collusion and discrimination in organizations abstract in a principal multi agent setting we investigate how optimal contracts should be modified under relative performance evaluation when agents collude agents may write side contracts which are not contingent on their effort choices but indirectly control them through side transfers we show that the optimal collusion proof contract is to introduce a discriminatory policy in the sense that the wage schemes offered to agents depend on their identities even if they are identical with respect to productive abilities such discriminatory wage schemes explain the organizational strategy of divide and conquer as an optimal response to collusion

multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

an r d race with knowledge accumulation i develop a model of an r d race with knowledge accumulation my model does not inherit the memorylessness property of the exponential distribution that troubles existing models of r d races hence firms knowledge stocks are no longer irrelevant to their behavior during the r d race and knowledge accumulation has strategic implications in this more general setting i obtain results that stand in marked contrast to the previous literature in particular under some conditions the firm that is behind in the race engages in catch up behavior this pattern of strategic interactions action reaction is consistent with empirical research copyright 2003 by the rand corporation

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

limited intertemporal commitment and job design abstract the paper shows that some of the guidelines for job design that emerge from a static analysis of the multitask agency problem can be overturned in a dynamic model with limited commitment static analyses have shown that it is optimal to assign workers sole responsibility for tasks and to allocate them tasks which are as homogeneous as possible with respect to the ease of measuring performance our dynamic analysis demonstrates that it can instead be optimal to make workers jointly responsible for tasks and to make their task portfolios as similar to one another but as internally diverse as possible

collusion and renegotiation in a principal supervisor agent relationship this paper describes a principal agent relationship with a supervisor who has information about the agent the agent and the supervisor have the possibility to collude and misinform the principal from the literature we know that there exists an optimal contract which excludes collusion in equilibrium the optimal contract however is ex post inefficient and creates scope for renegotiation if renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion the paper thus shows that the principal s behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

endogenous formation of coalitions in a model of a race abstract this paper examines the endogenous formation of coalitions among symmetric firms who are racing to innovate a new product or process the probability of success depends on a coalition s research intensity which in turn depends on the r d of member firms forming joint ventures allows firms to maintain a higher research intensity and increase their probability of success we characterize the equilibrium coalition structure when the innovation is drastic as well as non drastic and examine its variation with respect to input spillovers and imperfect appropriability of benefits we also compare equilibrium and efficient coalition structures

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

asymmetric all pay auctions with incomplete information the two player case abstract we prove existence and uniqueness of bayesian equilibrium for a class of generally asymmetric all pay auctions with incomplete information due to its importance in applications some prominence is given to the first price all pay auction for which a detailed characterization of equilibrium and an approximation to equilibrium of its well studied complete information version are supplied furthermore we relate our uniqueness result to the well known multiplicity of equilibria in the war of attrition second price all pay auction which emerges as a limit point of the class of two player auction games considered journalof economic literature classification numbers d44 c62 c72

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

patent races and the persistence of monopoly patent races are important determinants of market structure for a new firm a patent can be an entry ticket into the market for an incumbent firm already in the market patents for related technologies can ensure that no new firm enters in this spirit recent work has explored the implications of patenting for the persistence of monopoly see for example dasgupta i982 gilbert i98i gilbert and newbery i982 much attention has been given to pre emptive patenting the strategic acquisition of patents by an incumbent firm solely to prevent potential rivals from entering the market in this context it is important to distinguish between two kinds of patent race a standard race is a competition in which a prize is awarded to the first player to reach the finishing line an asymmetrical race is a competition in which one player loses something of value if one of his rivals reaches the finishing line he is content if nobody wins but a prize is won by the first of the other players to reach the finishing line if any of them does so a patent race in which an incumbent firm s sole concern is to prevent potential rivals from entering his market is an asymmetrical race and not a standard race the distinction between the two kinds of race can be captured only in models with a sufficiently rich dynamic structure this and other advantages of a properly dynamic model are explained in section ii a model of an asymmetrical race with two firms is presented in section iii in this model the challenger wins a prize and the incumbent loses a prize if the challenger is first to reach the finishing line it is shown that the challenger is often automatically deterred from making any effort to win the race because the strategic interactions between the players are such that the incumbent would outdo any reasonable effort made by the challenger in order to stop the challenger being first to reach the finishing line then the incumbent has no need to make any effort in the race in order to maintain his existing monopoly the reason is that the incumbent unlike the challenger does not need to go all the way to the finishing line to achieve his objective on the other hand it may be truedepending on the parameters describing the firmsthat the challenger wins the patent proceeding to the finishing line just as if he were the only contender for the patent of particular interest is the case in which the firms are identical

