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on Economic Design |
| By: | S. Nageeb Ali; Andreas Kleiner; Kun Zhang |
| Abstract: | This paper studies games of voluntary disclosure in which a sender discloses evidence to a receiver who then offers an allocation and transfers. We characterize the set of equilibrium payoffs in this setting. Our main result establishes that any payoff profile that can be achieved through information design can also be supported by an equilibrium of the disclosure game. Hence, our analysis suggests an equivalence between disclosure and design in these settings. We apply our results to monopoly pricing, bargaining over policies, and insurance markets. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.03608 |
| By: | Chao Huang |
| Abstract: | We study the problem of multilateral collaboration among agents with transferable utilities. Any group of agents can sign a contract consisting of a primitive contract and monetary transfers among the signatories. We propose a dynamic auction that finds a stable outcome when primitive contracts are gross complements for all participants. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.06545 |
| By: | Qiang Fu; Zenan Wu; Yuxuan Zhu |
| Abstract: | This paper examines the optimal organizational rules that govern the process of dividing a fixed surplus. The process is modeled as a sequential multilateral bargaining game with costly recognition. The designer sets the voting rule -- i.e., the minimum number of votes required to approve a proposal -- and the mechanism for proposer recognition, which is modeled as a biased generalized lottery contest. We show that for diverse design objectives, the optimum can be achieved by a dictatorial voting rule, which simplifies the game into a standard biased contest model. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.08419 |
| By: | Dirk Bergemann; Stephen Morris; Rafael Veiel |
| Abstract: | Two information structures are said to be close if, with high probability, there is approximate common knowledge that interim beliefs are close under the two information structures. We define an "almost common knowledge topology" reflecting this notion of closeness. We show that it is the coarsest topology generating continuity of equilibrium outcomes. An information structure is said to be simple if each player has a finite set of types and each type has a distinct first-order belief about payoff states. We show that simple information structures are dense in the almost common knowledge topology and thus it is without loss to restrict attention to simple information structures in information design problems. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.09149 |
| By: | Andrew Koh; Sivakorn Sanguanmoo; Kei Uzui |
| Abstract: | We fully characterize how dynamic information should be provided to uniquely implement the largest equilibrium in dynamic binary-action supermodular games. The designer offers an informational put: she stays silent in good times, but injects asymmetric and inconclusive public information if players lose faith. There is (i) no multiplicity gap: the largest (partially) implementable equilibrium can be implemented uniquely; and (ii) no intertemporal commitment gap: the policy is sequentially optimal. Our results have sharp implications for the design of policy in coordination environments. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.09191 |
| By: | Juan Carlos Gon\c{c}alves-Dosantos; Ricardo Mart\'inez; Joaqu\'in S\'anchez-Soriano |
| Abstract: | In this paper, we extend the museum pass problem to incorporate the market structure. To be more precise, we consider that museums are organized into several pass programs or consortia. Within this framework, we propose four allocation mechanisms based on the market structure and the principles of proportionality and egalitarianism. All these mechanisms satisfy different reasonable properties related to fairness and stability which serve to axiomatically characterize them. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.23923 |
| By: | Borovickova, Katarina (Federal Reserve Bank of Richmond); Shimer, Robert (University of Chicago) |
| Abstract: | We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i) the average log wage that a worker receives is increasing in the worker's and employer's productivity, with low-productivity workers gaining proportionally more at high-productivity firms and ii) there is assortative matching between a worker's productivity and that of her employer. Selective job acceptance drives these patterns. All workers are equally likely to meet all firms, but workers have higher surplus from meeting firms of similar productivity. The high surplus meetings result in matches more frequently, generating assortative matching. Only the subset of meetings that result in matches are observed in administrative wage data, shaping wages. We show that our findings are quantitatively consistent with recent empirical results. Moreover, we prove this selection is not detected using standard empirical approaches, highlighting the importance of theory-guided empirical work. Our results imply that encouraging high-wage firms to hire low-wage workers may be less effective at reducing wage inequality than wage patterns suggest. |
| JEL: | J31 J64 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17454 |
| By: | Krishna Dasaratha; Benjamin Golub; Anant Shah |
| Abstract: | A principal uses payments conditioned on stochastic outcomes of a team project to elicit costly effort from the team members. We develop a multi-agent generalization of a classic first-order approach to contract optimization by leveraging methods from network games. The main results characterize the optimal allocation of incentive pay across agents and outcomes. Incentive optimality requires equalizing, across agents, a product of (i) individual productivity (ii) organizational centrality and (iii) responsiveness to monetary incentives. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.08026 |
| By: | Guillermo Alonso Alvarez; Erhan Bayraktar; Ibrahim Ekren; Liwei Huang |
| Abstract: | In this paper we study a principal-agent problem in continuous time with multiple lump-sum payments (contracts) paid at different deterministic times. We reduce the non-zero sum Stackelberg game between the principal and agent to a standard stochastic optimal control problem. We apply our result to a benchmark model for which we investigate how different inputs (payment frequencies, payments' distribution, discounting factors, agent's reservation utility) affect the principal's value and agent's optimal compensations. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04262 |
| By: | Th\'eo Durandard; Alexis Ghersengorin |
| Abstract: | We study the robust regulation of labour contracts in moral hazard problems. A firm offers a contract to incentivise production by an agent protected by limited liability. A regulator chooses the set of permissible contracts to (i) improve efficiency and (ii) protect the worker. The regulator ignores the agent's productive actions and the firm's costs and evaluates regulation by its worst-case regret. The regret-minimising regulation imposes a linear minimum wage, allowing all contracts above this linear threshold. The slope of the minimum contract balances the worker's protection - by ensuring they receive a minimal share of the production - and the necessary flexibility for incentive provision. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.04841 |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | We consider a non-producer patentholder with a cost-reducing innovation that can be used in a homogeneous duopolistic industry. To profit from the innovation, the patentholder can decide to sell it, or license it, and if the latter, the number of licences to grant as well as the corresponding contractual terms. We show that the size (value or quality) of innovation is crucial for that decision. The patentholder prefers to sell a small-sized innovation, in which case the buyer further licenses it to the competitor by means of a pure ad-valorem royalty contract. However, if the innovation is moderate or large, the patentholder retains ownership and licenses it to both firms through 2PT contracts involving per-unit royalties. Sale is shown to be welfare superior to licensing for both consumers and firms. |
| Keywords: | Cost-reducing innovation, sale, licensing, per-unit royalty, ad-valorem royalty, welfare |
| JEL: | L13 L24 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122731 |