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Government Intervention in Production and Incentives Theory: A Review of Recent Contributions

  • Bernard Caillaud
  • Patrick Rey
  • Roger Guesnerie
  • Jean Tirole

This article reviews the recent literature on regulation under asymmetric information. We first develop the conceptual framework and offer a reminder of the techniques used in the field. Then we apply the framework and techniques to a variety of situations -- with or without commitment. We conclude with a discussion of desirable directions for research.

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Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 472.

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Date of creation: Dec 1987
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Handle: RePEc:mit:worpap:472
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MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Phone: (617) 253-3361
Fax: (617) 253-1330
Web page: http://econ-www.mit.edu/

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  1. 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.
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  6. Paul Milgrom., 1987. "Adverse Selection without Hidden Information," Economics Working Papers 8742, University of California at Berkeley.
  7. William P. Rogerson, 1987. "On the Optimality of Menus of Linear Contracts," Discussion Papers 714, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. David P. Baron & David Besanko, 1987. "Commitment and Fairness in a Dynamic Regulatory Relationship," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 413-436.
  9. Jean-Jaques Laffont & Jean Tirole, 1985. "Auctioning Incentive Contracts," Working papers 403, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP 354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
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  13. Barry Nalebuff & David Scharfstein, 1987. "Testing in Models of Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 265-277.
  14. Richard A. Posner, 1974. "Theories of Economic Regulation," NBER Working Papers 0041, National Bureau of Economic Research, Inc.
  15. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
  16. Picard Pierre, 1986. "On the design of incentive schemes under moral hazard and adverse selection," CEPREMAP Working Papers (Couverture Orange) 8602, CEPREMAP.
  17. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June.
  18. Fiorina, Morris P. & Noll, Roger G., 1978. "Voters, bureaucrats and legislators : A rational choice perspective on the growth of bureaucracy," Journal of Public Economics, Elsevier, vol. 9(2), pages 239-254, April.
  19. Jean Tirole, 1985. "Procurement and Renegotiation," Working papers 362, Massachusetts Institute of Technology (MIT), Department of Economics.
  20. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  21. Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
  22. David P. Baron & Roger B. Myerson, 1979. "Regulating a Monopolist with Unknown Costs," Discussion Papers 412, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  23. R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer.
  24. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  25. David Sappington, 1982. "Optimal Regulation of Research and Development under Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 354-368, Autumn.
  26. Radner, Roy, 1985. "Repeated Principal-Agent Games with Discounting," Econometrica, Econometric Society, vol. 53(5), pages 1173-98, September.
  27. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  28. Rubinstein, Ariel & Yaari, Menahem E., 1983. "Repeated insurance contracts and moral hazard," Journal of Economic Theory, Elsevier, vol. 30(1), pages 74-97, June.
  29. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-61, July.
  30. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
  31. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  32. Eric Maskin & John G. Riley, 1984. "Input Versus Output Incentive Schemes," UCLA Economics Working Papers 354, UCLA Department of Economics.
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  38. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
  39. Partha Dasgupta & Peter Hammond & Eric Maskin, 1979. "The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 185-216.
  40. Jean Tirole & Jean-Jaques Laffont, 1987. "Repeated Auctions of Incentive Contracts, Investment and Bidding Parity With an Application to Takeovers," Working papers 463, Massachusetts Institute of Technology (MIT), Department of Economics.
  41. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
  42. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
  43. Sah, Raaj Kumar & Stiglitz, Joseph E, 1985. "Human Fallibility and Economic Organization," American Economic Review, American Economic Association, vol. 75(2), pages 292-97, May.
  44. Laffont, Jean-Jacques & Maskin, Eric, 1980. "A Differential Approach to Dominant Strategy Mechanisms," Econometrica, Econometric Society, vol. 48(6), pages 1507-20, September.
  45. David Sappington, 1983. "Optimal Regulation of a Multiproduct Monopoly with Unknown Technological Capabilities," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 453-463, Autumn.
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  47. Dominique Henriet & Jean-Charles Rochet, 1986. "La logique des systèmes bonus-malus en assurance automobile: une approche théorique," Annals of Economics and Statistics, GENES, issue 1, pages 133-152.
  48. Jerry R. Green & Jean-Jacques Laffont, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 447-456.
  49. Jean-Luc Migué & Gérard Bélanger & William Niskanen, 1974. "Toward a general theory of managerial discretion," Public Choice, Springer, vol. 17(1), pages 27-47, March.
  50. Radner, Roy, 1981. "Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship," Econometrica, Econometric Society, vol. 49(5), pages 1127-48, September.
  51. Picard Pierre & Rey Patrick, 1987. "Incentives in cooperative research and development," CEPREMAP Working Papers (Couverture Orange) 8739, CEPREMAP.
  52. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  53. Engers, Maxim, 1987. "Signalling with Many Signals," Econometrica, Econometric Society, vol. 55(3), pages 663-74, May.
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