asymmetric outcome in a symmetric dynamic duopoly abstract in a dynamic duopoly will an initial asymmetry between firms increase or decrease over time we examine this issue within a stochastic dynamic alternate move duopoly model that explicitly accounts for action and reaction between firms we consider two firms that are symmetric with regard to all primitives such as demand cost and production functions and which are subject to the same stochastic environment the only asymmetry is with regard to their initial capital stocks which in turn asymmetrically influences their current and future profit and investment possibilities we offer a characterization of the stochastic steady state and its supporting ergodic set for each firm we are then able to identify the precise restrictions on the initial conditions under which the two firms either converge or diverge in the long run

information extraction and norms of mutual protection abstract we study a class of moral hazard economies in which a principal interacts with several agents in these economies first best allocations can be implemented via full information extraction when side trades between agents can be restricted when instead side trades cannot be restricted the ability of the principal to extract information from the agents is severely hampered in this context side trades take the form of informal contracts which can be directly interpreted as norms of mutual protection which are indeed quite common among extended family members as well as inside various social political and religious groups

group decision making in the shadow of disagreement abstract a model of group decision making is studied in which one of two alternatives must be chosen while agents differ in their preferences over alternatives everybody prefers agreement to disagreement our model is distinguished by three features private information regarding valuations differing intensities in preferences and the option to declare neutrality to avoid disagreement there is always an equilibrium in which the majority is more aggressive in pushing its alternative thus enforcing their will via both numbers and voice however under general conditions an aggressive minority equilibrium inevitably makes an appearance provided that the group is large enough such equilibria invariably display a tyranny of the minority the increased aggression of the minority always outweighs their smaller number leading to the minority outcome being implemented with larger probability than the majority alternative we fully characterize the asymptotic behavior of this model as group size becomes large and show that all equilibria must converge to one of three possible limit outcomes

an empirical test of the asymmetric models on innovative activity who invests more into r d the incumbent or the challenger the theoretical discussion concerning the question whether the incumbent or the potential entrant invests more into r d has attracted considerable interest this paper reports the results of an empirical study on this question using data of about 3500 german firms over the years 1992 to 1995 the survey explicitly asks the firms for their motives to undertake innovative activity it is thus possible to take account of intended not just completed market entry it turns out that the challenger invests more into r d in order to enter a new market than the incumbent thus the patent racing model by reinganum and others seems to characterize innovative activity more accurately than the competing auction model of gilbert and newbery we use a heteroscedastic tobit as well as a tobit model with selectivity in order to deal with the econometric problems of double censoring

firm reputation and horizontal integration author s cai hongbin abstract we study effects of horizontal integration on firm reputation in an environment where customers observe only imperfect signals about firms effort quality choices firms cannot maintain reputations of high quality and earn quality premium forever even when firms are choosing high quality effort there is always a possibility that a bad signal is observed in this case firms must give up their quality premium at least temporarily as punishment a firm s integration decision is based on the extent to which integration attenuates this necessary cost of maintaining a good reputation horizontal integration leads to a larger market base for the merged firm and may allow better monitoring of the firm s choices hence improving the punishment scheme for deviations on the other hand it gives the merged firm more room for sophisticated derivations we characterize the optimal level of integration and provide sufficient conditions under which nonintegration dominates integration we show that the optimal size of the firm is smaller when 1 trades are more frequent and information is disseminated more rapidly or 2 the deviation gain is smaller than the honesty benefit or 3 customer information about firm choices is more precise

