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on Contract Theory and Applications |
| By: | Noriaki Matsushima; Shohei Yoshida |
| Abstract: | We consider a downstream oligopoly model with one dominant and several fringe retailers who purchase a manufacturing product from a monopoly supplier. We examine how contract type influences the relationship between the dominant retailer's bargaining power and the equilibrium retail price. If the contracts between the supplier and fringe retailers are contingent on the bargaining outcome between the supplier and the dominant retailer, the bargaining power does not affect the retail price. In contrast, if contracts with fringe retailers are not contingent, the relationship between bargaining power and retail price can be either positive or negative. |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1191&r= |
| By: | Dirk Krueger; Harald Uhlig |
| Abstract: | This paper characterizes the stationary equilibrium of a continuous-time neoclassical production economy with capital accumulation in which households can insure against idiosyncratic income risk through long-term insurance contracts. Insurance companies operating in perfectly competitive markets can commit to future contractual obligations, whereas households cannot. For the case in which household labor productivity takes two values, one of which is zero, and where households have log-utility we provide a complete analytical characterization of the optimal consumption insurance contract, the stationary consumption distribution and the equilibrium aggregate capital stock and interest rate. Under parameter restrictions, there is a unique stationary equilibrium with partial consumption insurance and a stationary consumption distribution that takes a truncated Pareto form. The unique equilibrium interest rate (capital stock) is strictly decreasing (increasing) in income risk. The paper provides an analytically tractable alternative to the standard incomplete markets general equilibrium model developed in Aiyagari (1994) by retaining its physical structure, but substituting the assumed incomplete asset markets structure with one in which limits to consumption insurance emerge endogenously, as in Krueger and Uhlig (2006). |
| JEL: | E10 E21 |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30518&r= |
| By: | Sümeyra Atmaca (University of Ghent); Riccardo Camboni (University of Padova); Elena Podkolzina (HSE-NRU); Koen Schoors (University of Ghent); Paola Valbonesi (University of Padova) |
| Abstract: | We use a large dataset of Russian public procurement auctions for standard gasoline over the period 2011-2013, to investigate how buyers set the reserve price - i.e. the buyer’s announced maximum willingness to pay for the good awarded. We provide empirical evidence that repeated past contracts between a buyer and a supplier affect the reserve price set by this buyer in future auctions where the same supplier takes part and wins. Specifically, we find that in these auctions the reserve price, the level of competition, and the winning unit price are lower than in the average auction in the dataset. We conjecture that, in setting the reserve price for a new auction, public buyers exploit information gained about the winners of previous auctions. This intuition is supported by empirically studying the reserve price in a dynamic framework, which allows buyers to take into account information from previous procurement transactions with given suppliers. Finally, we show that our empirical results are in line with a simple theoretical setting in which the buyer collects information about one supplier’s costs and exploits this in setting the reserve price in future auctions. |
| Keywords: | Publicprocurement, First-priceauction, Buyer-supplier repeated interactions, Reserve price |
| JEL: | D44 H57 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0289&r= |
| By: | Attar, Andrea; Campioni, Eloisa; Piaser, Gwenaël |
| Abstract: | We study competing-mechanism games, in which multiple principals contract with multiple agents. We reconsider the issue of non-existence of an equilibrium as first raised by Myerson (1982). In the context of his example, we establish the existence of a perfect Bayesian equilibrium. We clarify that Myerson (1982)’s non-existence result is an implication of the additional requirement he imposes, that each principal selects his preferred continuation equilibrium in the agents’ game. |
| Keywords: | Competing Mechanisms; Equilibrium Existence |
| JEL: | D82 |
| Date: | 2022–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127377&r= |
| By: | Peter J. Simmons; Nongnuch Tantisantiwong |
| Abstract: | This paper fills the gap in the literature by introducing an efficient, incentive compatible audit policy that can minimise the social loss created by the audit cost while maximising social welfare. We apply this within a loan auditing context, but the method is also applicable to any accounting and tax audit context. We explain why the loan contract design for finance of projects varies between different situations. Each project outcome is random and private information of its individual owner, but reported outcomes can be audited at a cost. Our framework simultaneously determines incentive compatible auditing policies, interest rates and default probabilities to yield an efficient contract design. We show how the socially best loan audit policy and repayments depend on the degrees of information asymmetry and risk correlation between projects, the number of agents in the agreement and the agents’ perception of loan default. |
| Keywords: | Optimal contract, Incentive compatible audit policy, Heterogeneous and correlated risk, Welfare, Loan auditing |
| JEL: | D81 D82 G21 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:22/07&r= |
| By: | Peter J. Simmons; Anna Maria C. Menichini |
| Abstract: | Within a costly state verification model with endogenous audit and commitment, the paper proposes a rationale for joint financing based on the reduction of audit costs. Joint financing dominates separate financing when the incentive effects brought about by optimally chosen variable intensity audits, with the worst outcomes audited intensively and the intermediate ones residually, outweigh the cost of joint financing. This is represented by the extra-deadweight loss due to the unnecessary audit that a successful project may undergo when jointly financed. The result always holds when joint financing involves coinsurance gains -a successful project bails out a failing onebut may also hold under contagion -a succeeding project is dragged down by a failing one. Moreover, it is robust to the sequencing of audits. The paper derives a number of testable predictions relating the emergence of joint financing to project returns, investment cost, bankruptcy costs, quality of accounting standards and timing of audits. |
| Keywords: | contracts, auditing, project Önance, conglomerates. |
| JEL: | D82 D83 D86 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:22/06&r= |