Open Access. Powered by Scholars. Published by Universities.®
Social and Behavioral Sciences Commons™
Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 24 of 24
Full-Text Articles in Social and Behavioral Sciences
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
Cowles Foundation Discussion Papers
The paper broadens the focus of empirical research on salesforce management to include multitasking settings with multidimensional incentives, where salespeople have private information about customers. This allows us to ask novel substantive questions around multidimensional incentive design and job design while managing the costs and benefits of private information. To this end, the paper introduces the first structural model of a multitasking salesforce in response to multidimensional incentives. The model also accommodates (i) dynamic intertemporal tradeoffs in effort choice across the tasks and (ii) salesperson’s private information about customers. We apply our model in a rich empirical setting in microfinance …
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
A Structural Model Of A Multitasking Salesforce: Multidimensional Incentives And Plan Design, Minkyung Kim, K. Sudhir, Kosuke Uetake
Cowles Foundation Discussion Papers
We develop the first structural model of a multitasking salesforce to address questions of job design and incentive compensation design. The model incorporates three novel features: (i) multitasking effort choice given a multidimensional incentive plan; (ii) salesperson’s private information about customers and (iii) dynamic intertemporal tradeoffs in effort choice across the tasks. The empirical application uses data from a micro nance bank where loan officers are jointly responsible and incentivized for both loan acquisition repayment but has broad relevance for salesforce management in CRM settings involving customer acquisition and retention. We extend two-step estimation methods used for unidimensional compensation plans …
Non-Exclusive Insurance With Free Entry: A Pedagogical Note, Pradeep Dubey, John Geanakoplos
Non-Exclusive Insurance With Free Entry: A Pedagogical Note, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We consider the Rothschild-Stiglitz model of insurance but without the exclusivity constraint. It turns out that there always exists a unique equilibrium, in which the reliable and unreliable consumers take out a primary insurance up to its quantity limit, and the unreliable take out further secondary insurance at a higher premium. We provide a simple proof of this result (extended to multiple types of consumers) with the hope that it may be pedagogically useful.
Endogenous Beliefs And Institutional Structure In Competitive Equilibrium With Adverse Selection, Gerald David Jaynes
Endogenous Beliefs And Institutional Structure In Competitive Equilibrium With Adverse Selection, Gerald David Jaynes
Cowles Foundation Discussion Papers
I model financial markets that structure decision-making into discrete points separating contract offers, applications, and acceptance/denial decisions. Endogenous beliefs about applicants’ risk types emerge as the institutional process extracts private information allowing uninformed firms to infer risk qualities by comparing applications of many consumers. Endogenous beliefs and low-risk consumer behavior render truthful disclosure of transactions incentive compatible supporting a unique equilibrium robust to cream-skimming and cross-subsidizing deviations, even under Hellwig’s “secret” policy assumption. In equilibrium each type demands low-risk’s optimal pooling policy and high-risk supplement to full coverage at fair-price. Nonpassive consumers’ belief firms are sequentially rational necessary for equilibrium; …
Countering The Winner’S Curse: Optimal Auction Design In A Common Value Model, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Countering The Winner’S Curse: Optimal Auction Design In A Common Value Model, Dirk Bergemann, Benjamin Brooks, Stephen Morris
Cowles Foundation Discussion Papers
We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. The optimal mechanism exhibits either neutral selection, wherein the object is randomly allocated at a price that all bidders are willing to pay, or advantageous selection, wherein the object is allocated with higher probability to bidders with lower signals. If neutral selection is optimal, then the object is sold with probability one by a deterministic posted price. If advantageous selection is optimal, the object is sold with probability less than one at a random price. …
When Salespeople Manage Customer Relationships: Multidimensional Incentives And Private Information, Minkyung Kim, K. Sudhir, Kosuke Uetake, Rodrigo Canales
When Salespeople Manage Customer Relationships: Multidimensional Incentives And Private Information, Minkyung Kim, K. Sudhir, Kosuke Uetake, Rodrigo Canales
Cowles Foundation Discussion Papers
At many firms, incentivized salespeople with private information about customers are responsible for CRM. While incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. We investigate the sales performance–moral hazard tradeoff in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople …
Transparency And Distressed Sales Under Asymmetric Information, William Fuchs, Andrzej Skrzypacz
Transparency And Distressed Sales Under Asymmetric Information, William Fuchs, Andrzej Skrzypacz
Cowles Foundation Discussion Papers
We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good sold by an informed seller suffering a liquidity shock. We contrast public versus private price offers. In a two-period case all equilibria with private offers have more trade than any equilibrium with public offers; under some additional conditions we show Pareto-dominance of the private-offers equilibria. If a failure to trade by the deadline results in an efficiency loss, public offers can induce a market breakdown before the deadline, while trade never stops with private offers.