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

efficiency results in n player games with imperfect private monitoring abstract we demonstrate that efficiency is achievable in a certain class of n player repeated games with private almost perfect monitoring our equilibrium requires only one period memory and can be implemented by two state automata furthermore we show that this efficiency result holds with any degree of accuracy of monitoring if private signals are hemiindependent whereas most existing research focuses on two player cases or only a special example of n player games our results are applicable to a wide range of n player games of economic relevance such as trading goods games and price setting oligopolies

joint liability versus individual liability in credit contracts abstract i offer an explanation for the coexistence of joint liability and individual liability microcredit contracts i show that both contracts maximize welfare when credit is rationed due to limited liability but for different borrowers borrowers monitor each other when liability is joint while the lender monitors individual loans joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender individual liability offers the wealthier among credit constrained borrowers larger loans even without monitoring the theory explains why individual loans serve the wealthier among poor borrowers and are larger and why businesses funded with individual loans grow more

a dynamic duopoly investment game without commitment under uncertain market expansion abstract we model capacity building investments in a homogeneous product duopoly facing uncertain demand growth capacity building is achieved through the addition of production units that are durable and lumpy and whose cost is irreversible while building their capacity over time firms compete a la cournot in the product market given their installed capacity there is no exogenous order of moves no commitment regarding future decisions and no finite horizon we investigate markov perfect equilibrium mpe paths of the investment game which may include episodes during which firms invest at different times a preemption pattern and episodes in which firms invest simultaneously a tacit collusion pattern these episodes may alternate and are typically several when firms have yet to invest in capacity the sole pattern that is mpe compatible is a preemption episode firms invest at different times but have equal value the first such investment may occur earlier and therefore be riskier than socially optimal when both firms hold capacity tacit collusion episodes may be mpe compatible firms invest simultaneously at a postponed time hence holding back production in the meantime thereby generating an investment wave in the industry such investment episodes are more likely with higher demand volatility faster market growth and lower cost of capital discount rate

the risk of contagion from multimarket contact abstract it is conventional wisdom that the strategic linkage of markets that is enabled by multimarket contact typically increases the profitability of cooperation among rivals we find to the contrary that a strong force against strategic linkage results from imperfect monitoring of adherence to cooperation with such imperfections strategically linking markets can lower payoffs by permitting the impact of adverse shocks in one market to spread to others consequently players of repeated games on more than one front may find it strictly advantageous to avoid linking strategies on a front with clear monitoring to outcomes on a front with error prone monitoring one implication is that antitrust competitive strategy and foreign policy analyses have presumed too broadly that multimarket contact fosters cooperation the game theoretic equilibria characterized here shed light on why players such as firms and nations sometimes strategically link fronts in their rivalry and sometimes take care to articulate that some fronts of particularly volatile conflicting interests will not trigger broader adverse moves against the rival

do prediction markets aid defenders in a weak link contest abstract laboratory experiments have demonstrated that prediction market prices weakly aggregate the disparate information of the traders about states moves of nature however in many practical applications one is attempting to predict the move of a strategic rival this is particularly important in aggressor defender contests this paper reports an experiment where the defender may have the advantage of observing a prediction market on the aggressor s action the results of the experiments indicate that the use of prediction markets does not increase the defender s win rate prediction markets contain reliable information regarding aggressors decisions that is not being exploited by defenders and the existence of a prediction market does not alter the behavior of the aggressor whose behavior is being forecast

efficiency despite mutually payoff relevant private information the finite case individuals have or observe partly private information they independently choose acts possibly including messages the center may also act individuals utilities may depend on all acts and information including others private information are there incentives depending only on public information that make desired behavior a bayesian equilibrium assume incentive payments are separable and fully transferable appropriate incentives exisit either if the center s information depends stochastically however slightly on all relevant private information or if individuals relative valuations of acts however divergent are not too dissimilarly affected by different states of nature more generally one gives necessary and sufficient conditions for existence whenever the strategy profile asks agents to reveal all private knowledge relevant to their beliefs about the center s information

endogenous groups and dynamic selection in mechanism design abstract we create a dynamic theory of endogenous risk sharing groups with good internal information and their coexistence with relative performance individualistic regimes which are informationally more opaque inequality and organizational form are determined simultaneously numerical techniques and succinct reformulations of mechanism design problems with suitable choice of promised utilities allow the computation of a stochastic steady state and its transitions regions of low inequality and moderate to high wealth utility promises produce the relative performance regime while regions of high inequality and low wealth produce the risk sharing group regime if there is a cost to prevent coalitions risk sharing groups emerge at high wealth levels also transitions from the relative performance regime to the group regime tend to occur when rewards to observed outputs exacerbate inequality while transitions from the group regime to the relative performance regime tend to come with a decrease in utility promises some regions of inequality and wealth deliver long term persistence of organization form and inequality while other regions deliver high levels of volatility

