Contributions published at Information Economics and Contract Theory (Christian Ewerhart)

Biconcavity is a simple condition on inverse demand that corresponds to the ordinary concept of concavity after simultaneous parameterized transformations of price and quantity. The notion is employed here in the framework of the homogeneous-good Cournot model with potentially heterogeneous firms. The analysis leads to unified conditions, respectively, for the existence of a pure-strategy equilibrium via nonincreasing best-response selections, for existence via quasiconcavity, and for uniqueness of the equilibrium. The usefulness of the generalizations is illustrated in cases where inverse demand is either "nearly linear" or isoelastic. It is also shown that commonly made assumptions regarding large outputs are often redundant.

This paper studies the effects of asymmetric information about migrants' earnings in split households on remittance behavior. We use the framework of costly state verification in modeling the migrant-recipient relationship, where the uninformed recipient can punish the migrant if he is found lying about his earnings. The optimal remittance contract implicitly offered by the recipient prescribes a threshold for remittances that invites verification if unmet. Consequently, the migrant is truthful but only up to this threshold. The model posits that higher earning migrants underreport their income more and that underreporting prevails in households where wives are less aware of migrants' economic conditions, have conflicting preferences, weaker bargaining power and more pessimistic beliefs. It follows that greater underreporting is associated with lower remittances. The empirical patterns obtained from a unique matched data with cross-reports from husbands working in Qatar and wives back in India closely match our theoretical predictions.

We modify the provision point mechanism by introducing reward money, which is distributed among the contributors in proportion to their contributions only when the provision point is not reached. In equilibrium, the provision point is always reached as competition for reward money and preference for the public good induce sufficient contributions. In environments without aggregate uncertainty, the mechanism not only ensures allocative efficiency but also distributional. At a specific level of reward money, there is a unique equilibrium, where all consumers contribute the same proportion of their private valuations. The advantages of the mechanism are also demonstrated for collective action problems.

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Some of the best-known results in mechanism design depend criticallyon Myerson’s (Math Oper Res 6:58–73, 1981) regularity condition. For example,the second-price auction with reserve price is revenue maximizing only if the typedistribution is regular. This paper offers two main findings. First, a new interpretationof regularity is developed—similar to that of a monotone hazard rate—in terms ofbeing the next to fail. Second, using expanded concepts of concavity, a tight sufficientcondition is obtained for a density to define a regular distribution. New examples ofregular distributions are identified. Applications are discussed.

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This paper shows how market exposure can support the evolution of non-individualisticpreferences. In a group, one agent is randomly selected to divide an exogenous endowment.Endowment shares are used for either consumption or market exchange with external merchants.As a more equal endowment distribution attenuates the scope of merchants’ price discrimination,we argue that inequity-averse preferences may lead to a higher utility of consumption and sosurvive evolutionary pressures. This effect arises from an opportunity to create and extractinformation rents. We offer a new explanation to the empirical finding that a society's exposure tomarkets has a positive effect on its members’ sociality.

Contest theory has sometimes been restrained by the fact that the game theoretic solution of certain models is not readily available. Exam- ples include the Tullock game with intermediate values of the decisiveness parameter and rank-order tournaments with little noise. In this paper, the class of log-supermodular contests is introduced, and it is shown that all equilibria in such contests feature either arbitrarily small, speculative bids or non-participation (often both). As a consequence, complete rent dissipation for all but at most one player is a necessary property of any equilibrium. If a log-supermodular contest is standard, anonymous, and between two players, then any equilibrium is revenue-equivalent to the all-pay auction equilibrium. For more than two players, however, there is a coordination problem. In par- ticular, these results shed light on the validity of the “exclusion principle”in imperfectly discriminating contests.

This paper explores the consequences of incorporating social preferences into a standard model of liquidity insurance and bank runs. Somewhat unexpectedly, a general tension arises between depositors' preference for egalitarian treatment and financial stability. In technical terms, for nonincreasing absolute risk aversion, and envy being weakly stronger than compassion, runs that deplete the banks of its assets under selfish preferences are never mitigated through pro-social preferences whereas stable banks may become unstable under pro-social preferences. We iden- tify, however, two basic channels through which social preferences may nevertheless have a stabilizing effect on the fractional reserve banking system. First, psychologi- cal factors may have a role if premature withdrawals imply a reduction of the assets that remain for other members of the reference group. Second, pro-social agents may choose an investment portfolio that leads to a more conservative consumption pattern. We show that each of these effects may, in the presence of complementing factors, be strong enough to inhibit a bank run. In particular, our findings suggest an economic interpretation of the notion of "common bond" that is often referred to in informal writings on cooperative banking.

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