nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2020‒03‒30
six papers chosen by
Guillem Roig
University of Melbourne

  1. Application Period in Reverse Auctions By Sümeyra Atmaca
  2. Superstars in two-sided markets: exclusives or not? By Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
  3. Long-Term Health Insurance: Theory Meets Evidence By Juan Pablo Atal; Hanming Fang; Martin Karlsson; Nicolas R. Ziebarth
  4. Knowledge acquisition or incentive to foster coordination ? A real-effort weak-link experiment with craftsmen. By Mathieu Lefebvre; Lucie Martin-Bonnel de Longchamp
  5. Menu Mechanisms By Andrew MACKENZIE; Yu ZHOU
  6. Targeting Customers under Response-Dependent Costs By Johannes Haupt; Stefan Lessmann

  1. By: Sümeyra Atmaca (-)
    Abstract: The duration to apply for participation in auctions affects entry costs and eventually the allocation and prices of contracts. The role of the application period is studied using Russian public procurement data on gasoline in 2011-2013. By relying on formal rules on the determination of the application period, I find that longer periods enhance competition and lead to price reductions. Moreover, I show that public buyers avoid long application periods. They shorten the period if they need gasoline immediately but I further argue that it facilitates favoritism. Finally, evidence is provided of collusion sustaining favoritism
    Keywords: public procurement, auction design, corruption, regulation
    JEL: H57 K42
    Date: 2020–03
  2. By: Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
    Abstract: This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar’s exclusive deal. This mechanism is self-reinforcing as more firms follow consumer decisions and some singlehome on the favored platform. Our model shows that the presence of indirect network externalities may overturn the common conclusion in the one-sided literature that exclusivity could be deemed as anti-competitive. Exclusivity can be welfare-enhancing and a vertical merger (platform-Superstar) may make non-exclusivity more likely than if the Superstar was independent.
    Keywords: exclusive contracts; platforms; two-sided markets; marquee player
    JEL: L13 L22 L86 K21
    Date: 2020–03
  3. By: Juan Pablo Atal (University of Pennsylvania); Hanming Fang (University of Pennsylvania); Martin Karlsson (University of Duisburg-Essen); Nicolas R. Ziebarth (Cornell University)
    Abstract: To insure policyholders against contemporaneous health expenditure shocks and future reclassi-fication risk, long-term health insurance constitutes an alternative to community-rated short-term contracts with an individual mandate. Relying on unique claims panel data from a large private insurer in Germany, we study a real-world long-term health insurance application with a life-cycle perspective. We show that German long-term health insurance (GLTHI) achieves substantial wel-fare gains compared to a series of risk-rated short-term contracts. Although, by its simple design, the premium setting of GLTHI contract departs significantly from the optimal dynamic contract, surprisingly we only find modest welfare differences between the two. Finally, we conduct coun-terfactual policy experiments to illustrate the welfare consequences of integrating GLTHI into a system with a “Medicare-like” public insurance that covers people above 65.
    Keywords: Long-Term Health Insurance; Individual Private Health Insurance; Health Care Re-form
    JEL: G22 I11 I18
    Date: 2020–03–12
  4. By: Mathieu Lefebvre; Lucie Martin-Bonnel de Longchamp
    Abstract: This paper presents a lab-in-the-field experiment with craftsmen working on renovation projects to assess the effect of training programs and incentive scheme on coordination and cooperation. Workers frequently fail to cooperate and coordinate their tasks when not supervised by a project coordinator. This is particularly important in the construction sector where it leads to a lack of final performance in buildings. We introduce two different incentives: a first contract paying craftsmen only according to their individual performance, and a second contract paying a group of three craftsmen with a weak-link payment according to the group’s worst performance. In addition, we test these incentives on two different subject groups: one is composed of craftsmen trained to coordinate their tasks, and the others are not. The results suggest that trained subjects coordinate at significantly higher effort levels than non-trained subjects when facing an individual-based incentive. However, when facing a group-based incentive, non-trained subjects seem to "catch up" trained subjects in terms of coordination level, while these latter subjects do not significantly increase their performance level.
    Keywords: Coordination, Real-effort weak-link experiment, Semi-Field Experiment, Individual Incentive, Group Incentive.
    JEL: C01 C91 C92 C93
    Date: 2020
  5. By: Andrew MACKENZIE; Yu ZHOU
    Abstract: We investigate menu mechanisms: dynamic mechanisms where at each history, an agent selects from a menu of his possible assignments. In comparison to direct mechanisms, menu mechanisms offer better privacy to participants; we formalize this with a novel notion of mechanism informativeness. We consider both ex-post implementation and full implementation, for both subgame perfection and a strengthening of dominance that covers off-path histories, and provide conditions under which menu mechanisms provide these implementations of rules. Our results cover a variety of environments, including elections, marriage, college admissions, auctions, labor markets, matching with contracts, and object allocation.
    Keywords: menu mechanism, privacy, strategy-proofness, robust implementation
    JEL: D82 D47 C78
    Date: 2020–03
  6. By: Johannes Haupt; Stefan Lessmann
    Abstract: This study provides a formal analysis of the customer targeting decision problem in settings where the cost for marketing action is stochastic and proposes a framework to efficiently estimate the decision variables for campaign profit optimization. Targeting a customer is profitable if the positive impact of the marketing treatment on the customer and the associated profit to the company is higher than the cost of the treatment. While there is a growing literature on developing causal or uplift models to identify the customers who are impacted most strongly by the marketing action, no research has investigated optimal targeting when the costs of the action are uncertain at the time of the targeting decision. Because marketing incentives are routinely conditioned on a positive response by the customer, e.g. a purchase or contract renewal, stochastic costs are ubiquitous in direct marketing and customer retention campaigns. This study makes two contributions to the literature, which are evaluated on a coupon targeting campaign in an e-commerce setting. First, the authors formally analyze the targeting decision problem under response-dependent costs. Profit-optimal targeting requires an estimate of the treatment effect on the customer and an estimate of the customer response probability under treatment. The empirical results demonstrate that the consideration of treatment cost substantially increases campaign profit when used for customer targeting in combination with the estimation of the average or customer-level treatment effect. Second, the authors propose a framework to jointly estimate the treatment effect and the response probability combining methods for causal inference with a hurdle mixture model. The proposed causal hurdle model achieves competitive campaign profit while streamlining model building. The code for the empirical analysis is available on Github.
    Date: 2020–03

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