Economic disruptions generally create winners and losers. The compensation problem consists of designing a reform of the existing income tax system that offsets the welfare losses of the latter by redistributing the gains of the former. We derive a formula for the compensating tax reform and its impact on the government budget when only distortionary tax instruments are available and wages are determined endogenously in general equilibrium. We apply this result to the compensation of robotization in the United States.
{"title":"Generalized compensation principle","authors":"Karl Schulz, Aleh Tsyvinski, Nicolas Werquin","doi":"10.3982/te3971","DOIUrl":"https://doi.org/10.3982/te3971","url":null,"abstract":"Economic disruptions generally create winners and losers. The compensation problem consists of designing a reform of the existing income tax system that offsets the welfare losses of the latter by redistributing the gains of the former. We derive a formula for the compensating tax reform and its impact on the government budget when only distortionary tax instruments are available and wages are determined endogenously in general equilibrium. We apply this result to the compensation of robotization in the United States.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135561033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we study the conditions under which termination is a useful incentive device in the canonical dynamic principal‐agent moral hazard model of Sannikov (2008). We find that temporary suspension of the agent after poor performance dominates termination if the principal's outside option is low and the agent's outside option is moderate. In suspension, the agent performs tasks free of moral hazard and receives no compensation, which rebuilds his “skin in the game” and allows for incentives to be restored without terminating. If the agent's outside option is low, suspension is ineffective because it rebuilds the agent's skin in the game too slowly. If the agent's outside option is high, the profitability of the relationship with the agent is low, so the principal prefers to terminate rather than extend the relationship through temporary suspension. Because the optimal use of suspension versus termination after poor performance can be highly sensitive to the principal's and agent's outside options, similar jobs can have vastly different average job durations, purely for incentive reasons.
{"title":"Termination as an incentive device","authors":"Borys Grochulski, Yuzhe Zhang","doi":"10.3982/te3881","DOIUrl":"https://doi.org/10.3982/te3881","url":null,"abstract":"In this paper, we study the conditions under which termination is a useful incentive device in the canonical dynamic principal‐agent moral hazard model of Sannikov (2008). We find that temporary suspension of the agent after poor performance dominates termination if the principal's outside option is low and the agent's outside option is moderate. In suspension, the agent performs tasks free of moral hazard and receives no compensation, which rebuilds his “skin in the game” and allows for incentives to be restored without terminating. If the agent's outside option is low, suspension is ineffective because it rebuilds the agent's skin in the game too slowly. If the agent's outside option is high, the profitability of the relationship with the agent is low, so the principal prefers to terminate rather than extend the relationship through temporary suspension. Because the optimal use of suspension versus termination after poor performance can be highly sensitive to the principal's and agent's outside options, similar jobs can have vastly different average job durations, purely for incentive reasons.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"35 1-2 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78658471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the conditions under which socially responsible investment (SRI) is neutral from the viewpoint of general equilibrium theory. Three conditions are jointly sufficient for neutrality of SRI. First, the financial market is complete and SRI does not compromise the spanning opportunities it provides. Second, consumers' rankings of consumption bundles are unaffected by their asset holdings. Third, firms maximize shareholder value. Under an additional assumption that is satisfied, e.g., if SRI takes the form of negative screening, the taxes and transfers needed to implement a Pareto‐optimal allocation are the same as in the absence of SRI. SRI is neutral despite financial market incompleteness if there are perfect substitutes for targeted stocks.
{"title":"On the neutrality of socially responsible investing: The general equilibrium perspective","authors":"L. Arnold","doi":"10.3982/te4719","DOIUrl":"https://doi.org/10.3982/te4719","url":null,"abstract":"This paper investigates the conditions under which socially responsible investment (SRI) is neutral from the viewpoint of general equilibrium theory. Three conditions are jointly sufficient for neutrality of SRI. First, the financial market is complete and SRI does not compromise the spanning opportunities it provides. Second, consumers' rankings of consumption bundles are unaffected by their asset holdings. Third, firms maximize shareholder value. Under an additional assumption that is satisfied, e.g., if SRI takes the form of negative screening, the taxes and transfers needed to implement a Pareto‐optimal allocation are the same as in the absence of SRI. SRI is neutral despite financial market incompleteness if there are perfect substitutes for targeted stocks.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"5 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82525707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Objects of different quality are to be allocated to agents. Agents can receive at most one object, and there are not enough high‐quality objects for every agent. The value to the social planner from allocating objects to any given agent depends on that agent's private information. The social planner is unable to use transfers to give incentives for agents to convey their private information. Instead, she is able to imperfectly verify their reports through signals that are positively affiliated with each agent's type. We characterize mechanisms that maximize the social planner's expected payoff. In the optimal mechanism, each agent chooses one of various tracks, which are characterized by two thresholds. If the agent's signal exceeds the upper threshold of the chosen track, the agent receives a high‐quality object, if it is between the two thresholds, he receives a low‐quality object, and if it is below the lower threshold, he receives no object.
