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on Contract Theory and Applications |
| By: | Andrea Attar; Eloisa Campioni; Gwenaël Piaser |
| 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: | 2016–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2015-632&r=cta |
| By: | Rigas OIKONOMOU (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)) |
| Abstract: | I present a model of optimal contracts between firms and workers, under limited commitment and with worker savings. In the model, firms provide insurance against unemployment through targeting a frontloaded path of wages which encourages wealth accumulation. I provide analytical results characterising the wage and savings schedules and the path of consumption during employment and unemployment. I then consider how unemployment benefits affect risk sharing through private markets. I find that benefits should be frontloaded; the government has the incentive to drive the allocation to the point where the firm's participation constraint binds. At this point wages are equal to productivity in every period, wealth exceeds the buffer stock level, and consumption and savings drop over time. The drop in the level of consumption during unemployment is mitigated. Finally, I compare the optimal contract model to the standard heterogeneous agent model whereby wealth is utilized for self-insurance purposes. I show that the two models are equivalent under the optimal UI policy. |
| Keywords: | Unemployment Insurance, Incomplete Markets, Optimal Contracts, Limited Commitment, Household Self-Insurance |
| JEL: | D52 E21 H31 H53 J41 |
| Date: | 2016–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2016006&r=cta |
| By: | Daniel Danau (Université de Caen Basse-Normandie); Annalisa Vinella (Università degli Studi di Bari "Aldo Moro") |
| Abstract: | In sequential screening problems it is found that, under some regularity conditions, local incentive compatibility constraints are sufficient for implementability. However, this follows from the assumption that the possible distributions of the unknown variable satisfy either first-order stochastic dominance or mean-preserving spread. That assumption is matched with private information about either the expected value or the spread of the variable. In this paper we allow for private information about both parameters. In a setting with four possible cost distributions, two with equal expected values and different spreads and two with different expected values and equal spreads, we show that there can be multiple combinations of binding incentive constraints depending on the principal's preferences. The less concave / more convex that the marginal surplus is, the more that the binding incentive constraints are related to private information about one parameter of the distribution relative to the other. Yet, screening is always two-dimensional. Local incentive constraints are sufficient, as in the literature, only when the marginal surplus is sufficiently convex. We further suggest that, in the same vein as in Consumption theory, the contractual choice can be regarded as mirroring the preference of the decision-maker for a lottery that occasions a higher (certain) cost but grants the possibility of facing more efficient (random) outcomes. Resting on this interpretation, we assess that the benefit of screening the agent in two stages, rather than in the contracting stage only, is higher when the marginal surplus is less concave / more convex. |
| Keywords: | Sequential screening, multidimensional screening, expected cost, spread, marginal surplus, cost overruns |
| JEL: | D63 E24 O15 O40 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:series_wp_01-2016&r=cta |
| By: | Ojo, Marianne |
| Abstract: | This chapter is aimed at illustrating how the potential of E commerce as a tool for resource expansion, can be maximized where information gaps, asymmetries, and more specifically, implementation gaps are addressed and mitigated. Engaging stakeholders, as well as bright line rules - distinguished from principles, at relevant phases and stages of mediation process between agents and stakeholders, would not only serve to foster greater accountability, but also ensure that better enforcement mechanisms are in place. Hence chapter illustrates how the stakeholder theory can be considered to be consistent with value maximization. Whilst incomplete contracts provide benefits of flexibility, they have also been criticized for facilitating lack of clarity in respect of objectives, focus and accountability in the decision making process. Furthermore, through the engagement of stakeholders, as well as appropriate forms of regulation, the chapter will also, simultaneously, illustrate how a “properly constructed Balanced Scorecard” can comprehensively communicate enterprises' business strategies. |
| Keywords: | expectation gap; Balanced Scorecard; implementation gap; corporate governance; audits |
| JEL: | E3 G2 G3 G38 K2 M4 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:70175&r=cta |
| By: | Paolo Sestito (Bank of Italy); Eliana Viviano (Bank of Italy) |
| Abstract: | In 2015 Italy adopted two different policies aimed at reducing labour market dualism and fostering employment: a generous permanent hiring subsidy and new regulations lowering firing costs and making them less uncertain. Using microdata for Veneto and exploiting some differences in the design of the policies, we evaluate the impact of each measure. Both contributed to double the monthly rate of conversion of fixed-term jobs into permanent positions. Moreover, around 40 per cent of new total gross hires with permanent job contracts occurred because of the incentives, whereas 5 per cent can be attributed to the new firing regulations . The new firing rules also made firms less reluctant to offer permanent job positions to yet untested workers. The possibility of benefitting from the incentives in case of a conversion also boosted temporary hiring, as it allowed firms to test for the quality of a job match. |
| Keywords: | job creation, firing costs, hiring incentives, labour market reforms |
| JEL: | J6 J21 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_325_16&r=cta |
| By: | Jean-Olivier Hairault (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); François Langot (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Sébastien Ménard (TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Université du Maine); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications, THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | At the end of working life, as well as reducing unemployment benefits, the unemployment-insurance agency could apply pension tax instead of wage tax. First, the pension tax provides greater incentives as the value of re-employment is tax-free. Second, the short job duration before retirement implies that the budgetary return and search incentives associated with the pension tax are considerable. By way of contrast, younger workers have greater search intensity and their future pension taxes are more remote and therefore more heavily-discounted: for them the wage tax is more efficient than is the pension tax. Finally, even in the special case where search intensity is zero close to retirement, perfect risk-sharing across unemployment and retirement is welfare-improving thanks to the pension tax. |
| Keywords: | Unemployment insurance, Retirement, Recursive contracts, Moral Hazard |
| Date: | 2016–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-01292095&r=cta |