Making corruption harder: asymmetric information, collusion, and crime

We model criminal investigation as a principal-agent-monitor problem in which the agent can bribe the monitor to destroy evidence. Building on insights from Laffont and Martimort (1997) we study whether the principal can profitably introduce asymmetric information between agent and monitor by randomizing the monitor’s incentives. We show it can be the case, but the optimality of random incentives depends on unobserved pre-existing patterns of private information. We provide a data-driven framework for policy evaluation requiring only unverified reports. A potential local policy change is an improvement if, everything else equal, it is associated with greater reports of crime

Interim Information in Long Term Contracts

This paper studies the effectiveness of interim information in reducing inefficiencies in long term relationships. If the interim information is verifiable, it resolves all problems of asymmetric information. Under nonverifiability, the information alleviates the contracting problem only partially and its optimal use depends on the signal’s accuracy and timing. Precise and early signals enable the principal to extract all rents and adjust allocations closer to the first best. Imprecise or late signals affect only future allocations and leaves the agent with a rent. Due to a failure of the revelation principle, the optimal contract under non–verifiability is derived by employing the theory of communication equilibrium

Interim Information in Long Term Contracts

This paper studies the effectiveness of interim information in reducing inefficiencies in long term relationships. If the interim information is verifiable, it resolves all problems of asymmetric information. Under nonverifiability, the information alleviates the contracting problem only partially and its optimal use depends on the signal’s accuracy and timing. Precise and early signals enable the principal to extract all rents and adjust allocations closer to the first best. Imprecise or late signals affect only future allocations and leaves the agent with a rent. Due to a failure of the revelation principle, the optimal contract under non–verifiability is derived by employing the theory of communication equilibrium.

Cultural Rights and Civic Virtue

This paper addresses the potential tension between two broadly stated policy objectives: the preservation of distinctive cultural traditions, often through the mechanism of formal legal rights, and the fostering of civic virtue, a sense of local community and the advancement of common civic enterprises. Many political liberals argued that liberal societies have an obligation to accommodate the cultural traditions of various sub groups through legal rights and a redistribution of social resources. The “right to cultural difference” is now widely (if not universally) understood to be a basic human right, on par with rights to religious liberty and racial equality. Other theorists writing in the liberal, civic republican, and urban sociology traditions expounded on the necessity of civic virtue, community and common enterprises initiated and executed at the local or municipal level of government or private association. These theorists argued that common projects, shared norms and social trust are indispensable elements of effective democratic government and are necessary to the altruism and public spiritedness that in turn secure social justice. These two policy goals therefore may at times be in conflict. This conflict is especially severe in larger culturally diverse cities, where social trust and civic virtue are most needed and often in shortest supply. Policies designed to counter cosmopolitan alienation and anomie by fostering civic virtue, social trust and common social norms will inevitably conflict with the cultural traditions and sub group identification of some minority groups. The paper argues that such conflicts are often best confronted on the field of political debate and policy analysis, not in the language of civil rights. Rights discourse, with its inherent absolutism, is ill suited to the type of subtle tradeoffs that these conflicts often entail.Law, Rights, Multiculturalism

An Experimental Analysis of Ending Rules in Internet Auctions

A great deal of late bidding has been observed on internet auctions such as eBay, which employ a second price auction with a fixed deadline. Much less late bidding has been observed on internet auctions such as those run by Amazon, which employ similar auction rules, but use an ending rule that automatically extends the auction if necessary after the scheduled close until ten minutes have passed without a bid. This paper reports an experiment that allows us to examine the effect of the different ending rules under controlled conditions, without the other differences between internet auction houses that prevent unambiguous interpretation of the field data. We find that the difference in auction ending rules is sufficient by itself to produce the differences in late bidding observed in the field data. The experimental data also allow us to examine how individuals bid in relation to their private values, and how this behavior is shaped by the different opportunities for learning provided in the auction conditions.