{"title":"Optimal assignment mechanisms with imperfect verification","authors":"J. Pereyra, Francisco Silva","doi":"10.3982/te5088","DOIUrl":"https://doi.org/10.3982/te5088","url":null,"abstract":"Objects of different quality are to be allocated to agents. Agents can receive at most one object, and there are not enough high‐quality objects for every agent. The value to the social planner from allocating objects to any given agent depends on that agent's private information. The social planner is unable to use transfers to give incentives for agents to convey their private information. Instead, she is able to imperfectly verify their reports through signals that are positively affiliated with each agent's type. We characterize mechanisms that maximize the social planner's expected payoff. In the optimal mechanism, each agent chooses one of various tracks, which are characterized by two thresholds. If the agent's signal exceeds the upper threshold of the chosen track, the agent receives a high‐quality object, if it is between the two thresholds, he receives a low‐quality object, and if it is below the lower threshold, he receives no object.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"78 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83639017","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-01-01DOI: 10.52342/2587-7666vte_2023_1_142_155
A. Zaostrovtsev
{"title":"THOSE WHO COMPREHEND HISTORY: A REVIEW OF DEVELOPMENT CONCEPTS (ON D.YA. TRAVIN’S BOOK “HOW THE STATE GETS RICH... A GUIDE TO HISTORICAL SOCIOLOGY”)","authors":"A. Zaostrovtsev","doi":"10.52342/2587-7666vte_2023_1_142_155","DOIUrl":"https://doi.org/10.52342/2587-7666vte_2023_1_142_155","url":null,"abstract":"","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"1 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89835590","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide conditions that simplify applying Reny's (1999) better‐reply security to Bayesian games and use these conditions to prove the existence of equilibria for classes of games in which payoff discontinuities arise only at “ties.” These games include a general version of all‐pay contests, first‐prize auctions with common values, and Hotelling models with incomplete information.
{"title":"Equilibrium existence in games with ties","authors":"W. Olszewski, Ron Siegel","doi":"10.3982/te5067","DOIUrl":"https://doi.org/10.3982/te5067","url":null,"abstract":"We provide conditions that simplify applying Reny's (1999) better‐reply security to Bayesian games and use these conditions to prove the existence of equilibria for classes of games in which payoff discontinuities arise only at “ties.” These games include a general version of all‐pay contests, first‐prize auctions with common values, and Hotelling models with incomplete information.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"13 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82168496","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper shows that in some axioms regarding the mixture of random variables, the requirement that the conclusions hold for all values of the mixture parameter can be weakened by requiring the existence of only one nontrivial value of the parameter, which need not be fixed. This is the case for the independence, betweenness, and mixture symmetry axioms. Unlike the standard axioms, these weaker versions cannot be refuted by experimental methods.
{"title":"∀ or ∃?","authors":"Uzi Segal","doi":"10.3982/te4946","DOIUrl":"https://doi.org/10.3982/te4946","url":null,"abstract":"This paper shows that in some axioms regarding the mixture of random variables, the requirement that the conclusions hold for all values of the mixture parameter can be weakened by requiring the existence of only one nontrivial value of the parameter, which need not be fixed. This is the case for the independence, betweenness, and mixture symmetry axioms. Unlike the standard axioms, these weaker versions cannot be refuted by experimental methods.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"25 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82249359","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We analyze a cheap‐talk model in which an informed sender and an uninformed receiver engage in a finite‐period communication before the receiver chooses a project. During the communication phase, the sender sends a message in each period, and the receiver then voluntarily pays money for the message. As in the canonical cheap‐talk model, all the equilibria are interval partitional; in our setting, however, the set of equilibrium partitions becomes larger. We show that the multistage information transmission with voluntary monetary transfers can improve welfare if the receiver cares more about the decision and the sender cares more about money or if the ex post sender–receiver incentive conflict over the project choice is small. We derive a multistage information elicitation mechanism without commitment that can be more beneficial to the receiver than a broad class of other communication protocols (e.g., mediation and arbitration).
