|
on Contract Theory and Applications |
| By: | Giovanni Ferri (University of Bari); Pierluigi Murro (University of Bari); Zeno Rotondi (UniCredit Group's Retail Research Division) |
| Abstract: | We start considering an optimal matching of opaque (transparent) borrowing firrms with relational (transactional) lending main banks. Next we contemplate the possibility that firm-bank "odd couples" materialize where opaque (transparent) firrms end up matched with transactional (re- lational) main banks. We conjecture the "odd couples" emerge either since the bank's lending technology is not perfectly observable to the rm or because riskier firrms - even though opaque - strategically select transac- tional banks in the hope of being classified as lower risks. Our econometric results show the probability of rationing is larger when firrms and banks match in "odd couples". |
| Keywords: | Relationship Banking, Credit Rationing and Asymmetric Information |
| JEL: | G21 D84 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:bai:series:wp0031&r=cta |
| By: | Ianni, A.; Guarino, A. |
| Abstract: | We study a simple dynamic model of social learning with local informational exter-nalities. There is a large population of agents, who repeatedly have to choose one, out of two, reversible actions, each of which is optimal in one, out of two, unknown states of the world. Each agent chooses rationally, on the basis of private information (s)he receives by a symmetric binary signal on the state, as well as the observation of the action chosen among their nearest neighbours. Actions can be updated at revision opportunities that agents receive in a random sequential order. Strategies are stationary, in that they do not depend on time, nor on location. <br><br> We show that: if agents receive equally informative signals, and observe both neighbours, then the social learning process is not adequate and the process of actions converges exponentially fast to a configuration where some agents are permanently wrong; if agents are unequally informed, in that their signal is either fully informative or fully uninformative (both with positive probability), and observe one neighbour, then the social learning process is adequate and everybody will eventually choose the action that is correct given the state. Convergence, however, obtains very slowly, namely at rate ?t: We relate the findings with the literature on social learning and discuss the property of efficiency of the information transmission mechanism under local interaction. <br><br> Keywords; Social Learning, Bayesian Learning, Local Informational External-ities, Path Dependence, Consensus, Clustering, Convergence Rates. |
| Date: | 2010–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:stn:sotoec:1011&r=cta |
| By: | Duffy, Sean; Hartwig, Tyson; Smith, John |
| Abstract: | Language is an imperfect and uneven means of communicating information about a complex and nuanced world. We run an experimental investigation of a setting in which the messages available to the sender imperfectly describe the state of the world, however the sender can improve communication, at a cost, by increasing the complexity or elaborateness of the message. As is standard in the communication literature, the sender learns the state of the world then sends a message to the receiver. The receiver observes the message and provides a best guess about the state. The incentives of the players are aligned in the sense that both sender and receiver are paid an amount which is increasing in the accuracy of the receiver's guess. As would be expected, we find that larger communication costs are associated with worse outcomes for both sender and receiver. Consistent with the communication literature, albeit in very different setting, we find that there is overcommunication. For the receiver, there is a positive relationship between the payoffs relative to the equilibrium predictions and communication costs. This relationship is negative for the senders. We also find that the response time of both the sender and receiver are positively related to their payoffs. |
| Keywords: | communication; cheap talk; overcommunication |
| JEL: | D82 C91 C72 |
| Date: | 2010–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24148&r=cta |
| By: | Lammers, Frauke; Schiller, Jörg |
| Abstract: | This paper investigates the impact of insurance contract design on the behavior of filing fraudulent claims in an experimental setup. We test how fraud behavior varies for insurance contracts with full coverage, a straight deductible or variable premiums (bonus-malus contract). In our experiment, filing fraudulent claims is a dominant strategy for selfish participants, with no psychological costs of committing fraud. While some people always commit fraud, a substantial share of people only occasionally or never defraud. In addition, we find that deductible contracts may be perceived as unfair and thus increase the extent of claim build-up compared to full coverage contracts. In contrast, bonus-malus contracts with variable insurance premiums significantly reduce the filing of fictitious claims compared to both full coverage and deductible contracts. This reduction cannot be explained by monetary incentives. Our results indicate that contract design significantly affects psychological costs and, consequently, the extent of fraudulent behavior of policyholders. -- |
| Keywords: | Insurance fraud,experiment,fairness,contract design,deductible,bonus-malus |
| JEL: | G22 C91 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:192010&r=cta |
| By: | Teng , Jimmy |
| Abstract: | Bayesian rational prior equilibrium requires agent to make rational statistical predictions and decisions, starting with first order non informative prior and keeps updating with statistical decision theoretic and game theoretic reasoning until a convergence of conjectures is achieved. The main difference between the Bayesian theory of games and the current games theory are: I. It analyzes a larger set of games, including noisy games, games with unstable equilibrium and games with double or multiple sided incomplete information games which are not analyzed or hardly analyzed under the current games theory. II. For the set of games analyzed by the current games theory, it generates far fewer equilibria and normally generates only a unique equilibrium and therefore functions as an equilibrium selection and deletion criterion and, selects the most common sensible and statistically sound equilibrium among equilibria and eliminates insensible and statistically unsound equilibria. III. It differentiates between simultaneous move and imperfect information. The Bayesian theory of games treats sequential move with imperfect information as a special case of sequential move with observational noise term. When the variance of the noise term approaches its maximum such that the observation contains no informational value, there is imperfect information (with sequential move). IV. It treats games with complete and perfect information as special cases of games with incomplete information and noisy observation whereby the variance of the prior distribution function on type and the variance of the observation noise term tend to zero. Consequently, there is the issue of indeterminacy in statistical inference and decision making in these games as the equilibrium solution depends on which variances tends to zero first. It therefore identifies equilibriums in these games that have so far eluded the classical theory of games. |
| Keywords: | Games Theory; Bayesian Statistical Decision Theory; Prior Distribution Function; Conjectures; Subjective Probabilities |
| JEL: | C02 C11 C72 |
| Date: | 2010–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24189&r=cta |
| By: | Marco Scarsini; Eilon Solan; Nicolas Vieille |
| Abstract: | We consider a class of auctions (Lowest Unique Bid Auctions) that have achieved a considerable success on the Internet. Bids are made in cents (of euro) and every bidder can bid as many numbers as she wants. The lowest unique bid wins the auction. Every bid has a fixed cost, and once a participant makes a bid, she gets to know whether her bid was unique and whether it was the lowest unique. Information is updated in real time, but every bidder sees only what's relevant to the bids she made. We show that the observed behavior in these auctions differs considerably from what theory would prescribe if all bidders were fully rational. We show that the seller makes money, which would not be the case with rational bidders, and some bidders win the auctions quite often. We describe a possible strategy for these bidders. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1007.4264&r=cta |
| By: | Andrea Gallice |
| Abstract: | A price reveal auction is a Dutch auction in which the current price of the item on sale remains hidden. Bidders can privately observe the price only by paying a fee, and every time a bidder does so, the price falls by a predetermined amount. We show that in equilibrium, no rational bidder should enter into such an auction. Contrary to this prediction, data about actual price reveal auctions run on the Internet show that bidders do enter and that the mechanism is profitable for the seller. |
| Keywords: | price reveal auctions; pay-per-bid auctions |
| JEL: | D44 C72 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:147&r=cta |