scholarly journals Rules without Commitment: Reputation and Incentives

2021 ◽  
Author(s):  
Alessandro Dovis ◽  
Rishabh Kirpalani
Keyword(s):  
Optimal Design ◽  
Large Class ◽  
Policy Maker ◽  
Time Inconsistency ◽  
Optimal Rule ◽  
Incentive Compatible ◽  
Ex Post ◽  
Ex Ante ◽  
The One ◽  
Good Behaviour

AbstractThis article studies the optimal design of rules in a dynamic model when there is a time inconsistency problem and uncertainty about whether the policy maker can commit to follow the rule ex post. The policy maker can either be a commitment type, which can always commit to follow rules, or an optimizing type, which sequentially decides whether to follow rules or not. This type is unobservable to private agents, who learn about it through the actions of the policy maker. Higher beliefs that the policy maker is the commitment type (i.e. the policy maker’s reputation) help promote good behaviour by private agents. We show that in a large class of economies, preserving uncertainty about the policy maker’s type is preferable from an ex ante perspective. If the initial reputation is not too high, the optimal rule is the strictest one that is incentive compatible for the optimizing type. We show that reputational considerations imply that the optimal rule is more lenient than the one that would arise in a static environment. Moreover, opaque rules are preferable to transparent ones if reputation is high enough.

Monopoly Regulation Under Relaxed Pareto Efficiency

2017 ◽  
Vol 5 (2) ◽  
pp. 162-176
Author(s):  
Ismail Saglam
Keyword(s):  
Marginal Cost ◽  
Regulatory Environment ◽  
Pareto Dominance ◽  
Incentive Compatible ◽  
Monopoly Regulation ◽  
Dominance Relationships ◽  
Ex Post ◽  
Ex Ante ◽  
Pareto Axiom ◽  
Set Of Points

Baron and Myerson (BM; 1982, Econometrica, 50(4), 911–930) propose an incentive-compatible, individually rational and ex ante socially optimal direct-revelation mechanism to regulate a monopolistic firm with unknown costs. Their mechanism is not ex post Pareto dominated by any other feasible direct-revelation mechanism. However, there also exist an uncountable number of feasible direct-revelation mechanisms that are not ex post Pareto dominated by the BM mechanism. To investigate whether the BM mechanism remains in the set of ex post undominated mechanisms when the Pareto axiom is slightly weakened, we introduce the ∈-Pareto dominance. This concept requires the relevant dominance relationships to hold in the support of the regulator’s beliefs everywhere except for a set of points of measure ∈, which can be arbitrarily small. We show that a modification of the BM mechanism which always equates the price to the marginal cost can ∈-Pareto dominate the BM mechanism at uncountably many regulatory environments, while it is never ∈-Pareto dominated by the BM mechanism at any regulatory environment.

The New Old Efficiency Theories of Causation and Liability

2014 ◽  
Vol 7 (1-2) ◽  
Author(s):  
Richard W. Wright
Keyword(s):  
Social Welfare ◽  
Fundamental Problem ◽  
Tort Law ◽  
Tort Liability ◽  
Liability Rule ◽  
Actual Causation ◽  
Ex Post ◽  
Ex Ante ◽  
The One ◽  
Ex Post Analysis

AbstractFor the last 40 years, efficiency theorists have attempted to demonstrate that tort liability in general and negligence liability in particular can best/only be explained by the hypothesis that judges are trying to maximize aggregate social welfare. Thirty years ago I published a pair of articles criticizing these attempts, noting especially the efficiency theorists’ inability to explain and justify the factual causation requirement in tort law. Nevertheless, the efficiency theorists have continued to make the same arguments. In this paper, I canvass the old arguments and their current restatements, including the attempts by some of the leading theorists to equate ex post analysis of actual causation with ex ante analysis of negligent conduct and attempts by others to explain the actual negligence liability rules. None of the rules proposed by the efficiency theorists is consistent with the practice of the courts, and none of them would promote efficient deterrence. Worse yet, the least descriptively plausible negligence liability rule proposed by the efficiency theorists is the one likely to be the least inefficient in actual practice, while the one assumed by most efficiency theorists will be the most inefficient. The fundamental problem with the efficiency theories is that they assume that the focus of law should be and is on the maximization of aggregate social welfare, rather than justice – the promotion of everyone’s equal external freedom in their interactions with others.

scholarly journals Optimal Sovereign Default

2017 ◽  
Vol 9 (1) ◽  
pp. 128-164 ◽  
Author(s):  
Klaus Adam ◽  
Michael Grill
Keyword(s):  
Quantitative Analysis ◽  
Open Economy ◽  
Small Open Economy ◽  
Government Debt ◽  
Sovereign Default ◽  
Production Risk ◽  
Domestic Production ◽  
Ex Post ◽  
Ex Ante ◽  
The One

