Download or read book Essays on Dynamic Incentive Design written by Mustafa Dogan and published by . This book was released on 2017 with total page 336 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Essays on Dynamic Incentive Problems with Imperfect Information written by Tomasz Piskorski and published by . This book was released on 2007 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Dynamic Mechanism Design written by Heng Liu and published by . This book was released on 2015 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is a collection of two papers studying both the theoretical and the applied aspects of dynamic mechanism design. In Chapter 1, we address the problem of implementing socially efficient allocations in dynamic environments with interdependent valuations and evolving private information. In the case where the agents' information is correlated across time, we construct efficient and incentive compatible direct dynamic mechanisms. Unlike the mechanisms with history-independent transfers in the existing literature, these mechanisms feature history-dependent transfers. Moreover, they are reminiscent of the classical VCG (Vickrey-Clarke-Groves) mechanism, even though the latter is not incentive compatible with interdependent valuations. In settings where agents' private information evolves independently, we construct the dynamic counterpart of the generalized VCG mechanism in one-dimensional environments. In Chapter 2, we study the problem of designing efficient trade agreements when countries involved in trade can use "disguised protections" in the form of domestic policies. We take a dynamic mechanism design approach to examine the interaction between trade and domestic policies. In particular, we show that allowing countries to make transfers can solve the incentive problems associated with private information. However, due to lack of commitment, these transfers may or may not be self-enforcing, depending on the persistence countries' private information. Our results indicate the possibility for WTO to improve the existing trade agreements through financial transfers.

Download or read book Essays on Dynamic Incentives written by Andrew Clausen and published by . This book was released on 2012 with total page 125 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Dynamic Games and Mechanism Design written by Ruitian Lang and published by . This book was released on 2014 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation considers three topics in dynamic games and mechanism design. In both problems, asymmetric information causes inefficiency in production and allocation. The first chapter considers the inefficiency from the principal's inability to observes the agent's effort or cost of effort, and explores its implication to the principal's response to the combination of the output and the signal about the cost of effort. For example, the principal may punish the agent more harshly for low output when signals suggest that cost of effort is high when the effort is of high value for the principal. This chapter also classifies the long-run behavior of the relationship between the principal and the agent. Depending on whether the agent is strictly risk-averse and whether he is protected by limited liability, the state of the relationship may or may not converge to a stationary state and the stationary state may nor may not depend on the initial condition. The second chapter considers the re-allocation of assets among entrepreneurs with different matching qualities, which contributes to the growth of the whole economy. Due to reasons that are not explicitly modeled, assets are not automatically allocated to entrepreneurs who are best at operating them from the beginning, and this inefficiency is combined with inefficiency in the asset market and potential imperfection of labor contracting. When asset re-allocation can become a main source of economic growth, this chapter argues that imperfection in the labor contracting environment may boost the economic growth. The third chapter assumes that the agent's output is contractible but he can privately acquire more information about his cost of production prior to contracting. Compared to the optimal screening contract, the principal's contract in this case must not only induce the agent to "tell the truth", but also to give the agent the incentive to acquire appropriate amount of information. This may create distortion of allocation to the most efficient type and whether this happens is related to the marginal loss incurred by the principal from the cost of information acquisition.

Download or read book Three Essays on Incentive Design written by Jordan James Large and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Information in Dynamic Games and Mechanism Design written by Daehyun Kim and published by . This book was released on 2019 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies how asymmetric information between economic agents interacts with their incentive in dynamic games and mechanism design. Chapter 1 and Chapter 2 study this in mechanism design, especially focusing on robustness of mechanisms when a mechanism designer's knowledge on agents' belief and higher order beliefs is not perfect. In Chapter 1 we introduce a novel robustness notion into mechanism design, which we term confident implementation; and characterize confidently implementable social choice correspondences. In Chapter 2, we introduce another robust notion, p-dominant implementation where p [0, 1]N and N N is the number of agents, and fully characterize p-dominant implementable allocations in the quasilinear environment. Chapter 1 and Chapter 2 are related in the following way: for some range of p, a p-dominant implementable social choice correspondence is confidently implementable. In Chapter 3, we study information disclosure problem to manage reputation. To study this, we consider a repeated game in which there are a long-run player and a stream of short-run players; and the long-run player has private information about her type, which is either commitment or normal. We assume that the shot-run player only can observe the past K N periods of information disclosed by the long-run player. In this environment, we characterize the information disclosure behavior of the long-run player and also equilibrium dynamics whose shape critically depends on the prior.

Download or read book Essays on Information and Incentives written by Juan Pablo Xandri Antuña and published by . This book was released on 2013 with total page 168 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Essays in Dynamic Experimentation written by Gleb Domnenko and published by . This book was released on 2017 with total page 448 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Essays on Dynamic Mechanism Design written by Anqi Li and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation advocates dynamic mechanism design as a useful tool to tackle theoretical challenges in microeconomics and to solve real world institutional design problems. It is composed of two chapters. In the first chapter, I study durable goods sales with a dynamic population of buyers. My contribution is to devise a Multi-round Simultaneous Ascending Auction with Generalized Reserve Price (MSAAGR) to implement the efficient allocation, and to contrast MSAAGR with the standard uniform price auction to highlight the implication of population dynamics on the design of trading platforms. In the second chapter, I estalibsh the possibility of sustaining long-term cooperation in infinitely repeated private monitoring games with scarce signals. My contribution is to construct a novel Budget Mechanism with Cross-Checking (BMCC) which, by linking players' action choices over time, virtually implements the efficient outcome with a vanishing incentive cost as the horizon of the game grows and the players become increasingly patient.

