|
on Contract Theory and Applications |
| By: | Yurong Chen; Zhaohua Chen; Xiaotie Deng; Zhiyi Huang |
| Abstract: | This paper considers the hidden-action model of the principal-agent problem, in which a principal incentivizes an agent to work on a project using a contract. We investigate whether contracts with bounded payments are learnable and approximately optimal. Our main results are two learning algorithms that can find a nearly optimal bounded contract using a polynomial number of queries, under two standard assumptions in the literature: a costlier action for the agent leads to a better outcome distribution for the principal, and the agent's cost/effort has diminishing returns. Our polynomial query complexity upper bound shows that standard assumptions are sufficient for achieving an exponential improvement upon the known lower bound for general instances. Unlike the existing algorithms, which relied on discretizing the contract space, our algorithms directly learn the underlying outcome distributions. As for the approximate optimality of bounded contracts, we find that they could be far from optimal in terms of multiplicative or additive approximation, but satisfy a notion of mixed approximation. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.14486&r=cta |
| By: | Vitezslav Titl |
| Abstract: | Approximately 23% of public procurement contracts in the European Union are awarded to the sole firm that submits a bid. The public procurement contracts market constitutes around one-seventh of GDP in developed countries, rendering any inefficiencies on this market a firstorder problem. In this paper, I exploit a unique reform implemented in the Czech Republic that made it impossible to award contracts with only one bid and. Using a difference-indifferences strategy on the dataset of all public procurement contracts, I first show that the reform reduced prices by 10% relative to the estimated costs for single-bid public procurement contracts. Second, I provide evidence that procuring authorities started to provide significantly longer descriptions of procurement contracts and extended the timeframe for firms to prepare their bids. Last, I show that the prices of procurement contracts supplied by politically connected and anonymously owned firms were not reduced after the reform. The main contribution of this paper lies in estimating the savings attributable to the ban on single-bidding in public procurement. |
| Keywords: | Single-bidding, Public procurement, Political connections, Corruption |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:2308&r=cta |
| By: | Fumarco, Luca; Longley, Neil; Palermo, Alberto; Rossi, Giambattista |
| Abstract: | We follow workers' performance along an unbalanced panel dataset over multiple years and study how performance varies at the end of fixed-term contracts, in a labour market where some people face a mobility restricting clause (i.e., a noncompete clause). Focusing on the labour market of the National Hockey League, we analyse players' performance data and contracts with a fixed effect estimator to address empirical limitations in previous studies. We find that, on average, NHL players' performance does not vary. However, our estimations detect substantially heterogeneous behaviours, depending on tenure, perceived expected performance, and mobility. Only younger players (i.e., restricted free-agents) with high expected mobility but low expected performance tend to behave strategically and perform better. Differently, older players (i.e., unrestricted free-agents) with high expected mobility tend to underperform, as the option of moving back to European tournaments is more appealing. |
| Keywords: | strategic behaviour, mobility, noncompete clauses |
| JEL: | D82 J24 J33 M52 Z22 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1401&r=cta |
| By: | Zongxia Liang; Xiaodong Luo |
| Abstract: | We study a reinsurance Stackelberg game in which both the insurer and the reinsurer adopt the mean-variance (abbr. MV) criterion in their decision-making and the reinsurance is irreversible. We apply a unified singular control framework where irreversible reinsurance contracts can be signed in both discrete and continuous times. The results theoretically illustrate that, rather than continuous-time contracts or a bunch of discrete-time contracts, a single once-for-all reinsurance contract is preferred. Moreover, the Stackelberg game turns out to be centering on the signing time of the single contract. The insurer signs the contract if the premium rate is lower than a time-dependent threshold and the reinsurer designs a premium that triggers the signing of the contract at his preferred time. Further, we find that reinsurance preference, discount and reversion have a decreasing dominance in the reinsurer's decision-making, which is not seen for the insurer. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.11580&r=cta |
| By: | Elisabetta Iossa; Simon Loertscher; Leslie M. Marx; Patrick Rey (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| 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: | Reserves, Sustainability and initiation of collusion, Coordinated effects |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04459042&r=cta |
| By: | Villeneuve, Stéphane; Biais, Bruno; Gersbach, Hans; Rochet, Jean-Charles; von Thadden, Ernst-Ludwig |
| Abstract: | We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial outside utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate money issuance and wealth taxation by the principal. |
| Date: | 2024–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129131&r=cta |
| By: | Serena Wang; Michael I. Jordan; Katrina Ligett; R. Preston McAfee |
| Abstract: | Rapid progress in scalable, commoditized tools for data collection and data processing has made it possible for firms and policymakers to employ ever more complex metrics as guides for decision-making. These developments have highlighted a prevailing challenge -- deciding *which* metrics to compute. In particular, a firm's ability to compute a wider range of existing metrics does not address the problem of *unknown unknowns*, which reflects informational limitations on the part of the firm. To guide the choice of metrics in the face of this informational problem, we turn to the evaluated agents themselves, who may have more information than a principal about how to measure outcomes effectively. We model this interaction as a simple agency game, where we ask: *When does an agent have an incentive to reveal the observability of a cost-correlated variable to the principal?* There are two effects: better information reduces the agent's information rents but also makes some projects go forward that otherwise would fail. We show that the agent prefers to reveal information that exposes a strong enough differentiation between high and low costs. Expanding the agent's action space to include the ability to *garble* their information, we show that the agent often prefers to garble over full revelation. Still, giving the agent the ability to garble can lead to higher total welfare. Our model has analogies with price discrimination, and we leverage some of these synergies to analyze total welfare. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2402.14005&r=cta |