When is it optimal for a fully committed government to default on its legal repayment obligations? Considering a small open economy with domestic production risk and noncontingent government debt, we show that it is ex ante optimal to occasionally deviate from the legal repayment obligation and to repay debt only partially. This holds true even if default generates significant deadweight costs ex post. A quantitative analysis reveals that default is optimal only in response to persistent disaster-like shocks to domestic output. Applying the framework to the situation in Greece, we find that optimal default policies suggest a considerably larger and more timely default than the one actually implemented in the year 2012. (JEL E23, E62, F41, H63)

scholarly journals Ex-post IR Dynamic Auctions with Cost-per-Action Payments

2018 ◽  
Author(s):  
Weiran Shen ◽  
Zihe Wang ◽  
Song Zuo
Keyword(s):  
Common Knowledge ◽  
Incentive Compatibility ◽  
Individual Rationality ◽  
Incentive Compatible ◽  
Dynamic Auctions ◽  
Ex Post ◽  
Ex Ante ◽  
Ad Auctions ◽  
The Cost ◽  
General Reduction

Motivated by online ad auctions, we consider a repeated auction between one seller and many buyers, where each buyer only has an estimation of her value in each period until she actually receives the item in that period. The seller is allowed to conduct a dynamic auction but must guarantee ex-post individual rationality. In this paper, we use a structure that we call credit accounts to enable a general reduction from any incentive compatible and ex-ante individual rational dynamic auction to an approximate incentive compatible and ex-post individually rational dynamic auction with credit accounts. Our reduction obtains stronger individual rationality guarantees at the cost of weaker incentive compatibility. Surprisingly, our reduction works without any common knowledge assumption. Finally, as a complement to our reduction, we prove that there is no non-trivial auction that is exactly incentive compatible and ex-post individually rational under this setting.

Incentive-Compatible Matching Mechanisms: Consistency with Various Stability Notions

2013 ◽  
Vol 5 (4) ◽  
pp. 120-141 ◽  
Author(s):  
M. Bumin Yenmez
Keyword(s):  
Incentive Compatibility ◽  
Short Side ◽  
Incentive Compatible ◽  
Ex Post ◽  
Matching Market ◽  
Ex Ante ◽  
One To One ◽  
Stability Notions

I study the consistency of incentive compatibility with several stability notions for a one-to-one matching market with transfers. Ex post stability, studied in the matching literature, is too strong to be satisfied together with incentive compatibility. Therefore, I introduce weaker stability notions: ex ante stability and interim stability. Although ex ante stability is consistent with incentive compatibility when agents are ex ante identical or when the market is balanced, interim stability can only be satisfied when there is one agent on the short side of the market, as in auctions. Which stability is appropriate depends on when agents can block. (JEL C78, D44, D83)

Behavioural Characterizations of Naivete for Time-Inconsistent Preferences

2019 ◽  
Vol 86 (6) ◽  
pp. 2319-2355 ◽  
Author(s):  
David S Ahn ◽  
Ryota Iijima ◽  
Yves Le Yaouanq ◽  
Todd Sarver
Keyword(s):  
Utility Function ◽  
Functional Form ◽  
Time Inconsistency ◽  
Actual Distribution ◽  
Mistaken Belief ◽  
Actual Behaviour ◽  
Ex Post ◽  
Ex Ante ◽  
Time Inconsistent ◽  
Non Parametric

Abstract We propose non-parametric definitions of absolute and comparative naivete. These definitions leverage ex ante choice of menu to identify predictions of future behaviour and ex post (random) choices from menus to identify actual behaviour. The main advantage of our definitions is their independence from any assumed functional form for the utility function representing behaviour. An individual is sophisticated if she is indifferent ex ante between retaining the option to choose from a menu ex post or committing to her actual distribution of choices from that menu. She is naive if she prefers the flexibility in the menu, reflecting a mistaken belief that she will act more virtuously than she actually will. We propose two definitions of comparative naivete and explore the restrictions implied by our definitions for several prominent models of time inconsistency.

scholarly journals The Effect of Quality Tracing System on Safety of Agricultural Product

2015 ◽  
Vol 2015 ◽  
pp. 1-7
Author(s):  
Jun Zhao ◽  
Bin Zhou
Keyword(s):  
Food Safety ◽  
Policy Maker ◽  
Academic Research ◽  
Agricultural Product ◽  
Research Focus ◽  
Safety Level ◽  
Static Game ◽  
Incentive Theory ◽  
Ex Post ◽  
Ex Ante

Frequent occurrence of food safety incidents in recent years has made analyzing safety of agricultural product in view of contract theory become academic research focus. Based on incentive theory, in this paper we establish a static game under the condition of asymmetric information and analyze how the “company + farmer” contract is influenced by a complete quality tracing system composed of ex-ante inspection and ex-post traceability. Meanwhile, we find out that a complete quality tracing system can increase the safety level of agricultural product and that ex-ante inspection and ex-post traceability can replace each other in the process. Finally, we put forward policy suggestion for the policy-maker to solve the problem of food safety.

