nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2023‒07‒31
two papers chosen by
Guillem Roig
University of Melbourne

  1. The Power of Menus in Contract Design By Guru Guruganesh; Jon Schneider; Joshua Wang; Junyao Zhao
  2. Obvious Manipulations in Matching with and without Contracts By Pablo R. Arribillaga; Eliana Pepa Risma

  1. By: Guru Guruganesh; Jon Schneider; Joshua Wang; Junyao Zhao
    Abstract: We study the power of menus of contracts in principal-agent problems with adverse selection (agents can be one of several types) and moral hazard (we cannot observe agent actions directly). For principal-agent problems with $T$ types and $n$ actions, we show that the best menu of contracts can obtain a factor $\Omega(\max(n, \log T))$ more utility for the principal than the best individual contract, partially resolving an open question of Guruganesh et al. (2021). We then turn our attention to randomized menus of linear contracts, where we likewise show that randomized linear menus can be $\Omega(T)$ better than the best single linear contract. As a corollary, we show this implies an analogous gap between deterministic menus of (general) contracts and randomized menus of contracts (as introduced by Castiglioni et al. (2022)).
    Date: 2023–06
  2. By: Pablo R. Arribillaga (UNSL/CONICET); Eliana Pepa Risma (UNSL/CONICET)
    Abstract: In a many-to-one matching model, with or without contracts, where doctors’ preferences are private information and hospitals’ preferences are substitutable and public information, any stable matching rule could be manipulated for doctors. Since manipulations can not be completely avoided, we consider the concept of obvious manipulations and look for stable matching rules that prevent at least such manipulations (for doctors). For the model with contracts, we prove that: (i) the doctor-optimal matching rule is non-obviously manipulable and (ii) the hospital-optimal matching rule is obviously manipulable, even in the one-to-one model. In contrast to (ii), for a many-to-one model without contracts, we prove that the hospital-optimal matching rule is not obviously manipulable.Furthermore, if we focus on quantile stable rules, then we prove that the doctor-optimal matching rule is the only non-obviously manipulable quantile stable rule
    Keywords: obvious manipulations, matching, contracts
    JEL: D71 D72
    Date: 2023–07

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