264 research outputs found
Advertising and Conspicuous Consumption
The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brandâs image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumersâ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable
Learning and self-confidence in contests
The paper studies a repeated contest when contestants are uncertain about their true abilities. A favourable belief about oneâs own ability (confidence) stimulates effort and increases the likelihood of success. Success, in turn, reinforces favourable beliefs. We consider a specific example in which this reinforcement mechanism implies that, with positive probability, players fail to learn their true abilities, and one player may eventually win the contest forever. As a consequence, persistent inequality arises, and the worse player may eventually prevail. Furthermore, confidence is self-serving in that it increases a playerâs utility and the likelihood to be the long-run winner. -- Das Papier betrachtet einen wiederholten Wettkampf, in dem die WettkĂ€mpfer ihre wahren FĂ€higkeiten nicht kennen. WettkĂ€mpfer mit einer hohen EinschĂ€tzung ihrer eigenen FĂ€higkeiten (Selbstvertrauen) zeigen eine höhere Einsatzbereitschaft und haben damit bessere Erfolgsaussichten. Umgekehrt verstĂ€rken Erfolge das Selbstvertrauen. Wir betrachten ein einfaches Beispiel, in dem dieser sich selbst verstĂ€rkende Effekt dazu fĂŒhrt, dass die Spieler mit positiver Wahrscheinlichkeit ĂŒber ihre wahren FĂ€higkeiten im Ungewissen bleiben, und dass ein Spieler schlieĂlich fĂŒr immer als Sieger aus dem Wettkampf hervorgeht. Als Folge ergeben sich dauerhafte Ungleichheiten, wobei es der tatsĂ€chlich unfĂ€higere Spieler sein kann, der langfristig ĂŒberlegen ist. DarĂŒber hinaus zeigt sich, dass Selbstvertrauen sowohl den Nutzen eines Spielers als auch die Erfolgswahrscheinlichkeit, der schlieĂlich ĂŒberlegene Spieler zu sein, erhöht.Contest, self-confidence,belief reinforcement,incomplete learning,dynamic programming
Advertising and Conspicuous Consumption
The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brandâs image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumersâ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable.
The Benefits of Sequential Screening
This paper considers the canonical sequential screening model and shows that when the agent has an expost outside option, the principal does not benefit from eliciting the agentâs information sequentially. Unlike in the standard model without expost outside options, the optimal contract is static and conditions only on the agentâs aggregate final information. The benefits of sequential screening in the standard model are therefore due to relaxed participation rather than relaxed incentive compatibility constraints. We argue that in the presence of expost participation constraints, the classical, local approach fails to identify binding incentive constraints and develop a novel, inductive procedure to do so instead. The result extends to the multiâagent version of the problem
Delegation versus authority
The paper studies the role of delegation and authority within a principal-agent relation in which a non-contractible action has to be taken. The agent has private information relevant for the principal, but has policy preferences different from the principal. Consequently, an information revelation problem arises. We contribute to the literature by assuming transferable utility and contractibility of messages and decision rights. While delegation leads to loss of control, it facilitates the agentâs participation and leads to an informed decision. Moreover, message-contingent delegation creates incentives for information revelation. We derive the optimal contract for the principal and investigate when delegation outperforms authority. -- Das Papier untersucht die BestimmungsgrĂŒnde fĂŒr die Delegation von Entscheidungen in Organisationen. Wir betrachten eine Prinzipal-Agent Beziehung, in der eine Entscheidung getroffen werden muss, die vertraglich nicht festgeschrieben werden kann. Der Agent verfĂŒgt ĂŒber fĂŒr den Prinzipal relevante private Information, hat aber andere EntscheidungsprĂ€ferenzen als der Prinzipal. Im Unterschied zur bisherigen Literatur betrachten wir den Fall, dass Nutzen transferierbar ist, und dass der Prinzipal sein Entscheidungsrecht in AbhĂ€ngigkeit eines Berichtes des Agenten an diesen abtreten kann. Delegation fĂŒhrt einerseits zu einem Kontrollverlust fĂŒr den Prinzipal. Andererseits erleichtert sie die Partizipation des Agenten und fĂŒhrt zu einer informierten Entscheidung. DarĂŒber hinaus schafft Delegation Anreize zur Informationsoffenlegung, wenn dem Agenten das Entscheidungsrecht in AbhĂ€ngigkeit seines Berichtes ĂŒbertragen wird. Wir untersuchen, wann es fĂŒr den Prinzipal optimal ist, die Entscheidung zu delegieren.Delegation,Partial Contracting,Mechanism Design,Imperfect Commitment,Transferable Utility
