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on Contract Theory and Applications |
| By: | Jeitschko, Thomas D.; Withers, John A. |
| Abstract: | Regulators and the firms they regulate interact repeatedly. Over the course of these interactions, the regulator collects data that contains information about the firm's idiosyncratic private characteristics. This paper studies the case in which the regulator uses information gleaned from past cost observations when designing the current period's contract. Cost observations are obscured in stochastic settings and so perfect inferences about underlying private information are not possible. However, the design of the regulatory contract affects how much information is gleaned. When learning more about the firm's type, the regulator increases expected second period welfare by reducing distortions tied to asymmetric information. In contrast, by learning less about the firm's type, the regulator reduces incentive payments in first period. The trade-off between the desire to be more informed and to reduce incentive payments leads to a contracting dynamic that aligns with anecdotal, experimental and empirical evidence of the ratchet effect. |
| Keywords: | Dynamic Contracts,Dynamic Agency,Ratchet Effect,Experimentation,Signal Dampening,Regulation |
| JEL: | D8 C73 L5 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:318&r=all |
| By: | Sand-Zantman, Wilfried; Dosis, Anastasios |
| Abstract: | We study the effects of property rights over the use of data on market outcomes. For this, we consider a model in which a monopolistic firm offers a service to a set of heterogeneous users. Usage generates valuable data but data extraction entails a privacy cost to users. We show that both the firm and users prefer the users (the firm) to own the rights for low (high) values of data. We further discuss the robustness of our results by allowing more contracting possibilities to the data owner. We show that the main trade-off between the two ownership regimes is robust to these extensions. |
| Keywords: | Ownership; Data; Imperfect Competition; Privacy |
| JEL: | D82 D83 D86 L12 L19 L49 |
| Date: | 2019–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:123180&r=all |
| By: | R. Matthew Darst; Ehraz Refayet |
| Abstract: | We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact of pecuniary externalities and change equilibrium distortions. Implications for empirical design in credit market studies and financial stability are discussed. |
| Keywords: | Asymmetric Information ; Cost Of Capital ; Credit Default Swaps ; Investment ; Pecuniary Externality ; Signalling |
| JEL: | D82 E44 G32 D52 D53 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-44&r=all |