Showing papers by "Roland Strausz published in 2006"
TL;DR: It is shown that, contrary to what is generally believed, decreasing concavity of the agent’s utility function with respect to the screening variable is not sufficient to ensure that stochastic mechanisms are suboptimal.
77 citations
TL;DR: In this paper, the authors studied the effectiveness of interim information in reducing inefficiencies in long term relationships and derived the optimal contract under non-verifiability by employing the theory of communication equilibrium.
Abstract: This paper studies the effectiveness of interim information in reducing inefficiencies in long term relationships. If the interim information is verifiable, it resolves all problems of asymmetric information. Under nonverifiability, the information alleviates the contracting problem only partially and its optimal use depends on the signal’s accuracy and timing. Precise and early signals enable the principal to extract all rents and adjust allocations closer to the first best. Imprecise or late signals affect only future allocations and leaves the agent with a rent. Due to a failure of the revelation principle, the optimal contract under non–verifiability is derived by employing the theory of communication equilibrium.
25 citations
TL;DR: In this article, the strategic effect of a difference in timing of verification in an agency model is studied, where a principal may choose between two equally efficient verification procedures: monitoring and auditing.
Abstract: This paper studies the strategic effect of a difference in timing of verification in an agency model. A principal may choose between two equally efficient verification procedures: monitoring and auditing. Under auditing, the principal receives additional information. Due to a double moral hazard problem, there exists a tension between incentives for effort and incentives for verification. Auditing exacerbates this tension and, consequently, requires steeper incentive schemes than monitoring. Hence, auditing is suboptimal if (1) steep incentives structures are costly to implement due to bounded transfers, or (2) steep incentive schemes induce higher rents due to limited liability.
21 citations
TL;DR: In this paper, an explanation for why a principal may demand too much paperwork from a subordinate is presented. But, the principal disregards the agent's cost increase of more internal paperwork, and the requested amount of internal paperwork may be too high from both the agents' personal point of view and the organization as a whole.
Abstract: This paper offers an explanation for why a principal may demand too much paperwork from a subordinate: due to limited liability and moral hazard a principal is unable to appropriate all rents. Internal paperwork allows a more accurate monitoring of the agent and enables the principal to appropriate a larger part of the agent’s rent. In her decision the principal disregards the agent’s cost increase of more internal paperwork. Consequently, the requested amount of internal paperwork may be too high from both the agent’s personal point of view and the organization as a whole.
12 citations
01 Jan 2006
TL;DR: In this paper, the authors study the effect of book versus fair value accounting on a bank's (re)investment behavior, risk of default, investment value, and the need for regulation.
Abstract: This paper studies the effect of book versus fair value accounting on a bank’s (re)investment behavior, risk of default, investment value, and the need for regulation. Adopting the wide–spread view that fair value accounting increases disclosure and reduces the degree of asymmetric information, we show that fair value accounting increases the liquidity of financial assets. Consequently, it intensifies risk shifting and, therefore, increases the need for regulation and the risk of default. For highly leveraged institutions the increased risk shifting under fair value accounting outweighs an underinvestment effect of book value accounting and ultimately reduces welfare.
10 citations
Posted Content•
TL;DR: In this paper, the authors analyze the two goals behind the European Bologna Process of increasing student mobility: enabling graduates to develop multi cultural skills and increasing the quality of universities, and isolate three effects: a competition effect that raises quality, a free rider effect that lowers quality, and a composition effect that influences the relative strengths of the two previous effects.
Abstract: We analyze the two goals behind the European Bologna Process of increasing student mobility: enabling graduates to develop multi cultural skills and increasing the quality of universities. We isolate three effects: 1) a competition effect that raises quality; 2) a free rider effect that lowers quality; 3) a composition effect that influences the relative strengths of the two previous effects. The effects lead to a trade off between the two goals. Full mobility may be optimal, only when externalities are high. In this case, student mobility yields inef- ficiently high educational quality. For moderate externalities partial mobility is optimal and yields an inefficiently low quality of education.
1 citations
TL;DR: In this article, the authors argue that ordinary shares undermine any inherent commitment of its holders to resist renegotiating away ex post inefficiencies, and they show that shareholders may use a manager in combination with a golden parachute (managerial severance payments) as a commitment device not to renegotiate ex post.
Abstract: We argue that ordinary shares undermine any inherent commitment of its holders to resist renegotiating away ex post inefficiencies. Yet, in a dynamic adverse selection problem, such ex post inefficiencies are optimal from an ex ante point of view. We show that shareholders may use a manager in combination with a golden parachute (managerial severance payments) as a commitment device not to renegotiate ex post.