Contracting with Externalities
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In this paper, the authors study inefficiencies arising in contracting between one principal and N agents when the utility of each agent depends on all agents' trades with the principal and show that when N is large, each agent can be treated as non-pivotal, provided that appropriate continuity assumptions are satisfied.Abstract:
The paper studies inefficiencies arising in contracting between one principal and N agents when the utility of each agent depends on all agents' trades with the principal. When the principal commits to a set of publicly observable bilateral contract offers, the arising inefficiency is due entirely to the externalities imposed on non-signers. In contrast, when the principal's offers are privately observed, the distortion is due to the externalities given agents' equilibrium trades. Comparison of the two externalities determines the relative efficiency of the two contracting regimes. In both cases, we show that when N is large, each agent can be treated as non-pivotal, provided that appropriate continuity assumptions are satisfied. We also study the case in which the principal can condition each agent's trade on other agents' messages. We characterize the set of such mechanisms in which each agent's participation is voluntary. When the principal can commit to any such mechanism, she implements the first-best outcome, while threatening each deviator with the harshest possible punishment. However, in the presence of noise that goes to zero slower than N goes to infinity, in the limit we obtain a (generally inefficient) outcome in which each agent feels non-pivotal.read more
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References
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Book
The Theory of Industrial Organization
TL;DR: The Theory of Industrial Organization as discussed by the authors is the first primary text to treat the new industrial organization at the advanced-undergraduate and graduate level Rigorously analytical and filled with exercises coded to indicate level of difficulty, it provides a unified and modern treatment of the field with accessible models that are simplified to highlight robust economic ideas.
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Large Shareholders and Corporate Control
Andrei Shleifer,Robert W. Vishny +1 more
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Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation
Oliver Hart,Sanford J. Grossman +1 more
TL;DR: In this paper, the authors study privately and socially optimal corporate charters under the alternative assumptions of competition and monopoly in the market for corporate control, and analyze exclusionary devices that can be built into the corporate charter to overcome this free-rider problem.
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Technology Adoption in the Presence of Network Externalities
Michael L. Katz,Carl Shapiro +1 more
TL;DR: In this article, the authors analyze the adoption pattern of technologies in industries where network externalities are significant and find that the pattern of adoption depends on whether technologies are sponsored by an entity that has property rights to the technology and is willing to make investments to promote it.
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On the private provision of public goods
TL;DR: In this article, the authors consider a general model of non-cooperative provision of a public good and show that there is always a unique Nash equilibrium in the model and characterize the properties and the comparative statics of the equilibrium.