bundling decisions in procurement auctions with sequential tasks abstract this paper investigates the principal s bundling decision during a procurement auction for a project consisting of two sequential tasks in which task externality exists and information arrives sequentially we show that although increasing the number of bidders in the market for the second task always tilts the principal s choice toward unbundling increasing the number of consortiums that can perform both tasks tilts the principal s preference toward bundling if the externality is negative

beneficial collusion in corruption control the case of nonmonetary penalties abstract we analyze a corruption model where a principal seeks to control an agent s corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor the principal s objective is to minimize the overall costs made up of enforcement costs and social costs of corruption if the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side transfers the principal may stand to benefit by allowing supervisor agent collusion this benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor

collusion delegation and supervision with soft information this paper derives an equivalence principle between organizational forms of supervisory and productive activities we consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent s type in a centralized organization the principal can communicate and contract with both the supervisor and the agent however these two agents can collude against the principal in a decentralized organization the principal only communicates and contracts with the supervisor who in turn sub contracts with the agent we show that the two organizations achieve the same outcome we discuss this equivalence and provide various comparative statics results to assess the e ciency of supervisory structures

role of linking mechanisms in multitask agency with hidden information we investigate the adverse selection problem where a principal delegates multiple tasks to an agent we characterize the virtually implementable social choice functions by using the linking mechanism proposed by jackson and sonnenschein 2007 that restricts the message spaces the principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss we show the resemblance between the functioning of this message space restriction and that of incentive wage schemes we also extend the results of the single agent model to the multi agent model

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

to build or not to build normative and positive theories of public private partnerships abstract this paper analyzes whether the two tasks of building infrastructures which are socially useful in providing public services and managing these assets should be bundled or not when performance contracts can be written both tasks should be performed altogether by the same firm if a better design of the infrastructure helps also to save on operating costs otherwise tasks should be kept apart and undertaken by different units in incomplete contracting environments we isolate conditions under which either the traditional form of public provision of services or the more fashionable public private partnership emerges optimally the latter dominates when there is a positive externality and the private benefits from owning assets are small enough finally we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision makers much of the gains from bundling may be lost in this case

collusion in organizations the principal agent theory developed in the 1980s has produced a large set of insights for understanding how contracts can be established within organizations this theory explains how a principal who offers a contract to an agent should structure this contract to overcome at least partially the asymmetries of information he faces by now optimal contracts with adverse selection or hidden knowledge with moral hazard or hidden action or with nonverifiability by a third party of some variables known ex post by both the principal and the agent are relatively well understood despite insightful extensions to multiagent or multiprincipal organizations this body of knowledge falls short of a comprehensive theory of organizations one major reason beyond the restrictive nature of the organizations studied lies in the noncooperative approach generally followed to model multiagent settings indeed in this standard paradigm the cooperation of agents desired by the principal can be induced by the contracts he offers to the agents each of them maximizing his own welfare given the behavior of the other agents what remains is that the principal has complete control of the game played by the agents unwanted communication or side contracting between agents can be prevented this is a rather unrealistic assumption contract theory teaches us that the principal structures the contracts so as to minimize the informational rents given up to the agents because of their informational advantages it is quite natural to expect a collective reaction on the part of the agents to protect their rents we need to understand how agents can react to the rules of an organization and beyond to understand how a principal who is aware of the incentives for collusion should design the organization modeling coalitional or collusive behavior and characterizing the regulatory responses to such behavior is a major task of organization theory the empirical relevance of this line of work is easy to establish a clear example is that of auctions for which the occurrence of cooperative behavior between bidders is a general and well documented phenomenon see porter and zona 1993

