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on Contract Theory and Applications |
| By: | Yu Chen (Indiana University) |
| Keywords: | multi-agency, Bayesian implementation, mechanism design, menu design, del- egation principle |
| JEL: | C72 D82 D86 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2013-003&r=cta |
| By: | Fabrice Rousseau (Department of Economics, Finance and Accounting, National University of Ireland, Maynooth); Hervé Boco (Toulouse University, Toulouse Business School, France); Laurent Germain (Toulouse University, Toulouse Business School, France) |
| Abstract: | This paper analyzes a multi-auction setting in which informed strategic agents are endowed with heterogeneous noisy signals about the liquidation value of a risky asset. One result is that when the variance of the noise is small the competition between traders takes the form of a rat race during all the periods of trading. As we increase the level of the noise in the traders’ signals, a waiting game phase appears and the intensity of the rat race, observed only at the last auctions, decreases. In sharp contrast with the previous literature, when the variance of the noise is very large, we only observe a waiting game. |
| Keywords: | efficiency, asymmetric information, noise, liquidity, adverse selection, competition |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n258-15.pdf&r=cta |
| By: | Renato Gomes; Alessandro Pavan |
| Abstract: | We study centralized many-to-many matching in markets where agents have private information about (vertical) characteristics that determine match values. Our analysis reveals how matching patterns reflect cross-subsidization between sides. Agents are endogenously partitioned into consumers and inputs. At the optimum, the costs of procuring agents-inputs are compensated by the gains from agents-consumers. We show how such cross-subsidization can be achieved through matching rules that have a simple threshold structure and are assortative in the weak-order (set inclusion) sense. We then deliver testable predictions relating the optimal matching rules and price schedules to the distribution of the agents’ characteristics. The analysis has implications for the design of large matching intermediaries, such as advertising exchanges, business-to-business platforms, and online job-matching agencies. |
| Keywords: | vertical matching markets, many-to-many matching, asymmetric information, mechanism design, cross-subsidization JEL Classification: D82 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1578&r=cta |
| By: | Pönitzsch, Gert; Grunewald, Andreas; Hansen, Emanuel |
| Abstract: | This paper studies the effects of power-concentrating institutions on the quality of political selection, i.e., the voters' capacity to identify and empower competent politicians. In our model, candidates are privately informed about their abilities and are driven by office rents as well as welfare considerations. We show that variations in power concentration involve a trade-off. On the one hand, higher concentration of power enables the voters' preferred politician to enforce larger parts of his agenda. On the other hand, higher power concentration increases electoral stakes and thereby induces stronger policy distortions. We identify a negative relation between the optimal level of power concentration and the extent of office motivation. In particular, full concentration of power is desirable if and only if politicians are mostly welfare-oriented. The results of an empirical analysis are in line with this prediction. |
| JEL: | D72 D82 H11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100339&r=cta |
| By: | Rosar, Frank; Mueller, Florian |
| Abstract: | For a repeated procurement problem, we compare two stylized negotiating cultures which differ in how the buyer uses an entrant to exert pressure on the incumbent resembling U.S. style and Japanese style procurement. In each period, the suppliers are privately informed about their production cost, but only the incumbent can influence the buyer s procurement mechanism choice with a relationship specific investment. The relative performance of the cultures depends non monotonically on the importance of the investment relative to the value of selecting the lowest cost supplier. We use the model to explain stylized facts from the automotive industry. |
| JEL: | D44 D82 L62 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100599&r=cta |
| By: | Bruno Jullien; Alessandro Pavan |
| Abstract: | We study monopoly and duopoly pricing in a two-sided market with dispersed information about users’ preferences. First, we show how the dispersion of information introduces idiosyncratic uncertainty about participation rates and how the latter shapes the elasticity of the demands and thereby the equilibrium prices. We then study informative advertising campaigns affecting the agents’ ability to estimate their own as well as other agents’ valuations, and product design affecting the distribution of valuations on the two sides of the market. |
