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original papers : Full pooling in multi-period contracting with adverse selection and noncommitment

Author

Listed:
  • Georges Dionne

    (HEC-MontrÊal, 3000, Chemin de la CÆte-Sainte-Catherine, MontrÊal, Canada H3T 2A7)

  • Claude Fluet

    (UniversitÊ du QuÊbec Á MontrÊal, CP 8888 succ. Centre Ville, MontrÊal, Canada H3C 3P8)

Abstract

This paper analyses multi-period regulation or procurement policies under asymmetric information between the regulator and regulated firms. As well known in the literature, some degree of separation is always optimal under any form of commitment. In contrast, we show that full pooling is optimal under noncommitment when the discount factor is sufficiently high. We also discuss the meaning of full pooling under double randomization. Finally, we provide a graphical analysis of the second-best policy in terms of the regulator's commitment capacity.

Suggested Citation

  • Georges Dionne & Claude Fluet, 2000. "original papers : Full pooling in multi-period contracting with adverse selection and noncommitment," Review of Economic Design, Springer;Society for Economic Design, vol. 5(1), pages 1-21.
    • Handle: RePEc:spr:reecde:v:5:y:2000:i:1:p:1-21
    Note: Received: 4 December 1996 / 7 October 1999
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    References listed on IDEAS

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    1. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October.
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    4. Tracy Lewis & David E.M. Sappington, 1997. "Penalizing Success in Dynamic Incentive Contracts: No. Good Deed Goes Unpunished?," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 346-358, Summer.
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    6. Picard, Pierre, 1987. "On the design of incentive schemes under moral hazard and adverse selection," Journal of Public Economics, Elsevier, vol. 33(3), pages 305-331, August.
    7. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.
    8. Joseph E. Stiglitz, 1977. "Monopoly, Non-linear Pricing and Imperfect Information: The Insurance Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 407-430.
    9. Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 589-619.
    10. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    11. Georges Dionne & Claude Fluet, 1995. "Incentives in Multi-Period Regulation and Procurement: A Graphical Analysis," Cahiers de recherche du Département des sciences économiques, UQAM 9511, Université du Québec à Montréal, Département des sciences économiques.
    12. Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(4), pages 597-625.
    13. Dionne, Georges & Doherty, Neil A, 1994. "Adverse Selection, Commitment, and Renegotiation: Extension to and Evidence from Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 209-235, April.
    14. N. Fombaron, 1997. "No-commitment and dynamic contracts in competitive insurance markets with adverse selection," THEMA Working Papers 97-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    15. Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 589-619.
    16. repec:bla:scandj:v:90:y:1988:i:3:p:329-56 is not listed on IDEAS
    17. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    18. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dionne, G., 2001. "Commitment and Automobile Insurance Regulation in France, Quebec and Japan," Ecole des Hautes Etudes Commerciales de Montreal- 01-04, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
    2. Julie Ing, 2012. "The impact of commitment on nonrenewable resources management with asymmetric information on costs," Working Papers 1205, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    3. Julie Ing, 2016. "Adverse selection, commitment and exhaustible resource taxation," CER-ETH Economics working paper series 16/263, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    Keywords

    Incentives; multi-period contracts; regulation; procurement; renegotiation proofness; asymmetric information; full pooling;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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