Epsilon-Efficiency in a Dynamic Partnership with Adverse Selection and Moral Hazard

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Vi Cao
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Incentive Compatibility ◽  
Current Effort ◽  
Bayesian Equilibrium ◽  
Ex Post ◽  
Wide Range ◽  
Division Rule ◽  
Dynamic Partnership ◽  
Division Mechanism

Abstract For a dynamic partnership with adverse selection and moral hazard, we design a direct profit division mechanism that satisfies ϵ-efficiency, periodic Bayesian incentive compatibility, interim individual rationality, and ex-post budget balance. In addition, we design a voting mechanism that implements the profit division rule associated with this direct mechanism in perfect Bayesian equilibrium. For establishing these possibility results, we assume that the partnership exhibits intertemporal complementarities instead of contemporaneous complementarities; equivalently, an agent’s current effort affects other agents’ future optimal efforts instead of current optimal efforts. This modelling assumption fits a wide range of economic settings.

scholarly journals Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

2015 ◽  
Vol 7 (3) ◽  
pp. 174-204 ◽  
Author(s):  
Gharad Bryan ◽  
Dean Karlan ◽  
Jonathan Zinman
Keyword(s):  
South Africa ◽  
Moral Hazard ◽  
Field Experiment ◽  
Empirical Evidence ◽  
Adverse Selection ◽  
Consumer Credit ◽  
Social Pressure ◽  
Theory And Practice ◽  
Ex Post ◽  
Ex Ante

Empirical evidence on peer intermediation lags behind both theory and practice in which lenders use peers to mitigate adverse selection and moral hazard. Using a referral incentive under individual liability, we develop a two-stage field experiment that permits separate identification of peer screening and enforcement. Our key contribution is to allow for borrower heterogeneity in both ex ante repayment type and ex post susceptibility to social pressure. Our method allows identification of selection on repayment likelihood, selection on susceptibility to social pressure, and loan enforcement. Implementing our method in South Africa we find no evidence of screening but large enforcement effects. (JEL D14, D82, G21, O12, O16)

scholarly journals Vertical Contracting with Informational Opportunism

2015 ◽  
Vol 105 (7) ◽  
pp. 2141-2182 ◽  
Author(s):  
Vianney Dequiedt ◽  
David Martimort
Keyword(s):  
Private Information ◽  
Incentive Compatibility ◽  
Yardstick Competition ◽  
Trade Off ◽  
Bilateral Contracts ◽  
Ex Post ◽  
Wide Range ◽  
New Form ◽  
Correlated Information ◽  
Vertical Contracting

We consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts. We highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship. We characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints. Those constraints limit the manufacturer's ability to use yardstick competition among retailers. They simplify contracts and restore a rent/efficiency trade-off even with correlated information. We show that sell-out contracts are optimal under a wide range of circumstances. (JEL D21, D86, L14, L60, L81)

scholarly journals Crises and Capital Requirements in Banking

2005 ◽  
Vol 95 (5) ◽  
pp. 1548-1572 ◽  
Author(s):  
Alan D Morrison ◽  
Lucy White
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Equilibrium Model ◽  
Success Probability ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Policy Response ◽  
Ex Post ◽  
Selection Of

We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impose capital adequacy requirements. Capital requirements combat moral hazard when the regulator has a strong screening reputation, and they otherwise substitute for screening ability. Crises of confidence can occur only in the latter case, and contrary to conventional wisdom, the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks.

scholarly journals Optimal Contract under Moral Hazard with Soft Information

2013 ◽  
Vol 5 (4) ◽  
pp. 55-80 ◽  
Author(s):  
Guillaume Roger
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Soft Information ◽  
Optimal Contract ◽  
Strategic Complements ◽  
Ex Post ◽  
Ex Ante

I study a model of moral hazard with soft information: the agent alone observes the stochastic outcome of her action; hence the principal faces a problem of ex post adverse selection. With limited instruments the principal cannot solve these two problems independently; the ex post incentive for misreporting interacts with the ex ante incentives for effort. This affects the shape and properties of the optimal contract, which fails to elicit truthful revelation in all states. In this setup audit and transfer become strategic complements; this is rooted in the nonseparability of the problem. (JEL D82, D86)

A Folk Theorem for Repeated Elections with Adverse Selection

2014 ◽  
Vol 2 (2) ◽  
pp. 213-242 ◽  
Author(s):  
John Duggan
Keyword(s):  
Adverse Selection ◽  
Private Information ◽  
Incentive Compatibility ◽  
Folk Theorem ◽  
Perfect Bayesian Equilibrium ◽  
Policy Space ◽  
One Dimensional ◽  
Policy Choices ◽  
Bayesian Equilibrium ◽  
Strict Concavity

This article establishes a folk theorem for a model of repeated elections with adverse selection: when citizens (voters and politicians) are sufficiently patient, arbitrary policy paths through arbitrarily large regions of the policy space can be supported by a refinement of perfect Bayesian equilibrium. Politicians are policy motivated (so office benefits cannot be used to incentivize policy choices), the policy space is one-dimensional (limiting the dimensionality of the set of utility imputations), and politicians’ preferences are private information (so punishments cannot be targeted to a specific type). The equilibrium construction relies critically on differentiability and strict concavity of citizens’ utility functions. An extension of the arguments allows policy paths to depend on the office holder's type, subject to incentive compatibility constraints.

AGENCY PROBLEM DALAM PENERAPAN PEMBIAYAAN AKAD MUDHARABAH PADA PERBANKAN SYARIAH

ALQALAM ◽  
2016 ◽  
Vol 33 (1) ◽  
pp. 46
Author(s):  
Aswadi Lubis
Keyword(s):  
High Risk ◽  
Asymmetric Information ◽  
Human Resources ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Agency Problem ◽  
Agency Problems ◽  
Islamic Banking ◽  
The Public

The purpose of writing this article is to describe the agency problems that arise in the application of the financing with mudharabah on Islamic banking. In this article the author describes the use of the theory of financing, asymetri information, agency problems inside of financing. The conclusion of this article is that the financing is asymmetric information problems will arise, both adverse selection and moral hazard. The high risk of prospective managers (mudharib) for their moral hazard and lack of readiness of human resources in Islamic banking is among the factors that make the composition of the distribution of funds to the public more in the form of financing. The limitations that can be done to optimize this financing is among other things; owners of capital supervision (monitoring) and the customers themselves place restrictions on its actions (bonding).

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