|
on Contract Theory and Applications |
| By: | Phoebe Tian |
| Abstract: | This paper examines inefficiencies arising from a lack of long-term contracting in small business lending in China. I develop and estimate a dynamic model where firms repeatedly interact with the same lender. All loans are short-term. Collateral can be used to deter a strategic default by a firm, but the lender cannot recover the full value of the collateral in the case of a default. The endogenous contract terms—including interest rates, loan size and collateral—reflect a firm’s probability of default in equilibrium. Learning drives the dynamics of contract terms because a firm’s profitability type is unknown. Long-term contracts improve welfare mainly by mitigating the incentives for a firm to default. |
| Keywords: | Financial institutions |
| JEL: | D83 D86 G21 L14 L26 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:24-2&r=cta |
| By: | Daniel Krähmer (Universität Bonn) |
| Abstract: | The paper studies the canonical hold-up problem with one-sided investment by the buyer and full ex post bargaining power by the seller. The buyer can covertly choose any distribution of valuations at a cost and privately observes her valuation. The main result shows that in contrast to the well-understood case with linear costs, if investment costs are strictly convex in the buyer’s valuation distribution, the buyer’s equilibrium utility is strictly positive and to tal welfare is strictly higher than in the benchmark when valuations are public information, thus alleviating the hold-up problem. In fact, when costs are mean-based or display decreasing risk, the hold-up problem may disappear completely. Moreover, the buyer’s equilibrium utility and total welfare might be non-monotone in costs. The paper utilizes an equilibrium characterization in terms of the Gateaux derivative of the cost function. |
| Keywords: | Information Design, Hold-Up Problem, Unobservable Information |
| JEL: | C61 D42 D82 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:278&r=cta |
| By: | Martimort, David; Pouyet, Jérôme |
| Abstract: | Pay-TV firms compete both downstream to attract viewers and upstream to acquire broadcasting rights. Because profits inherited from downstream competition satisfy a convexity property, allocating rights to the dominant firm maximizes the industry profit. Such an exclusive allocation of rights emerges as a robust equilibrium outcome but may fail to maximize welfare. We analyze whether a ban on resale and a ban on package bidding may improve welfare. These corrective policies have no impact on the final allocation but lead to profit redistribution along the value chain. |
| Keywords: | Broadcasting rights; Upstream and downstream competition; Exclusivity |
| JEL: | L13 L42 |
| Date: | 2024–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129026&r=cta |
| By: | Yi-Hsuan Lin; Fernando Payró Chew |
| Abstract: | This paper models an agent that ranks actions with uncertain payoffs after observing a signal that could have been generated by multiple objective information structures. Under the assumption that the agent’s preferences conform to the multiple priors model (Gilboa and Schmeidler (1989)), we show that a simple behavioral axiom characterizes a generalization of Bayesian Updating. Our axiom requires that whenever all possible sources of information agree that it is more ’likely’ for an action with uncertain payoffs to be better than one with certain payoffs, the agent prefers the former. We also provide axiomatizations for several special cases. Finally, we consider the situation where the informational content of a signal is purely subjective. We characterize the existence of a subjective set of information structures under full Bayesian updating for two extreme cases: (i) No ex-ante state ambiguity, and (ii) No signal ambiguity. |
| Keywords: | updating, ambiguity, imprecise information, MaxMin |
| JEL: | D11 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1424&r=cta |