nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2025–03–03
five papers chosen by
Guillem Roig, University of Melbourne


  1. Job Quality, Search, and Optimal Unemployment Contracts By Da Costa, Carlos; Maestri, Lucas; Santos, Cezar
  2. Optimal risk sharing with translation invariant recursive utility for jump-diffusions By Aase, Knut K.
  3. Digital Ecosystems and Data Regulation By Rhodes, Andrew; Zhou, Jidong; Zhou, Junjie
  4. The Effect of Market Information on Market Prices By Khan, Abhimanyu; Pradhan, Sheersh
  5. Disclosure of Verifiable Information under Competition: An Experimental Study By Stefan P. Penczynski; Christian Koch; Sihong Zhang

  1. By: Da Costa, Carlos; Maestri, Lucas; Santos, Cezar
    Abstract: When searching for employment, workers consider non-wage job characteristics, such as effort requirements or amenities. We study an environment where unemployed workers search for jobs of different quality in a labor market characterized by directed search. In equilibrium, firms are more likely to post vacancies for low-quality jobs, as these are more profitable. Hence, high-quality jobs are hard to come across. The non-observability of these employment contracts influences the optimal unemployment insurance (UI) program, leading to distortionary taxation. Calibrating the model to the U.S. economy, we find that non-observability of employment contracts results in faster declining UI benefits, steeper taxes upon re-employment, distortionary taxation, and a 10.5% costlier program than an observable contract scenario providing equal welfare.
    JEL: H21 J64
    Date: 2025–01
    URL: https://d.repec.org/n?u=RePEc:idb:brikps:13974
  2. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We consider optimal risk sharing where agents have preferences represented by translation invariant recursive utility. The dynamics in continuous time is driven by diffusion processes and a random jump measure. The model has some appealing features compared to the scale invariant version. Economic effects of sudden events, like catastrophes or pandemics, can be interpreted and separated from ordinary shocks to the economy. Unlike the scale invariant version, this model allows for a treatment of heterogeneous preferences, and consequently optimal risk sharing at a general and basic level. A new endogenous variable, a traded security, enters via the preference structure, affecting the key relations between agents. We also implement a stock market in this setting, and derive a consumption based capital asset model. A catastrophe-insurance forward contract is analyzed as an application of our general model, where the jump part is priced and plays the essential role.
    Keywords: Optimal risk sharing; recursive utility; translation invariance; jump dynamics; CCAPM; the stochastic maximum principle; the mutuality principle; catastrophe forward contracts
    JEL: C40 C41 C53 R40 R41
    Date: 2025–02–21
    URL: https://d.repec.org/n?u=RePEc:hhs:nhhfms:2025_005
  3. By: Rhodes, Andrew; Zhou, Jidong; Zhou, Junjie
    Abstract: This paper provides a framework in which a multiproduct ecosystem competes with many single-product firms in both price and innovation. The ecosystem is able to use data collected on one product to improve the quality of its other products. We study the impact of data regulation which either restricts the ecosystem’s cross-product data usage, or which requires it to share data with small firms. Each policy induces small firms to innovate more and set higher prices; it also dampens data spillovers within the ecosystem, reduces the ecosystem’s incentive to collect data and innovate, and potentially increases its prices. As a result, data regulation has an ambiguous impact on consumers, and is more likely to benefit consumers when small firms are relatively more efficient in innovation. A data cooperative among small firms, which helps them to share data with each other, does not necessarily benefit small firms and can even harm consumers.
    Keywords: digital ecosystems; innovation; data regulation; data cooperative
    JEL: D43 L13 L51
    Date: 2025–02
    URL: https://d.repec.org/n?u=RePEc:tse:wpaper:130354
  4. By: Khan, Abhimanyu; Pradhan, Sheersh
    Abstract: Empirical studies on the effect of internet on market prices report that market prices have not always reduced in response to increased competition that is induced by the easily and relatively costlessly available market information. In this paper, we provide an explanation for why prices of all goods may not reduce, and in fact, price of some goods may even increase in presence of more market information. Market information not only induces stiffer competition amongst sellers but also makes for better matches between consumers and producers. While the former feature has a tendency to reduce prices, the latter feature may in fact cause prices to rise. The direction in which prices change as more information becomes available depends on the balance of these forces. We analyse this in context of a differentiated market, and characterise how prices change in response to freely available market information.
    Keywords: price competition, product match, information, differentiated market
    JEL: D43 L13
    Date: 2025–02–01
    URL: https://d.repec.org/n?u=RePEc:pra:mprapa:123522
  5. By: Stefan P. Penczynski (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia); Christian Koch (Department of Economics, University of Vienna); Sihong Zhang (McKinsey & Company, Inc.)
    Abstract: This study investigates experimentally information disclosure in settings with and without seller competition. Sellers often choose to report information selec-tively and buyers account for this—even though not fully—by bidding skeptically. As expected, competition increases sellers’ information disclosure but leads, sur-prisingly and replicably, to more buyer na¨ıvety, offsetting the welfare benefits from improved disclosure. A framing effect generates this result: merely describing a situation as competitive rather than monopolistic alters buyer behavior. Akin to the so-called Peltzman effect, buyers seemingly perceive competition as a safer en-vironment to which they behaviorally adapt by abandoning their skepticism. Con-sequently, consumer benefits hinge on perceived competitiveness—a vulnerability firms may leverage to their advantage.
    Keywords: Disclosure, verifiable information, competition, Peltzman effect
    JEL: D40 D83
    Date: 2025–02
    URL: https://d.repec.org/n?u=RePEc:uea:wcbess:25-01

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