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on Contract Theory and Applications |
| By: | Ahmadzadeh, Amirreza; Waizmann, Stephan |
| Abstract: | This paper studies how to combine screening menus and inspection in mechanism design. A Principal procures a good from an Agent whose cost is his private information. The Principal has three instruments: screening menus —i.e., quantities and transfers — and (ex-ante) inspection. Inspection is costly but reveals the Agent’s cost. The combination of inspection and screening menus mitigates inefficiencies: the optimal mechanism procures an efficient quantity from all Agents whose cost of production is sufficiently low, regardless of whether inspection has taken place. However, quantity distortions still necessarily occur in optimal regulation; the quantity procured from Agents with higher production costs is inefficiently low. Both results are true regardless of the magnitude of inspection costs. In contrast to settings without inspection, incentive compatibility con-straints do not bind locally. This paper provides a method to address this challenge, characterizing which constraints bind. |
| Keywords: | Mechanism Design; Verification; Principal-Agent; Inspection, Procurement |
| JEL: | D82 D86 L51 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129335&r= |
| By: | Rochet, Jean-Charles; Carlier, Guillaume; Dupuis, Xavier; Thanassoulis, John |
| Abstract: | We provide an algorithm for solving multidimensional screening problems which are intractable analytically. The algorithm is a primal-dual algorithm which alternates between optimising the primal problem of the surplus extracted by the principal and the dual problem of the optimal assignment to deliver to the agents for a given surplus. We illustrate the algorithm by solving (i) the generic monopolist price discrimination problem and (ii) an optimal tax problem covering income and savings taxes when citizens differ in multiple dimensions. |
| Keywords: | Multidimensional screening; algorithm; numerical methods; price discrimination; optimal tax |
| JEL: | C02 H21 D42 |
| Date: | 2024–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129347&r= |
| By: | Klajdi Hoxha |
| Abstract: | How do consultants price expertise? This paper studies a problem of selling information products (expertise) to a buyer (client) who faces decision-making problem under uncertainty. The client is privately informed about the type of expertise she needs and her willingness to pay (WTP) for additional information. A monopolist seller (consultant) designs and sells information products as Blackwell experiments over the underlying states associated with each client-specific desired expertise. Because there is correlation across states, a client with high WTP may find it profitable to purchase information about a low type's state, whenever correlation is sufficiently high. I find that the consultant can extract full (socially efficient) surplus whenever such (marginal) gains do not exceed the (marginal) costs of buying cheaper, but noisier information. Otherwise, unlike typical results in mechanism design, I find that buyers with low and sufficiently high value for information get no information rents, and only the "middle" types enjoy positive surplus. Common pricing structures observed in practice, like flat/hourly rates or value-based fees, are obtained as optimal contracts if correlation across states is sufficiently high or low, respectively. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.11142&r= |