The Early Impact Of The Affordable Care Act State-By-State, Amanda E. Kowalski
The Early Impact Of The Affordable Care Act State-By-State, Amanda E. Kowalski
Cowles Foundation Discussion Papers
I examine the impact of state policy decisions on the early impact of the ACA using data through the first half of 2014. I focus on the individual health insurance market, which includes plans purchased through exchanges as well as plans purchased directly from insurers. In this market, at least 13.2 million people were covered in the second quarter of 2014, representing an increase of at least 4.2 million beyond pre-ACA state-level trends. I use data on coverage, premiums, and costs and a model developed by Hackmann, Kolstad, and Kowalski (2013) to calculate changes in selection and markups, which allow …
Reviewing The Leverage Cycle, Ana Fostel, John Geanakoplos
Reviewing The Leverage Cycle, Ana Fostel, John Geanakoplos
Cowles Foundation Discussion Papers
We review the theory of leverage developed in collateral equilibrium models with incomplete markets. We explain how leverage tends to boost asset prices, and create bubbles. We show how leverage can be endogenously determined in equilibrium, and how it depends on volatility. We describe the dynamic feedback properties of leverage, volatility, and asset prices, in what we call the Leverage Cycle. We also describe some cross-sectional implications of multiple leverage cycles, including contagion, flight to collateral, and swings in the issuance volume of the highest quality debt. We explain the differences between the leverage cycle and the credit cycle literature. …
Health Reform, Health Insurance, And Selection: Estimating Selection Into Health Insurance Using The Massachusetts Health Reform, Martin B. Hackmann, Jonathan T. Kolstad, Amanda E. Kowalski
Health Reform, Health Insurance, And Selection: Estimating Selection Into Health Insurance Using The Massachusetts Health Reform, Martin B. Hackmann, Jonathan T. Kolstad, Amanda E. Kowalski
Cowles Foundation Discussion Papers
We implement an empirical test for selection into health insurance using changes in coverage induced by the introduction of mandated health insurance in Massachusetts. Our test examines changes in the cost of the newly insured relative to those who were insured prior to the reform. We find that counties with larger increases in insurance coverage over the reform period face the smallest increase in average hospital costs for the insured population, consistent with adverse selection into insurance before the reform. Additional results, incorporating cross-state variation and data on health measures, provide further evidence for adverse selection.
Strategic Supply Function Competition With Private Information, Xavier Vives
Strategic Supply Function Competition With Private Information, Xavier Vives
Cowles Foundation Discussion Papers
A finite number of sellers ( n ) compete in schedules to supply an elastic demand. The costs of the sellers have uncertain common and private value components and there is no exogenous noise in the system. A Bayesian supply function equilibrium is characterized; the equilibrium is privately revealing and the incentives to acquire information are preserved. Price-cost margins and bid shading are affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions …
Extreme Adverse Selection, Competitive Pricing, And Market Breakdown, George J. Mailath, Georg Nöldeke
Extreme Adverse Selection, Competitive Pricing, And Market Breakdown, George J. Mailath, Georg Nöldeke
Cowles Foundation Discussion Papers
Extreme adverse selection arises when private information has unbounded support, and market breakdown occurs when no trade is the only equilibrium outcome. We study extreme adverse selection via the limit behavior of a financial market as the support of private information converges to an unbounded support. A necessary and sufficient condition for market breakdown is obtained. If the condition fails, then there exists competitive market behavior that converges to positive levels of trade whenever it is first best to have trade. When the condition fails, no feasible (competitive or not) market behavior converges to positive levels of trade.
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a model of competitive pooling, which incorporates adverse selection and signalling into general equilibrium. Pools are characterized by their quantity limits on contributions. Households signal their reliability by choosing which pool to join. In equilibrium, pools with lower quantity limits sell for a higher price, even though each household’s deliveries are the same at all pools. The Rothschild-Stiglitz model of insurance is included as a special case. We show that by recasting their hybrid oligopolistic-competitive story into our perfectly competitive framework, their separating equilibrium always exists (even when they say it doesn’t) and is unique.
