Endogenous Verifiability and Optimality in Agency: A non-contingent approach

In the context of a principal-agent model where verification of an agent’s effort is endogenously determined through strategic interactions between contracting parties, we derive a necessary and suficient condition to achieve the first best with a non-contingent or incomplete contract. These conditions relate the Principal’s benefit, the Agent’s cost, the probability of winning and the cost of litigation. Also, these conditions are found to be more general than the ones established in Ishiguro (2002) within a similar setup.incomplete contracts, endogenous verifiability, expectation damages.

Regulating a Monopoly with Universal Service Obligation: The Role of Flexible Tariff Schemes

This paper’s purpose is to study the problem of a regulator of a utility monopoly, who has a universal service goal that is binding, in the sense that there is no two- part tariff that can induce efficient consumption, self-finance the firm, and guarantee universal access at the same time. The optimal two-part tariffs that the regulator should set under the following three different regulatory rules are derived: no flexibility (the monopolist just offers the regulated plan), partial flexibility (the monopolist can offer alternative plans, but these -and the regulated one- must be available to all customers), and full flexibility (the regulated plan must be available to all customers, but not the alternative ones). The solutions under the three schemes are characterized, and provide an unambiguous ranking of regulatory rules: total flexibility is weakly better than partial flexibility, with the latter being strictly better than no flexibility.Monopoly regulation, network utilities, universal service obligation, Non-Linear Tariffs

Pre-Contractual Information Acquisition

We consider a principal-agent model in which the agent may acquire costly infor-mation about his e¤ort costs before he accepts a contract. The model departs from the literature in two ways: (1) the information is 'hard' in the sense that it can be credibly communicated, and (2) the parties are unable to commit to not renegotiate their contract. When the cost of acquiring information is low, the optimal contract induces information acquisition. In this case the contract is renegotiated and leaves the agent no rent. When the information cost is higher, the optimal contract induces the agent not to acquire information. In this case, if the cost is not too high, quantities are ine¢cient and the agent may receive rent. If the cost is yet higher, the contract again yields e¢cient quantities and leaves the agent no rent. These results hold also if parties can commit themselves not to renegotiate.Information Acquisition, Hard Information, Renegotiation.

Cargos de Acceso, Acceso Universal y Telefonía IP

La telefonía IP es percibida como una oportunidad para introducir fuerzas competitivas en el mercado de la telefonía. Sus bajos niveles de inversión requeridos cuando se utiliza una red de acceso existente, su capacidad de integrar nuevos servicios y la “nomadicidad” son sus principales ventajas; en tanto que la alta variabilidad en la calidad del servicio es actualmente su principal desventaja. Este trabajo aborda la problemática de la regulación de cargos de acceso y tarifas en un contexto que explícitamente considera la existencia de un problema de acceso universal, el cual se refleja en tarifas distorsionadas (en la situación pre-telefonía IP), con el cargo por minuto financiando parcialmente los costos fijos. Los principales resultados que se obtienen son dos: primero, asumiendo que no existe diferencia de costos entre las dos tecnologías (ni de calidad de servicio), la fijación de cargos de acceso basados en costos es incompatible con el objetivo de acceso universal y la penetración de la nueva tecnología; y segundo –aun bajo el supuesto de igualdad de costos– la regulación óptima de cargos de accesos y tarifas con la nueva tecnología permite alcanzar una mejora paretiana respecto al caso base.Cargos de Acceso, VoIP, Acceso Universal

Collusion in the Private Health Insurance Market: Empirical Evidence for Chile

In September 2005, the Chilean Competition Authority filed a complaint against the 5 largest private health insurance providers for violation of antitrust laws. The 5 providers were accused of colluding to reduce the coverage of the plans offered to customers between March 2002 and March 2003. The main fact is that during that period these 5 providers reduced the coverage offered from 100% for hospitalization and 80% for ambulatory care to 90% and 70% respectively. As usual the observation of parallel conduct is not enough to infer collusion and it is required to observe additional factors that allow us to reject the hypothesis of providers behaving competitively. In this paper, we show that some specific characteristics of the health insurance markets generate barriers to entry and switching costs that allow the possibility of a collusive agreement. Then, we adapt an imperfect competition model of product differentiation to derive some testable propositions that allow us to distinguish between competition and collusion outcomes in the health insurance market in Chile. Finally, we show econometric evidence consistent with a collusive agreement among the 5 largest providers and inconsistent with a competitive equilibrium. . In particular, by comparing the prosecuted and non-prosecuted open Isapres before and during the collusive period, we show that sales efforts of the accused Isapres were reduced during the transition period toward lower-quality plans, that the profitability of the two groups of Isapres increased, and that the rate of transfers within the group of accused Isapres fell during the transition period.Tacit Collusion, Isapres, Health Insurance, Conscious Parallelism, Plus Factors.

