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on Contract Theory and Applications |
| By: | Suehyun Kwon |
| Abstract: | This paper studies a contracting problem where agents’ cost of actions is private information. With two actions, this leads to a two-dimensional screening problem with moral hazard. There is a natural one-dimensional ordering of types when there is both adverse selection and moral hazard. Regardless of the number of types, an optimal menu of contracts either pools every type together or offers a menu of two contracts. Any incentive-compatible menu of contracts has to satisfy pairwise single-crossing properties in incentivized actions and ex-ante utilities. The principal can no longer sell the firm to the agent. |
| Keywords: | adverse selection, moral hazard, multidimensional types |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6631&r=cta |
| By: | Herweg, Fabian (University of Bayreuth); Schwarz, Marco A. (University of Innsbruck) |
| Abstract: | Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constrained optimal award procedure: The procurer awards the contract via a price-only auction and cannot commit not to renegotiate. If cost differences are more pronounced for a fancy than a standard design, it is optimal to fix the standard design ex ante. If renegotiation takes place and the fancy design has higher production costs or the contractor\'s bargaining position is strong, the final price exceeds the initial price. Moreover, the procurer cannot benefit from using a multi-dimensional auction, i.e., under the optimal scoring auction each supplier proposes the standard design. |
| Keywords: | auction; cost overrun; procurement; renegotiation; |
| JEL: | D44 D82 H57 |
| Date: | 2017–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:56&r=cta |
| By: | Daniel Herold (Justus-Liebig-University Giessen) |
| Abstract: | This paper presents a moral hazard model analyzing the agent's incentive to commit corporate crime. The principal can only observe profits which the agent can increase by committing crime or exerting effort. It is shown how different incentive contracts, i.e., thresholdlinear, capped bonus and linear contracts, can be adjusted in order to promote agent's law abiding behavior. Any adjustment implies a loss in internal eciency which decreases in individual sanctions imposed on the agent. |
| Keywords: | moral hazard, incentive pay, corporate crime, cartels |
| JEL: | D82 D86 L14 L22 K20 K21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201752&r=cta |
| By: | Philipp Renner; Simon Scheidegger |
| Abstract: | We propose a generic method for solving infinite-horizon, discrete-time dynamic incentive problems with hidden states. We first combine set-valued dynamic programming techniques with Bayesian Gaussian mixture models to determine irregularly shaped equilibrium value correspondences. Second, we generate training data from those pre-computed feasible sets to recursively solve the dynamic incentive problem by a massively parallelized Gaussian process machine learning algorithm. This combination enables us to analyze models of a complexity that was previously considered to be intractable. To demonstrate the broad applicability of our framework, we compute solutions for models of repeated agency with history dependence, many types, and varying preferences. |
| Keywords: | Dynamic Contracts, Principal-Agent Model, Dynamic Programming, Machine Learning, Gaussian Processes, High-performance Computing |
| JEL: | C61 C73 D82 D86 E61 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:203620397&r=cta |
| By: | Zenkevich, Nikolai A.; Gladkova, Margarita |
| Abstract: | Moviemaking process is complicated and includes many participants. In most emerging economies it is regularly financially supported by state agencies and doesnÙ´ bring sufficient return on investments, while in countries where this market is developed, the agreements among main participants are in a form of participation contracts, meaning that everybodyÙ³ income is dependent on the final revenues, generated by the movie. However, existing contracts allows different parties to behave opportunistically. This paper answers the question on how to incentivize the participants to act fairly and consequently to minimize the losses of the weakest players of the chain. The main idea is that opportunistic behavior can be eliminated with the introduction of coordination contracts. |
| Keywords: | motion picture, film industry, revenue sharing, cooperative game, imputation, optimal imputation, contracts, |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:sps:cpaper:8713&r=cta |