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on Contract Theory and Applications |
| By: | Goldlücke, Susanne; Schmitz, Patrick W. |
| Abstract: | A pollution-generating firm (the principal) can offer a contract to an agent (say, a nearby town) who has the right to be free of pollution. Subsequently, the agent privately learns the disutility caused by pollution. Then a production level and a payment from the principal to the agent are implemented as contractually specified. We explore the implications of a non-negativity constraint on the payment. For low cost types there is underproduction, while for high cost types there is overproduction. Hence, there may be too much pollution compared to the first-best solution (which is in contrast to standard adverse selection models). |
| Keywords: | Coasean bargaining; externalities; hidden information; incentive contracting; limited liability |
| JEL: | D23 D62 D82 D86 H23 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11217&r=cta |
| By: | F. Barigozzi; P. Tedeschi |
| Abstract: | Both borrowers and lenders can be socially responsible (SR). Ethical banks commit to financing only ethical projects, which have social profitability but lower expected revenues than standard projects. Instead, no credible commitment exists for SR borrowers. The matching between SR borrowers and ethical banks reduces the frictions caused by moral hazard. However, when the type of the borrowers is not observable, then standard borrowers have incentives to invest in ethical projects pretending to be SR. We show that the separation of borrowers entails costs that are paid by SR entrepreneurs but are relatively low because standard lenders offer an outside option that relaxes the self-selection constraint of the borrowers. Technically, we solve a Contract Proposal Game where informed principals (borrowers) offer different menus of contracts to heterogeneous agents (banks). We show that market segmentation improves efficiency and solves the problem of multiplicity of equilibria in Contract Proposal Games. |
| JEL: | D86 G21 G30 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1051&r=cta |
| By: | Kerkkamp, R.B.O.; van den Heuvel, W.; Wagelmans, A.P.M. |
| Abstract: | We analyse a principal-agent contracting model with asymmetric information between a supplier and a retailer. Both the supplier and the retailer have the classical non-linear economic ordering cost functions consisting of ordering and holding costs. We assume that the retailer has the market power to enforce any order quantity. Furthermore, the retailer has private holding costs. The supplier wants to minimise his expected costs by offering a menu of contracts with side payments as an incentive mechanism. We consider a general number of discrete single-dimensional retailer types with type-dependent default options. A natural and common model formulation is non-convex, but we present an equivalent convex formulation. Hence, the contracting model can be solved efficiently for a general number of retailer types. We also derive structural properties of the optimal menu of contracts. In particular, we completely characterise the optimum for two retailer types and provide a minimal list of candidate contracts for three types. Finally, we prove a sufficient condition to guarantee unique contracts in the optimal solution for a general number of retailer types. |
| Keywords: | economic order quantity, mechanism design, asymmetric information, hidden convexity |
| Date: | 2016–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:80104&r=cta |
| By: | Takauchi, Kazuhiro |
| Abstract: | We show that under a fixed-price contract where an upstream firm first sets the input price and downstream firms subsequently invest in R&D, all firms can become worse off when considering two-way trade with firm-specific carriers. |
| Keywords: | Fixed-price contract; Firm-specific carriers; R&D; Two-way trade |
| JEL: | F12 L13 O31 R40 |
| Date: | 2016–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71413&r=cta |