nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2023‒06‒19
five papers chosen by
Guillem Roig
University of Melbourne

  1. Online Learning in a Creator Economy By Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
  2. Doing It by the Book: Political Contestability and Public Contract Renegotiations By Beuve, Jean; Moszoro, Marian; Spiller, Pablo
  3. The Social Equilibrium of Relational Arrangements By Parikshit Ghosh; Debraj Ray
  4. Targeting in networks under costly agreements By Mohamed Belhaj; Frédéric Deroïan; Shahir Safi
  5. Lemonade from Lemons: Information Design and Adverse Selection By Navin Kartik; Weijie Zhong

  1. By: Banghua Zhu; Sai Praneeth Karimireddy; Jiantao Jiao; Michael I. Jordan
    Abstract: The creator economy has revolutionized the way individuals can profit through online platforms. In this paper, we initiate the study of online learning in the creator economy by modeling the creator economy as a three-party game between the users, platform, and content creators, with the platform interacting with the content creator under a principal-agent model through contracts to encourage better content. Additionally, the platform interacts with the users to recommend new content, receive an evaluation, and ultimately profit from the content, which can be modeled as a recommender system. Our study aims to explore how the platform can jointly optimize the contract and recommender system to maximize the utility in an online learning fashion. We primarily analyze and compare two families of contracts: return-based contracts and feature-based contracts. Return-based contracts pay the content creator a fraction of the reward the platform gains. In contrast, feature-based contracts pay the content creator based on the quality or features of the content, regardless of the reward the platform receives. We show that under smoothness assumptions, the joint optimization of return-based contracts and recommendation policy provides a regret $\Theta(T^{2/3})$. For the feature-based contract, we introduce a definition of intrinsic dimension $d$ to characterize the hardness of learning the contract and provide an upper bound on the regret $\mathcal{O}(T^{(d+1)/(d+2)})$. The upper bound is tight for the linear family.
    Date: 2023–05
  2. By: Beuve, Jean; Moszoro, Marian; Spiller, Pablo
    Abstract: We present a public procurement model in which contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation, while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to- private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments.
    Keywords: Procurement, Political Contestability, Contractual Rigidity, Renegotiations
    JEL: D23 D72 D73 D78 H57
    Date: 2023–03
  3. By: Parikshit Ghosh (Department of Economics, Delhi School of Economics); Debraj Ray (New York University and University of Warwick)
    Abstract: The enforcement of relational contracts is especially challenging in anonymous environments when there are opportunities to start new partnerships after a transgression. Building on Ghosh and Ray (1996), we study norms within bilateral partnerships that exhibit gradually increasing cooperation, thus serving to deter deviations. However, socially beneficial gradualism may be undermined by partners renegotiating to greater cooperation from the outset. We show that incomplete information regarding partner patience ameliorates this tension even as it adds to the anonymity of the environment. Specifically, gradualism is now bilaterally desirable, and has the social by-product of maintaining individual cooperation. We also study a one-sided version of this problem in which only one of the partners exhibits moral hazard, and offer tentative thoughts on generalizing the theory to environments with richer gradations of incomplete information. JEL Classification: C73, D85, D86. Key Words: relational contracts, social norms, gradualism, trust-building, dynamic games.
    Date: 2023–05
  4. By: Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Frédéric Deroïan (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Shahir Safi (Concordia University [Montreal])
    Abstract: We consider agents organized in an undirected network of local complementarities. A principal with a fixed budget offers costly bilateral contracts in order to increase the sum of agents' effort. We study contracts rewarding effort exceeding the effort made in the absence of the principal. First, targeting a subgroup of the whole society becomes optimal under substantial contracting costs, which significantly increases the computational complexity of the principal's problem. In particular, under sufficiently low intensity of complementarities, a correspondence is established between optimal targeting and an NP-hard problem. Second, for any intensities of complementarities, the optimal unit returns offered to all targeted agents are positive for all contracting costs and in general heterogeneous, even though networks are undirected. Yet, heterogeneity never leads to negative returns, which implies that, with these linear payment schemes, coordination is never an issue for the principal.
    Keywords: Networked synergies, Optimal targeting, Linear scheme
    Date: 2023–07
  5. By: Navin Kartik; Weijie Zhong
    Abstract: A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, other mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases -- in particular, when there is complete breakdown in a ``lemons market'' with an uninformed seller and fully-informed buyer.
    Date: 2023–05

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