Contracting Outcomes with Communication and Learning

2020 ◽  
Vol 8 (1) ◽  
pp. 18-43
Author(s):  
Priyodorshi Banerjee ◽  
P. Srikant ◽  
Sujoy Chakravarty
Keyword(s):  
Communication Protocols ◽  
Optimal Strategies ◽  
The Other ◽  
Principal Agent ◽  
Efficiency Gains ◽  
Jel Codes ◽  
Incomplete Contracting ◽  
Ex Post

We show that allowing communication can increase optimal choices and efficiency in a multitask, incomplete contracting, principal–agent setting. We study two simple communication protocols, one allowing for one or more requests on non-contractible choices, and the other allowing for a request, promise and ex post payment. The protocol where principals are asked to communicate requests to the agent regarding non-contractible choices promotes better learning of optimal strategies on the part of the principals, but shows no tendency for coordination to superior outcomes. The benefits accrue mainly due to changes in the choices of principals, who issue communication, rather than those of agents. Coordination is promoted, and learning subdued, when the protocol permits promises and ex post payments, in addition to allowing a request. This protocol also increases efficiency, with the efficiency gains equal across the protocols. JEL Codes: L14, C91

scholarly journals Asymmetric awareness and heterogeneous agents

2020 ◽  
Vol 32 (4) ◽  
pp. 461-484
Author(s):  
Antoine Dubus
Keyword(s):  
Moral Hazard ◽  
Heterogeneous Agents ◽  
Contract Design ◽  
The Other ◽  
Principal Agent ◽  
Optimal Contract ◽  
Jel Codes ◽  
Agent Model ◽  
Principal Agent Model

We consider a principal-agent model with moral-hazard and asymmetric awareness and show how the heterogeneity of agents on their aversion to effort affects contract design. We discuss the optimal contract adopted when a principal is aware of all the impacts of an agent’s action, while agents ignore some of them. When a principal faces two types of agents, where one type is more effort-averse than the other, the equilibrium contract is shaped by agent proportions: it pools the agents, separates them, or excludes the more effort-averse agents from the contract. When efforts are observable, all the agents remain unaware, while when efforts are hidden, a principal increases the awareness of the agents to a level commensurate with the nature of the contract. JEL Codes – D82; D83; D86

Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy

2018 ◽  
pp. 49-68 ◽  
Author(s):  
M. E. Mamonov
Keyword(s):  
Credit Risk ◽  
The Other ◽  
Real Sector ◽  
Capital Management ◽  
Loan Loss ◽  
Short Term ◽  
The Real ◽  
Ex Post ◽  
The One

Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.

Investments and Risk Transfers

2017 ◽  
Vol 92 (6) ◽  
pp. 1-23 ◽  
Author(s):  
Tim Baldenius ◽  
Beatrice Michaeli
Keyword(s):  
Moral Hazard ◽  
Risk Premium ◽  
Bargaining Power ◽  
Risk Premia ◽  
The Other ◽  
Investment Risk ◽  
Incomplete Contracting ◽  
Risk Transfer ◽  
Specific Investments ◽  
Division Managers

ABSTRACT We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the compensation risk borne by the managers. Accounting for this investment/risk link overturns key findings from prior incomplete contracting studies. We find that if the investing manager has full bargaining power vis-à-vis the other manager, he will underinvest relative to the benchmark of contractible investments; with equal bargaining power, however, he may overinvest. The reason is that the investing manager internalizes only his own share of the investment-induced risk premium (we label this a “risk transfer”), whereas the principal internalizes both managers' incremental risk premia. We show that high pay-performance sensitivity (PPS) reduces the managers' incentives to invest in relationship-specific assets. The optimal PPS, thus, trades off investment and effort incentives.

scholarly journals The game of Double-Silver on intervals

2001 ◽  
Vol 26 (8) ◽  
pp. 485-496 ◽  
Author(s):  
Gerald A. Heuer
Keyword(s):  
Measure Zero ◽  
Optimal Strategies ◽  
The Other ◽  
Parameter Plane ◽  
Left Endpoint ◽  
Relative Placement ◽  
Special Case

Silverman's game on intervals was analyzed in a special case by Evans, and later more extensively by Heuer and Leopold-Wildburger, who found that optimal strategies exist (and gave them) quite generally when the intervals have no endpoints in common. They exist in about half the parameter plane when the intervals have a left endpoint or a right endpoint, but not both, in common, and (as Evans had earlier found) exist only on a set of measure zero in this plane if the intervals are identical. The game of Double-Silver, where each player has its own threshold and penalty, is examined. There are several combinations of conditions on relative placement of the intervals, the thresholds and penalties under which optimal strategies exist and are found. The indications are that in the other cases no optimal strategies exist.

