|
on Contract Theory and Applications |
| By: | Masaki Aoyagi |
| Abstract: | A principal acquires information about a shock and then discloses it to an agent. After the disclosure, the principal and agent each decide whether to take costly preparatory actions that yield mutual benefits but only when the shock strikes. The principal maximizes his expected payoff by ex ante committing to the quality of his information, and the disclosure rule. We show that even when the acquisition of perfect information is costless, the principal may optimally acquire imperfect information when his own action eliminates the agent's incentive to take action against the risk. |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0832r&r=cta |
| By: | Yamashita, Takuro |
| Abstract: | This paper discusses some connections among several robustness concepts of mechanisms in terms of agents' behaviors. Specifically, under certain conditions such as private values and ``rich'' interdependent values, we show that implementation in (one-round or iterative) undominated strategies, a solution concept robust to strategic uncertainty, is equivalent to Bayesian implementation with arbitrary type spaces, a solution concept robust to structural uncertainty. |
| Keywords: | Robust implementation, Strategic and structural uncertainty |
| JEL: | D82 D86 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28371&r=cta |
| By: | Zilu Shang (ICMA Centre, Henley Business School, University of Reading); Chris Brooks (ICMA Centre, Henley Business School, University of Reading); Rachel McCloy (University of Reading) |
| Abstract: | Investors are now able to analyse more noise-free news to inform their trading decisions than ever before. Their expectation that more information means better performance is not supported by previous psychological experiments which argue that too much information actually impairs performance. To test whether more information always means better performance in the stock markets, an experiment is conducted based on a trading simulation manipulated from a real market-shock. The results indicate that the explicitness of information neither improves nor impairs participants’ performance effectiveness from the perspectives of returns, share and cash positions, and trading volumes. However, participants’ performance efficiency is significantly affected by information explicitness. Although they need less time to implement their decisions when placing an order, explicitly informed investors are punished by making more mistakes. |
| Keywords: | explicitness of information, performance effectiveness, performance efficiency, individual investors, experimental finance |
| JEL: | C91 D82 G02 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2013-05&r=cta |
| By: | Alger, Ingela; Weibull, Jörgen |
| Abstract: | We provide a generalized definition of evolutionary stability of heritable types in arbitrarily large symmetric interactions under random matching that may be assortative. We establish stability results when these types are strategies in games, and when they are preferences or moral values in games under incomplete information. We show that a class of moral preferences, with degree of morality equal to the index of assortativity are evolutionarily stable. In particular, selfishness is evolutionarily unstable when there is positive assortativity in the matching process. We establish that evolutionarily stable strategies are the same as those played in equilibrium by rational but partly morally motivated individuals, individuals with evolutionarily stable preferences. We provide simple and operational criteria for evolutionary stability and apply these to canonical examples. |
| Keywords: | Evolutionary stability, assortativity, morality, homo moralis, public goods, contests, helping, Cournot competition. |
| JEL: | C73 D01 D03 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28319&r=cta |
| By: | Dorra Talbi |
| Abstract: | The aim of this paper is to study the impact of voluntary information disclosure on cost of debt capital. Our survey has been achieved on a sample of 22 firms listed in the Tunis stock exchange over a period spanning from 1998 to 2004. The results confirm the existence of a negative and significant relationship between the frequencies of voluntary disclosure on cost of debt. This study’s survey shows that the information disclosure mitigate the asymmetric information between manager and lenders which would consequently decrease the cost of capital. |
| Keywords: | voluntary disclosure cost of debt, asymmetric information. |
| Date: | 2014–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-433&r=cta |
| By: | C. Bram Cadsby (Department of Economics and Finance, University of Guelph); Jim Engle-Warnick (McGill University); Tony Fang (Monash University); Fei Song (Ryerson University) |
| Abstract: | Tournaments are widely used to assign bonuses and determine promotions. Tournament-based compensation is motivating because of the link between relative performance and financial rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field experiment with factory workers in China, we examine how both psychological and financial incentives, together with attitudes toward risk, may influence motivation and performance. For comparison purposes, Chinese undergraduate students also participated in a comparable laboratory experiment. We provided performance-ranking information both privately and publicly, with and without rank based financial incentives. Our results show that performance-ranking information had a significant motivational effect on average performance for students, but not for workers. Adding financial incentives based on rank provided little evidence of further improvements. Much of the difference between workers and students can be explained by differences in attitudes toward risk. Indeed, for both groups the size of both financial and psychological incentive effects is inversely related to individual levels of risk aversion, and is positive and significant both for workers and for students who are sufficiently risk-tolerant. Lastly, performance did not deteriorate when incentives were removed, suggesting that they worked through the encouragement of learning. |
| Keywords: | incentives, social comparison, performance feedback, peer pressure, tournament, risk aversion, artefactual field experiment |
| JEL: | C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2014-03&r=cta |
| By: | Alexandros Karakostas (Coventry University); Axel Sonntag (University of East Anglia); Daniel John Zizzo (University of East Anglia) |
