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on Contract Theory and Applications |
| By: | Francesc Dilmé |
| Abstract: | This paper studies repeated trade with noisy information about previous transactions. A buyer has private information about his willingness to pay, which is either low or high, and buys goods from different sellers over time. Each seller observes a noisy history of signals about the buyer’s previous purchases and sets a price. We compare the cases where previous prices are observable to sellers with the case where they are not. We show that more signal precision is counterbalanced by two equilibrium mechanisms that slow learning and keep incentives in balance: (1) sellers offer discounted prices more often, and (2) the buyer rejects high prices with a higher probability. The effect of making prices observable depends on the signal precision: When the signal is imprecise, making prices public strengthens the discounting mechanism, improving efficiency and buyer welfare; when the signal is precise, making prices public activates the rejection mechanism, and efficiency and buyer welfare may decrease. Independently of the price observability, the buyer tends to benefit from a more precise signal about previous purchases. |
| Keywords: | Repeated Trade, Asymmetric Information, Internet Cookies |
| JEL: | C73 C78 D82 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_538&r=cta |
| By: | Sampson, Thomas |
| Abstract: | Global value chains create opportunities for North-South technology diffusion. This paper studies technology transfer in value chains when contracts are incomplete and input production technologies are imperfectly excludable. It introduces a new taxonomy of value chains based on whether the headquarters firm benefits from imitation of its supplier's technology. In inclusive value chains, where imitation is beneficial, the headquarters firm promotes technology diffusion. But in exclusive value chains headquarters seeks to limit supplier imitation. The paper analyzes how this distinction affects the returns to offshoring, the welfare effects of technical change and the social efficiency of knowledge sharing. |
| JEL: | G30 O10 |
| Date: | 2024–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:119640&r=cta |
| By: | Alkis Georgiadis-Harris; Maxi Guennewig; Yuliyan Mitkov |
| Abstract: | Since Diamond and Dybvig (1983), banks have been viewed as inherently fragile. We challenge this view in a general mechanism design framework, where we allow for flexibility in the design of banking mechanisms while maintaining limited commitment of the intermediary to future mechanisms. We őnd that the unique equilibrium outcome is efficient. Consequently, runs cannot occur in equilibrium. Our analysis points to the ultimate source of fragility: banks are fragile if they cannot collect and optimally respond to useful information during a run and not because they engage in maturity transformation. We link our banking mechanisms to recent technological advances surrounding ‘smart contracts, ’ which enrich the practical possibilities for banking arrangements. |
| Keywords: | Bank runs, financial fragility, mechanism design, limited commitment, smart contracts |
| JEL: | D82 G2 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_540&r=cta |
| By: | Cemil Selcuk |
| Abstract: | This note pursues two primary objectives. First, we analyze the outcomes of an all-pay auction within a store where buyers with and without financial constraints arrive at varying rates, and where buyer types are private information. Second, we investigate the selection of an auction format (comprising first-price, second-price, and all-pay formats) in a competitive search setting, where sellers try to attract customers. Our results indicate that if the budget constraint is not too restrictive, the all-pay rule emerges as the preferred selling format in the unique symmetric equilibrium. This is thanks to its ability to prompt buyers to submit lower bids, thereby generally avoiding budget constraints, while allowing the seller to collect all bids. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.08762&r=cta |