framework to explain this. Firms finance investment opportunities with short-term collateralized debt. If agents do not produce information about the collateral quality, a credit boom develops, accommodating firms with lower quality projects and increasing the incentives of lenders to acquire information about the collateral, eventually triggering a crisis. When the quality of investment opportunities also grow, the credit boom may not end in a crisis because there is a gradual adoption of low quality projects, but those projects are also of better quality, not inducing information about collateral. |
| Keywords: | Financial Crises, Credit booms, Productivity |
| JEL: | E3 E5 |
| Date: | 2014–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-008&r=cta |
| By: | Guillen, Pablo; Hakimov, Rustamdjan |
| Abstract: | We test the effect of the amount of information on the strategies played by others in the theoretically strategy-proof Top Trading Cycles (TTC) mechanism. We find that providing limited information on the strategies played by others has a negative and significant effect in truth-telling rates relative to full or no information about others' strategies. Subjects report truthfully more often when either full information or no information on the strategies played by others is available. Our results have potentially important implications for the design of markets based on strategy-proof matching algorithms. -- |
| Keywords: | school choice,top trading cycles,strategy-proofness |
| JEL: | C78 D79 D80 I20 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2014202&r=cta |
| By: | Francis Bloch (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Gabrielle Demange (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)); Rachel Kranton (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA)) |
| Abstract: | Why do people spread rumors? This paper studies the transmission of possibly false information---by rational agents who seek the truth. Unbiased agents earn payoffs when a collective decision is correct in that it matches the true state of the world, which is initially unknown. One agent learns the underlying state and chooses whether to send a true or false message to her friends and neighbors who then decide whether or not to transmit it further. The papers hows how a social network can serve as a filter. Agents block messages from parts of the network that contain many biased agents; the messages that circulate may be incorrect but sufficiently informative as to the correct decision. |
| Keywords: | Bayesian updating ; Rumors ; Misinformation ; Social networks |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00966234&r=cta |
| By: | Alexey Kushnir; Alexandru Nichifor |
| Abstract: | We introduce a simple two-stage game of endogenous network formation and information sharing for reasoning about the optimal design of social networks like Facebook or Google+. We distinguish between unilateral and bilateral connections and between targeted and collective information sharing. Agents value being connected to other agents and sharing and receiving information. We consider multiple utility specifications. We show that the game always has an equilibrium in pure strategies and then we study how the network design and the utility specifications affect welfare. Surprisingly, we find that in general, targeted information sharing is not necessarily better than collective information sharing. However, if all agents are either "babblers" or "friends", irrespective of whether the network is unilateral or bilateral, in equilibrium, targeted information sharing yields higher welfare than collective information sharing. |
| Keywords: | Networks, network formation, unilateral connections, bilateral connections, targeted information sharing, collective information sharing, Google, Facebook, babblers, friends |
| JEL: | D85 C72 C62 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:152&r=cta |
| By: | Damien Besancenot (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - CNRS : UMR7234 - Université Sorbonne Paris Cité (USPC)); Radu Vranceanu (Economics Department - ESSEC Business School) |
| Abstract: | In April 2013, all of the major academic publishing houses moved thousands of journal titles to an original hybrid model, under which authors of accepted papers can choose between an expensive open access track and the traditional track available only to subscribers. This paper argues that authors might use publication strategy as a quality signaling device. The imperfect information game between authors and readers presents several types of Perfect Bayesian Equilibria, including a separating equilibrium in which only authors of high quality papers are driven toward the open access track. The publishing house will choose the open-access publication fee that supports the emergence of the highest return equilibrium. Journal structures will evolve over time according to the journals' accessibility - quality profiles. |
| Keywords: | Academic publishing ; Open access ; Knowledge di¤usion ; Imperfect information ; Signaling |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00971541&r=cta |
| By: | Bartos, Vojtech (CERGE-EI); Bauer, Michal (Charles University, Prague); Chytilová, Julie (Charles University, Prague); Matejka, Filip (CERGE-EI) |
| Abstract: | We link two important ideas: attention is scarce and lack of information about an individual drives discrimination in selection decisions. Our model of allocation of costly attention implies that applicants from negatively stereotyped groups face "attention discrimination": less attention in highly selective cherry-picking markets, where more attention helps applicants, and more attention in lemon-dropping markets, where it harms them. To test the prediction, we integrate tools to monitor information acquisition into correspondence field experiments. In both countries we study we find that unfavorable signals, minority names, or unemployment, systematically reduce employers' efforts to inspect resumes. Also consistent with the model, in the rental housing market, which is much less selective than labor markets, we find landlords acquire more information about minority relative to majority applicants. We discuss implications of endogenous attention for magnitude and persistence of discrimination in selection decisions, returns to human capital and, potentially, for policy. |
