Subjective Performance Evaluations, Self-esteem, and Ego-threats in Principal-agent Relations

We conduct a laboratory experiment with agents working on and principals benefiting from a real effort task in which the agents’ effort/performance can only be evaluated subjectively. Principals give subjective performance feedback to agents and agents have an opportunity to sanction principals. We find that agents sanction whenever the feedback of principals is below their subjective self-evaluations even if the agents’ payoff is independent of the principals’ feedback. Based on our experimental analysis we propose a principal-agent model with subjective performance evaluations that accommodates this finding. We analyze the agents’ (optimal) behavior, optimal contracts, and social welfare in this environment.contracts; subjective performance evaluations; self-esteem; ego-threats

Why it Pays to Conceal - On the Optimal Timing of Acquiring Verifiable Information

We consider optimal contracts when a principal has two sources to detect bad projects. The first one is an information technology without agency costs ($$), whereas the second one is the expertise of an agent subject to moral hazard, adverse selection and limited liability ($IT_A$). First, we show that the principal does not necessarily benefit from access to additional information and thereby may prefer to ignore it. Second, we discuss different timings of information release, i.e. a \emph{disclosure} contract offered to the agent after the principal announced the result of $$, and a \emph{concealment} contract where the agent exerts effort before $IT_{P}$ is checked. We find that oncealment is superior whenever the quality of $IT_{P}$ is sufficiently low. Then, $IT_{P}$ is almostworthless under a disclosure contract, while it can still be exploited to reduce the agent''s information rent under concealment. If the quality of $$ improves, disclosure can be superior as it allows to adjust the agent''s effort to the up-dated expected quality of the project. However, even for a highly informative $IT_{P}$, concealment can be superior as itmitigates the adverse selection problem. Finally, we prove that the principal always benefits from checking $IT_P$ \textit{if} he chooses the optimal timing of information release. In particular, he may benefit only if he does not check $IT_P$ until the agent reported his findings.management information;

Stable Many-to-Many Matchings with Contracts

We consider several notions of setwise stability for many-to-many matching markets with contracts and provide an analysis of the relations between the resulting stable sets and pairwise stable sets for general, substitutable, and strongly substitutable preferences. Apart from obtaining “set inclusion results'''' on all three domains, we prove that for substitutable preferences the set of pairwise stable matchings is nonempty and coincides with the set of weakly setwise stable matchings. For strongly substitutable preferences the set of pairwise stable matchings coincides with the set of setwise stable matchings. We also show that Roth’s (1984) stability coincides with pairwise stability for substitutable preferences.microeconomics ;

Stable Many-to-Many Matchings with Contracts

We consider several notions of setwise stability for many-to-many matching markets with contracts and provide an analysis of the relations between the resulting sets of stable allocations for general, substitutable, and strongly substitutable preferences. Apart from obtaining "set inclusion results" on all three domains, we introduce weak setwise stability as a new stability concept and prove that for substitutable preferences the set of pairwise stable matchings is nonempty and coincides with the set of weakly setwise stable matchings. For strongly substitutable preferences the set of pairwise stable matchings coincides with the set of setwise stable matchings.Many-to-Many Matching, Matching with Contracts, Pairwise Stability, Setwise Stability.

Truth, trust, and sanctions: On institutional selection in sender-receiver games

We conduct a laboratory experiment to investigate the impact of institutions and institutional choice on truth-telling and trust in sender-receiver games. We find that in an institution with sanctioning opportunities, receivers sanction predominantly after having trusted lies. Individuals who sanction are responsible for truth-telling beyond standard equilibrium predictions and are more likely to choose the sanctioning institution. Sanctioning and non-sanctioning institutions coexist if their choice is endogenous and the former shows a higher level of truth-telling but lower material payoffs. It is shown that our experimental findings are consistent with the equilibrium analysis of a logit agent quantal response equilibrium with two distinct groups of individuals: one consisting of subjects who perceive non-monetary lying costs as senders and non-monetary costs when being lied to as receivers and one consisting of payoff maximizers.Experiment, Sender-receiver games, Strategic information transmission, Institutional selection

