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on Contract Theory and Applications |
| By: | Zongxia Liang; Zhaojie Ren; Bin Zou |
| Abstract: | This paper studies an optimal insurance problem for a utility-maximizing buyer of insurance, subject to the seller's endogenous default and background risk. An endogenous default occurs when the buyer's contractual indemnity exceeds the seller's available reserve, which is random due to the background risk. We obtain an analytical solution to the optimal contract for two types of contracts, differentiated by whether their indemnity functions depend on the seller's background risk. The results shed light on the joint effect of the seller's default and background risk on the buyer's insurance demand. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.05672 |
| By: | Albin Erlanson; Andreas Kleiner |
| Abstract: | A principal has m identical objects to allocate among a group of n agents. Objects are desirable and the principal's value of assigning an object to an agent is the agent's private information. The principal can verify up to k agents, where k |
| Keywords: | Mechanism Design with Evidence; Allocations; Verification |
| JEL: | D82 D71 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_630 |
| By: | Wataru Tamura |
| Abstract: | This paper examines the optimal design of information sharing in organizations. Organizational performance depends on agents adapting to uncertain external environments while coordinating their actions, where coordination incentives and synergies are modeled as graphs (networks). The equilibrium strategies and the principal's objective function are summarized using Laplacian matrices of these graphs. I formulate a Bayesian persuasion problem to determine the optimal public signal and show that it comprises a set of statistics on local states, necessarily including their average, which serves as the organizational goal. When the principal benefits equally from the coordination of any two agents, the choice of disclosed statistics is based on the Laplacian eigenvectors and eigenvalues of the incentive graph. The algebraic connectivity (the second smallest Laplacian eigenvalue) determines the condition for full revelation, while the Laplacian spectral radius (the largest Laplacian eigenvalue) establishes the condition for minimum transparency, where only the average state is disclosed. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12669 |
| By: | Gorkem Celik (ESSEC); Strausz Roland (HU Berlin) |
| Abstract: | We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information. |
| Keywords: | certification; disclosure; screening; information acquisition; monopolistic distortions; |
| JEL: | D82 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:525 |