We consider a general scheme to construct Bayesian incentive-compatible mechanisms using a suitable ‘variable mechanism parametrization.’ The key idea is to perturb a given direct mechanism, which might not be truth revealing, introducing sufficient variability as a function of agents’ announcements to generate incentives for truthful revelation. We discuss a variable-price auction in a general...

This note demonstrates how performance measure congruity and noise determine an agency’s total surplus within an linear agency framework with multiple tasks. It provides a decomposition of agency costs, leading back to a congruity index previously proposed in the literature. In addition, it generalizes this index to a more general cost function, thereby highlighting the context specificity of t...

This paper analyzes optimal contracting when an agent has private information before contracting and exerts hidden effort that stochastically affects the output. Additionally, the contract is constrained to satisfy the agent’s ex post participation. We highlight three features of this model. First, the agent faces countervailing incentives. Second, the separation of types is never optimal. Thir...

We conduct a proper test of the claim that people are overcon…dent, in the sense that they believe that they are better than others. The results of the experiment we present do not allow us to reject the hypotheses that the data has been generated by perfectly rational, unbiased, and appropriately con…dent agents. Keywords: Overcon…dence; Better than Average; Experimental Economics; Irrationali...

This paper extends the nonexistence result of Heifetz and Samet (Games Econ. Behav. 22 (1998) 260–273). They have shown that there exists no universal knowledge space to which every knowledge space can be mapped in a knowledge-preserving manner. We show that an analogous nonexistence result holds in the more general context of information structures. These structures can be viewed as generaliza...

A principal can observe both the output and input of an agent who works at a job involving multiple tasks. We provide a simple theory that explains why it may be optimal for the principal to use only output-based incentive contract, even though the principal can monitor the agent’s actions perfectly in all but one task and knows exactly which action is optimal for each task. (JEL: D82, M5, J33)

This paper presents repeated games with hidden moves, in which players receive imperfect private signals and are able to communicate. We propose a conditional probability approach to solve the learning problem in repeated games with correlated private signals and delayed communication. We then apply this approach to symmetric n-player games to obtain an approximate efficiency result. © 2007 Els...

We propose a difference-in-differences (DiD) approach to estimate the impact of incentives on cost reduction. We show theoretically, and estimate empirically, that German electricity distribution system operators (DSOs) incur higher costs when subject to a loweredpowered regulation mechanism. The difference is particularly significant (about 7%) for firms in the upper quartile of the efficiency...

This introduces the symposium on sunspots and lotteries. Two stochastic generalequilibrium concepts, sunspot equilibrium (SE) and lottery equilibrium (LE), are compared. It is shown that, for some general, pure-exchange economies which allow for consumption nonconvexities or moral hazards, the set of LE allocations is equivalent to the set of SE allocations provided that the randomizing device ...

I study the optimal regulation of a …rm producing two goods. The …rm has private information about its cost of producing either of the goods. I explore the ways in which the optimal allocation di¤ers from its one dimensional counterpart. With binding constraints in both dimensions, the allocation involves distortions for the most e¢ cient producers and features overproduction for some less e¢ c...