Showing papers by "Roland Strausz published in 2011"
TL;DR: In this paper, the authors study procurement contracts with pre-project investigations in the presence of adverse selection and moral hazard, and propose an optimal mechanism for information acquisition and truthful information revelation.
Abstract: The paper studies procurement contracts with pre-project investigations in the presence of adverse selection and moral hazard. To model the procurer's problem, we extend a standard sequential screening model to endogenous information acquisition with moral hazard. The optimal contract displays system atic distortions in information acquisition. Due to a rent effect, adverse selection induces too much infor mation acquisition to prevent cost overruns and too little information acquisition to prevent false project cancellations. Moral hazard mitigates the distortions related to cost overruns yet exacerbates those related to false negatives. The optimal mechanism is a menu of option contracts that achieves the dual goal of providing incentives for information acquisition and truthful information revelation.
74 citations
TL;DR: In this article, a tractable framework was developed to study regulatory risk under optimal monopoly regulation, which captures increasing regulatory risk as mean-preserving spreads of two regulatory variables: weights attached to profits and costs of public funds.
Abstract: I develop a tractable framework to study regulatory risk under optimal monopoly regulation. It captures increasing regulatory risk as mean-preserving spreads of two regulatory variables: weights attached to profits and costs of public funds. The regulator's reaction to regulatory risk depends on the curvature of demand. For convex (concave) demand, it yields a positive (negative) information rent effect that benefits (hurts) the firm. Consumers dislike a positive information rent effect but their risk preferences also depend on their tendency to dislike fluctuations in consumption. Risk preference of benevolent regulators may contradict both those of the firm and consumers.
20 citations
TL;DR: In this article, the authors show that seller-induced certification maximizes the certifier's profit and social welfare, and suggests the general principle that certification is, and should, be induced by the better informed party.
Abstract: Who does, and who should initiate costly certification by a third party under asymmetric quality information, the buyer or the seller?
Our answer - the seller - follows from a nontrivial analysis revealing a clear intuition. Buyer-induced certification acts as an inspection device, seller-induced certification as a signalling device. Seller-induced certification maximizes the certifier’s profit and social welfare. This suggests the general principle that certification is, and should be induced by the better informed party. The results are reflected in a case study from the automotive industry, but apply also to other markets - in particular the financial market.
17 citations
TL;DR: In this paper, the authors consider the canonical sequential screening model and show that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent's information sequentially.
Abstract: This paper considers the canonical sequential screening model and shows that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent’s information sequentially. Unlike in the standard model without ex post outside options, the optimal contract is static and conditions only on the agent’s aggregate final information. The benefits of sequential screening in the standard model are therefore due to relaxed participation rather than relaxed incentive compatibility constraints. We argue that in the presence of ex post participation constraints, the classical, local approach fails to identify binding incentive constraints and develop a novel, inductive procedure to do so instead. The result extends to the multi–agent version of the problem.
16 citations
TL;DR: In this article, the potential of cooperation in global emission abatements with multiple externalities was studied using a two-country model without side-payments and the strategic effects under different timing regimes of cooperation.
Abstract: We study the potential of cooperation in global emission abatements with multiple externalities. Using a two-country model without side-payments, we identify the strategic effects under different timing regimes of cooperation. We obtain a positive complementarity effect of long-term cooperation in abatement on R&D levels that boosts potential bene?t of long-term cooperation and a redistributive effect that destabilizes long-term cooperation when countries are asymmetric. We show that whether and what type of cooperation is sustainable, depends crucially on the kind rather than on the magnitude of asymmetries.
6 citations
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TL;DR: In this article, the authors consider the canonical sequential screening model and show that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent's information sequentially.
Abstract: This paper considers the canonical sequential screening model and shows that when the agent has an ex post outside option, the principal does not benefit from eliciting the agent's information sequentially. Unlike in the standard model without ex post outside options, the optimal contract is static and conditions only on the agent's aggregate final information. The benefits of sequential screening in the standard model are therefore due to relaxed participation rather than relaxed incentive compatibility constraints. We argue that in the presence of ex post participation constraints, the classical, local approach fails to identify binding incentive constraints and develop a novel, inductive procedure to do so instead. The result extends to the multi-agent version of the problem.
3 citations
TL;DR: It is in general not possible to reinterpret a mechanism design model that violates the spanning condition of Cremer and McLean and warranted only when the weights used to span an agentʼs set of beliefs stand in a singular relation with the prior type distribution that is known as an alternative characterization of Blackwell dominance.
1 citations