|
on Contract Theory and Applications |
| By: | Dumav, Martin; Khan, Urmee; Rigotti, Luca |
| Abstract: | In a moral hazard model with heterogeneous beliefs, we show that the efficient risksharing contract does not result in a constant wage and the optimal first-best contract may not be increasing in output. When actions are unobservable, heterogeneity in beliefs implies that the monotone likelihood ratio ranking does not ensure that the wage scheme in the optimal contract is non-decreasing in output. This is because differences in beliefs may affect the incentive provision in a non-monotone way. The standard monotonicity result with common beliefs extends to belief heterogeneity when the agent is more optimistic than the principal. Yet, in the reverse case, the optimal contract can be non-monotone. |
| Keywords: | Contracting; Heterogeneous Beliefs; Monotone Likelihood Ratio; Moral Hazard |
| JEL: | D82 D86 M52 |
| Date: | 2023–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:38519&r=cta |
| By: | Chrysovalantou Milliou |
| Abstract: | This paper explores why competing firms can choose to outsource to an external common supplier that does not have a cost advantage in input production. The supplier, through its contract offers, manages to generate asymmetry, to alter product market competition, and to extract profits from the competing .rms. Two-part tariffs and sequential contracting are both crucial for the emergence of outsourcing. The supplier purposefully avoids industry pro.t maximization to enlarge its profits share. Both consumer and total welfare benefit from the presence of an otherwise redundant supplier in the market. |
| Keywords: | outsourcing, strategic outsourcing, make-or-buy, two-part tariffs, common supplier, sequential contracting |
| JEL: | D43 L11 L22 L23 L24 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10645&r=cta |
| By: | Shota Ichihashi (Queen's University, Department of Economics, 94 University Avenue, Kingston, Canada); Alex Smolin (Toulouse School of Economics, University of Toulouse Capitole and CEPR, 1 Esp. de l'Universite, 31000 Toulouse, France) |
| Abstract: | We analyze a bilateral trade model in which the buyer's value for the product and the seller's costs are uncertain, the seller chooses the product price, and the product is recommended by an algorithm based on its value and price. We characterize an algorithm that maximizes the buyer's expected payoff and show that the optimal algorithm under-recommends the product at high prices and over-recommends at low prices. Higher algorithm precision increases the maximal equilibrium price and may increase prices across all of the seller's costs, whereas informing the seller about the buyer's value results in a mean-preserving spread of equilibrium prices and a mean-preserving contraction of the buyer's payoff. |
| Keywords: | data, algorithm, pricing, recommendation, mechanism design, information design |
| JEL: | D42 D82 D83 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:2302&r=cta |
| By: | Jacopo Gambato; Martin Peitz |
| Abstract: | We analyze consumers’ voluntary information disclosure in a platform setting. For given consumer participation, the platform and sellers tend to prefer limited disclosure of consumer valuations, in contrast to consumers. With endogenous consumer participation, seller and platform incentives may be misaligned, and sellers may be better off when consumers can disclose their valuations. A regulator acting in the best interest of consumers and/or sellers may want to intervene and force the platform to employ a disclosure technology that enables consumers to voluntarily disclose information from a richer message space. |
| Keywords: | Two-sided platform, platform governance, information disclosure, information design, privacy regulation, e-commerc |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_468&r=cta |