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on Contract Theory and Applications |
| By: | Auster, Sarah; Gottardi, Piero |
| Abstract: | We study the competitive equilibria in a market with adverse selection and search frictions. Uninformed buyers post general direct mechanisms and informed sellers choose where to direct their search. We demonstrate that there exists a unique equilibrium allocation and characterize its properties: all buyers post the same mechanism and a low quality object is traded whenever such object is present in a meeting. Sellers are thus pooled at the search stage and screened at the mechanism stage. If adverse selection is sufficiently severe, this equilibrium is constrained inefficient. Furthermore, the properties of the equilibrium differ starkly from the case where meetings are restricted to be bilateral, in which case in equilibrium sellers sort across different mechanisms at the search stage. Compared to such sorting equilibria, our equilibrium yields a higher surplus for most, but not all, parameter specifications. |
| Keywords: | Adverse Selection, Trade Mechanisms, Competitive Search, Welfare |
| JEL: | D82 D83 G14 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2016/01&r=cta |
| By: | Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università Cattolica del Sacro Cuore di Milano and CSEF) |
| Abstract: | A principal contracts with an agent who is privately informed about his production cost. Before contracting, the agent learns his probability of having a low cost – his ex ante “type” – and decides whether to pay an entry fee. We show that the entry game has two equilibria that determine the possible types of the agent who contract with the principal. Contrasting with standard intuition, in the equilibrium that is “risk dominant” for the agent, an increase in the entry fee increases the mass of types who enter and the expected cost of the entrant. Public policies that increase entry barriers may be welfare improving. |
| Keywords: | Entry, Vertical Contracting, Asymmetric Information |
| JEL: | D43 D82 L13 L51 |
| Date: | 2016–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:426&r=cta |
| By: | Choy , James (Department of Economics, University of Warwick) |
| Abstract: | I construct a model of religion as an institution that provides community enforcement of contracts within families. Family altruism implies that family members cannot commit to reporting broken contracts to the community, so the community must monitor contract performance as well as inflicting punishment. The community has less information than family members, and so community monitoring is inefficient. I provide evidence from a study of Amish institutions, including qualitative evidence from sociological accounts and quantitative evidence from a novel dataset covering nearly the entire Amish population of Holmes county, Ohio. I find that 1) Amish households are not unitary, 2) the Amish community helps to support families by inflicting punishments on wayward family members, 3) without the community Amish people have difficulty committing to punishing family members, and 4) Amish community membership strengthens family ties, while otherwise similar religious communities in which there is less need for exchange between family members have rules that weaken family ties. My model has implications for understanding selection into religious practice and the persistence of culture. |
| Keywords: | Cultural Economics, Non-market Production, Public Goods, Religion |
| JEL: | D13 H4 Z10 Z12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1114&r=cta |