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on Contract Theory and Applications |
| By: | Bernhard Ganglmair; Julian Klix; Dongsoo Shin |
| Abstract: | Many business relationships rely on loose arrangements and relational dynamics in early interactions, only to solidify their alliances through contractual committments later. Using a repeated-games framework with a finite horizon, we show how such a hybrid-contracting strategy can both extend the duration of a cooperative business relationship (intensive margin) and expand the set of environments in which cooperation can be achieved (extensive margin). We model the contractual commitment part of hybrid contracting as a smooth-landing contract that restricts the action space only in the backend of the relationship. Such a flexible contract outperforms more rigid contractual arrangements because it does not crowd out early-stage cooperation, thereby complementing relational dynamics. Our results are robust to extensions that account for variations in contract costs and timing, and we show that optimal contract length trades off profitability with implementability. |
| Keywords: | contracts, hybrid contracting, incomplete contracts, relational contracts, repeated games, R&D, strategic alliances |
| JEL: | C73 D86 L14 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_695 |
| By: | Justus Preusser |
| Abstract: | This paper studies a market in which a patient long-lived seller offers prices to short-lived buyers. A hidden state determines whether the buyer's common value exceeds the seller's reservation value, and all players only have noisy signals. If the seller has commitment power, the seller waits for a buyer with the most favorable signal to arrive, and else exits the market. Using techniques for monotone decision problems, this waiting strategy is shown to be optimal for learning whether trade is efficient. Due to the interplay between the seller's and the buyers' information, the seller's decision to exit may be non-monotonic in the seller's information, and prices may be non-monotonic over time. Without commitment power, there is an equilibrium in which the seller also waits for a buyer with the most favorable signal, but the seller exits at inefficient times. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.06132 |
| By: | Xiaotie Deng; Yanru Guan; Ningyuan Li; Zihe Wang; Jie Zhang |
| Abstract: | This paper studies mechanism design for revenue maximization in a distribution-reporting setting, where the auctioneer does not know the buyers' true value distributions. Instead, each buyer reports and commits to a bid distribution in the ex-ante stage, which the auctioneer uses as input to the mechanism. Buyers strategically decide the reported distributions to maximize ex-ante utility, potentially deviating from their value distributions. As shown in previous work, classical prior-dependent mechanisms such as the Myerson auction fail to elicit truthful value distributions at the ex-ante stage, despite satisfying Bayesian incentive compatibility at the interim stage. We study the design of ex-ante incentive compatible mechanisms, and aim to maximize revenue in a prior-independent approximation framework. We introduce a family of threshold-augmented mechanisms, which ensures ex-ante incentive compatibility while boosting revenue through ex-ante thresholds. Based on these mechanisms, we construct the Peer-Max Mechanism, which achieves an either-or approximation guarantee for general non-identical distributions. Specifically, for any value distributions, its expected revenue either achieves a constant fraction of the optimal social welfare, or surpasses the second-price revenue by a constant fraction, where the constants depend on the number of buyers and a tunable parameter. We also provide an upper bound on the revenue achievable by any ex-ante incentive compatible mechanism, matching our lower bound up to a constant factor. Finally, we extend our approach to a setting where multiple units of identical items are sold to buyers with multi-unit demands. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.04030 |
| By: | Markus Dertwinkel-Kalt; Anna Ressi; Christian Wey |
| Abstract: | To counter the threat of deindustrialization due to soaring energy prices and facilitate a green transition, policymakers have devised new subsidy schemes such as the "bridge electricity price" (BEP). To analyze this, we develop a model, where the principal introduces a subsidy program to prevent the agent from exiting and facilitate green investments, which would end the agent's reliance on the subsidy. We demonstrate that, while successfully mitigating deindustrialization, the subsidy can lead to unintended consequences. First, the principal's commitment problem can lower investment incentives and lead to the subsidy program being everlasting. Second, it can induce a "subsidy trap'", drawing non-targeted agents into the subsidy scheme. Lastly, it can reinforce the exit problem it intended to solve by encouraging opportunistic investments. When applying our results to the BEP, we conclude that the fiscal costs of this subsidy could, therefore, far exceed initial projections. |
| Keywords: | deindustrialization, bridge electricity price, electrification, green transition, subsidy trap |
| JEL: | D04 L11 L50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12012 |