| Keywords: | two-sided markets, dispersed information, platform competition, global-games, informative advertising JEL Classification: D82 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:nwu:cmsems:1568r&r=cta |
| By: | Qi Zeng (University of Melbourne); Hae Won (Henny) Jung (University of Melbourne) |
| Abstract: | firm continuously. We obtain a closed-form solution that characterizes the firm's ownership structure, managerial contract and equity return. As a benchmark case, we consider the first-best case with observable managerial effort in which the equilibrium solution arises solely from optimal risk sharing incentives. Through both the analytical and numerical characterizations of the model, we find that (i) The presence of moral hazard leads to a larger equity stake in the firm held by the large shareholder; (ii) Both the expected stock return and stock return volatility are lower under moral hazard because of risk sharing effects of managerial incentives; (iii) The risk aversion parameters of the manager and investors have different effects on the equilibrium outcome; (iv) The interactions among pay-performance sensitivity, large shareholder ownership, and expected stock return/stock return volatility can be positive or negative. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:911&r=cta |
| By: | Mohrenweiser, Jens; Wydra-Sommaggio, Gaby; Zwick, Thomas |
| Abstract: | The possibility of adverse selection by training firms is common theoretical argument for company-sponsored investments in general skills. The paper derives a public and a private signal after apprenticeship training and shows that training firms are able to positively select graduates they keep. The public signal has a stronger impact on entry wages of employer changers than for stayers and private signals shows exactly the opposite pattern. |
| JEL: | J24 J31 M52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100525&r=cta |
| By: | ITO Koichiro; Mar REGUANT |
| Abstract: | We develop a theoretical framework to characterize strategic behavior in sequential markets under imperfect competition and limited arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In our setting, we show that full arbitrage is not necessarily welfare-enhancing in the presence of market power. It reduces consumer costs but decreases productive efficiency. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15015&r=cta |
| By: | Ramon Marimon (European University Institute); Gaetano Gaballo (Banque de France) |
| Abstract: | We analyze an economy where banks are uncertain about firms' investment opportunities and, as a result, credit tightness can result in excessive risk-taking. In the competitive credit market, banks announce credit contracts and firms apply to them, as in a directed search model. We show that high-risk Self-Confirming Equilibria, with misperceptions, coexist with a low-risk Rational Expectations Equilibrium, in this competitive search economy. Lowering the Central Bank policy rate may not be effective, while a credit-easing policy can be an effective experiment, breaking the high-risk (low-credit) Self-Confirming Equilibrium. We emphasize the differences with a model of Self-Fulfilling credit freezes and the social value of experimentation. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:1077&r=cta |
| By: | George J.Mailath (Department of Economics and PIER, University of Pennsylvania, and Research School of Economics, Australian National University); Volker Nocke (University of Mannheim, CESifo and CEPR); Lucy White (Harvard Business School and CEPR) |
| Abstract: | In repeated normal-form (simultaneous-move) games, simple penal codes (Abreu, 1986, 1988) permit an elegant characterization of the set of subgame-perfect outcomes. We show that the logic of simple penal codes fails in repeated extensive-form games. By means of examples, we identify two types of settings in which a subgame-perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator, but also to the nature of the deviation. |
| Keywords: | Simple Penal Code, Subgame Perfect Equilibrium, Repeated Extensive Game, Optimal Punishment. |
| JEL: | C70 C72 C73 |
| Date: | 2015–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:15-008&r=cta |
| By: | Armstrong, Mark |
| Abstract: | This paper surveys models of markets in which only some consumers are "savvy". I discuss when the presence of savvy consumers improves the deals available to all consumers in the market (the case of search externalities), and when the non-savvy fund generous deals for all consumers (ripoff externalities). I also discuss when the two groups of consumers have aligned or divergent views about market interventions. The analysis focusses on two kinds of models: (i) an indivisible product in a market with price dispersion, and (ii) products which involve add-on pricing. |
| Keywords: | Add-on pricing, bounded rationality, consumer protection, consumer search, externalities, price dispersion |
| JEL: | D11 D18 D4 D83 D86 L1 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:62012&r=cta |