|
on Contract Theory and Applications |
| By: | Víctor González-Jiménez |
| Abstract: | I show that stochastic contracts are powerful motivational devices when agents distort probabilities. Stochastic contracts allow the principal to target probabilities that, when distorted by the agent, enhance the agent's motivation to exert effort on the delegated task. This novel source of incentives is absent in traditional contracts. A theoretical framework and an experiment demonstrate that stochastic contracts targeting small probabilities, and thus exposing the agent to a large degree of risk, generate higher performance levels than traditional contracting modalities. A result that contradicts the standard rationale that optimal contracts should feature a tradeoff between insurance and efficiency. This unintuitive finding is attributed to probability distortions caused by likelihood insensitivity - cognitive limitations that restrict the accurate evaluation of probabilities. |
| JEL: | C91 C92 J16 J24 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:vie2101&r= |
| By: | Cherbonnier, Frédéric |
| Abstract: | We examine the provision of insurance against non-observable liquidity shocks for time-inconsistent agents who can privately store resources. When lack of self-control is strong enough, optimal contracts are similar to individual nancial accounts with remunerated savings and costly borrowing. The corresponding rate of return decreases with savings, which gives a theoretical rationale for pension accounts with decreasing incentive schemes, as implemented in most developed countries. Extending the model to an innite horizon, we show that, in the presence of repeated shocks, optimal contracts lead to impoverishment almost surely. Usury laws, capping interest rates, worsen this tendency to over-indebtedness for consumers with low risk aversion. By contrast, hidden storage constrains resource allocation for time-consistent agents, so that optimal contracts induce them to accumulate wealth. Those results show how lack of self-control changes the nature of optimal savings and borrowing instruments, with normative implications in terms of tax policy and credit regulation. |
| Keywords: | Time-inconsistency; self-control; mechanism design; insurance, over-indebtedness; retirement savings; consumer credit; credit regulation; saving incentives |
| JEL: | C61 C63 C73 D82 E21 H21 |
| Date: | 2021–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:126129&r= |
| By: | Aasheesh Dixit; Patanjal Kumar; Suresh Jakhar |
| Abstract: | In this paper, we examine the effect of various contracts between a socially concerned airport and an environmentally conscious airline regarding their profitability and channel coordination under two distinct settings. First, we consider no government interventions, while in the second, we explore government-imposed taxations to curb emissions. Furthermore, we investigate the impact of passenger greening sensitivity, greening cost, and consumer surplus coefficient on conveyance fees, ticket fare, greening level and the channel welfare. Our analysis shows that the revenue sharing and linear two part tariff contracts coordinate the decentralised airport-airline channel. Our findings also reveal that players greening and social efforts can improve both the welfare and efficiency of the channel simultaneously. Importantly, under government interventions, taxation does help improve the greening level of the channel in both coordinating and non coordinating contracts. However, the greening level in the non-coordinating contracts with taxation is still less than the coordinating contracts even without tax. Finally, we also extended the model to include a duopoly airline market with pricing and greening competition. We analyze the effect of competetiton between airlines on airport utility, airline profit, ticket fare and greening level. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.11694&r= |
| By: | Radostina Shopova |
| Abstract: | This paper investigates the implications of vertical integration with private labels in the marketplace model opposed to the classic wholesale model. Differently from classic retailers, on a marketplace firms set end-consumer prices and the intermediary collects fees. When introducing a lower-quality version of a product, a marketplace owner does not have an incentive to increase the cost of the outside seller and foreclose him. In order to protect revenues from the seller channel, a marketplace owner overprices his product, compared to a retailer or stand-alone monopolist, and decreases the fee. I demonstrate that offering a lower quality is indeed optimal for both marketplace owner and classic retailer, with the former differentiating more from the seller's offering. This harms the seller less, but improves the consumer surplus less compared to a retailer. |
| JEL: | D21 D40 L12 L22 L42 L81 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:vie2104&r= |