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a model of competitive pooling, which incorporates adverse selection and signalling into general equilibrium. Pools are characterized by their quantity limits on contributions. Households signal their reliability by choosing which pool to join. In equilibrium, pools with lower quantity limits sell for a higher price, even though each household’s deliveries are the same at all pools. The Rothschild-Stiglitz model of insurance is included as a special case. We show that by recasting their hybrid oligopolistic-competitive story into our perfectly competitive framework, their separating equilibrium always exists (even when they say it doesn’t) and is unique.
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Competitive Pooling: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a model of competitive pooling, which incorporates adverse selection and signalling into general equilibrium. Pools are characterized by their quantity limits on contributions. Households signal their reliability by choosing which pool to join. In equilibrium, pools with lower quantity limits sell for a higher price, even though each household’s deliveries are the same at all pools. The Rothschild-Stiglitz model of insurance is included as a special case. We show that by recasting their hybrid oligopolistic-competitive story in our perfectly competitive framework, their separating equilibrium always exists (even when they say it doesn’t) and is unique.
Insurance Contracts Designed By Competitive Pooling, Pradeep Dubey, John Geanakoplos
Insurance Contracts Designed By Competitive Pooling, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
We build a model of competitive pooling and show how insurance contracts emerge in equilibrium, designed by the invisible hand of perfect competition. When pools are exclusive, we obtain a unique separating equilibrium. When pools are not exclusive but seniority is recognized, we obtain a different unique equilibrium: the pivotal primary-secondary equilibrium. Here reliable and unreliable households take out a common primary insurance up to its maximum limit, and then unreliable households take out further secondary insurance.
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of moral hazard, adverse selection, and signalling phenomena (including the Akerlof lemons model and Rothschild-Stiglitz insurance model) in a general equilibrium framework. We impose a condition on the expected delivery rates for untraded assets that is similar to the trembling hand refinements used in game theory. Despite earlier claims about the nonexistence of equilibrium with adverse selection, …
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment by thinking of assets as pools. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena in a perfectly competitive, general equilibrium framework. Perfect competition eliminates the need for lenders to compute how the size of their loan or the price they quote might affect default rates. It also makes for a simple equilibrium refinement, which we propose in order to …
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment by thinking of assets as pools. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena in a perfectly competitive, general equilibrium framework. Perfect competition eliminates the need for lenders to compute how the size of their loan or the price they quote might affect default rates. It also makes for a simple equilibrium refinement, which we propose in order to …
Signalling And Default: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Signalling And Default: Rothschild-Stiglitz Reconsidered, Pradeep Dubey, John Geanakoplos
Cowles Foundation Discussion Papers
In our previous paper we built a general equilibrium model of default and punishment in which equilibrium always exists and endogenously determines asset promises, penalties, and sales constraints. In this paper we interpret the endogenous sales constraints as equilibrium signals. By specializing the default penalties and imposing an exclusivity constraint on asset sales, we obtain a perfectly competitive version of the Rothschild-Stiglitz model of insurance. In our model their separating equilibrium always exists even when they say it doesn’t.
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection, and signalling phenomena (including the Akerlof lemons model and Rothschild-Stiglitz insurance model) and some moral hazard problems in a general equilibrium framework. Despite earlier claims about the nonexistence of equilibrium with adverse selection, we show that equilibrium always exists. We show that more lenient punishment which encourages default may be Pareto improving because it …
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena (including the Akerlof lemons model and the Rothschild-Stiglitz insurance model) in a general equilibrium framework. Despite earlier claims about the nonexistence of equilibrium with adverse selection, we show that equilibrium always exists. We show that more lenient punishment which encourages default may be Pareto improving because it increases the dimension of …
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default And Punishment In General Equilibrium, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment by thinking of assets as pools. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena (including the Rothschild-Stiglitz insurance model) in a general equilibrium framework. In contrast to game-theoretic models of adverse selection, our perfectly competitive framework eliminates the need for lenders to compute how the size of their loan or the price they quote might affect default rates. The …
Default In A General Equilibrium Model With Incomplete Markets, Pradeep Dubey, John Geanakoplos, Martin Shubik
Default In A General Equilibrium Model With Incomplete Markets, Pradeep Dubey, John Geanakoplos, Martin Shubik
Cowles Foundation Discussion Papers
We extend the standard model of general equilibrium with incomplete markets (GEI) to allow for default. The equilibrating variables include aggregate default levels, as well as prices of assets and commodities. Default can be either strategic, or due to ill-fortune. It can be caused by events directly affecting the borrower, or indirectly as part of a chain reaction in which a borrower cannot repay because he himself has not been repaid. Each asset is defined by its promises A , the penalties lambda for default, and the limitations Q on its sale. The model is thus named GE ( A …