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Identification of participation constraints in contracts

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  • Luo, Yao

Abstract

In a contractual relationship, the agent forgoes outside opportunities to engage in a transaction with the principal. This paper studies the nonparametric identification of contract models with participation constraints. We employ a cost shifter as an exclusion restriction, which changes marginal cost but not the agent type distribution. First, the distribution of agent heterogeneity is identified from markets where production is highly efficient or inefficient. Second, the utility function and participation constraints are identified from agent and principal optimality conditions, respectively.

Suggested Citation

  • Luo, Yao, 2018. "Identification of participation constraints in contracts," Economics Letters, Elsevier, vol. 173(C), pages 84-87.
    • Handle: RePEc:eee:ecolet:v:173:y:2018:i:c:p:84-87
    DOI: 10.1016/j.econlet.2018.09.024
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    References listed on IDEAS

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    1. Orazio Attanasio & Elena Pastorino, 2020. "Nonlinear Pricing in Village Economies," Econometrica, Econometric Society, vol. 88(1), pages 207-263, January.
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    3. Nianqing Liu & Yao Luo, 2017. "A Nonparametric Test For Comparing Valuation Distributions In First‐Price Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 857-888, August.
    4. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    5. Yao Luo & Isabelle Perrigne & Quang Vuong, 2018. "Structural Analysis of Nonlinear Pricing," Journal of Political Economy, University of Chicago Press, vol. 126(6), pages 2523-2568.
    6. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
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    8. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 277-311.
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    More about this item

    Keywords

    Adverse selection; Participation; Reservation utility; Incentive compatibility;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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