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on Contract Theory and Applications |
| By: | Gregorio Curello; Ludvig Sinander |
| Abstract: | We identify a new dynamic agency problem: that of incentivising the prompt disclosure of productive information. To study it, we introduce a general model in which a technological breakthrough occurs at an uncertain time and is privately observed by an agent, and a principal must incentivise disclosure via her control of a payoff-relevant physical allocation. We uncover a deadline structure of optimal mechanisms: they have a simple deadline form in an important special case, and a graduated deadline structure in general. We apply our results to the design of unemployment insurance schemes. |
| Keywords: | Incentive design, delegation, verifiable evidence |
| JEL: | D82 D86 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_562&r= |
| By: | Yann Delaprez; Morgane Guignard |
| Abstract: | This paper analyzes a merger of large manufacturers with divestiture in the French coffee market. In contrast to previous approaches used to study the effects of upstream divestitures on prices and welfare, we model the vertical market structure. First, our results show that the standard policy recommendation to require divestiture to small recipient firms may not hold when asymmetric bargaining power between firms is considered. Second, we show that previous models significantly overestimate costs. We estimate costs that are 41 percent lower, and find that divestiture can lead to marginal cost savings for the buyer of the divested brand. |
| Keywords: | Merger, remedies, divestiture, vertical markets, bargaining power |
| JEL: | D12 L11 L51 L40 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2088&r= |
| By: | Vives, Xavier; Vravosinos, Orestis |
| Abstract: | We examine the effects of overlapping ownership among existing firms deciding whether to enter a product market. We show that in most cases—and especially when overlapping ownership is already widespread, an increase in the extent of overlapping ownership will harm welfare by softening product market competition, reducing entry, thereby (in contrast to standard results) inducing insufficient entry, and magnifying the negative impact of an increase of entry costs on entry. Overlap-ping ownership can mostly be beneficial only under substantial increasing returns to scale, in which case industry consolidation (induced by overlapping ownership) leads to sizable cost efficiencies. |
| JEL: | D43 L11 L13 L21 L41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129418&r= |
| By: | Gregorio Curello |
| Abstract: | Agents exert hidden effort to produce randomly-sized innovations in a technology they share. Returns from using the technology grow as it develops, but so does the opportunity cost of effort, due to an ‘exploration-exploitation’ trade-off. As monitoring is imperfect, there exists a unique (strongly) symmetric equilibrium, and effort in any equilibrium ceases no later than in the single-agent problem. Small innovations may hurt all agents in the symmetric equilibrium, as they severely reduce effort. Allowing agents to discard innovations increases effort and payoffs, preserving uniqueness. Under natural conditions, payoffs rise above those of all equilibria with forced disclosure. |
| Keywords: | dynamic games, imperfect monitoring, public goods, private information |
| JEL: | C73 D82 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_566&r= |
| By: | Fabian Alex |
| Abstract: | Using the modelling framework of Stiglitz & Weiss (1981), we show that – perhaps surprisingly – there is no influence of projects’ riskiness on the capital market equilibrium. The savings interest rate fully determines the amount of credit rationing and the nature of an equilibrium (adverse selection, two-prices etc.). This rate is, in turn, fully determined by the relative probabilities of success of firms’ projects (and, thus, repayment of their debt). Hence, making capital markets overall “less risky†, which may for example be the case when financial markets become greener, does not alle- viate concerns of asymmetric information. The result holds both for cases of hidden information and for those of hidden actions. |
| Keywords: | Asymmetric Information, Financial Markets, Green Loans, Hidden Information, Hidden Action, Project Risk |
| JEL: | D82 G14 G21 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:235_fabian_alex&r= |