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on Contract Theory and Applications |
| By: | Di Tella, Sebastian (?); Sannikov, Yuliy (Stanford University) |
| Abstract: | We study the role of hidden savings in optimal contracts for delegated asset management. The principal uses the agent's access to capital to manipulate his precautionary motive and reduce the cost of providing incentives. After bad outcomes, the agent's consumption is somewhat insured, and he is punished instead with less access to capital and lower growth. As a result, in addition to an equity constraint, the optimal contract requires a leverage constraint to be implemented. Hidden investment limits the principal's ability to provide incentives, but doesn't change the contract's qualitative features. We provide a sufficient analytical condition for the validity of the first-order approach: if the agent's precautionary motive falls after bad outcomes, the contract is globally incentive compatible. This condition holds in the optimal contract and in a broader class of contracts. |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3429&r=cta |
| By: | Chen, Daniel L.; Schonger, Martin |
| Abstract: | Ambiguity aversion has been used to explain a wide range of phenomena in law and policy: incomplete contracts, stock market volatility, abstention from voting, and why prosecutors offer and defendants accept harsh plea bargains. This paper presents evidence problematizing the experimental basis for ambiguity aversion. Ambiguity aversion is the interpretation of the experimental finding (Ellsberg paradox) that most subjects violate probabilistic sophistication: They prefer betting on events whose probabilities are known (objective) to betting on events whose probabilities are unknown to them (subjective). However in typical experiments these unknown probabilities are known and often determined by the experimenter. Thus the typical Ellsberg experiment is a situation of asymmetric information. People may try to avoid situations where they are the less informed party in an asymmetric situation setting. Indeed doing so is often normatively appropriate. Thus avoidance of situations of informational asymmetry is a potential confound in typical Ellsberg experiments. Paying to avoid information asymmetry in an Ellsberg experiment would constitute the misapplication of a heuristic to the unfamiliar experimental situation. To eliminate this confound, this paper proposes a new source of ambiguity: participant generated ambiguity. Instead of the experimenter filling an Ellsberg urn, the opaque Ellsberg urn is filled by the other subjects in a laboratory session. We find that eliminating asymmetric information while leaving ambiguity in place, makes subjects more than willing to choose the ambiguous bet rather than the objective one. This is despite the fact that choosing the objective bet is costless. These results have fundamental implications for individual decision making and for the empirical predictions of theoretical models incorporating Knightian uncertainty. |
| Keywords: | uncertainty aversion, probabilistic sophistication, sources of ambiguity, Ellsberg paradox |
| JEL: | C91 D81 G11 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:31023&r=cta |
| By: | Hiroshi Kitamura; Noriaki Matsushima; Misato Sato |
| Abstract: | This study constructs a simplest model to examine anticompetitive exclusive contracts that prevent a downstream buyer from buying input from a new upstream supplier. Incorporating Nash bargaining into the standard one-buyer-one-supplier framework in the Chicago School critique, we show a possibility that an inefficient incumbent supplier can deter a socially efficient entry through exclusive contracts. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0978&r=cta |
| By: | Odolinski , Kristofer (VTI) |
| Abstract: | In this paper we study the effect of contract design on the performance of railway maintenance in Sweden, using a panel data set over the period 2003-2013. The marginal effect of incentive intensity is estimated, showing that the power of incentive schemes improve performance as measured by the number of infrastructure failures. In addition, the performance incentive schemes result in a reallocation of effort from failures not causing train delays to failures causing train delays |
| Keywords: | Contract design; Incentive intensity; Maintenance; Railways |
| JEL: | D82 L92 |
| Date: | 2016–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2016_020&r=cta |
| By: | Reisinger, Markus; Tarantino, Emanuele |
| Abstract: | We show that patent pools formed by owners of perfectly complementary patents are anticompetitive if one of the licensors is integrated with a manufacturer. With vertical integration, the pool serves as coordination device, allowing patent holders to restrict supplies to the product market and share the larger profits of the affiliated manufacturer. These results are robust to entry, the contractual and competitive environments. The imposition of an unbundling and pass-through requirement makes patent pools socially desirable. We also show that this requirement is more effective than a mandated non-discriminatory policy enforcing FRAND commitments in screening anticompetitive pools. |
| Keywords: | Antitrust Policy; Complementary Patents; FRAND; Patent Pools and Joint Marketing Agreements; Vertical Integration and Restraints |
| JEL: | K11 L41 M2 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11512&r=cta |