Author: Andrew ClausenPublisher:
ISBN:
Category :
Languages : en
Pages : 125
Book Description
Essays on Dynamic Incentives
Author: Andrew ClausenEssays on Dynamic Incentive Design
Author: Mustafa DoganPublisher:
ISBN:
Category :
Languages : en
Pages : 336
Book Description
This dissertation consists of three essays that examine incentive problems within various dynamic environments. In Chapter 1, I study the optimal design of a dynamic regulatory system that encourages regulated agents to monitor their activities and voluntarily report their violations. Self-monitoring is a private and costly process, and comprises the core of the incentive problem. There are no monetary transfers. Instead, the regulator (she) uses future regulatory behavior for incentive provision. When the regulator has full commitment power, she can induce costly self-monitoring and revelation of "bad news" in the initial phase of the optimal policy. During this phase, the agent is promised a higher continuation utility (in the form of future regulatory approval) each time he discloses "bad news." If the regulator internalizes self-monitoring costs, the agent is either blacklisted or whitelisted in the long run. When she does not internalize these costs, blacklisting is replaced by a temporary probation state, and whitelisting becomes the unique long run outcome. This result suggests that whitelisting, which may appear to be a form of regulatory capture, may instead be a consequence of optimal policy. In Chapter 2, I study the dynamic pricing problem of a durable good monopolist with commitment power, when a new version of the good is expected at some point in the future. The new version of the good is superior to the existing one, bringing a higher flow utility. The buyers are heterogeneous in terms of their valuations and strategically time their purchases. When the arrival is a stationary stochastic process, the corresponding optimal price path is shown to be constant for both versions of the good, hence there is no delay on purchases and time is not used to discriminate over buyers, which is in line with the literature. However, if the arrival of the new version occurs at a commonly known deterministic date, then the price path may decrease over time, resulting in delayed purchases. For both arrival processes, posted prices is a sub-optimal selling mechanism. The optimal one involves bundling of both versions of the good and selling them only together, which can easily be implemented by selling the initial version of the good with a replacement guarantee. Finally, Chapter 3 examines the question under what conditions can automation be less desirable compared to human labor. We study a firm that has to decide between a human-human team and a human-machine team for production. The effort choice of a human employee is not observed by the manager, therefore the incentives need to be properly aligned. We argue that, despite the desirable benefits resulting from the partial substitution of labor with automated machines such as less costly machine input and reduced scope of moral hazard, the teams with only human employees can, under some conditions, be more preferred over the human-machine teams. This stems from the fact that, in all-human teams, the principal, through the selection of incentive scheme, can control the interaction among the agents and get benefit from the mutual monitoring capacity between them. The automation, however, eliminates this interaction and shuts down a channel that can potentially help to mitigate the overall agency problem.
Essays on Dynamic Incentive Problems with Imperfect Information
Author: Tomasz PiskorskiEssays on Optimal Dynamic Incentive Contracts
Author: Carsten Sebastian PfeilPublisher:
ISBN:
Category :
Languages : en
Pages : 150
Book Description
Essays on Dynamic Game Theory
Author: Gyu Ho WangEssays in Dynamic Experimentation
Author: Gleb DomnenkoPublisher:
ISBN:
Category :
Languages : en
Pages : 448
Book Description
Innovation and knowledge are critical for the development of the modern economy. I design and study dynamic models for the funding of new research under different economic conditions. In the first essay, I develops a model for the funding of R&D initiated by an entrepreneur. In the model, the funding is undertaken by a large homogeneous pool of investors. The entrepreneur can bank present investment funds for either future experimentation or diversion. R&D activities are not observable. There are two main conclusions. First, even when entrepreneurs have full bargaining power, commitment and incentive problems imply that R&D is usually inefficiently funded. Second, stronger reporting enforcement can be welfare enhancing and improves the outcomes for the entrepreneur. In the second essay, I study funding of the projects at the early stages of the startup development. I search for the best feasible contract that can be signed by the entrepreneur and the investor. The contract provides dynamic incentives to work on the risky project in the presence of convex effort costs, private valuations, and developed credit markets. I reveal that the best feasible contract satisfies three main properties: funding is provided independent of the project failure or success; private valuations are internalized; and the work on the project does not stop until the project succeeds. In the third essay, I study how venture capitalists provide funds to entrepreneurs to finance risky projects that exhibit diminishing returns to scale. I show that the funding rates strictly decrease in time in the full information and the observable but unverifiable information environments. In the unobservable information environment, the funding rates eventually become strictly decreasing, but they may increase in the beginning.
