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on Contract Theory and Applications |
| By: | Jessica Martin (IMT - Institut de Mathématiques de Toulouse UMR5219 - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique); Stéphane Villeneuve (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | What type of delegation contract should be offered when facing a risk of the magnitude of the pandemic we are currently experiencing and how does the likelihood of an exogenous early termination of the relationship modify the terms of a full-commitment contract? We study these questions by considering a dynamic principal-agent model that naturally extends the classical Holmström-Milgrom setting to include a risk of shutdown before the maturity of the contract. We obtain an explicit characterization of the optimal wage along with the optimal action provided by the agent when the shutdown risk is independent of the inherent agency problem. The optimal contract is linear by offering both a fixed share of the output which is similar to the standard shutdown-free Holmström Milgrom model and a linear prevention mechanism that is proportional to the random lifetime of the contract. We then extend the model in two directions. We first allow the agent to control the intensity of the shutdown risk. We also consider a structural agency model where the shutdown risk materializes when the state process hits zero. |
| Keywords: | Principal-Agent problems, Shutdown risk, Hamilton-Jacobi Bellman equations |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04164688&r=cta |
| By: | Sauvant, Karl P.; Tsang, Vanessa S. W.; Wells, Louis T. |
| Abstract: | Efforts to build specialized skills in government for negotiating international investment contracts often have little value for reasons discussed in this Perspective; even private firms hire advisors for skills needed infrequently. However, the Perspective proposes special circumstances and broader topics for which capacity building is likely to be useful. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:colfdi:359&r=cta |
| By: | Giuseppe Dari-Mattiacci Author-Workplace-Name :University of Amsterdam; Sander Onderstal Author-Workplace-Name :University of Amsterdam; Francesco Parisi Author-Workplace-Name :University of Minnesota; Ram Singh (Department of Economics, Delhi School of Economicss, University of Delhi) |
| Abstract: | Contract law traditionally applies different disclosure duties on buyers and sellers. Sellers are generally required to disclose “negative” information about hidden defects of the products they sell. Failure to disclose can make the contract voidable and can give rise to liability. By contrast, buyers are generally under no comparable duties to disclose “positive” information about hidden qualities of the products they buy. The leading explanation for the law’s disparate treatment of buyers and sellers in these two asymmetric information problems is that imposing disclosure duties on buyers would undermine their incentives to acquire costly (but socially useful) information prior to forming a contract (Kronman, 1978). This explanation lacks a key step—the failure to correct asymmetric information problems would cause the inverse adverse selection problem (identified by Burckart and Lee (2016) and Dari-Mattiacci et al. (2021)) to arise. Uninformed sellers would withdraw from the market and resources would not move to higher-valuing users. In this paper, we develop a model to study the incentives created by disclosure and non-disclosure rules. We show that when parties can contract around defaults, the choice of alternative disclosure rules (duty to disclose vs. no duty to disclose) makes a difference. Unlike disclosure rules, non-disclosure default rules yield partially separating equilibria that preserve the buyers’ incentives to acquire information. They also foster trade opportunities between expert buyers and uninformed sellers. Our results add to the existing literature by providing an additional rationale for the different treatment of buyers and sellers in asymmetric information problems. JEL Codes : D44, D82, D86, K12. |
| Keywords: | asymmetric information, penalty default rules, inverse adverse selection |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:338&r=cta |
| By: | Yannai A. Gonczarowski; Ori Heffetz; Clayton Thomas |
| Abstract: | A menu description presents a mechanism to player i in two steps. Step (1) uses the reports of other players to describe i’s menu: the set of i’s potential outcomes. Step (2) uses i’s report to select i’s favorite outcome from her menu. Can menu descriptions better expose strategyproofness, without sacrificing simplicity? We propose a new, simple menu description of Deferred Acceptance. We prove that—in contrast with other common matching mechanisms—this menu description must differ substantially from the corresponding traditional description. We demonstrate, with a lab experiment on two elementary mechanisms, the promise and challenges of menu descriptions. |
| JEL: | D47 D82 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31506&r=cta |