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on Contract Theory and Applications |
| By: | Bardey, David; De Donder, Philippe |
| Abstract: | Personalized medicine is still in its infancy, with costly genetic tests providing little actionable information in terms of efficient prevention decisions. As a consequence, few people undertake these tests currently, and health insurance contracts pool all agents irrespective of their genetic background. Cheaper and especially more informative tests will induce more people to undertake these tests and will impact not only the pricing but also the type of health insurance contracts. We develop a setting with endogenous prevention decisions and we study which contract type (pooling or separating) emerges at equilibrium as a function of the proportion of agents undertaking the genetic test as well as of the informativeness of this test. Starting from the current low take-up rate generating at equilibrium a pooling contract with no prevention effort, we obtain that an increase in the take-up rate has first an ambiguous impact on welfare, and then unambiguously decreases welfare as one moves from a pooling to a separating equilibrium. It is only once the take-up rate is large enough that the equilibrium is separating that any further increase in take-up rate increases aggregate welfare, by a composition effect. However, a better pooling contract in which policyholders undertake preventive actions (and lower their health risk) can also be attained if the informativeness of the genetic tests increases sufficiently. |
| Keywords: | discrimination risk; informational value of test; personalized medecine; pooling and separating equilibria. |
| JEL: | D82 I18 |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:123347&r=all |
| By: | Grajales Olarte, A. (Tilburg University, Center For Economic Research); Uras, Burak (Tilburg University, Center For Economic Research); Vellekoop, N. (Tilburg University, Center For Economic Research) |
| Abstract: | We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixed hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment. |
| Keywords: | wage rigidity; microdata; time dependency; state dependency; flexible-hour contracts |
| JEL: | E24 J31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:bcd5e8dc-2202-4370-9c7b-294cabb7c9ed&r=all |
| By: | Steven Jacob Bosworth (Department of Economics, University of Reading); Simon Bartke (M. M. Warburg & CO (AG & Co.) KGaA) |
| Abstract: | We study an experimental setting designed to measure non-strategic behavioural spillovers and elucidate their mechanisms. In our setup a principal can observe the individual efforts of two agents in one task but can only observe team effort in another. We vary the availability of piece rate, tournament, team piece rate, and fixed wage contracts for the individually observable task while holding fixed the use of a team pay contract for the task where only team output is observable. We find tournament incentives unexpectedly induce high voluntary effort in the unobservable task, but that this is exclusively driven by cross-task advantageous learning overriding its deleterious effects on pro-social motivation. We therefore see our study as integrating diverse findings into a coherent explanation: Competitive incentives crowd out pro-social motivation, team incentives promote pro-social motivation, but setting a high effort precedent may be more important when employees perceive tasks as related. |
| Keywords: | motivation, learning, multi-tasking, cooperation |
| JEL: | C92 D83 M52 |
| Date: | 2019–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2019-15&r=all |
| By: | Attar, Andrea; Mariotti, Thomas; Salanié, François |
| Abstract: | We study insurance markets in which privately informed consumers can purchase coverage from several firms whose pricing strategies are subject to an anti-dumping regulation. The resulting regulated game supports a single allocation in which each layer of coverage is fairly priced given the consumer types who purchase it. This competitive allocation cannot be Pareto-improved by a social planner who can neither observe consumer types nor monitor their trades with firms. Accordingly, we argue that public intervention under multiple contracting and adverse selection should penalize firms that cross-subsidize between contracts, while leaving consumers free to choose their preferred amount of coverage. |
| Keywords: | Insurance Markets, Regulation, Multiple Contracting, Adverse Selection. |
| JEL: | D43 D82 D86 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:123328&r=all |
| By: | Fugger, Nicolas; Gretschko, Vitali; Pollrich, Martin |
| Abstract: | We analyze the problem of a buyer who chooses a supplier for a long-term relationship via an auction. The buyer lacks commitment to not renegotiate the terms of the contract in the long run. Thus, suppliers are cautious about the information revealed during the auction. We show theoretically and experimentally that first-price auctions perform poorly in terms of efficiency and buyer surplus. Suppliers may pool on a high bid to conceal information. Second-price auctions retain their efficient equilibrium and generate substantial surplus for the buyer. We demonstrate that optimal mechanisms require concealing the winning bid with a strictly positive probability. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:19030&r=all |