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on Contract Theory and Applications |
| By: | Marc Claveria-Mayol; Pau Milán; Nicolás Oviedo Dávila |
| Abstract: | We study the problem of a principal designing wage contracts that simultaneously incentivize and insure workers. Workers’ incentives are connected through chains of productivity spillovers, represented by a network of peer-effects. We solve for the optimal linear contract for any network and show that optimal incentives are steeper for more central workers. We link firm profits to organizations’ structure via the spectral properties of the co-worker network. When production is modular, the incentive allocation rule is sensitive to the link structure across and within modules. When firms can’t write personalized con- tracts, better connected workers extract rents and total surplus is reduced. In this case, unemployment emerges endogenously because large within-group differences in centrality can decrease firm’s profits. |
| Keywords: | Incentives, Organizations, contracts, Networks, moral hazard |
| JEL: | D21 D23 D85 D86 L14 L22 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1457 |
| By: | John Armstrong; Cristin Buescu; James Dalby |
| Abstract: | We study the optimal investment problem for a homogeneous collective of $n$ individuals investing in a Black-Scholes model subject to longevity risk with Epstein--Zin preferences. %and with preferences given by power utility. We compute analytic formulae for the optimal investment strategy, consumption is in discrete-time and there is no systematic longevity risk. We develop a stylised model of systematic longevity risk in continuous time which allows us to also obtain an analytic solution to the optimal investment problem in this case. We numerically solve the same problem using a continuous-time version of the Cairns--Blake--Dowd model. We apply our results to estimate the potential benefits of pooling longevity risk over purchasing an insurance product such as an annuity, and to estimate the benefits of optimal longevity risk pooling in a small heterogeneous fund. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.15325 |
| By: | Marco Battaglini; Thomas R. Palfrey |
| Abstract: | We study the volunteer’s dilemma in environments with heterogeneous preferences and private information. We characterize the efficiency properties of equilibrium, which is a departure from all the previous literature that focuses only on the probability of group success. While the probability of success may be non-monotonic in the size of the group, we show that per-capita welfare is always increasing for all types, strictly for sufficiently high types. As group size increases, the expected utility of every type converges to the expected utility of the type with the lowest possible cost, which is the same expected utility when there is no free rider problem, i.e., when there is only a single player in the game and that player has the lowest possible cost. |
| JEL: | C78 D71 D72 H41 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32999 |