Entry and experimentation in oligopolistic markets for experience goods
We investigate a two-period Bertrand market in which one seller introduces a new product of uncertain quality. The new product competes with an alternative good of known quality. Ex ante neither sellers nor consumers know the value of the new product. While consumers can learn their valuation by actual consumption (experimentation), sellers cannot observe experimentation outcomes. Thus, asymmetric information arises if the buyer experiments. As a result, the equilibrium is inefficient, and too little entry occurs. -- Das Papier untersucht einen zweiperiodigen Bertrand-Markt, in dem ein VerkĂ€ufer ein neues Gut unbekannter QualitĂ€t einfĂŒhrt. Das neue Produkt konkurriert mit einem etablierten Produkt bekannter QualitĂ€t. Ex ante kennen weder die VerkĂ€ufer noch die KĂ€ufer den Wert des neuen Gutes. Ein KĂ€ufer kann seine WertschĂ€tzung fĂŒr das neue Produkt erfahren, indem er es ausprobiert (Experimentation). Die VerkĂ€ufer hingegen können nicht beobachten, ob der KĂ€ufer zufrieden war, wenn er das neue Gut konsumiert hat. Dadurch entsteht asymmetrische Information. Dies fĂŒhrt zu einem ineffizienten Gleichgewicht und zu zu geringem Markteintritt.Entry,experimentation,asymmetric information,bandit problem,Bertrand competition
Optimal Procurement Contracts with PreâProject Planning
The paper studies procurement contracts with preâproject investigations in the presence of adverse selection and moral hazard. To model the procurerâs roblem, we extend a standard sequential screening model to endogenous information acquisition with moral hazard. The optimal contract displays systematic distortions in information acquisition. Due to a rent effect, adverse selection induces too much information acquisition to prevent cost overruns and too little information acquisition to prevent false project cancelations. Moral hazard mitigates the distortions related to cost overruns yet exacerbates those related to false negatives. The optimal mechanism is a menu of option contracts that achieves the dual goal of providing incentives for information acquisition and truthful information revelation
Exit Options and the Allocation of Authority
We analyze the optimal allocation of authority in an organization whose members have conflicting preferences. One party has decision-relevant private information, and the party who obtains authority decides in a self-interested way. As a novel element in the literature on decision rights, we consider exit option contracts: the party without decision rights is entitled to prematurely terminate the relation after the other party's choice. We show that under such a contract it is always optimal to assign authority to the informed and not to the uninformed party, irrespective of the parties' conflict of interest. Indeed, the first-best efficient solution can be obtained by such a contract
Ex post information rents and disclosure in sequential screening
We study ex post information rents in sequential screening models where the agent receives private ex ante and ex post information. The principal has to pay ex post information rents for preventing the agent to coordinate lies about his ex ante and ex post information. When the agentâs ex ante information is discrete, these rents are positive, whereas they are zero in continuous models. Consequently, full disclosure of ex post information is generally suboptimal. Optimal disclosure rules trade off the benefits from adapting the allocation to better information against the effect that more information aggravates truth-telling
Regret in Dynamic Decision Problems
The paper proposes a framework to extend regret theory to dynamic contexts. The key idea is to conceive of a dynamic decision problem with regret as an intra-personal game in which the agent forms conjectures about the behaviour of the various counterfactual selves that he could have been. We derive behavioural implications in situations in which payoffs are correlated across either time or contingencies. In the first case, regret might lead to excess conservatism or a tendency to make up for missed opportunities. In the second case, behaviour is shaped by the agentâs self-conception. We relate our results to empirical evidence
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