Economics - Research Publications

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End date: 2006 × Start date: 2002 × Author: Basov, Suren ×

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    Non-monotone incentives in a model ofcoexisting hidden action and hidden information
    Basov, S. ( 2006-12)
    In this paper I consider a model of coexisting moral hazard andadverse selection, similar to one considered by Guesnerie, Picard, and Rey(1989). I provide an explicit solution for the optimal incentive scheme in thecase, when the effort is observed with a normally distributed error. The mainobservation is that in this case the optimal incentive scheme often fails tobe monotone. If the monotonicity constraint is imposed on the solution foreconomic reasons there would exist a region of profit realizations, such thatthe optimal compensation will be independent of on performance.Keywords and Phrases: hidden action, hidden information, Fredholmintegral equations of the first type, Hermit polynomials.
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    Quality Gaps
    Basov, S. ( 2006-06)
    In this paper I consider a monopolistic screening model withcontinuum of types when the type set is a disconnected subset of the realline. I prove that the product line remains connected provided that the gapin the type space is sufficiently small. I also use the results to show that theinverse screening problem may be ill-defined.
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    Snobs and quality gaps
    Basov, S (Walter de Gruyter GmbH, 2006-01-01)
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    A general model of coexisting hidden action and hidden information
    Basov, S. ; Bardsley, P. ( 2005-12)
    We consider a general agency model with coexisting hidden actionand hidden information. We prove that, with minor technical qualifications,independence of the production technology from the consumer type isnecessary and sufficient for welfare irrelevance of hidden action. Our resultclarifies and confirms the main conclusion drawn in the existing literatureon mixed models, that if the parties are risk neutral and the productiontechnology is not correlated with private information, then hidden action isirrelevant. However it makes it clear that even under risk neutrality this conclusiondoes not extend to the correlated case, which in practice occurs quitefrequently. We illustrate it with a realistic example where neither hiddenaction nor hidden information on their own lead to welfare losses, while theircombination does.Keywords and Phrases: hidden action, hidden information, Fredholmintegral equations of the first type.
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    Lie groups of partial differential equations and their application to the multidimensional screening problems
    BASOV, S (Department of Economics, The University of Melbourne, 2004)
    In this paper I described group theoretic methods that can be used for analyzing the boundary problems, which arise when the Hamiltonian method is applied to solve the relaxed problem for the multidimensional screening problem. This technique can provide some useful insights into the structure of solutions and some times may help to arrive at particular solutions.
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    Quantal response equilibrium with non-monotone probabilities: a dynamic approach
    BASOV, S (Department of Economics, The University of Melbourne, 2003)
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    Bounded rationality: static versus dynamic approach
    Basov, S. ( 2002-12)
    Two kinds of theories of the boundedly rational behavior are possible. Static theories focus on stationary behavior and do not include any explicit mechanism for temporal change. Dynamic theories, on the other hand, explicitly model the fine-grain adjustments made by the subjects in response to their recent experiences. The main contribution of this paper is to argue that the restrictions usually imposed on the distribution of choices in the static approach are generically not supported by an explicit adjustment mechanism
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    A partial characterization of the solution of the multidimensional screening problem with nonlinear preferences
    Basov, S. ( 2002-11)
    In this paper I apply the Hamiltonian method to solve the relaxed multidimensional screening problem. I also illustrate by some examples that the Hamiltonian technique coupled with implementability criterion developed by Carlier [2002] sometimes allows us to arrive at a complete solution of a screening problem.
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    Incentives for boundedly rational agents
    BASOV, S (Berkeley Electronic Press, 2003)
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    Heterogenous human capital: life cycle investment in health and education
    Basov, S. ( 2002-02)
    During the last forty years, economists have devoted a great deal of effort to developing the concept of human capital and applying it to explain investment in education, income inequality, and life-time earning profiles. Early contributions to the human capital theory suggested that there might exist several forms of human capital. In this paper I proposed a simple model that allows us to incorporate health-investment decisions into a life-cycle framework. The complementarity between savings, health, and education is created by an insurance motive for the accumulation of health. The model predicts a positive correlation between the health stock, education and savings rate for both high income countries and poor countries. I showed that investments in education are independent of health status for sufficiently high levels of health and increases in health if the health status is lo