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on Contract Theory and Applications |
| By: | Attar, Andrea; Campioni, Eloisa; Piaser, Gwenaël |
| Abstract: | We study games in which several principals design incentive schemes in the presence of privately informed agents. Competition is exclusive: each agent can participate with at most one principal, and principal-agents corporations are isolated. We analyze the role of standard incentive compatible mechanisms in these contexts. First, we provide a clarifying example showing how incentive compatible mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling equilibria are robust against unilateral deviations toward arbitrary mechanisms. We then consider the single agent case and exhibit sufficient conditions for the validity of the revelation principle. |
| Keywords: | Competing Mechanisms, Exclusive Competition, Incomplete Information. |
| JEL: | D82 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29906&r=cta |
| By: | Venky Venkateswaran (New York University); Ariel Zetlin-Jones (Carnegie Mellon University); Ali Shourideh (University of Pennsylavnia); Benjamin Lester (Federal Reserve Bank of Philadelphia) |
| Abstract: | We develop a tractable framework for analyzing adverse selection economies with imperfect competition. Applications include markets for insurance, loans and financial assets. In our environment, uninformed buyers offer a general menu of screening contracts to trade with a privately informed seller. Imperfect competition is captured by allowing some sellers to trade with multiple buyers while others can only trade with one buyer (as in Burdett and Judd (1983)). Thus, the framework allows us to consider variations to the degree of competition in the market where one extreme is perfect competition a la Rothschild and Stiglitz (1976) while the other extreme is the standard non-linear pricing problem of a monopolist. We show that the unique symmetric mixed strategy equilibrium can be summarized by a probability distribution of indirect utilities offered by each buyer to each type of seller. Furthermore, we prove that the equilibrium exhibits a strict rank-preserving property, in that different types of sellers have an identical ranking of different menus offered in equilibrium. The equilibrium features menus that are all separating, all pooling or a mixture of both. When both types of menus are offered in equilibrium, those which offer higher utility to the seller are more likely to be separating. Ex-ante welfare is maximized when competition is imperfect. Finally, we study the effects of various policies - such as mandates, non-discrimination requirements and other restrictions on contracts - on welfare and the extent of competition. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:1379&r=cta |
| By: | Roland, Strausz |
| Abstract: | Crowdfunding provides the innovation that, before the investment, entrepreneurs contract with consumers. Under demand uncertainty, this improves a screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Focusing on the trade-off between value screening and moral hazard, the paper characterizes optimal mechanisms. Current crowdfunding schemes reflect their salient features. Efficiency is sustainable only if returns exceed investment costs by a margin reflecting the degree of moral hazard. Constrained efficient mechanisms exhibit underinvestment. Crowdfunding blurs the distinction between finance and marketing, but complements rather than substitutes traditional entrepreneurial financing. As a screening tool for valuable projects, crowdfunding unambiguously promotes social welfare. |
| Keywords: | Crowdfunding; finance; marketing; demand; uncertainty; moral hazard |
| Date: | 2015–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:527&r=cta |
| By: | Fabio Galeotti (University of Lyon); Maria Montero (University of Nottingham); Anders Poulsen (University of East Anglia) |
| Abstract: | We collect experimental data from unstructured bargaining situations where bargainers are free to communicate via written messages. We vary the set of feasible contracts, thereby allowing us to assess the focality of three properties of bargaining outcomes: equality, Pareto efficiency, and total earnings maximization. Our main findings are that subjects avoid an equal earnings contract if it is Pareto inefficient; a large proportion of bargaining pairs avoid equal and Pareto efficient contracts in favor of unequal and total earnings maximizing contracts, and this proportion increases when unequal contracts offer larger earnings to one of the players, even though this implies higher inequality. Finally, observed behavior violates the Independence of Irrelevant Alternatives axiom, a result we attribute to a 'compromise effect'. |
| Keywords: | bargaining, efficiency, equality, communication, experiment, independence of irrelevant alternatives |
| JEL: | C70 C72 C92 |
| Date: | 2015–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:15-18&r=cta |
| By: | Ricardo Serrano-Padial (University of Wisconsin - Madison); Lukasz Drozd (The Wharton School) |
| Abstract: | Financial markets crucially rely on the development of an infrastructure dedicated to the enforcement of contracts. Here we study the effects of limited enforcement capacity on financial contracting by proposing a new theory of costly state verification. In our model the principal contracts with a population of entrepreneurs, who borrow to finance risky projects under limited liability. To sustain incentives to repay debt, the principal must build enforcement capacity ex ante, which determines state verification efforts ex post. Our theory sheds new light on such phenomena as credit crunches and the link between enforcement infrastructure accumulation, economic growth and political economy frictions. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:1362&r=cta |
| By: | Stupnytska, Yuliia (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | In this paper, the search model is proposed, in which homogeneous firms are uncertain about the job seekers' number of friends, who can help them in the job search (social capital). All workers have the same productivity and differ only in the social capital. A firm offers a take-it-or-leave-it wage contract to a worker after checking the worker's profile and her public number of non-fictitious social contracts in the Social Network System in the Internet. This number serves as a noisy signal of the social capital for firms and cannot be influenced by the worker only for signalling purpose. The model generates a positive relationship between the number of contacts in the Social Network System and the wage offered by firms in the equilibrium. In addition, the presence of firm's uncertainty with respect to workers' possibilities to find jobs through social contacts increases overall social welfare. |
| Keywords: | social welfare, wage dispersion, wage contract, Linkedin, Facebook, Social Network System, uncertainty, social capital, asymmetric information |
| Date: | 2015–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:548&r=cta |