| Abstract: | If principals are allowed to choose between a revenue sharing, a bonus and a trust contract, a large majority of experimental subjects choose the revenue sharing contract. We find that this choice is the most efficient while at the same time being fair in the Paretian sense that on average agents are not worse off than in the other contracts. Furthermore, the distribution of earnings is only mildly skewed towards the principal. We conclude that under revenue sharing contracts concerns for fairness can go in hand with the use of monetary incentives. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:13-03&r=cta |
| By: | Eduardo Davila (Harvard University) |
| Abstract: | This paper characterizes the optimal linear financial transaction tax in an equilibrium model of competitive financial markets. When belief disagreement induces excess trading on assets in fixed supply, two main results arise. First, the optimal tax is positive: although a (small) transaction tax discourages all trades equally, the reduction in fundamental trading creates a second-order welfare loss, while the reduction in non-fundamental trading creates a first-order gain. Second, the cross-sectional covariance between investors’ beliefs and investors’ equilibrium portfolio tax sensitivities becomes the relevant sufficient statistic for the optimal tax, which does not depend on the actual payoff distribution. I find additional results. First, in dynamic environments, controlling for the level of static disagreement, the optimal tax is lower when investors alternate between being buyers and sellers over time. Second, when financial markets determine production in a Walrasian sense, as in a q-theory environment, a marginal tax increase creates an additional first-order distortion (positive or negative). Third, when financial markets determine production by diffusing information, a marginal tax increase creates an additional first-order loss, due to a learning externality. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:114&r=cta |
| By: | Bajoori, Elnaz; Flesch, Janos; Vermeulen, Dries |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:37909&r=cta |
| By: | Daron Acemoglu; Matthew O. Jackson |
| Abstract: | We examine the interplay between social norms and the enforcement of laws. Agents choose a behavior (e.g., tax evasion, production of low-quality products, corruption, substance abuse, etc.) and then are randomly matched with another agent. An agent's payoff decreases with the mismatch between her behavior and her partner's, as well as average behavior in society. A law is an upper bound (cap) on behavior and a law-breaker, when detected, pays a fine and has her behavior forced down to the level of the law. Law-breaking depends on social norms because detection relies, at least in part, on private cooperation and whistle-blowing. Law-abiding agents have an incentive to whistle-blow because this reduces the mismatch with their partner's behavior as well as the overall negative externality. When laws are in conflict with norms so that many agents are breaking the law, each agent anticipates little whistle-blowing and is more likely to also break the law. Tighter laws (banning more behaviors) have counteracting effects, reducing behavior among law-abiding individuals but inducing more law-breaking. Greater fines for law breaking and better public enforcement reduce the number of law-breakers and behavior among law-abiding agents, but increase levels of law breaking among law-breakers (who effectively choose their behavior targeting other high-behavior law-breakers). Within a dynamic version of the model, we show that laws that are in strong conflict with prevailing social norms may backfire, while gradual tightening of laws can be more effective by changing social norms. |
| JEL: | C72 C73 P16 Z1 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20369&r=cta |
| By: | Bleemer, Zachary; Zafar, Basit (Federal Reserve Bank of New York) |
| Abstract: | Despite a robust college premium, college attendance rates in the United States have remained stagnant and exhibit a substantial socioeconomic gradient. We focus on information gaps— specifically, incomplete information about college benefits and costs—as a potential explanation for these patterns. In a nationally representative survey of U.S. household heads, we show that perceptions of college costs and benefits are severely and systematically biased: 74 percent of our respondents underestimate the true benefits of college (average earnings of a college graduate relative to a non-college worker in the population), while 77 percent report public college costs that exceed actual sticker costs. There is substantial heterogeneity in beliefs, with larger biases for the more disadvantaged groups, lower-income and non-college households. We show that these biases are problematic since they (indirectly) impact the respondents’ reported intended likelihood of their (pre-college-age) child attending college. We simulate an “information intervention,” and find that were individuals to be provided with the correct population distribution of college costs and returns, the intended child’s college attendance would increase significantly, by about 0.2 of the standard deviation in the baseline intended likelihood. Importantly, as a result of the simulated intervention, gaps in college attendance by household income or parents’ education persist but decline by 30 to 50 percent. |
| Keywords: | college enrollment; college returns and costs; information; subjective expectations |
| JEL: | D81 D83 D84 I21 I24 I28 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:685&r=cta |
| By: | Marc Blatter; Winand Emons; Silvio Sticher |
| Abstract: | An antitrust authority deters collusion using fines and a leniency program. Unlike in most of the earlier literature, our firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports: reporting makes conviction only more likely, the more so, the more firms report. Furthermore, the evidence is distributed asymmetrically among firms. Asymmetry of the evidence can increase the cost of deterrence if the high-evidence firm chooses to remain silent. Minimum-evidence standards may counteract this effect. Under a marker system only one firm reports; this may increase the cost of deterrence. |
| Keywords: | antitrust; cartels; deterrence; leniency; evidence |
| JEL: | D43 K21 K42 L40 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1405&r=cta |