Download or read book Design of Incentive Systems written by Dennis D. Fehrenbacher and published by Springer Science & Business Media. This book was released on 2013-05-28 with total page 265 pages. Available in PDF, EPUB and Kindle. Book excerpt: Monetary incentives, as a driving force for human behavior, are the main theme of this book. The primary goals underlying the application of monetary incentive systems in companies are motivating employees to strive for superior productivity in line with the interests of employers, and hiring adequately skilled employees. The first goal refers to incentive effects, the latter to sorting effects. This book introduces important theories and concepts concerning behavior under influence of monetary incentives; it reviews existing economic frameworks and identifies specific contingency variables. Based on an integrative framework of elements influencing incentive and sorting effects, a laboratory experiment is presented including detailed methodological discussion on experimentation and data analysis as well as an extensive presentation of findings and discussion of implications.​

Download or read book Three Essays on Environmental Incentives written by Hongli Feng and published by . This book was released on 2001 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Essays in Dynamic Fiscal and Monetary Policy written by Mikhail Golosov and published by . This book was released on 2004 with total page 458 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Growth Theory Nonlinear Dynamics and Economic Modelling written by William A. Brock and published by Edward Elgar Publishing. This book was released on 2001-01-01 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'Buz Brock's contribution to economic theory in general and economic dynamics in particular are characterized by an unmatched richness of ideas and by deep theoretical, empirical as well as computational analysis. Brock's contribution to economic dynamics range from one extreme of the field, global stability of stochastic optimal growth models, to another extreme, market instability and nonlinearity in economic and financial modelling and data analysis. But his work also includes environmental and economic policy issues and, more recently, the modelling of markets as complex adaptive systems. This collection of essays reflects Brock's richness of ideas that have motivated economists for more than three decades already and will continue to influence many economists for the next decades to come.' - Cars H. Hommes, University of Amsterdam, The Netherlands 'Buz Brock has been, from the beginning of his career, one of the most original thinkers in dynamic economics. His early work showed that growth with random elements could be studied effectively and above all posed exactly the right questions. His more recent work has brought complexity theory to the fore and shown its implications for financial and other markets. In the process, he has both introduced and used econometric tools to show the relevance of his work to empirically observed phenomena. It is very useful to have his work in collected form.' - Kenneth J. Arrow, Stanford University, US This outstanding collection of William Brock's essays illustrates the power of dynamic modelling to shed light on the forces for stability and instability in economic systems. The articles selected reflect his best work and are indicative both of the type of policy problem that he finds challenging and the complex methodology that he uses to solve them. Also included is an introduction by Brock to his own work, which helps tie together the main aspects of his research to date.

Download or read book Distorted Performance Measures and Dynamic Incentives written by Oddvar Kaarboe and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Incentive contracts must typically be based on performance measures that do not exactly match the agents' true contribution to the principals' objectives. Such misalignment may pose difficulties for effective incentive design. We analyze the extent to which implicit dynamic incentives, such as career concerns and ratchet effects, alleviate or aggravate these problems. Our analysis demonstrates that the interplay between distorted performance measures and implicit incentives implies that career and ratchet effects have real effects in that stronger ratchet effects or greater distortion may increase optimal monetary incentives, and that distortion affects the optimality of different promotion rules.

Download or read book Three Essays on Economic Incentive Mechanisms written by Yeon-Koo Che and published by . This book was released on 1991 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Team based Incentives written by Hua Chen and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the past few decades, team-based incentives are used by more and more organizations to motivate their agents to exert effort. The usage of team incentives creates many challenges, especially the "free-riding" problem. In current dissertation, we provide the evidence from the laboratory and field experiments to answer several critical questions faced by managers: Given the potency of free-riding and without task complementary, could team-based incentives be at least as effective as individual-based incentives or even better? If so, under what condition would the team-based incentives be effective? Furthermore, what are the driving forces that make team-based incentives effective? In essay 1, we focus on the piece rates compensation scheme. Specifically, we examine three types of incentives: Individual incentive where agents are paid by a commission rate purely on their individual output; Team-based incentive where agents are paid by a commission rate on the weighted average of individual output and team output (the average of output of all the members in the team). Team-based incentive can be further categorized as Team incentive when the weight of individual output is zero and Hybrid incentive with the weight greater than zero but less than one. We find that team-based incentives could be as effective as individual-based incentives under certain environment. More important, changing the structure of team-based incentives by varying the proportion of individual output and team output can make team-based incentives even more effective. Last, appropriate mutual monitoring is helpful but "perfect" mutual monitoring may induce negative effect on agents' effort. In essay 2, we compare the efficacy of team-based versus individual-based incentives using economic experiments, answering the following question: when designing contests to motivate employees, should managers organize employees to compete in teams or as individuals? We develop a behavioral economics model that shows that if contestants are averse to being responsible for their team's loss, a team-based contest can yield higher effort as compared to an individual-based contest. We test this prediction for a four-person contest using a laboratory economics experiment. The results show that when contestants do not know each other, average effort levels in the individual-based and team-based contests are no different. However, when we allow contestants to socialize with potential teammates before making effort decisions, team-based contests yield higher effort relative to individual-based contests. We also conduct a field experiment that compares team-based and individual-based contests in a setting where contestants are familiar with one another. The results parallel those from the lab and indicate that team-based contests generate higher sales.