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Screening Experts' Distributional Preferences

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  • Dominik Erharter

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    Abstract

    We study optimal direct mechanisms for a credence goods expert who can be altruistic or spiteful. The expert has private information about her distributional preferences and possibly also about her customer's needs. We introduce a method that allows the customer to offer separate contracts to different preference types and outline when separation is optimal. Furthermore, we demonstrate that the optimality of separating mechanisms is sensitive to minor changes of the customer's utility function. Additionally, we illustrate how our results extend to more than two preference types and discuss possible policy implications.

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    File URL: http://eeecon.uibk.ac.at/wopec2/repec/inn/wpaper/2013-27.pdf
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    Bibliographic Info

    Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2013-27.

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    Length: 34 pages
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:inn:wpaper:2013-27

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    Postal: Universitätsstraße 15, A - 6020 Innsbruck
    Phone: 0512/507-7151
    Fax: 0512/507-2788
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    Web page: http://www.uibk.ac.at/fakultaeten/volkswirtschaft_und_statistik/index.html.en
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    Related research

    Keywords: other-regarding preferences; inequality aversion; credence good; principal-agent model; adverse selection; moral hazard;

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    References

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    5. Dominik Erharter, 2012. "Credence goods markets, distributional preferences and the role of institutions," Working Papers 2012-11, Faculty of Economics and Statistics, University of Innsbruck.
    6. Fehr, Ernst & Klein, Alexander & Schmidt, Klaus M., 2007. "Fairness and contract design," Munich Reprints in Economics 20618, University of Munich, Department of Economics.
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    19. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
    20. Michael Kosfeld & Ferdinand A. von Siemens, 2009. "Worker Self-Selection and the Profits from Cooperation," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 573-582, 04-05.
    21. Desiraju, Ramarao & Sappington, David E.M., 2007. "Equity and adverse selection with correlated costs," Economics Letters, Elsevier, vol. 95(3), pages 402-407, June.
    22. López-Pérez, Raúl, 2008. "Aversion to norm-breaking: A model," Games and Economic Behavior, Elsevier, vol. 64(1), pages 237-267, September.
    23. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
    24. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
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