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Inefficient Rationing With Post-Contractual Information

Author

Listed:
  • Ottorino Chillemi

    (University of Padova)

  • Stefano Galavotti

    (University of Padova)

  • Benefetto Gui

    (Unviersity of Padova)

Abstract

We study a contractual design problem between a seller and a buyer where some information correlated with the buyer's valuation is publicly observed ex-post and the allocation, but not payments, can be made contingent on it. Our analysis shows that, to maximize her profit, the seller should offer one contract in which the good is transferred to the buyer only if the ex-post signal turns out to be bad; this generates inefficient rationing: some buyers with low valuation are assigned the good more often than others with higher valuation. We show that, in contrast with previous results, the optimal contract may decrease social welfare relative to the case in which no signal is available (or it is not used). We apply our model to interpret two real-world situations: internet plans with bandwidth caps for mobile phones and promotion schemes in organizations with exogenously fixed wages.

Suggested Citation

  • Ottorino Chillemi & Stefano Galavotti & Benefetto Gui, 2017. "Inefficient Rationing With Post-Contractual Information," "Marco Fanno" Working Papers 0214, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0214
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    rationing; ex-post information; mechanism design.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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