scholarly journals Partner Uncertainty and the Dynamic Boundary of the Firm

2017 ◽  
Vol 9 (4) ◽  
pp. 277-302 ◽  
Author(s):  
Thomas Hellmann ◽  
Veikko Thiele
Keyword(s):  
Asset Specificity ◽  
The Other ◽  
Trade Off ◽  
Specific Investments ◽  
Dynamic Boundary ◽  
Ex Post ◽  
Ex Ante

We develop a new theory of the dynamic boundary of the firm where asset owners may want to change partners ex post. We identify a fundamental trade-off between (i) a “displacement externality” under non-integration, where a partner leaves a relationship even though his benefit is worth less than the loss to the displaced partner, and (ii) a “retention externality” under integration, where a partner inefficiently retains the other. With more asset specificity, displacement externalities matter more and retention externalities less, so that integration becomes more attractive. Wealth can resolve ex post inefficient partner arrangements, but may weaken ex ante incentives for specific investments. (JEL D21, D23, D25, D62, D86, G31)

Empirical Evidence on the Economic Impacts of Hotel Taxes

2021 ◽  
pp. 089124242110461
Author(s):  
Charles Swenson
Keyword(s):  
United States ◽  
Credit Ratings ◽  
The United States ◽  
The Other ◽  
Tax Rate ◽  
Ex Post ◽  
Level Data ◽  
Data Source ◽  
Dun And Bradstreet ◽  
Occupancy Rates

Tourist taxes are an important source of revenue for many governments. In the United States, all states impose them in the form of hotel/motel occupancy taxes, yet there is little ex post evidence as to whether such taxes affect occupancy rates. This study uses a precise establishment-level data source to examine California's varying rates by city, enabling powerful tests. The author finds that such taxes have negligible impacts on hotel sales and employment. On the other hand, hotels/motels operating in higher tax-rate cities tended to have more financial stress in terms of lower Dun and Bradstreet credit ratings.

The Sonic Pathfinder: An Evaluation

1984 ◽  
Vol 78 (5) ◽  
pp. 203-206 ◽  
Author(s):  
Allan G. Dodds ◽  
David D. Clark-Carter ◽  
C. Ian Howarth
Keyword(s):  
Optimal Strategies ◽  
Objective Evaluation ◽  
The Other ◽  
Central Position ◽  
Behavioral Measures ◽  
Environmental Sounds ◽  
Mobility Aid

This article describes an objective evaluation of a new ultrasonic mobility aid using two complementary procedures: one based on existing behavioral measures; the other, on the analysis of a user's comments. The results showed that use of the aid changes mobility in many ways: e.g., users make fewer physical contacts with the environment and stay in a more central position on the sidewalk. Although their perception of environmental sounds was reduced, this was not reflected in performance. Some users traveled quickly and smoothly with the aid, but the majority traveled more slowly and exhibited less than optimal strategies. Further modifications of the device and improved training procedures are discussed.

Increasing the reliability of a machine reduces the period of its work

1996 ◽  
Vol 33 (01) ◽  
pp. 217-223
Author(s):  
Isaac M. Sonin
Keyword(s):  
Optimal Strategies ◽  
The Other ◽  
Replacement Model ◽  
Cost Characteristics

The comparison of optimal strategies in a simple stochastic replacement model for two types of machines with identical cost characteristics when one of them is more reliable than the other is conducted. It is proven that the scheduled replacement period for the more reliable type is always less than for the less reliable one. An example is presented when even the expected period of use of a more reliable machine is less than the expected period for the less reliable one. Some related problems are briefly discussed.

scholarly journals Social Influence of Competing Groups and Leaders in Opinion Dynamics

2020 ◽  
Author(s):  
Catherine A. Glass ◽  
David H. Glass
Keyword(s):  
Social Influence ◽  
Group Size ◽  
Computer Simulations ◽  
Parameter Space ◽  
Optimal Strategies ◽  
Opinion Dynamics ◽  
The Other ◽  
Opinion Leaders ◽  
The Impact

Abstract This paper explores the influence of two competing stubborn agent groups on the opinion dynamics of normal agents. Computer simulations are used to investigate the parameter space systematically in order to determine the impact of group size and extremeness on the dynamics and identify optimal strategies for maximizing numbers of followers and social influence. Results show that (a) there are many cases where a group that is neither too large nor too small and neither too extreme nor too central achieves the best outcome, (b) stubborn groups can have a moderating, rather than polarizing, effect on the society in a range of circumstances, and (c) small changes in parameters can lead to transitions from a state where one stubborn group attracts all the normal agents to a state where the other group does so. We also explore how these findings can be interpreted in terms of opinion leaders, truth, and campaigns.

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