Good times, bad times, and vertical upstream integration

Industrial Economics

Conditional versus Contingent Fees

Under contingent fees the attorney gets a share of the judgement; under conditional fees the lawyer gets an upscale premium if the case is won which is, however, unrelated to the adjudicated amount. We compare conditional and contingent fees in a framework where lawyers are uninformed about the clients' cases. If there is asymmetric information about the merits of cases, in equilibrium attorneys will offer only conditional fees. If there is asymmetric information about the risk of cases, only contingent fee contracts are offered in equilibriumcontingent fees; conditional fees; adverse selection; moral hazard; screening; pooling

Perjury versus Truth-Revelation: Quantity or Quality of Testimony

In trials witnesses often slant their testimony to advance their interests.To obtain truthful testimony, courts rely on perjury rules. We show that perjury rules are not truth-revealing and we derive a truth-revealing mechanism for the same set of restrictions under which perjury rules operate. If the judge uses a truth-revealing mechanism, he will get less testimony than under perjury because the defendant will not present a witness with unfavorable news; however, testimony is of higher quality. We show that a court striving for precision prefers truth-revelation to perjury. If the court is rational in the Bayesian sense, chances for the defendant to prevail are the same under perjury and truth-revelation from an ex ante point of view. Truth-revelation thus dominates perjury even when the lower quantity of testimony is taken into account.litigation process; witness; truth-revelation; mechanism design; perjury rule

Genetic Tests and Intertemporal Screening in Competitive Insurance Markets

We consider successive generations of non-altruistic individuals carrying a good or bad gene. Daughters are more likely to carry their mother's gene than the opposite one. Competitive insurers can perform a genetic test revealing an agent's gene. They may condition their quotes on the agent's or on her ancestors' genetic status. In equilibrium generation one is bribed to take the test with an unconditional quote. The insurer uses this information to profitably screen a finite number of generations of their offspring. The offspring of good gene carriers subsidize the tested generationgenetic tests; insurance; screening; pooling

Incentive Compatible Reimbursement Schemes for Physicians

We consider physicians with fixed capacity levels. If a physician's capacity exceeds demand, she may have an incentive to overtreat, i.e., she may provide unnecessary treatments to use up idle capacity. By contrast, with excess demand she may undertreat, i.e., she may not provide necessary treatments since other activities are financially more attractive. We first show that simple fee-for-service reimbursement schemes do not provide proper incentives. If insurers use, however, fee-for-service schemes with quantity restrictions, they solve the fraudulent physician problem.credence goods; expert services; incentives; medical doctors; demand inducement; insurance

Subgame Perfect Punishment for Repeat Offenders

First we show that for wealth-constrained agents who may commit an act twice the optimal sanctions are the offender's entire wealth for the first and zero for the second crime. Then we ask the question whether this decreasing sanction scheme is subgame perfect (time consistent), i.e., does a rent-seeking government stick to this sanction scheme after the first crime has occurred. If the benefit and/or the harm from the crime are not too large, this is indeed the case; otherwise, equal sanctions for both crimes are optimal.crime and punishment; repeat offenders; subgame perfection