Empirical Characterization of Optimal Contracts Under Adverse Selection: An Environmental Policy Application
نویسنده
چکیده
Analysis of contracts under asymmetric information typically concludes by characterizing an optimal mechanism based on the principal’s beliefs regarding agent value functions and the distribution of agent types. This article demonstrates how tools from stochastic frontier analysis allow a principal to develop consistent beliefs using data that does not include agents’ private information. I employ this methodology to evaluate strategies for reducing the cost of a voluntary program that reduces cultivation on environmentally-sensitive farmland.
منابع مشابه
Dynamic Contracting under Imperfect Public Information and Asymmetric Beliefs∗
We develop a dynamic principal–agent model to show how imperfect public information and asymmetric beliefs, asymmetric risk attitudes, complementary actions by both parties, and inter-temporal adverse selection arising from the agent’s unobservable actions interact to affect optimal dynamic contracts. Our continuous-time formulation of the model, which features both “hidden actions” and “hidden...
متن کاملSolving a Dynamic Adverse Selection Model Through Finite Policy Graphs
This paper studies an infinite-horizon adverse selection model with an underlying Markov information process and a risk-neutral agent. It introduces a graphic representation of continuation contracts and continuation-payoff frontiers, namely finite policy graphs, and provides an algorithm that generates a sequence of such graphs to approximate the optimal policy graph. The algorithm performs an...
متن کاملCollateral as Signal Variable in a Business Partnership Contract: A Case Study of Refah Kargaran Bank
There is no convergence in the results of the credit relationship between the financial contracting parties (banks and customers) due to the different importance of the contract variables. Therefore, while examining the impact of the empirical relationship between the variables commercial profit-loss sharing contracts, the dual role of the collateral variable (screening and motivation) is in...
متن کاملModelling and Experimental Testing of Asymmetric Information Problems in Lease and Hire Contracts (Based on Contract Theory)
This article aims to study lease and hiring contract in the Iranian-Islamic setting and analyze the asymmetric information problem in these contracts. For doing this, we study the characteristics of lease and hiring contracts in Iran (real world experimental characteristics that recognized in other studies), using library method, then we mathematically model different aspects of asymmetric info...
متن کاملOptimal Contracts for Experimentation
This paper studies a model of long-term contracting for experimentation. We consider a principal– agent relationship with adverse selection on the agent’s ability, dynamic moral hazard, and private learning about project quality. We find that each of these elements plays an essential role in structuring dynamic incentives, and it is only their interaction that generally precludes efficiency. Ou...
متن کامل