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

optimal collusion under imperfect monitoring in multimarket contact abstract we investigate optimal collusion in repeated multimarket contact under imperfect public monitoring where two firms operate in m markets and in each market each firm s decision and public signals are binary we show that in an optimal pure strategy strongly symmetric perfect public equilibrium the size of efficiency loss is equal to that in the market with the most tempting deviation under single market contact furthermore we show a sufficient condition under which the symmetric equilibrium is optimal for joint payoff maximization among any perfect public equilibrium

patent competition rent dissipation and the persistence of monopoly the role of research budgets abstract the paper investigates how patent rights can contribute to the persistence of monopoly patent competition is modelled as a dollar auction game between two firms incumbent and entrant any bid expenditure on r d in the game constitutes sunk cost whose total amount is constrained by fixed research budgets the explicit solution subgame perfect equilibrium determines who wins the patent and how the winning expenditures depend on order of play and budgets of firms the entrant can win if he moves first and has the higher budget rent may or may not be dissipated by the competition

correlated types and bayesian incentive compatible mechanisms with budget balance abstract this note presents a condition which guarantees the existence of a bayesian incentive compatible mechanism with budget balance when agents have quasi linear utility functions this condition requires correlation among agents private signals types and is 1 simple and easy to verify 2 good for any decision rule whether efficient or not 3 valid even if agents types are mutually payoff relevant and 4 true for almost every probability distribution of agents types journal of economic literatureclassification numbers c72 d82

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

on the theory of repeated games with private information part ii revelation through communication abstract we consider repeated games with private information discounting and communication similarly to abreu et al 1986 1987 we characterize supergame equilibrium allocations with truthful revelation in the two player case efficiency cannot be attained with supergame equilibria with truthful revelation

overcoming incentive constraints by linking decisions consider a bayesian collective decision problem in which the preferences of agents are private information we provide a general demonstration that the utility costs associated with incentive constraints become negligible when the decision problem is linked with a large number of independent copies of itself this is established by defining a mechanism in which agents must budget their representations of preferences so that the frequency of preferences across problems mirrors the underlying distribution of preferences and then arguing that agents incentives are to satisfy their budget by being as truthful as possible we also show that all equilibria of the linking mechanisms converge to the target utility levels the mechanisms do not require transferable utility or interpersonal comparisons of utility and are immune to manipulations by coalitions

reducing incremental costs associated with the delegation of incentive contracting decisions an analysis of planning and control decisions in a manufacturing setting in the presence of moral hazard abstract we compare and contrast two specific regimes involving the centralization and delegation of the incentive contracting decision in manufacturing organizations in the centralization regime a single individual simultaneously makes the allocation of demand to production facilities and determines the incentive compensation scheme for the managers at the facilities under the delegation regime the demand allocation is decided upon initially by a superior and the incentive contracting decision is subsequently made by a subordinate who is neither of the two managers in charge of the production facilities using the principal agent paradigm which assumes that the managerial efforts are unobservable we demonstrate that the centralization regime performs no worse than the delegation regime for situations where strategic or other requirements necessitate firms to opt for the delegation of the incentive contracting decision we propose a heuristic that significantly increases the likelihood of mimicking the allocation and contracting decisions made under the centralized regime

privatization in theory and practice privatization george yarrow this paper examines the theoretical and empirical case for private versus public ownership privatization usually leads managers to place greater emphasis on the pursuit of profits however whether this is beneficial to society depends on the trade off between possible market failures due to a lack of competition and deficiencies in government control of public firms the competitive and regulatory environment is more important than the question of ownership per se in competitive markets there is a presumption in favour of private ownership where there is a natural monopoly vigorous regulatory action is required the evidence suggests that privatization has led to improved performance by firms such as the national freight corporation and cable and wireless which operate in a relatively competitive environment the benefits are less clear in the case of firms like bp britoil and british aerospace however the most worrying case is that of british telecom and the projected privatization of british gas where little thought has been given to limiting the abuse of monopoly power rather the regulatory environment has been tailored to the needs of the existing management and to ensuring a successful share flotation privatization is also advanced as a weapon for reducing trade union power encouraging wider share ownership redistributing wealth and improving the public finances however there are other policy instruments better suited to achieving these objectives the existing privatization programme has not led to a marked widening of share ownership and has resulted in windfall gains to a small group of investors at the expense of taxpayers in general

correlation and relative performance evaluation this paper reexamines the issue of relative versus joint incentive schemes in a multi agent moral hazard framework the model allows a full analysis of the information and dependence structure an important result is that the widespread notion that greater correlation in outcomes calls for more competition is not robust first when the dependence structure is effort sensitive the optimal incentive scheme in general mixes elements of relative evaluation and joint evaluation second under limited liability higher equilibrium correlation tends to make joint performance evaluation more desirable examples are provided regarding incentives in firms finance and innovation

