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on Contract Theory and Applications |
| By: | Chongwoo Choe (Monash University, Department of Economics); Shingo Ishiguro (Osaka University, Graduate School of Economics) |
| Abstract: | We study optimal organization design with one principal and two agents, who interact through long-term relational contracts. In centralization, the principal contracts with both agents. In hierarchy, the principal contracts with one agent, who is delegated authority to contract with the other agent. We derive necessary and sufficient conditions for each organizational structure to achieve the first best. Hierarchy outperforms centralization when players are sufficiently patient and business conditions are favorable enough to alleviate agents’ incentive problems. We apply our theory to evaluate the two contrasting models of supplier networks in the automotive industry in Japan and the US. |
| Keywords: | Relational Contracts, Centralization, Hierarchy, Supplier Networks |
| JEL: | D23 D82 D86 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2022-08&r= |
| By: | Jacob Coreno; Ivan Balbuzanov |
| Abstract: | This paper considers the problem of allocating bundles of heterogeneous and indivisible objects to agents, when monetary transfers are not allowed and agents reveal only ordinal preferences over objects, e.g., allocating players' contract rights to teams in professional sporting leagues. Preferences over objects are extended to incomplete preferences over bundles using pairwise dominance. We provide a simple characterization of the class of draft rules: they are the only allocation rules satisfying $\textit{efficiency}$, $\textit{respectfulness of the priority}$, $\textit{envy-freeness up to one object}$ and $\textit{resource-monotonicity}$. We also prove two impossibility theorems: (i) $\textit{non-wastefulness}$, $\textit{respectfulness of the priority}$ and $\textit{envy-freeness up to one object}$ are incompatible with $\textit{weak strategy-proofness}$; (ii) $\textit{efficiency}$ and $\textit{envy-freeness up to one object}$ are incompatible with $\textit{weak strategy-proofness}$. If agents may declare some objects unacceptable, then draft rules are characterized by $\textit{efficiency}$, $\textit{respectfulness of the priority}$, $\textit{envy-freeness up to one object}$, $\textit{resource-monotonicity}$ together with a mild invariance property called $\textit{truncation-invariance}$. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.08300&r= |
| By: | Rhodes, Andrew; Zhou, Jidong |
| Abstract: | We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of firm entry. We also study the asymmetric case where some firms can use consumer data to price discriminate while others cannot, and show it can be worse for consumers than when either all or no firms can personalize prices. |
| JEL: | D43 D82 L13 |
| Date: | 2022–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126889&r= |
| By: | Diego Carrasco-Novoa (School of Economics, University of Queensland, Brisbane, Australia); Allan Hernández-Chanto (School of Economics, University of Queensland, Brisbane, Australia) |
| Abstract: | We analyze security-bid auctions in which two risk-neutral sellers compete for riskaverse bidders. Sellers face a tradeoff in steepness because steeper securities extract more surplus but feature lower participation ex-ante. Nonetheless, steeper securities also provide higher insurance, making bidders more aggressive. We show that when bidders are homogeneously risk-averse, all equilibria are symmetric. Meanwhile, when they are heterogeneously risk-averse, there is always an equilibrium in which one seller chooses a steeper family to serve the more-risk-averse bidders, while the other chooses a flatter family to serve the less-risk-averse bidders. This result resembles a “Hotelling location” model in the steepness spectrum. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:655&r= |
| By: | Pintér, Gábor (Bank of England); Wang, Chaojun (The Wharton School); Zou, Junyuan (INSEAD) |
| Abstract: | Contrary to the prediction of the classic adverse selection theory, a more informed trader could receive better pricing relative to a less informed trader in over‑the‑counter financial markets. Dealers chase informed orders to better position their future quotes and avoid winner’s curse in subsequent trades. When dealers are perfectly competitive and risk averse, their incentive of information chasing dominates their fear of adverse selection. In a more general setting, information chasing can dominate adverse selection when dealers face differentially informed speculators, while adverse selection dominates when dealers face differentially informed trades from a given speculator. These two seemingly contrasting predictions are supported by empirical evidence from the UK government bond market. |
| Keywords: | Information chasing; adverse selection; over-the-counter; price efficiency |
| JEL: | D82 G14 G18 |
| Date: | 2022–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0971&r= |
| By: | Onur A. Koska; Frank Stähler |
| Abstract: | This paper discusses the role of secret versus public reserve prices when bidders’ valuations depend positively on the seller’s private signal. A public reserve price is announced before the auction starts, and a secret reserve price is disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payo˙-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a secret (public) reserve price design qualifies as an equilibrium if the distortion is large (small). |
| Keywords: | auctions, interdependent values, optimal reserve prices, rational signaling |
| JEL: | D44 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9581&r= |
| By: | Edith Elkind; Abheek Ghosh; Paul Goldberg |
| Abstract: | We study how to incentivize agents in a target group to produce a higher output in the context of incomplete information, by means of rank-order allocation contests. We describe a symmetric Bayes--Nash equilibrium for contests that have two types of rank-based prizes: prizes that are accessible only to the agents in the target group; prizes that are accessible to everyone. We also specialize this equilibrium characterization to two important sub-cases: (i) contests that do not discriminate while awarding the prizes, i.e., only have prizes that are accessible to everyone; (ii) contests that have prize quotas for the groups, and each group can compete only for prizes in their share. For these models, we also study the properties of the contest that maximizes the expected total output by the agents in the target group. |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2204.14051&r= |