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Asymmetric Information and Overinvestment in Quality
Belleflamme, Paul; Peitz, Martin - CESifo - 2009
the market. Suppose that a higher investment level makes the realization of high quality more likely. Then, if consumers … observe the investment (but not the realization of product quality) before purchase, they can infer the probability … investment can avoid adverse selection and, second, an efficiency effect according to which a larger investment reduces the …
Persistent link: https://www.econbiz.de/10005000399
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Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model
Malcomson, James - CESifo - 2010
Risk-neutral individuals take more risky decisions when they have limited liability. Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire information before taking decisions. Limited liability makes it optimal to increase the reward for outcomes...
Persistent link: https://www.econbiz.de/10008572569
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The Commitment Role of Equity Financing
Fahn, Matthias; Merlo, Valeria; Wamser, Georg - CESifo - 2014
Existing theories of a firm’s optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for...
Persistent link: https://www.econbiz.de/10010877665
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Private Monitoring, Collusion and the Timing of Information
Khalil, Fahad; Lawarrée, Jacques; Scott, Troy J. - CESifo - 2013
When a principal’s monitoring information is private (non-verifiable), the agent should be concerned that the principal could misrepresent the information to reduce the agent’s wage or collect a monetary penalty. Restoring credibility may lead to an extreme waste of resources—the so-called...
Persistent link: https://www.econbiz.de/10011249563
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Delegation and Interim Performance Evaluation
Schütte, Miriam; Wichardt, Philipp Christoph - CESifo - 2013
This paper considers the effects of an interim performance evaluation on the decision of a principal to delegate authority to a potentially biased but better informed agent. Assuming the agents’ outside option to be determined by market beliefs about their type, interim evaluations (a) provide...
Persistent link: https://www.econbiz.de/10010639425
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Flexible Contracts
Gottardi, Piero; Tallon, Jean Marc; Ghirardato, Paolo - CESifo - 2010
This paper studies the costs and benefits of delegating decisions to superiorly informed agents relative to the use of rigid, non discretionary contracts. Delegation grants some flexibility in the choice of the action by the agent, but also requires the use of an appropriate incentive contract...
Persistent link: https://www.econbiz.de/10008533994
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Nonlinear Pricing and Exclusion: I. Buyer Opportunism
Choné, Philippe; Linnemer, Laurent - CESifo - 2014
We study the exclusionary properties of nonlinear price-quantity schedules in an Aghion-Bolton style model with elastic demand and product differentiation. We distinguish three regimes depending on whether and how the price of the incumbent good is linked to the quantity purchased from the rival...
Persistent link: https://www.econbiz.de/10010795341
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Nonlinear Pricing and Exclusion: II. Must-Stock Products
Choné, Philippe; Linnemer, Laurent - CESifo - 2014
We adapt the exclusion model of Choné and Linnemer (2014) to reflect the notion that dominant firms are unavoidable trading partners. In particular, we introduce the share of the buyer’s demand that can be addressed by the rival as a new dimension of uncertainty. Nonlinear price-quantity...
Persistent link: https://www.econbiz.de/10010795345
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Employee Referral, Social Proximity and Worker Discipline: Theory and Evidence from India
Dhillon, Amrita; Iversen, Vegard; Torsvik, Gaute - CESifo - 2013
We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes...
Persistent link: https://www.econbiz.de/10010674452
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Delegation and Dynamic Incentives
Shin, Dongsoo; Strausz, Roland - CESifo - 2014
Using an agency model, we show how delegation, by generating additional private information, improves dynamic incentives under limited commitment. It circumvents ratchet effects and facilitates the revelation of persistent private information through two effects: a play-hardball effect, which...
Persistent link: https://www.econbiz.de/10010764295