cooperation and competition in organizations a dynamic perspective abstract in static principal agent relationships cooperation and competition among agents both yield higher welfare than independent compensation both modes of job design improve the tradeoff between risk and explicit incentives in dynamic settings welfare is also affected by implicit incentives in particular the ratchet effect i characterize the effects of job design decisions on implicit incentives showing that they differ in nature from explicit incentive effects and may be the dominant ones even if a decision about job design improves the static risk incentive tradeoff it may worsen the ratchet effect by so much that welfare falls

decentralization and collusion abstract we consider a model where agents work in sequence on a project share information not available to the principal and can collude due to limited liability the coase theorem does not apply the distribution of surplus among the agents is therefore an important control variable for the principal which gives us a theory of how to delegate in an organization subject to moral hazard the optimal distribution of surplus can always be achieved by delegating in the right way decentralization without using message games journal of economic literature classification numbers d23 d82 l14 l22

repeated games with private monitoring two players we investigate two player infinitely repeated games where the discount factor is less than but close to unity monitoring is private and players cannot communicate we require no condition concerning the accuracy of players monitoring technology we show the folk theorem for the prisoners dilemma with conditional independence we also investigate more general games where players private signals are correlated only through an unobservable macro shock we show that efficiency is sustainable for generic private signal structures when the size of the set of private signals is sufficiently large finally we show that cartel collusion is sustainable in price setting duopoly

an example of a repeated partnership game with discounting and with uniformly inefficient equilibria in this note we present an example of a repeated partnership game with imperfect monitoring in which all supergame equilibria with positive discount rates are bounded away from full efficiency uniformly in the discount rate provided the latter is strictly positive on the other hand if the players do not discount the future then every efficient one period payoff vector that dominates the one period equilibrium payoff vector can be attained by an equilibrium of the repeated game thus the correspondence that maps the players discount rate into the corresponding set of repeated game equilibrium payoff vectors is discontinuous at the point at which the discount rate is zero

persistence of technological leadership emerging technologies and incremental innovation in a model of competitive innovation i derive theoretical conditions for an entrant to displace the incumbent firm by innovating in an undeveloped substitute emerging technology the main result presents conditions on profitability and innovation speed that yield a markov perfect equilibrium in which the entrant pursues the emerging technology while the incumbent chooses to persist with the established technology and collect short run profits notably this result does not require the entrant s superiority to the incumbent for innovation finally when the model is calibrated to hard drive industry data its predictions are consistent with the observed outcomes

bursting bubbles on the rationality of hyperinflations in optimizing models abstract it is well known that perfect foresight maximizing models frequently possess a continuum of equilibria in some of these equilibria the price level is explosive even in models in which the money supply is constant this paper shows that a sufficient condition to rule out these unstable paths is given by the assumption that there is a smallest non zero unit of output

contracting with self esteem concerns it is widely accepted in social psychology that the need to maintain and enhance self esteem is a fundamental human motive we incorporate this factor into an otherwise ordinary principal agent framework and examine its impact on the optimal incentive scheme and the agent s behavior especially focusing on the form of intrapersonal strategy known as self handicapping incorporating self esteem concerns into a contracting situation yields an implication that runs counter to conventional wisdom that is the standard tradeoff between risk and incentives may break down i e more uncertainty reduces agency cost and hence results in stronger incentives in the presence of self esteem concerns this is because uncertainty mitigates the need for self handicapping this result provides a possible reason for why we do not empirically observe this tradeoff in a robust manner we present an intuitive condition for this anomaly to arise and provide a set of testable implications the present framework also reveals why and how team production can be made more profitable by providing an explanation for the increasing popularity of team production finally this simple logic is applied to identify additional implications for the hidden costs of external enforcers such as evaluation and monitoring which are discussed extensively in social psychology

incentive compatible mechanisms with full transferability abstract we consider the bayesian collective choice problem with side payment we introduce the regularity condition which describes the case that agents have mutually correlated private information under the regularity condition we construct a transfer rule with budget balancing which together with the efficient public decision rule is incentive compatible truth telling may be a unique iteratively undominated strategy profile in our direct mechanism

