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on Contract Theory and Applications |
| By: | Bernardus Van Doornik; Armando Gomes; David Schoenherr; Janis Skrastins |
| Abstract: | In this paper, we present a Savings-and-Credit Contract (SCC) design that mandates a savings period with a default penalty before providing credit. We demonstrate that SCCs mitigate adverse selection and can outperform traditional loan contracts amidst information frictions, thereby expanding access to credit. Empirical evidence from a financial product incorporating an SCC design supports our theory. While appearing riskier on observables, we observe lower realized default rates for product participants than for bank borrowers. Further consistent with the theory, a reform that reduces the default penalty during the savings period induces worse selection and higher realized default rates. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:610 |
| By: | Bardey, David (Universidad de los Andes); De Donder , Philippe (University of Toulouse); Leroux, Marie-Louise (Université catholique de Louvain) |
| Abstract: | We study a situation where physicians differing in their degree of altruism exert a diagnostic effort before deciding whether to test patients to determine the most appropriate treatment. The diagnostic effort generates an imperfect private signal of the patient’s type, while the test is perfect. At the laissez-faire, physicians exert insufficient diagnostic effort and rely excessively on testing. We show that the first-best allocation (where the degree of altruism is observable) can be decentralized by a payment scheme composed of i) a payfor- performance (P4P) part based on the number of correctly treated patients to ensure the provision of the optimal diagnostic effort, and of ii) a capitation part to ensure both the optimal testing decision and the participation of physicians. When physicians differ in their (non-observable) degree of altruism, the optimal contract is pooling rather than separating, an instance of non-responsiveness. Its uniform P4P component induces more altruistic physicians to exert a larger diagnostic effort while, to incentivize the second-best optimal testing decision, its capitation component must be contingent on the test cost. |
| Keywords: | diagnostic risk; personalized medicine; non-responsiveness; capitation payment; pay-for-performance; hidden action and hidden information. |
| JEL: | D82 D86 I18 |
| Date: | 2024–12–03 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021269 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | When faced with budget-constrained bidders, all-pay auctions revenue-dominate standard auctions (first and second-price), which, in a competitive market, gives an edge to the all-pay format. An equilibrium in which sellers compete with standard auctions fails to exist if the all-pay format is available. Assuming the budget is not severely limited, in the unique symmetric equilibrium sellers compete with all-pay auctions. |
| Keywords: | All-pay Auctions, Budget Constraints, Directed Search, Competing Auctions |
| JEL: | D4 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/26 |