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on Contract Theory and Applications |
| By: | Berg, Erland (University of Oxford); Ghatak, Maitreesh (London School of Economics); Manjula, R (ISEC); Rajasekhar, D (ISEC); Roy, Sanchari (University of Warwick) |
| Abstract: | This paper studies the interaction of incentive pay and social distance in the dissemination of information.We analyse theoretically as well as empirically the effect of incentive pay when agents have pro-social objectives,but also preferences over dealing with one social group relative to another. In a randomised field experiment under taken across 151 villages in South India,local agents were hired to spread information about a public health insurance programme.Relative to flat pay,incentive pay improves knowledge transmission to households that are socially distant from the agent,but not to households similar to the agent. |
| Keywords: | public services,information constraints,incentive pay, social proximity,knowledge transmission |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:133&r=cta |
| By: | Daniel McFadden; Carlos Noton; Pau Olivella |
| Abstract: | We study the consequences of imposing a minimum coverage in an insurance market where enrollment is mandatory and agents have private information on their true risk type. If the regulation is not too stringent, the equilibrium is separating in which a single firm monopolizes the high risks while the rest attract the low risks, all at positive profits. Hence individuals, regardless of their type, "subsidize" insurers. If the legislation is sufficiently stringent the equilibrium is pooling, all firms just break even and low risks subsidize high risks. None of these results require resorting to non-Nash equilibrium notions. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:301&r=cta |
| By: | Hikmet Gunay |
| Abstract: | When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing and "waiting" strategies when consumers have strategic delay incentives. We show when the monopolist offers introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signalling; hence, the monopolist uses it as a signalling device. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0877&r=cta |
| By: | Catherine Gendron-Saulnier; Marc Santugini (IEA, HEC Montréal) |
| Abstract: | We consider a monopoly supplying a homogeneous good to two separate markets with different demands. In one of the markets, some buyers do not know the quality of the good, but learn about it from observing prices. Under noisy demand, third-degree price discrimination is shown to alter the informational content of the price-signals received by the uninformed buyers. Specifically, discriminatory pricing have informational benefits over uniform pricing, i.e., the posterior beliefs of the uninformed buyers have a smaller bias and a lower variance. |
| Keywords: | Market segmentation, Monopoly, Quality of information, Signaling, Third-degree price discrimination |
| JEL: | D82 D83 L12 L15 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:1302&r=cta |
| By: | Jean-Baptiste Michau (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X) |
| Abstract: | This paper investigates the provision of insurance to workers against search-induced wage uctuations. I rely on numerical simulations of a model of on-the-job search and precautionary savings. The model is calibrated to low skilled workers in the U.S.. The extent of insurance is determined by the degree of progressivity of a non-linear transfer schedule. The fundamental trade-off is that a more generous provision of insurance reduces incentives to search for better paying jobs, which is detrimental to the production efficiency of the economy. I show that progressivity raises the search intensity of unemployed worker, which reduces the equilibrium rate of unemployment, but lowers the search intensity of employed job seekers, which results in a lower output level. I also solve numerically for the optimal non-linear transfer schedule. The optimal policy is to provide almost no insurance up to a monthly income level of $1450, such as to preserve incentives to move up the wage ladder, and full insurance above $1650. This policy halves the standard deviation of labor incomes, increases output by 2.4% and generates a consumption-equivalent welfare gain of 1.3%. Forbidding private savings does not fundamentally change the shape of the optimal transfer function, but tilts the optimal policy towards more insurance at the expense of production efficiency. |
| Keywords: | Moral hazard on the job, Optimal social insurance, Progressivity, Search frictions |
| Date: | 2013–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00850547&r=cta |
| By: | Felipe Balmaceda; Juan Esconar |
| Abstract: | This paper studies which social networks maximize trust and cooperation when agreements are implicitly enforced. We study a repeated trust game in which trading opportunities arise exogenously and the social network determines the information transmission technology. We show that cohesive communities, modeled as social networks of complete components, emerge as the optimal community design. Cohesive communities generate some degree of common knowledge of transpired play that allows players to coordinate their punishments and, as a result, yield relatively high equilibrium payoffs. Our results provide an economic rationale for the commonly argued optimality of cohesive social networks. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:295&r=cta |
| By: | Maurice Kugler (UNDP); Oren Levintal (Department of Economics, Bar-Ilan University); Hillel Rapoport (Paris School of Economics, University Paris 1 Pantheon-Sorbonne) |
| Abstract: | The gravity model has provided a tractable empirical framework to account for bilateral flows not only of manufactured goods, as in the case of merchandise trade, but also of financial flows. In particular, recent literature has emphasized the role of information costs in preventing larger diversification of financial investments. This paper investigates the role of migration in alleviating information imperfections between home and host countries. We show that the impact of migration on financial flows is strongest where information problems are more acute (that is, for more informational sensitive investments and between more culturally distant countries) and for the type of migrants that are most able to enhance the flow of information, namely, skilled migrants. We interpret these differential effects as additional evidence pointing to the role of information in generating home-bias and as new evidence of the role of migration in reducing information frictions between countries. |
| Keywords: | Migration, international financial flows, international loans, gravity models, information asymmetries |
| JEL: | F21 F22 O1 |
| URL: | http://d.repec.org/n?u=RePEc:crm:wpaper:1317&r=cta |
| By: | Miller, Marcus (University of Warwick); Zhang, lei (University of Warwick) |
| Abstract: | The classic Diamond-Dybvig model of banking assumes perfect competition and abstracts from issues of moral hazard,hardly appropriate when considering modern UK banking.We therefore modify the classic model to ncorporate franchise values due to market power; and risk-taking by banks with limited liability.We go further to show how the capacity of franchis evalues to mitigate risk taking maybe undermined by the bailout option; with explicit analytical results provided for the case of extreme risk-aversion.After a brief discussion of how this may impact on the distribution of income, we outline the ways in which the Vickers Report seeks to remedy these problems. |
| Keywords: | Money and banking,Seigniorage,Risk-taking,Bailouts,Regulation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:134&r=cta |
| By: | Gan, Li; Hernandez, Manuel A.; Liu, Yanyan |
| Abstract: | Group lending has been widely adopted in the past thirty years by many microfinance institutions as a means to mitigate information asymmetries when delivering credit to the poor. This paper proposes an empirical method to address the potential omitted-variable problem resulting from unobserved group types when modeling the repayment behavior of group members. |
| Keywords: | group lending, heterogenous types, repayment, social behaviour, Credit, loan repayment, Modeling, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1268&r=cta |