scholarly journals Efecto de la intensificación sobre la eficiencia de las explotaciones lecheras

2011 ◽  
Vol 7 (13) ◽  
pp. 91 ◽  
Author(s):  
Antonio Álvarez ◽  
Julio Del Corral ◽  
José Antonio Pérez ◽  
Daniel Solís
Keyword(s):  
Production Cost ◽  
Dairy Farms ◽  
The Other ◽  
Cost Functions ◽  
Empirical Literature ◽  
Positive Relation ◽  
Methodological Issues ◽  
Ex Post ◽  
Ex Ante ◽  
The One

This study analyzes the differences on production cost associated with the intensification of production for a sample of dairy farms in Asturias. In doing so, we account for two methodological issues which are not usually considered in the empirical literature. On the one hand, we allow for different technologies within the sample. On the other hand, we estimate ex ante cost functions, which use ‘planned output’ instead of the traditional ex post approach which uses the ‘observed output’. Our results show a positive relation between intensification and efficiency.

L'approccio controfattuale nell'analisi d'impatto della regolamentazione finanziaria: tra potenzialitŕ e sfide

2011 ◽  
pp. 59-68
Author(s):  
Mario Quagliarello
Keyword(s):  
Policy Maker ◽  
Sono State ◽  
Ex Post ◽  
Ex Ante

L'analisi d'impatto della regolamentazione (AIR) č lo strumento utilizzato per valutare le possibili conseguenze economiche di normative in corso di definizione (AIR ex ante) o gli effetti concreti di quelle giŕ realizzate (AIR ex post). In tale ottica, l'AIR si configura quale caso particolare di valutazione delle politiche pubbliche, sebbene con caratteristiche e profili peculiari che la rendono al tempo stesso potenzialmente piů utile, ma particolarmente complessa. Questo articolo analizza il contributo che l'approccio controfattuale puň fornire all'AIR in campo finanziario e ne analizza i possibili problemi applicativi. Nel settore finanziario, l'approccio controfattuale č ostacolato, in primo luogo, dalla circostanza che le regole sono nella generalitŕ dei casi universali, rendendo non applicabili le metodologie che si basano sul confronto della dinamica della variabile obiettivo tra soggetti trattati e non trattati. L'analisi pre/post č un'opzione percorribile, sebbene non sia agevole individuare quale sia la vera situazione controfattuale perché il sistema finanziario tende ad essere sempre regolato. I problemi si moltiplicano nel caso - di gran lunga piů comune - in cui le analisi d'impatto debbano essere condotte ex ante. In tal caso, si verifica infatti l'inversione del paradigma controfattuale: si osserva una situazione fattuale nella quale le regole non sono state ancora introdotte e si deve (tentare di) individuare cosa accadrebbe in una situazione controfattuale in cui la regolamentazione č stata introdotta. In un contesto, come quello italiano, in cui l'AIR deve essere condotta su ogni nuova regolamentazione, a prescindere dalla effettiva disponibilitŕ di dati quantitativi, le analisi empiriche non possono dunque essere l'unico strumento di valutazione. Nell'impossibilitŕ di condurre una robusta analisi controfattuale, le informazioni ottenibili dalla valutazione theory-based forniscono comunque un contributo all'analisi della probabilitŕ di successo di una determinata regolamentazione (potrebbe/dovrebbe funzionare?). Per quanto non statisticamente rigorosa, si fornisce in questo modo una risposta pragmatica al policy maker, tanto piů importante quanto piů la scarsitŕ di dati e la necessitŕ di intervenire prontamente escludono analisi di tipo controfattuale.

Hidden “holes” in the capital of banks and the supply of credit to the real sector of economy

2018 ◽  
pp. 49-68 ◽  
Author(s):  
M. E. Mamonov
Keyword(s):  
Credit Risk ◽  
The Other ◽  
Real Sector ◽  
Capital Management ◽  
Loan Loss ◽  
Short Term ◽  
The Real ◽  
Ex Post ◽  
The One

Our analysis documents that the existence of hidden “holes” in the capital of not yet failed banks - while creating intertemporal pressure on the actual level of capital - leads to changing of maturity of loans supplied rather than to contracting of their volume. Long-term loans decrease, whereas short-term loans rise - and, what is most remarkably, by approximately the same amounts. Standardly, the higher the maturity of loans the higher the credit risk and, thus, the more loan loss reserves (LLP) banks are forced to create, increasing the pressure on capital. Banks that already hide “holes” in the capital, but have not yet faced with license withdrawal, must possess strong incentives to shorten the maturity of supplied loans. On the one hand, it raises the turnovers of LLP and facilitates the flexibility of capital management; on the other hand, it allows increasing the speed of shifting of attracted deposits to loans to related parties in domestic or foreign jurisdictions. This enlarges the potential size of ex post revealed “hole” in the capital and, therefore, allows us to assume that not every loan might be viewed as a good for the economy: excessive short-term and insufficient long-term loans can produce the source for future losses.

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