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on Contract Theory and Applications |
| By: | Kvaløy, Ola (University of Stavanger Business School); Olsen, Trond E. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We analyze optimal relational contracts for a group (team) of multitasking agents with hidden actions. Contracts are based on noisy signals that may be correlated across agents and between tasks. The optimal contract defines a performance measure in the form of an index (a scorecard) for each agent, and awards a bonus to the highest performing agent, provided his or her index exceeds a hurdle. An optimal index generally involves benchmarking against other agents, and this may, in combination with the hurdle requirement, introduce a cooperative element in the otherwise competitive incentive structure. For agents with separate tasks and normally distributed signals, we find that strong correlation (either positive or negative) across agents is beneficial, while larger correlation within each agent's tasks is detrimental for efficiency, and that this has implications for optimal organization of tasks. For agents with common tasks the optimal contract may have features of both tournament and team incentives. The tournament aspect incentivizes an agent to exert effort on his own task, while the hurdle necessary to receive a bonus also incentivizes an agent to help his peers. In our setting this hybrid scheme can only be optimal if signals from agents' tasks are negatively correlated. Otherwise pure team incentives are optimal. |
| Keywords: | Relational contracts; tournament incentives; team incentives |
| JEL: | D00 D20 D21 D80 D86 |
| Date: | 2023–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2023_010&r=cta |
| By: | Schmitz, Patrick W. |
| Abstract: | We revisit the contract-theoretic literature on privatization initiated by Hart et al. (1997). This literature has two major shortcomings. First, it is focused on ex-ante investment incentives, whereas ex-post inefficiencies which are ubiquitous in the real world cannot be explained. Second, ownership does not matter when incentive contracts can be written. Both shortcomings are due to the fact that this literature has studied the case of symmetric information only. We explore how asymmetric information leads to different kinds of ex-post inefficiencies depending on the ownership structure. Moreover, we show that under asymmetric information ownership matters even when incentive contracts are feasible. |
| Keywords: | incomplete contracts; privatization; control rights; asymmetric information; investment incentives |
| JEL: | D23 D82 D86 H11 L32 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117742&r=cta |
| By: | Bård Harstad; Kjetil Storesletten |
| Abstract: | This project analyzes how a principal can motivate an agent to conserve rather than exploit a depletable resource. This dynamic problem is relevant for tropical deforestation as well as for other environmental problems. It is shown that the smaller is the agent's discount factor (e.g., because of political instability), the more the principal benefits from debt-for-nature contracts compared to flow payments (in return for lower deforestation). The debt-for-nature contract combines a loan to the agent with repayments that are contingent on the forest cover. |
| Keywords: | environmental conservation, sovereign debt, sustainability-linked bonds, default, hyperbolic discounting, time inconsistency |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10533&r=cta |
| By: | Alex Gershkov (Department of Economics and the Federmann Center for the Study of Rationality, The Hebrew University of Jerusalem, and School of Economics, University of Surrey); Benny Moldovanu (Department of Economics, University of Bonn); Philipp Strack (Department of Economics, Yale University, New Haven); Mengxi Zhang (Departmentof Economics, University of Bonn) |
| Abstract: | We study a generalization of the classical monopoly insurance problem under adverse selection (see Stiglitz [1977]) where we allow for a random distribution of losses, possibly correlated with the agent’s risk parameter that is private information. Our model explains patterns of observed customer behavior and predicts insurance contracts most often observed in practice: these consist of menus of several deductible-premium pairs, or menus of insurance with coverage limits-premium pairs. A main departure from the classical insurance literature is obtained here by endowing the agents with risk-averse preferences that can be represented by a dual utility functional (Yaari [1987]). |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:242&r=cta |
| By: | Rosina Rodríguez Olivera |
| Abstract: | I consider a model in which a monopolist data-seller owners information to privately informed data-buyers who play a game of incomplete information. I characterize the data-seller's optimal menu, which screens between two types of data-buyers. Data-buyers' preferences for information cannot generally be ordered across types. I show that the nature of data-buyers' preferences for information allows the data-seller to extract all surplus. In particular, the data-seller owners a perfectly informative experiment to the data-buyer with highest willingness to pay and a partially informative experiment, which makes the data-buyer with the highest willingness to pay for perfect information indifferent between both experiments. I also show that the features of the optimal menu are determined by the interaction between data-buyers' strategic incentives and the correlation of their private information. Namely, the data-seller owners two informative experiments even when data-buyers would choose the same action without supplemental information if data-buyers: i) have coordination incentives and their private information is negatively correlated or ii) have anti-coordination incentives and their private information is positively correlated. |
| Keywords: | Screening, Information, Strategic incentives |
| JEL: | D80 D82 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_437&r=cta |
| By: | Rey, Patrick; Iossa, Elisabetta; Loertscher, Simon; Leslie M. Marx, |
| Abstract: | While antitrust authorities strive to detect, prosecute, and thereby deter collusive conduct, entities harmed by that conduct are also advised to pursue their own strategies to deter collusion. The implications of such delegation of deterrence have largely been ignored, however. In a procurement context, we find that buyers may prefer to accommodate rather than deter collusion among their suppliers. We also show that a multi-market buyer, such as a centralized procurement authority, may optimally deter collusion when multiple independent buyers would not, consistent with the view that “large” buyers are less susceptible to collusion. |
| Keywords: | Collusion; Cartel; Auction; Procurement; Reserves; Sustainability and initiation of collusion; Coordinated effects |
| JEL: | D44 D82 H57 L41 |
| Date: | 2023–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128130&r=cta |