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on Contract Theory and Applications |
| By: | Ghurumuruhan Ganesan |
| Abstract: | Price discrimination for maximizing expected profit is a well-studied concept in economics and there are various methods that achieve the maximum given the user type distribution and the budget constraints. In many applications, particularly with regards to engineering and computing, it is often the case than the user type distribution is unknown or not accurately known. In this paper, we therefore propose and study a mathematical framework for price discrimination with \emph{target} profits under the contract-theoretic model. We first consider service providers with a given user type profile and determine sufficient conditions for achieving a target profit. Our proof is constructive in that it also provides a method to compute the quality-price tag menu. Next we consider a dual scenario where the offered service qualities are predetermined and describe an iterative method to obtain nominal demand values that best match the qualities offered by the service provider while achieving a target profit-user satisfaction margin. We also illustrate our methods with design examples in both cases. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.00766&r=all |
| By: | Nicolas Quérou; Agnes Tomini; Christopher Costello |
| Abstract: | We analyze theoretically an institution called a “limited-tenure concession” for its ability to induce efficient public goods contribution and common-pool resource extraction. The basic idea is that by limiting the tenure over which an agent can enjoy the public good, but offering the possibility of renewal contingent on ample private provision of that good, efficient provision may be induced. We first show in a simple repeated game setting that limited-tenure concessions can incentivize socially-efficient provision of public goods. We then analyze the ability of this instrument to incentivize the first best provision for common-pool natural resources such as fish and water, thus accounting for spatial connectivity and natural growth dynamics of the resource. The duration of tenure and the dispersal of the resource play pivotal roles in whether this limited-duration concession induces the socially optimal private provision. Finally, in a setting with costly monitoring, we discuss the features of a concession contract that ensure first-best behavior, but at least cost to the implementing agency. |
| JEL: | H41 Q2 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28518&r=all |
| By: | Jesús Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms' output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| JEL: | C63 C68 E32 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28495&r=all |
| By: | Kurt R. Brekke (Norwegian School of Economics); Dag Morten Dalen (Norwegian Business School); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen) |
| Abstract: | Two-part pricing (the Netflix model) has recently been proposed instead of uniform pricing for pharmaceuticals. Under two-part pricing the health plan pays a fixed fee for access to a drug at unit prices equal to marginal costs. Despite two-part pricing being socially efficient, we show that the health plan is worse off when the drug producer is a monopolist, as all surplus is extracted. This result is reversed with competition, as two-part pricing yields higher patient utility and lower drug costs for the health plan. However, if we allow for exclusive contracts, uniform pricing is preferred by the health plan. |
| Keywords: | Pharmaceuticals; Health Plans; Payment schemes |
| JEL: | I11 I18 L13 L65 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:01/2021&r=all |