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on Contract Theory and Applications |
| By: | Guillouet, Louise; Martimort, David |
| Abstract: | A decision-maker enjoys surplus from his current action but faces the possibility of an irreversible catastrophe, an event that follows a non-homogeneous Poisson process with a rate that depends on the stock of past actions. Passed a tipping point, the probability of a disaster increases. Only the distribution of possible values of the tipping point is known. For such a context that entails irreversibility, uncertainty and limited information, the Precautionary Principle, viewed as a constitutional commitment to an action plan, has repeatedly been invoked to guide decision-making. Although the optimal feedback rule should a priori determine actions in terms of both the stock of past actions and the current beliefs on whether the tipping point has been passed or not, an incomplete Stock-Markov feedback rule that only depends on stock suffices to implement the optimum. In such a Stock-Markov Equilibrium, the decision-maker conjectures that future selves stick to the same Stock-Markov feedback rule in the future, and observes deviations by previous selves if any. When deviations are non-observable and future selves have no evidence on how beliefs should change, equilibrium actions remain too low and beliefs are sticky. A commitment to ban actions below the equilibrium Stock-Markov feedback rule with observable deviations prevents such opportunistic deviations and restores the optimal trajectory. |
| Keywords: | Precautionary Principle; Regulation; Environmental Risk; Tipping Point; Uncertainty |
| JEL: | D83 Q55 |
| Date: | 2023–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127911&r=cta |
| By: | Marco Buso (Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP)); Cesare Dosi (Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP)); Michele Moretto (Department of Economics and Management, University of Padova and Interuniversity Centre for Public Economics (CRIEP)) |
| Abstract: | In a continuous-time setting, we study the design of a dynamic contract between a government and a private entity, wherein the latter commits to pay the government in return for the exclusive right to sell a service by operating a public facility. Private revenues are modelled as depending on the unobservable ability to seize market opportunities and on imperfectly correlated changes in consumers’ preferences. We show that optimal regulation requires an appropriate combination of fixed and variable payments to the government, acting together both as an information revelation mechanism and as a risk sharing device. |
| Keywords: | Public-private partnerships, Public franchises, Adverse selection, Dynamic contracts, Persistent demand shocks |
| JEL: | D81 D82 D86 H54 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2023.03&r=cta |
| By: | Daniil Larionov |
| Abstract: | I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller’s concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium (cPPE). For every strategy of the seller I define the corresponding “buyer-game†in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller’s strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find a collusive public perfect equilibrium that allows the seller to extract the entire surplus from the buyers in the limit as the discount factor goes to 1. I therefore show that a patient, non-committed seller can effectively fight collusion even when she can only set reserve prices and has to satisfy stringent public disclosure requirements. |
| Keywords: | Repeated Auctions, Auction Design, Collusion, Full Surplus Extraction |
| JEL: | D44 D47 C73 |
| Date: | 2023–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_392&r=cta |
| By: | Buso, Marco; Dosi, Cesare; Moretto, Michele |
| Abstract: | In a continuous-time setting, we study the design of a dynamic contract between a government and a private entity, wherein the latter commits to pay the government in return for the exclusive right to sell a service by operating a public facility. Private revenues are modelled as depending on the unobservable ability to seize market opportunities and on imperfectly correlated changes in consumers’ preferences. We show that optimal regulation requires an appropriate combination of fixed and variable payments to the government, acting together both as an information revelation mechanism and as a risk sharing device. |
| Keywords: | Demand and Price Analysis, Public Economics |
| Date: | 2023–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:330499&r=cta |