Optimal Design Of English Auctions With Discrete Bid Levels

This paper considers a form of ascending price English auction widely used in both live and online auctions. This discrete bid auction requires that the bidders submit bids at predetermined discrete bid levels, and thus, there exists a minimal increment by which the bid price may be raised. In contrast, the academic literature of optimal auction design deals almost solely with continuous bid auctions. As a result, there is little practical guidance as to how an auctioneer, seeking to maximize its revenue, should determine the number and value of these discrete bid levels, and it is this omission that is addressed here. To this end, a model of a discrete bid auction from the literature is considered, and an expression for the expected revenue of this auction is derived. This expression is used to determine both numerical and analytical solutions for the optimal bid levels, and uniform and exponential bidder’s valuation distributions are compared. Finally, the limiting case where the number of discrete bid levels is large is considered. An analytical expression for the distribution of the optimal discrete bid levels is derived, and an intuitive understanding of how this distribution maximizes the revenue of the auction is developed

Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition

Consider a decentralized, dynamic market with an infinite horizon in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length ä, and each unit of time a large number of new buyers and sellers enter the market to trade. Within a period each buyer is matched with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, both the seller and winning buyer exit the market with their realized utility. Traders who fail to trade either continue in the market to be rematched or become discouraged with probability äµ (µ is the discouragement rate) and exit with zero utility. We characterize the steady-state, perfect Bayesian equilibria as ä becomes small and the market–in effect– becomes large. We show that, as ä converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation.

Convergence of a Dynamic Matching and Bargaining Market with Two-sided Incomplete Information to Perfect Competition

Consider a decentralized, dynamic market with an infinite horizon in which both buyers and sellers have private information concerning their values for the indivisible traded good. Time is discrete, each period has length ?, and each unit of time a large number of new buyers and sellers enter the market to trade. Within a period each buyer is matched with a seller and each seller is matched with zero, one, or more buyers. Every seller runs a first price auction with a reservation price and, if trade occurs, both the seller and winning buyer exit the market with their realized utility. Traders who fail to trade either continue in the market to be rematched or become discouraged with probability ?? (? is the discouragement rate) and exit with zero utility. We characterize the steady-state, perfect Bayesian equilibria as ? becomes small and the market–in effect– becomes large. We show that, as ? converges to zero, equilibrium prices at which trades occur converge to the Walrasian price and the realized allocations converge to the competitive allocation.

Public procurement auctions in Brazil

This thesis provides an empirical analysis of data generated by ComprasNet, the online procurement bidding platform developed and used by the Brazilian federal government. ComprasNet is a large bidding platform used since 2001 by more than 2200 public purchasing units who list around one million lots each year. Over 70,000 unique bidders have participated in these auctions. In 2010, 46 percent of all procurement for the federal government was conducted through ComprasNet, totaling R$ 27 billion, or 0.7 percent of Brazil’s GDP. In short, these auctions represent a large share of federal tenders and a substantial amount is contracted through them each year. Chapter 1 provides an overview of ComprasNet. After reviewing the literature on various topics which this dissertation contributes to, I describe the institutional background surrounding ComprasNet. I then present the baseline data used throughout the remainder of this dissertation. Chapter 2 addresses one important aspect of designing an online ascending auction, namely how to end the auction. ComprasNet varied its ending rules over time, providing an unique opportunity to test theories of bidder behaviour, as well as assessing the impact of ending rules on auction outcomes. Chapter 3 analyses a two-stage auction format which ComprasNet uses. Two-stage designs have long been proposed by the theoretical literature, but there are virtually no empirical works apart from experimental studies. Finally, chapter 4 analyses a bid preference programme targeted at small and micro enterprises (SMEs). The programme consists of setting aside eligible lots for SMEs. We first use eligibility rules as a source of exogenous variation in the treatment assignment to estimate the effects of the programme on auction outcomes. We then set up an open auction model with endogenous entry and asymmetric bidders and estimate the model’s primitives. In particular, we estimate entry costs, which we interpret as red tape costs