A Dynamic Recontracting Process for Multiple-Type Housing Markets

We consider multiple-type housing markets. To capture the dynamic aspect of trade in such markets, we study a dynamic recontracting process similar to the one introduced by Serrano and Volij (2008). First, we analyze the set of recurrent classes of this process as a (non-empty) solution concept. We show that each core allocation always constitutes a singleton recurrent class and provide examples of non-singleton recurrent classes consisting of blocking-cycles of individually rational allocations. For multiple-type housing markets stochastic stability never serves as a selection device among recurrent classes. Next, we propose a method to compute the limit invariant distribution of the dynamic recontracting process. Furthermore, we discuss how the limit invariant distribution is inuenced by the relative coalitional stability and accessibility of the different stochastically stable allocations. We illustrate our finndings with several examples. In particular, we demonstrate that some core allocations are less likely to be final allocations of the dynamic process than cycles composed of non-core allocations.core; indivisible goods; limit invariant distribution; stochastic stability

Dynamic recontracting processes with multiple indivisible goods

We consider multiple-type housing markets. To capture the dynamic aspect of trade in such markets, we study a dynamic recontracting process similar to the one introduced by Serrano and Volij (2005). First, we analyze the set of recurrent classes of this process as a (non-empty) solution concept. We show that each core allocation always constitutes a singleton recurrent class and provide examples of non-singleton recurrent classes consisting of blocking-cycles of individually rational allocations. For multiple-type housing markets stochastic stability never serves as a selection device among recurrent classes.Next, we propose a method to compute the limit invariant distribution of the dynamic recontracting process. The limit invariant distribution exploits the interplay of coalitional stability and accessibility that determines a probability distribution over final allocations. We provide various examples to demonstrate how the limit invariant distribution discriminates among stochastically stable allocations: surprisingly, some core allocations are less likely to be final allocations of the dynamic process than cycles composed of non-core allocations.core, indivisible goods, limit invariant distribution, stochastic stability

Stochastic Stability for Roommate Markets

We show that for any roommate market the set of stochastically stable matchings coincideswith the set of absorbing matchings. This implies that whenever the core is non-empty (e.g.,for marriage markets), a matching is in the core if and only if it is stochastically stable, i.e., stochastic stability is a characteristic of the core. Several solution concepts have beenproposed to extend the core to all roommate markets (including those with an empty core).An important implication of our results is that the set of absorbing matchings is the onlysolution concept that is core consistent and shares the stochastic stability characteristic withthe core.Economics (Jel: A)

Unfair Contests

Real-world contests are often "unfair" in the sense that outperforming all rivals may not be enough to be the winner, because some contestants are favored by the allocation rule, while others are handicapped. Examples of such contests can be inter alia found in the area of litigation and procurement.This paper analyzes discriminatory contests (which are strategically equivalent to all-pay auctions) with a handicap for one of the participants. We first characterize the equilibriumstrategies, provide closed form solutions, and illustrate the additional strategic issues arising through this asymmetry. We then analyze the issue of the optimal degree of unfairness. From a social point of view, the following trade-off arises: The disadvantage of unfair contests is that the prize may be awarded to an inferior contestant. On the other hand, under the assumption that the effort exerted by contestants to increase their chancesof winning the prize is wasteful from a social point of view, one advantage of an unfair contest is that it leads to lower effort incentives. We characterize situations in which it is optimal for an authority to either stipulate a fair contest, an interior degree of unfairness or even an infinitely unfair contest where the prize is directly awarded to one of the ontestants.microeconomics ;

When Bidding More is Not Enough: All-Pay Auctions with Handicaps

We consider a standard two-player all-pay auction with private values, where the valuation for the object is private information to each bidder. The crucial feature is that one bidder is favored by the allocation rule in the sense that he need not bid as much as the other bidder to win the auction. Analogously, the other bidder is handicapped by the rule as overbidding the rival may not be enough to win the auction. Clearly, this has important implications on equilibrium behavior. We fully characterize the equilibrium strategies for this auction format and show that there exists a unique pure strategy Bayesian Nash Equilibrium.All-pay auction, contest, asymmetric allocation rule, rent-seeking, asymmetric information