{"title":"Multistage information transmission with voluntary monetary transfers","authors":"Hitoshi Sadakane","doi":"10.3982/te3501","DOIUrl":"https://doi.org/10.3982/te3501","url":null,"abstract":"We analyze a cheap‐talk model in which an informed sender and an uninformed receiver engage in a finite‐period communication before the receiver chooses a project. During the communication phase, the sender sends a message in each period, and the receiver then voluntarily pays money for the message. As in the canonical cheap‐talk model, all the equilibria are interval partitional; in our setting, however, the set of equilibrium partitions becomes larger. We show that the multistage information transmission with voluntary monetary transfers can improve welfare if the receiver cares more about the decision and the sender cares more about money or if the ex post sender–receiver incentive conflict over the project choice is small. We derive a multistage information elicitation mechanism without commitment that can be more beneficial to the receiver than a broad class of other communication protocols (e.g., mediation and arbitration).","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"151 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86161724","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study contracting when both principal and agent have to exert noncontractible effort for production to take place. An analyst is uncertain about what actions are available and evaluates a contract by the expected payoffs it guarantees to each party in spite of the surrounding uncertainty. Both parties are risk‐neutral; there is no limited liability. Linear contracts, which leave the agent with a constant share of output in exchange for a fixed fee, are optimal. This result holds both in a preliminary version of the model, where the principal only chooses to supply or not supply an input, and in several variants of a more general version, where the principal may have multiple choices of input. The model thus generates nontrivial linear sharing rules without relying on either limited liability or risk aversion.
{"title":"Robust contracting under double moral hazard","authors":"Gabriel Carroll, Lukas Bolte","doi":"10.3982/te4916","DOIUrl":"https://doi.org/10.3982/te4916","url":null,"abstract":"We study contracting when both principal and agent have to exert noncontractible effort for production to take place. An analyst is uncertain about what actions are available and evaluates a contract by the expected payoffs it guarantees to each party in spite of the surrounding uncertainty. Both parties are risk‐neutral; there is no limited liability. Linear contracts, which leave the agent with a constant share of output in exchange for a fixed fee, are optimal. This result holds both in a preliminary version of the model, where the principal only chooses to supply or not supply an input, and in several variants of a more general version, where the principal may have multiple choices of input. The model thus generates nontrivial linear sharing rules without relying on either limited liability or risk aversion.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135561031","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A mechanism guarantees a certain welfare level to its agents, if each of them can secure that level against unanimously adversarial others. How high can such a guarantee be, and what type of mechanism achieves it? In the n‐person probabilistic voting/bargaining model with p deterministic outcomes a guarantee takes the form of a probability distribution over the ranks from 1 to p. If n ≥ p, the uniform lottery is shown to be the only maximal (unimprovable) guarantee. If n < p, combining (variants of) the familiar random dictator and voting by veto mechanisms yields a large family of maximal guarantees: it is exhaustive if n = 2 and almost so if p ≤ 2 n. Voting rules à la Condorcet or Borda, even in probabilistic form, are ruled out by our worst case viewpoint.
{"title":"On guarantees, vetoes, and random dictators","authors":"Anna Bogomolnaia, R. Holzman, H. Moulin","doi":"10.3982/te4832","DOIUrl":"https://doi.org/10.3982/te4832","url":null,"abstract":"A mechanism guarantees a certain welfare level to its agents, if each of them can secure that level against unanimously adversarial others. How high can such a guarantee be, and what type of mechanism achieves it? In the n‐person probabilistic voting/bargaining model with p deterministic outcomes a guarantee takes the form of a probability distribution over the ranks from 1 to p. If n ≥ p, the uniform lottery is shown to be the only maximal (unimprovable) guarantee. If n < p, combining (variants of) the familiar random dictator and voting by veto mechanisms yields a large family of maximal guarantees: it is exhaustive if n = 2 and almost so if p ≤ 2 n. Voting rules à la Condorcet or Borda, even in probabilistic form, are ruled out by our worst case viewpoint.","PeriodicalId":46923,"journal":{"name":"Theoretical Economics","volume":"57 1","pages":""},"PeriodicalIF":1.7,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81560119","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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