Economics - Research Publications

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Subject: Knowledge × Start date: 2004 × End date: 2006 ×

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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.