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on Contract Theory and Applications |
| By: | Jose Alcalde (IUDESP, University of Alicante); Matthias Dahm (School of Economics, University of Nottingham) |
| Abstract: | Reverse auctions are considered a fast and inexpensive price discovery tool to award procurement contracts and it is often desirable to award contracts to more than one supplier. We propose a new procurement procedure that is based on a reverse auction. Shares are allocated endogenously, depending on the suppliers’ bids. The procedure obtains dual sourcing by assigning positive shares to the two most competitive bids and uses discarded bids to endogeneize the reserve price. In equilibrium the two most competitive suppliers are awarded contracts. Surprisingly, when discarded suppliers are competitive enough, the procedure not only allows taking advantage of dual sourcing but also generates lower procurement expenditures than a standard auction for sole sourcing. We also show that providers reveal their costs truthfully and that the procurement procedure can be used in different scenarios concerning what providers know about each others’ costs, provided the assumption of private values holds. |
| Keywords: | Dual Sourcing, Procurement Auctions, Contests, Price Discovery |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2016-03&r=cta |
| By: | Mikhail Golosov; Aleh Tsyvinski; Nicolas Werquin |
| Abstract: | In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems — the theory of recursive contracts. Recursive formulations allow to reduce often complex models to a sequence of essentially static problems that are easier to analyze both analytically and computationally. We first provide a self-contained treatment of the basic theory: the Revelation Principle, formulating and simplifying the incentive constraints, using promised utilities as state variables, and analyzing models with persistent shocks using the first-order approach. We then discuss more advanced topics: duality theory and Lagrange multiplier techniques, models with lack of commitment, and martingale methods in continuous time. Finally, we show how a variety of applications in public economics, corporate finance, development and international economics featuring incomplete risk-sharing can be analyzed using the tools of the theory of recursive contracts. |
| JEL: | C61 E2 E61 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22012&r=cta |
| By: | Anastasios Dosis (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School, THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | I study a credit market with adverse selection as a signalling game. I show that in the least-costly separating equilibrium, entrepreneurs of high-quality projects may over-or under-invest compared to the social optimum to signal their type. I then examine a simple budget-balanced tax-subsidy scheme applied by the government. At a first sight, the tax-subsidy scheme seems to benefit entrepreneurs of low-quality projects and harm entrepreneurs of high-quality projects because the former are cross-subsidised by the latter. Nonetheless, this result does not necessarily hold if entrepreneurs can pledge the subsidy as collateral. In that case, taxes can improve social welfare by either decreasing or increasing aggregate investment depending on whether entrepreneurs of high-quality projects over-or under-invest in equilibrium. |
| Keywords: | Adverse selection,investment,taxes,welfare |
| Date: | 2016–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01285163&r=cta |
| By: | Anastasios Dosis (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School, THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | I provide a general definition of equilibrium in markets with adverse selection. An equilibrium is defined as a menu of contracts that makes non-negative aggregate profits such that there exists no other menu that includes it as a subset and makes strictly positive aggregate profits. I show that every efficient menu of contracts is also an equilibrium menu of contracts. Furthermore, I characterise a general sufficient condition under which every equilibrium menu of contracts is efficient, restoring that way the First Fundamental Theorem of Welfare Economics. I provide two possible interpretations for this new definition. |
| Keywords: | existence,efficiency,Adverse selection,equilibrium |
| Date: | 2016–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01285188&r=cta |
| By: | Dhillon, Amrita (Kings College and CAGE, University of Warwick); Krishnan, Pramila (University of Cambridge and CEPR); Patnam, Manasa (CREST-ENSAE); Perroni, Carlo (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 in icting punishment. The community has less information than family members, and so community monitoring is ine cient. 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 nd that 1) Amish households are not unitary, 2) the Amish community helps to support families by in icting punishments on wayward family members, 3) without the community Amish people have di culty 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: | Natural Resource Curse, Political Secession JEL Classification: |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:268&r=cta |