Hold-Up under Costly Litigation and Imperfect Courts of Law

Two main results have been obtained on the literature on contractual solutions to the hold-up problem. First, a contract specifying a price and quantity of the final good to be traded will, fairly generally, induce efficient investments if these are 'selfish' in nature, i.e., each party's investment directly affects only his own profit (Edlin and Reichelstein, 1996). Second, and in contrast, no contract however complicated is of any value in reducing the inefficiency if the investments are 'cooperative', i.e., each party's investment affects directly only the other party's payoff (Che and Hausch, 1999). We show that courts of law may play a more important role in real contract disputes than has been realized. The key observation is that the presence of a court can make it valuable to specify putative investment levels in a contract - even if the court remains ignorant of the parties' actual investment levels. This is because the putative investment levels influence the expected damages the court awards if it decides that breach occurred. The probability of the court deciding breach occurred is independent of the actual investment levels - they remain entirely unverifiable. It depends at most on the parties' court expenditures. These expenditures make litigation costly for the parties, and, therefore, in equilibrium they settle before trial. The presence of even such an imperfect court has a significant impact on whether contracts alleviate hold-up inefficiencies. In the case of one-sided cooperative investment, we show that the first-best outcome can sometimes be achieved by the adoption of a simple non-contingent contract, contrary to the negative result of Che and Hausch (1999). Our result extends to the case of hybrid investment, provided the investment is mainly cooperative.

Hold-Up under Costly Litigation and Imperfect Courts of Law

Two main results have been obtained on the literature on contractual solutions to the hold-up problem. First, a contract specifying a price and quantity of the final good to be traded will, fairly generally, induce efficient investments if these are `selfish' in nature, i.e., each party's investment directly affects only his own profit (Edlin and Reichelstein, 1996). Second, and in contrast, no contract however complicated is of any value in reducing the inefficiency if the investments are `cooperative', i.e., each party's investment affects directly only the other party's payoff (Che and Hausch, 1999). We show that courts of law may play a more important role in real contract disputes than has been realized. The key observation is that the presence of a court can make it valuable to specify putative investment levels in a contract - even if the court remains ignorant of the parties' actual investment levels. This is because the putative investment levels influence the expected damages the court awards if it decides that breach occurred. The probability of the court deciding breach occurred is independent of the actual investment levels - they remain entirely unverifiable. It depends at most on the parties' court expenditures. These expenditures make litigation costly for the parties, and, therefore, in equilibrium they settle before trial. The presence of even such an imperfect court has a significant impact on whether contracts alleviate hold-up inefficiencies. In the case of one-sided cooperative investment, we show that the first-best outcome can sometimes be achieved by the adoption of a simple non-contingent contract, contrary to the negative result of Che and Hausch (1999). Our result extends to the case of hybrid investment, provided the investment is mainly cooperativehold-up, cooperative investment, incomplete contracts, costly enforcement, expected damages

Planes Mínimos Obligatorios en Mercados de Seguros de Salud Segmentados

Se analiza el efecto de la introducción de un plan mínimo obligatorio de prestaciones (PMO) en un mercado de seguros de salud segmentado en que el seguro público y las aseguradoras privadas atienden respectivamente a riesgos altos y bajos (la segmentación es obtenida de manera endógena en el modelo). El análisis se realiza en un contexto en que ambos tipos de aseguradores deben ofrecer el PMO y los asegurados tienen una obligación de asegurarse y contribuir una prima mínima. Al comparar los equilibrios pre y post introducción del PMO, se constata que la reforma introduce indirectamente un mecanismo de subsidios implícitos que otorgan cierta solidaridad al sistema, aun cuando la reforma no lo promueva de manera explícita mediante mecanismos de compensación de riesgos. Para que este mecanismo de subsidio implícito opere es imprescindible que se regulen tanto el precio como la calidad asociados al PMO y que el regulador tenga la capacidad de coerción para que las aseguradoras privadas efectivamente ofrezcan el PMO a todos los tipos de asegurados.Seguros de salud, plan mínimo obligatorio de prestaciones, competencia administrada

Planes Mínimos Obligatorios en Mercados de Seguros de Salud Segmentados

El objetivo de este trabajo es analizar los posibles determinantes a nivel individual del uso del seguro contra pérdida de ingreso por enfermedades comunes -no profesionales- o sistema de “licencias médicas”, como es comúnmente conocido en Chile. Para ello se trabaja con una encuesta ad-hoc realizada a beneficiarios cotizantes del sistema en la ciudad de Santiago. Los resultados obtenidos son consistentes con la literatura internacional y la teoría económica. Ellos permiten identificar variables que afectan el uso del seguro que serían indicativas de un uso ilegal del mismo, otras que son indicativas de problemas de cobertura del seguro y otras que directamente desnudan un diseño ineficiente del seguro para controlar problemas de riesgo moral. Los hallazgos de la investigación se traducen en propuestas para reformar este seguro haciendo compatibles consideraciones de eficiencia y equidad.Ausentismo Laboral, Riesgo Moral, Seguros por enfermedades comunes.