Stochastic Contracts and Subjective Evaluations

Subjective evaluations are widely used, but call for different contracts from classical moral-hazard settings. Previous literature shows that contracts require payments to third parties. I show that the (implicit) assumption of deterministic contracts makes payments to third parties necessary. This paper studies incentive contracts with stochastic compensation, like payments in stock options or uncertain arbitration procedures. These contracts incentivize employees without the need for payments to third parties. In addition, stochastic contracts can be more efficient and can make the principal better off compared to deterministic contracts. My results also address the puzzle about the prevalence of labor contracts with stochastic compensation

Measures of Nonclassical Correlations and Quantum-Enhanced Interferometry

In the first part of this dissertation a framework for categorizing entropic measures of nonclassical correlations in bipartite quantum states is presented. The measures are based on the difference between a quantum entropic quantity and the corresponding classical quantity obtained from measurements on the two systems. Three types of entropic quantities are used, and three different measurement strategies are applied to these quantities. Many of the resulting measures of nonclassical correlations have been proposed previously. Properties of the various measures are explored, and results of evaluating the measures for two-qubit quantum states are presented. To demonstrate how these measures differ from entanglement we move to the set of Bell-diagonal states for two qubits, which can be depicted as a tetrahedron in three dimensions. We consider the level surfaces of entanglement and of the correlation measures from our framework for Bell-diagonal states. This provides a complete picture of the structure of entanglement and discord for this simple case and, in particular, of their nonanalytic behavior under decoherence. The pictorial approach also indicates how to show that all of the proposed correlation measures are neither convex nor concave. In the second part we look at two practical interferometric setups that use nonclassical states of light to enhance their performance. First we consider an interferometer powered by laser light (a coherent state) into one input port and ask the following question: what is the best state to inject into the second input port, given a constraint on the mean number of photons this state can carry, in order to optimize the interferometer\u27s phase sensitivity? This question is the practical question for high-sensitivity interferometry. We answer the question by considering the quantum Cram\\u27er-Rao bound for such a setup. The answer is squeezed vacuum. Then we analyze the ultimate bounds on the phase sensitivity of an interferometer, given the constraint that the state input to the interferometer\u27s initial 50:50 beam splitter B is a product state of the two input modes. Requiring a product state is a natural restriction: if one were allowed to input an arbitrary, entangled two-mode state $|\Xi \rangle$ to the beam splitter, one could generally just as easily input the state $B|\Xi \rangle$ directly into the two modes after the beam splitter, thus rendering the beam splitter unnecessary. We find optimal states for a fixed photon number and for a fixed mean photon number. Our results indicate that entanglement is not a crucial resource for quantum-enhanced interferometry. Initially the analysis for both of these setups is performed for the idealized case of a lossless interferometer. Then the analysis is extended to the more realistic scenario where the interferometer suffers from photon losses

Contracting in the Presence of Uncertainty

This thesis concerns the enforcement of contracts in the presence of uncertainty. Sometimes uncertainty is exogenously given and the agents cannot influence its existence. Frequently, however, there is strategic uncertainty created by the behavior of other agents. Both kinds of uncertainty have important impacts on contracting. Chapter 1 shows that insurers use uncertainty about auditing strategies to fight insurance fraud. For this purpose, we study a costly state verification model with ambiguity. The insurers abstain from commitment to an auditing strategy, even if commitment is possible without incurring any costs. This contrasts with conventional wisdom, which claims that it is optimal to commit, as the credible announcement of thoroughly auditing claim reports might act as a powerful deterrent to insurance fraud. Yet, empirically it is very unusual for insurers to try to overcome the credibility issue. We prove that it can be optimal for the insurers to maintain the ambiguity and forgo commitment. Thus, strategic ambiguity, i.e., the strategic choice to withhold information about auditing costs and strategies, is an equilibrium outcome. The second chapter considers legal uncertainty in competition law. I show that legal uncertainty can be welfare-enhancing, if the uncertainty is not too large. As an example, consider Article 101 (TFEU) prohibiting vertical restraints with a block exemption excluding companies with market shares below 30%. There are guidelines available how the relevant market shares are to be calculated. Nevertheless, it is extremely difficult to predict correctly the market share that the competition authorities will determine. In addition, there is uncertainty about the size of the fine that firms have to pay in case of a conviction. This exemplifies legal uncertainty as scrutinized in the chapter. The third chapter analyzes a principal-agent model, in which the performance measure of the principal is non-verifiable and unobservable by the agent. Instead, the principal has the possibility to communicate with the agent. The communication occurs at the very end of the interaction and there is no repeated interaction. Nevertheless, it is crucial for the agent’s motivation that the principal gives feedback and justifies her evaluation, in particular, in case of bad outcomes. In addition, it is optimal to pool evaluations and to compress wages at the top. These results fit well with empirical observations, like the leniency bias and the centrality bias. Hence, this pattern of evaluations can be understood as a feature of the optimal contract instead of biased behavior. Corresponding to the distinction between first-order and second-order risk aversion, the fourth chapter defines first-order and second-order ambiguity aversion. With second-order ambiguity aversion, for every ambiguity-averse agent there is an ambiguity-neutral agent so that the set of all improvement directions at an unambiguous endowment is the same for both agents. With first-order ambiguity aversion, in contrast, the set of improvement directions is a strict subset of the improvement directions of an ambiguity-neutral agent. Chapter 4 provides three equivalent definitions for the distinction. For this purpose, I introduce a general ambiguity premium and a notion of reference beliefs of an ambiguity-averse agent. This distinction has direct implications for settings in finance, insurance, and contracting. In particular, I consider the validity of an adapted version of Holmström’s informativeness principle under ambiguity aversion