Incentives in Financial and Behavioral Economics
Author: Florian HettPublisher:
ISBN: 9783832536787
Category : Microeconomics
Languages : en
Pages : 0
Book Description
This thesis deals with the empirical identification of incentive effects in various settings.The central chapter looks at the financial crisis of 2007-2009 and the incentive effects caused by policy interventions in financial markets. A hypothesis controversially discussed by academics as well as policy makers is that public bailouts for banks destroy market discipline, that is the incentives for decentralized monitoring by market participants. In turn, this might induce stronger risk-taking by banks and finally make future crises more likely and severe. The thesis describes a new methodology to identify this effect and shows that market discipline strongly deteriorated during the crisis period. In additional chapters, this thesis empirically identifies incentive effects in dynamic contest situations.
Essays in Dynamic Fiscal and Monetary Policy
Author: Mikhail GolosovEssays on Information and Incentives
Author: Juan Pablo Xandri AntuñaPublisher:
ISBN:
Category :
Languages : en
Pages : 168
Book Description
This thesis studies problems of belief and information formation of agents, and its effect on incentive provision in problems of experimental and mechanism design. Chapter 1 is based on joint work with Arun Chandrasekhar and Horacio Larreguy. In this chapter we present the results of an experiment we conducted in rural Karnataka, India, to get evidence on how agents learn from each other's actions in the context of a social network. Theory has mostly focused on two leading models of social learning on networks: Bayesian updating and local averaging (DeGroot rules of thumb) which can yield greatly divergent behavior; individuals employing local averaging rules of thumb often double-count information and, in our context, may not exhibit convergent behavior in the long run. We study experiments in which seven individuals are placed into a network, each with full knowledge of its structure. The participants attempt to learn the underlying (binary) state of the world. Individuals receive independent, identically distributed signals about the state in the first period only; thereafter, individuals make guesses about the underlying state of the world and these guesses are transmitted to their neighbors at the beginning of the following round. We consider various environments including incomplete information Bayesian models and provide evidence that individuals are best described by DeGroot models wherein they either take simple majority of opinions in their neighborhood Chapter 2 is based on joint work with Arun Chandrasekhar, and studies how researchers should design payment schemes when making experiments on repeated games, such as the game studied in Chapter 1. It is common for researchers studying repeated and dynamic games in a lab experiment to pay participants for all rounds or a randomly chosen round. We argue that these payment schemes typically implement different set of subgame perfect equilibria (SPE) outcomes than the target game. Specifically, paying a participant for a randomly chosen round (or for all rounds with even small amounts of curvature) makes the game such that early rounds matter more to the agent, by lowering discounted future payments. In addition, we characterize the mechanics of the problems induced by these payment methods. We are able to measure the extent and shape of the distortions. We also establish that a simple payment scheme, paying participants for the last (randomly occurring) round, implements the game. The result holds for any dynamic game with time separable utility and discounting. A partial converse holds: any payment scheme implementing the SPE should generically be history and time independent and only depend on the contemporaneous decision. Chapter 3 studies a different but related problem, in which agents now have imperfect information not about some state of nature, but rather about the behavior of other players, and how this affects policy making when the planner does not know what agents expects her to do. Specifically, I study the problem of a government with low credibility, who decides to make a reform to remove ex-post time inconsistent incentives due to lack of commitment. The government has to take a policy action, but has the ability to commit to limiting its discretionary power. If the public believed the reform solved this time inconsistency problem, the policy maker could achieve complete discretion. However, if the public does not believe the reform to be successful some discretion must be sacrificed in order to induce public trust. With repeated interactions, the policy maker can build reputation about her reformed incentives. However, equilibrium reputation dynamics are extremely sensitive to assumptions about the publics beliefs, particularly after unexpected events. To overcome this limitation, I study the optimal robust policy that implements public trust for all beliefs that are consistent with common knowledge of rationality. I focus on robustness to all extensive-form rationalizable beliefs and provide a characterization. I show that the robust policy exhibits both partial and permanent reputation building along its path, as well as endogenous transitory reputation losses. In addition, I demonstrate that almost surely the policy maker eventually convinces the public she does not face a time consistency problem and she is able to do this with an exponential arrival rate. This implies that as we consider more patient policy makers, the payoff of robust policies converge to the complete information benchmark. I finally explore how further restrictions on beliefs alter optimal policy and accelerate reputation building.
Three Essays on Environmental Incentives
Author: Hongli FengPublisher:
ISBN:
Category :
Languages : en
Pages : 226
Book Description
When banking is welfare improving, the optimal ITR is always less than 1+r, the ITR for monetary values. The more industry-wide shocks vary, and/or the more they are negatively correlated across time, the more efficient a bankable permit regime. Bankable permits with ITR=1 or ITR=1+r can both do better than a no banking regime. However, which one is better depends on the covariance structure of the shocks and the benefit and damage functions. In the third essay, the efficient design of green payments is analyzed. Green payments may generate environmenal benefits and support the income of small farmers. If the government intends to achieve both of these two goals, then the decoupling of green payments and farm size is not optimal when information is limited. Moreover, the effectiveness of green payments critically depends on the correlation between conservation efficiency and farm size.