| Keywords: | discrimination, attention, field experiment, monitoring information acquisition |
| JEL: | C93 D83 J15 J71 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8058&r=cta |
| By: | Mandell, Svante (KTH and VTI); Nilsson , Jan-Eric (VTI); Vierth , Inge (VTI) |
| Abstract: | The impact of policy instruments supposed to reduce greenhouse gas emissions from road freight transports may seem smaller than expected. Using insights from economics and contract theory, the paper sorts out the (possible) instances of market failure in the freight transport market; operator market power, asymmetric information split incentives, and public goods. The primary limitations of standard policy instruments are demonstrated to be linked to unobservable information. Some of these may be reduced but not eliminated as information technologies develop, making it possible to observe, verify and provide contract-relevant information to the uninformed parties. There is little reason to believe that possible market failures present major limitations to the efficiency of economic instruments geared toward protecting the climate, other than possibly in the short run |
| Keywords: | Freight transport; Climate; Greenhouse gas; Policy instruments; Asymmetric information; Split incentives |
| JEL: | R40 |
| Date: | 2014–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2014_005&r=cta |
| By: | Kosfeld, Michael (Goethe University Frankfurt); Neckermann, Susanne (Erasmus University Rotterdam); Yang, Xiaolan (Zhejiang University) |
| Abstract: | We manipulate workers' perceived meaning of a job in a field experiment. Half of the workers are informed that their job is important, the other half are told that their job is of no relevance. Results show that workers exert more effort when meaning is high, corroborating previous findings on the relationship between meaning and work effort. We then compare the effect of meaning to the effect of monetary incentives and of worker recognition via symbolic awards. We also look at interaction effects. While meaning outperforms monetary incentives, the latter have a robust positive effect on performance that is independent of meaning. In contrast, meaning and recognition have largely similar effects but interact negatively. Our results are in line with image-reward theory (Bénabou and Tirole 2006) and suggest that meaning and worker recognition operate via the same channel, namely image seeking. |
| Keywords: | meaning, monetary incentives, worker recognition, field experiment |
| JEL: | C93 J33 M12 M52 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8055&r=cta |
| By: | Mikel Berdud (Departamento de Economía-UPNA); Juan M. Cabasés Hita (Departamento de Economía-UPNA); Jorge Nieto (Departamento de Economía-UPNA) |
| Abstract: | Where the contracts are incomplete, the resulting co-ordination problems may be attenuated if workers are intrinsically motivated to do the work. It is established by theoretical and empirical literature that workers within public organizations are intrinsically motivated to exert effort doing the job and have a strong sense of social agents with the mission of providing collective goods to citizens and tax payers. This paper is an empirical pilot study in the health care sector using methods of Qualitative Analysis research. We run semistructured interviews á-la- Bewley to sixteen physicians of Navarre’s health Care Servicio Navarro de Salud-Osasunbidea (SNS-O). The objective of the work is twofold: first, to find empirical evidence about doctors’ non-monetary motives and second, to find evidence about how these non-monetary motives shape doctors’behavior. We formulate several testable hypotheses: (1) Doctors are intrinsically motivated agents, (2) Economic incentives and control policies may crowd- out intrinsic motivation and (3) Well designed incentives may crowd-in agents intrinsic motivation. Results confirm the hypotheses formulated above and coming from our theoretical findings [11], [12]. Finally, we also found empirical evidence of conflict between political advisors or health managers (principals) and physicians (agents). Results are a step forward in the optimal design of incentive schemes and policies which crowd in doctors’ intrinsic motivation. |
| Keywords: | qualitative research, interviews, intrinsic motivation, crowding effects |
| JEL: | D03 D86 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nav:ecupna:1401&r=cta |
| By: | Gilad Bavly; Abraham Neyman |
| Abstract: | Correlation of players' actions may evolve in the common course of the play of a repeated game with perfect monitoring (``obline correlation''). In this paper we study the concealment of such correlation from a boundedly rational player. We show that ``strong'' players, i.e., players whose strategic complexity is less stringently bounded, can orchestrate the obline correlation of the actions of ``weak'' players, where this correlation is concealed from an opponent of ``intermediate'' strength. The feasibility of such ``\ol concealed correlation'' is reflected in the individually rational payoff of the opponent and in the equilibrium payoffs of the repeated game. This result enables the derivation of a folk theorem that characterizes the set of equilibrium payoffs in a class of repeated games with boundedly rational players and a mechanism designer who sends public signals. The result is illustrated in two models, each of which captures a different aspect of bounded rationality. In the first, players use bounded recall strategies. In the second, players use strategies that are implementable by finite automata. |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp659&r=cta |