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

ruling out speculative hyperinflations the role of the government abstract in this paper we show that if the government can levy taxes to back the currency speculative hyperinflations are ruled out as equilibrium outcomes this is so even though convertibility is never observed in equilibrium the only observational difference between a pure fiat money economy and a convertible economy as the one described in this paper is the potential of the former to exhibit speculative hyperinflations the lack of empirical support for those speculative paths can be taken as evidence against interpreting modern economies as pure fiat money systems

national vs european incentive policies bargaining information and coordination abstract we build a hierarchical model of contractual relationships under moral hazard to address issues about subsidiarity i e optimal de centralization of incentive industrial policies at the national level or at the european community level incentive policy is viewed as an incentive contract for producers who take unobservable decisions that have spillover effects across member states a community agency designs contracts for producers and contractual compensatory transfers between states on the basis of its observations then national regulators and their home producers negotiate according to a generalized nash bargaining a national contract that complements the community contracts given that national regulators will have access to more observations on the producers activities in this setting we show that full centralization is never optimal we give sufficient conditions for complete decentralization to be optimal and when both policies are present we characterize how they interact to provide incentives to producers

multimarket contact in continuous time games abstract this paper investigates whether multimarket contact is effective in increasing the value of collusion we show that for any discount rate the set of equilibrium payoffs average per market expands through multimarket contact in continuous time games

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

the effect of decisions under uncertainty on imperfect monitoring games abstract the study of repeated games with imperfect public information began with abreu d pearce d stacchetti e 1986 optimal cartel equilibria with imperfect monitoring journal of economic theory 39 251 269 using dynamic decomposition and was settled in fudenberg d levine d maskin e 1994 the folk theorem with imperfect public information econometrica 62 997 1039 however we suggest that if the effect of uncertainty and irreversibility are considered when punishment is exercised the set of perfect public equilibria and their payoffs would change

a note on the optimal structure of production abstract we analyze the advantages of centralization and decentralization in industries in which production takes place in several stages and the costs are privately observed by the agents in charge of production we demonstrate that informational diseconomies arise when uncorrelated information is concentrated in the hands of a single agent these diseconomies arise when the stages of production are different activities with different cost supports journal of economic literature classification numbers d82 l22 l51

mechanisms for efficient voting with private information about preferences we experimentally study behavior in a simple voting game where players have private information about their preferences with random matching subjects overwhelmingly follow the dominant strategy to exaggerate their preferences which leads to ineciency we analyze an exogenous linking mechanism suggested by jackson and sonnenschein 2007 as well as repeated interaction in dierent settings which could allow endogenous linking mechanisms to evolve we find that applying the exogenous mechanism captures nearly all achievable eciency gains whereas repeated interaction leads to significant gains in truthful representation and eciency only in

corporate liquidity in games of monopoly power cr oss sectional variation in corporate liquidity within a sample of large u s corporations suggests that there are material effects from product market competiti on the empirical evidence is consistent with an oligopolistic model wherein liquid assets are employed both to signal commitment to retaliate against market en croachment and to enable firms to rapidly preempt new opportunities as predicted firms with high valuation and spending on intangibles in certain strategic positions hold large stocks of liquid assets copyright 1987 by mit press

career concerns monetary incentives and job design we study optimal incentive contracts when commitments are limited and agents have multiple tasks and career concerns the agent s career concerns are determined by the outside market we show that the principal might want to give the strongest explicit incentives to agents far from retirement to account for the fact that career concerns might induce behavior in conflict with the principal s preferences furthermore we show that maximized welfare might be decreasing in the strength of career concerns that optimal incentives can be positively correlated with various measures of uncertainty and that career incentives have strong implications for optimal job design

coalitions incentives and risk sharing abstract this paper analyzes the effects of coalitional behavior in principal multiagent relationships with moral hazard and identifies cases where the principal prefers agents to form a coalition via side contracting it is shown that the principal can implement given efforts via non individualistic incentive contracts at a lower cost when the agents can monitor each other s efforts perfectly and hence coordinate their effort choice than when the agents behave independently permitting the principal to utilize more complex communication mechanisms does not alter the result for there is no coalition proof revelation mechanism improving the principal s welfare journal of economic literature classification number d82