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on Contract Theory and Applications |
| By: | James Albrecht (Georgetown University); Xiaoming Cai (Peking University HSBC Business School); Pieter Gautier (Vrije Universiteit Amsterdam); Susan Vroman (Georgetown University) |
| Abstract: | This paper considers competitive search equilibrium in a market for a good whose quality differs across sellers. Each seller knows the quality of the good that he or she is offering for sale, but buyers cannot observe quality directly. We thus have a “market for lemons†with competitive search frictions. In contrast to Akerlof (1970), we prove the existence of a unique equilibrium, which is separating. Higher-quality sellers post higher prices, so price signals quality. The arrival rate of buyers is lower in submarkets with higher prices, but this is less costly for higher-quality sellers given their higher continuation values. For some parameter values, higher-quality sellers post the full-information price; for other values these sellers have to post a higher price to keep lower-quality sellers from mimicking them. In an extension, we show that if sellers compete with auctions, the reserve price can also act as a signal. |
| Keywords: | Competitive Search, Signaling |
| JEL: | C78 D82 D83 |
| Date: | 2024–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20240054 |
| By: | Albin Erlanson; Andreas Kleiner |
| Abstract: | A principal has $m$ identical objects to allocate among a group of $n$ agents. Objects are desirable and the principal's value of assigning an object to an agent is the agent's private information. The principal can verify up to $k$ agents, where $k |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.02031 |
| By: | Gan, Tan; Hu, Ju; Weng, Xi |
| Abstract: | This paper investigates a two-agent mechanism design problem without transfers, where the principal must decide one action for each agent. In our framework, agents only care about their own adaptation, and any deterministic dominant incentive compatible decision rule is equivalent to contingent delegation: the delegation set offered to one agent depends on the other's report. By contrast, the principal cares about both adaptation and coordination. We provide sufficient conditions under which contingent interval delegation is optimal and solve the optimal contingent interval delegation under fairly general conditions. Remarkably, the optimal interval delegation is completely determined by combining and modifying the solutions to a class of simple single-agent problems, where the other agent is assumed to report truthfully and choose his most preferred action. |
| Keywords: | adaptation; contingent delegation; coordination; dominant strategy mechanism design |
| JEL: | J1 |
| Date: | 2023–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:125399 |