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on Contract Theory and Applications |
| By: | Alena Podaneva (DEM, Université du Luxembourg); Pierre Picard (DEM, Université du Luxembourg) |
| Abstract: | This paper studies the institutional organization of UK hospitals through traditional procurement and private finance initiatives (PFIs). It first describes the UK hospital sector with hard facility management (FM) services (e.g. building maintenance) and soft FM services (e.g. catering, cleaning) that can be supplied in-house or outsourced. Builders are also bound to provide a partial warranty against construction risk. The paper then shows that a PFI internalizes the externality between builders and hard FM service suppliers. It also requires the payment of a risk premium that can become too high under strong hard FM risk. The builder’s warranty creates a reverse moral hazard in traditional procurement, which becomes stronger for higher hard FM risk. Traditional procurement provides no incentive to outsource FM services, whereas a PFI offers incentives for soft FM services. PFI procurement is shown to be optimal under small and high enough hard FM risk. |
| Keywords: | Private finance initiatives, foundation trusts, hospitals, facility management services outsourcing, moral hazard, incomplete contracts, bundling. |
| JEL: | D86 I11 I18 L32 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:23-15&r=cta |
| By: | Deniz Kattwinkel; Axel Niemeyer; Justus Preusser; Alexander Winter |
| Abstract: | A principal must decide between two options. Which one she prefers depends on the private information of two agents. One agent always prefers the first option; the other always prefers the second. Transfers are infeasible. One application of this setting is the efficient division of a fixed budget between two competing departments. We first characterize all implementable mechanisms under arbitrary correlation. Second, we study when there exists a mechanism that yields the principal a higher payoff than she could receive by choosing the ex-ante optimal decision without consulting the agents. In the budget example, such a profitable mechanism exists if and only if the information of one department is also relevant for the expected returns of the other department. We generalize this insight to derive necessary and sufficient conditions for the existence of a profitable mechanism in the n-agent allocation problem with independent types. |
| Keywords: | Mechanism design without transfers, correlation, zero-sum games |
| JEL: | D82 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_485&r=cta |
| By: | Francesc Dilmé |
| Abstract: | In this paper we analyze a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates for the buyer and seller. We fully characterize the equilibrium behavior, which permits us to study how the agents’ discount rates (i.e., patience levels) shape the bargaining outcome. We find that the seller’s commitment problem persists even when she is fully patient, and that higher seller impatience may lead to higher equilibrium prices. Higher buyer impatience, on the other hand, incentivizes the buyer to trade earlier, which accelerates price decline since the seller’s commitment problem is more severe at earlier times. Under appropriate conditions, we conclude that the buyer is better off when he is more impatient, independently of his private valuation; hence, higher bargaining costs may give negotiators with private information greater bargaining power. |
| Keywords: | Bargaining with private information, different discount factors |
| JEL: | C78 D82 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_479&r=cta |
| By: | Justus Preusser; Andre Speit |
| Abstract: | We consider the sale of a single indivisible common-value good in a dynamic market where short-lived buyers arrive over time. Buyers observe private signals about the value. The seller is initially uninformed and proposes the terms of trade. As time passes, all players learn about the value from delay in trade. Importantly, this learning process depends on what is made public about buyer-seller interactions. We compare the division of surplus across three transparency regimes that differ with respect to whether buyers observe the seller’s past actions or time-on-the-market. When the seller’s time-on-the market but not the seller’s past actions are observable, and if buyers’ signals are sufficiently rich, then there is no perfect Bayesian equilibrium where the seller extracts the full surplus. In the other two regimes, where buyers observe either everything or nothing about the seller’s past actions and time-on-the-market, the seller extracts the full surplus in at least one equilibrium, no matter the signal structure. |
| Keywords: | Common-value, dynamic trade, transparency, learning, division of surplus |
| JEL: | D83 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_487&r=cta |
| By: | Francesc Dilmé (University of Bonn) |
| Abstract: | In this paper we analyze a continuous-time Coase setting with finite horizon, interdependent values, and different discount rates for the buyer and seller. We fully characterize the equilibrium behavior, which permits us to study how the agents’ discount rates (i.e., patience levels) shape the bargaining outcome. We find that the seller’s commitment problem persists even when she is fully patient, and that higher seller impatience may lead to higher equilibrium prices. Higher buyer impatience, on the other hand, incentivizes the buyer to trade earlier, which accelerates price decline since the seller’s commitment problem is more severe at earlier times. Under appropriate conditions, we conclude that the buyer is better off when he is more impatient, independently of his private valuation; hence, higher bargaining costs may give negotiators with private information greater bargaining power. |
| Keywords: | Bargaining with private information, different discount factors |
| JEL: | C78 D82 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:267&r=cta |
| By: | Sebastian Schweighofer-Kodritsch; Roland Strausz |
| Abstract: | We cast mechanism design with evidence in the framework of Myerson (1982), whereby his generalized revelation principle directly applies and yields standard notions of incentive compatible direct mechanisms. Their specific nature depends on whether the agent's (verifiable) presentation of evidence is contractually controllable, however. For deterministic implementation, we show that, in general, such control has value, and we offer two independent conditions under which this value vanishes, one on evidence (WET) and another on preferences (TIWO). Allowing for fully stochastic mechanisms, we also show how randomization generally has value and clarify to what extent this value vanishes under the common assumption of evidentiary normality (NOR). While, in general, the value of control extends to stochastic implementation, neither control nor randomization have any value if NOR holds together with WET or TIWO. |
| Keywords: | Mechanism Design, Revelation Principle, Evidence, Verifiable Information, Value of Control, Value of Randomization |
| JEL: | D82 |
| Date: | 2023–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:bdp:dpaper:0030&r=cta |