nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2022‒01‒17
three papers chosen by
Guillem Roig
University of Melbourne

  1. Macroeconomic Dynamics with Rigid Wage Contracts By Tobias Broer; Karl Harmenberg; Per Krusell; Erik Öberg
  2. Local incentive compatibility in ordinal type-spaces By Kumar, Ujjwal; Roy, Souvik
  3. Signaling with Private Monitoring By Gonzalo Cisternas; Aaron Kolb

  1. By: Tobias Broer; Karl Harmenberg; Per Krusell; Erik Öberg
    Abstract: We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988), thus allowing significant responses of hours to wage changes.
    JEL: E2 E3 J2 J3
    Date: 2021–12
  2. By: Kumar, Ujjwal; Roy, Souvik
    Abstract: We explore the relation between different notions of local incentive compatibility (LIC) and incentive compatibility (IC) on ordinal type-spaces. In this context, we introduce the notion of ordinal local global equivalent (OLGE) and cardinal local global equivalent (CLGE) environments. First, we establish the equivalence between the two environments on strict ordinal type-spaces. Next, we consider ordinal type-spaces admitting indifference. We introduce the notion of almost everywhere IC and strong LIC, and provide a necessary and sufficient condition on ordinal type spaces for their equivalence. Finally, we provide results on how to (minimally) check the IC property of a given mechanism on any ordinal type-space and show that local types along with the boundary types form a minimal set of incentive constraints that imply full incentive compatibility.
    Keywords: point-wise local incentive compatibility, adjusted local incentive compatibility, uniform local incentive compatibility, (global) incentive compatibility, ordinal type-spaces
    JEL: D44 D47 D82
    Date: 2021–12–06
  3. By: Gonzalo Cisternas; Aaron Kolb
    Abstract: We study dynamic signaling when the informed party does not observe the signals generated by her actions. A forward-looking sender signals her type continuously over time to a myopic receiver who privately monitors her behavior; in turn, the receiver transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the sender's second-order belief. Because of the private monitoring, this state is an explicit function of the sender's past play, leading to a novel separation effect through the second-order belief channel. Applications to models of organizations and reputation are examined.
    Keywords: signaling; private monitoring; continuous time
    JEL: C73 D82 D83
    Date: 2021–12–01

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