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on Contract Theory and Applications |
| By: | Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen |
| Abstract: | This paper explores the consequences of information in sealed bid first price auctions. For a given symmetric and arbitrarily correlated prior distribution over valuations, we characterize the set of possible outcomes that can arise in a Bayesian equilibrium for some information structure. In particular, we characterize maximum and minimum revenue across all information structures when bidders may not know their own values, and maximum revenue when they do know their values. Revenue is maximized when buyers know who has the highest valuation, but the highest valuation buyer has partial information about others’ values. Revenue is minimized when buyers are uncertain about whether they will win or lose and incentive constraints are binding for all upward bid deviations. We provide further analytic results on possible welfare outcomes and report computational methods which work when we do not have analytic solutions. Many of our results generalize to asymmetric value distributions. We apply these results to study how entry fees and reserve prices impact the welfare bounds. |
| Keywords: | Bayes correlated equilibrium; common values; first price auctions; information structure; interdependent values; private values; revenue; welfare bounds |
| JEL: | C72 D44 D82 D83 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10792&r=all |
| By: | Bergemann, Dirk; Heumann, Tibor; Morris, Stephen |
| Abstract: | We analyze demand function competition with a finite number of agents and private information. We show that the nature of the private information determines the market power of the agents and thus price and volume of equilibrium trade. We provide a characterization of the set of all joint distributions over demands and payoff states that can arise in equilibrium under any information structure. In demand function competition, the agents condition their demand on the endogenous information contained in the price. We compare the set of feasible outcomes under demand function to the feasible outcomes under Cournot competition. We find that the first and second moments of the equilibrium distribution respond very differently to the private information of the agents under these two market structures. The first moment of the equilibrium demand, the average demand, is more sensitive to the nature of the private information in demand function competition, reflecting the strategic impact of private information. By contrast, the second moments are less sensitive to the private information, reflecting the common conditioning on the price among the agents. |
| Keywords: | Bayes correlated equilibrium; demand function competition; incomplete information; linear best responses; market power; moment restrictions; price impact; quadratic payoffs; supply function competition; volatility |
| JEL: | C72 C73 D43 D83 G12 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10791&r=all |
| By: | Gayle, George-Levi (Federal Reserve Bank of St. Louis); Li, Chen (Zicklin School of Business, Baruch College, CUNY); Miller, Robert A. (Tepper School of Business, Carnegie Mellon University) |
| Abstract: | This paper develops measures of the costs and benefits of governance regulations within a dynamic principal agent model of hidden information and moral hazard following the passage of the Sarbanes-Oxley Act (SOX). We estimate the effects of changes in CEO compensation for S&P 1500 firms and find SOX increased total compensation in the primary sector, increasing both its agency and administrative components. The net effect was mainly insignificant in the consumer and service sectors, with agency costs rising (falling) but administrative costs falling (rising) in larger (smaller) firms. |
| JEL: | C10 C12 C13 J30 J33 M50 M52 M55 |
| Date: | 2015–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-017&r=all |
| By: | Maija Halonen-Akatwijuka; Oliver Hart |
| Abstract: | Parties often regulate their relationships through ‘continuing’ contracts that are neither long-term nor short-term but usually roll over. We study the trade-off between long-term, short-term, and continuing contracts in a two period model where gains from trade exist in the first period, and may or may not exist in the second period. A long-term contract that mandates trade in both periods is disadvantageous since renegotiation is required if there are no gains from trade in the second period. A short-term contract is disadvantageous since a new contract must be negotiated if gains from trade exist in the second period. A continuing contract can be better. In a continuing contract there is no obligation to trade in the second period but if there are gains from trade the parties will bargain ‘fairly’ using the first period contract as a reference point. This can reduce the cost of negotiating the next contract. Continuing contracts are not a panacea, however, since fair bargaining may limit the use of outside options in the bargaining process and as a result parties will sometimes fail to trade when this is efficient. |
| Keywords: | Short-term, Long-term, Continuing Contracts, Fairness, Good Faith Bargaining. |
| JEL: | D23 D86 K12 |
| Date: | 2015–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:15/665&r=all |
| By: | Daron Acemoglu; Alexander Wolitzky |
| Abstract: | We introduce the possibility of direct punishment by specialized enforcers into a model of community enforcement. Specialized enforcers need to be given incentives to carry out costly punishments. Our main result shows that, when the specialized enforcement technology is sufficiently effective, cooperation is best sustained by a “single enforcer punishment equilibrium,” where any deviation by a regular agent is punished only once, and only by enforcers. In contrast, enforcers themselves are disciplined (at least in part) by community enforcement. The reason why there is no community enforcement following deviations by regular agent is that such actions, by reducing future cooperation, would decrease the amount of punishment that enforcers are willing to impose on deviators. Conversely, when the specialized enforcement technology is ineffective, optimal equilibria do punish deviations by regular agents with community enforcement. The model thus predicts that societies with more advanced enforcement technologies should rely on specialized enforcement, while less technologically advanced societies should rely on community enforcement. Our results hold both under perfect monitoring of actions and under various types of private monitoring. |
| JEL: | C73 D72 D74 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21457&r=all |