Three Essays on the Economics of Contracts

• Main Authors: Nien-Pen Liu, 劉念本
• Other Authors: Dachrahn Wu
• Format: Others
• Language: en_US
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/94256182524663371251

博士 === 國立中央大學 === 產業經濟研究所 === 95 === My dissertation is a collection of three essays which each considers a different contracting problem facing a firm under asymmetric information. In the first essay, I propose a model of asymmetric information to delineate an amusement park’s pricing plan. In the real world, it is common to observe that many amusement parks adopt pass pricing (i.e., charging only a fixed admission fee). One might wonder why an amusement park does not adopt non-linear pricing or two-part tariffs (to improve its profit) as theories of non-linear pricing or two-part tariffs claim. To justify the real world observation, some recent literature argues that, in the presence of nonzero additional transaction (monitor) costs for implementing non-linear pricing schemes, charging only a fixed admission fee can be more profitable than other pricing strategies. As such transaction costs have been drastically reduced due to rapid technology progress, there might exist some other reasons causing an amusement park to adopt pass pricing. We come up with some explanations on why amusement parks adopt pass pricing even when no additional transaction costs exist for implementing nonlinear pricing schemes: The related factors include much fun generated by any ride and a higher transportation cost. The second essay contributes some new explanations for the positive relationship between firm size and wages. It is theoretically claimed and shown that a small firm may reject good (efficient) type agents more often (than a large firm) under asymmetric information. The condition that only the different sizes of endowments of a capital-like resource draw a distinction between a large firm and a small firm is assumed. As the difference between both types’ status quo utility levels is growing, a small firm will reject good type agents more often. The reason especially is not that the surplus generated by a small firm and a good type agent can not afford the good type’s status quo utility level, but the capital-like resource restriction interferes with the ability of a small firm to mitigate the information rent caused by the countervailing incentive (caused by a big difference between both types’ status quo utility levels). The combined impact of the capital-like resource restriction and the countervailing incentive on the (employment) decision of whether to reject to delegate a task to good type agents or not is brought into focus. Moreover, while the countervailing incentive exits and when both the large firm and the small firm decide to delegate the task to both types, good agents are more productive in large firms and therefore paid higher wages. These findings support the labor quality explanation in the economic literature that larger firms employ higher-quality workers, and the productivity hypothesis that workers are more productive in large firms and therefore ask for higher wages, but in a kind of markedly different reasoning. The third essay relates to the value of information. Even ignoring the costs for acquiring and adopting the signal, does an (ex ante) nonverifiable imperfect informative binary signal always create a strictly positive value for a firm under asymmetric information? Because of a difference between both agent types’ status quo utility levels, the firm adopting a nonverifiable imperfect informative binary signal is not guaranteed to choose a different way (from the way the firm not adopting the signal does) to optimally trade off output efficiency against rent extraction under asymmetric information; hence the signal does not always create a strictly positive value for the firm. It is unlike the well-known result about the ex post verifiable signal that, under mild assumptions, the agent receives no excess rent whatever his type, and moreover the complete information optimal output levels can be implemented; hence the signal does create a strictly positive value for the firm whenever the second-best contract (without adopting that signal) entails some output distortion or/and some excess information rent given up for some type(s).