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Testing Passive Versus Symmetric Beliefs In Contracting With Externalities

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  • Daiqiang Zhang

Abstract

This article provides identification and estimation methods for a model of contracting with externalities and imperfect information. In this model, one principal offers a contract of trade quantity to each of multiple agents, and the negotiated payment for each agent is determined via Nash bargaining. Beliefs matter due to the privacy of bilateral contracting and the externalities from the dependence of each agent's payoff on all agents' trade quantities. We provide a test to determine whether passive or symmetric beliefs fit a given data set better. The empirical results suggest the relevance of adopting the correct beliefs for policy evaluations.

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  • Daiqiang Zhang, 2021. "Testing Passive Versus Symmetric Beliefs In Contracting With Externalities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 723-767, May.
    • Handle: RePEc:wly:iecrev:v:62:y:2021:i:2:p:723-767
    DOI: 10.1111/iere.12492
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    1. An, Yonghong & Hong, Shengjie & Zhang, Daiqiang, 2023. "A structural analysis of simple contracts," Journal of Econometrics, Elsevier, vol. 236(2).

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