How does the domiciliation decision affect mutual fund fees?

In this paper, we analyze whether the domiciliation decision of mutual funds has an impact on fund fees. To explain the fee price-setting of mutual funds, we consider characteristics specific to funds, fund companies, and countries. We find that fees vary considerably across fund types and countries. Positive impacts of financial market integration can be confirmed, though funds set up under the UCITS directive are more expensive. If funds are sold in multiple countries it drives up fees; however, these higher costs for the investor are outweighed by economies of scale that can be generated if the domiciliation is in a specialized financial center, such as Luxembourg. Larger funds and funds that are set up by specialized or larger fund companies have significantly lower fees

Trends im Retail-Banking : Die Bankfiliale der Zukunft – Ergebnisse einer Umfrage unter Finanzexperten

Kaum ein anderes Geschäftsfeld im deutschen Bankensektor hat sich in den vergangenen Jahren so dynamisch entwickelt wie das Retail-Banking. Bedrängt durch alternative Vertriebskanäle haben viele Filialbanken ihre Kunden auf elektronische Vertriebskanäle umgeleitet. Die Filiale drohte angesichts der hohen Kosten und des intensiven Wettbewerbs am deutschen Retail-Banking Markt lange Zeit ein Auslaufmodell zu werden. Mittlerweile zeichnet sich aber ein Umdenken bei den Kunden und den Kreditinstituten ab. Vor diesem Hintergrund hat das Zentrum für Europäische Wirtschaftsforschung (ZEW) im Rahmen des ZEW-Finanzmarkttests zwischen Januar und April 2008 rund 350 Experten aus Banken, Versicherungen und sonstigen Finanzdienstleistungsunternehmen zu den Zukunftsperspektiven des Filialgeschäfts in Deutschland befragt

Trends im Retail-Banking : Outsourcing im deutschen Bankensektor

Die deutsche Bankenbranche ist mit ihrer schlechten Kosteneffizienz im internationalen Wettbewerb weit zurückgefallen. Der globale Wettbewerbsdruck zwingt die Kreditinstitute, ihre Kostensituation zu verbessern. Die Konzentration auf Kernkompetenzen sowie die Optimierung der Wertschöpfungsprozesse geht mit einem konsequenten Outsourcing von Geschäftsbereichen und –prozessen auf spezialisierte externe Anbieter einher. In den letzten Jahren ist der deutsche Bankensektor wieder in Bewegung gekommen. Durch die Anwendung industrieller Fertigungsmethoden auf den Finanzbetrieb kam es teilweise zu einem fundamentalen Umbau bestehender Strukturen. Die Ergebnisse einer Umfrage unter Finanzmarktexperten weist darauf hin, dass sich der Trend zu Outsourcing in den kommenden Jahren fortsetzen wird. Vor allem einfache, leicht standardisierbare Prozesse werden weiterhin an spezialisierte externe Dienstleister ausgelagert. Inzwischen werden jedoch auch komplexere Bereiche wie das Research in Outsourcing-Überlegungen miteinbezogen