Sequential cost-reimbursement rules

• Ano de defesa: 2014
• Autor(a) principal: Andrade, Rodrigo Bomfim de
• Orientador(a): Moreira, Humberto Luiz Ataíde
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Palavras-chave em Português: Regulação dinâmica
• Palavras-chave em Inglês: Screening sequencial; Cost-sharing contracts; Dynamic regulation; Sequential screening; Compartilhamento de custos
• Link de acesso: https://hdl.handle.net/10438/11736

This paper studies cost-sharing rules under dynamic adverse selection. We present a typical principal-agent model with two periods, set up in Laffont and Tirole's (1986) canonical regulation environment. At first, when the contract is signed, the firm has prior uncertainty about its efficiency parameter. In the second period, the firm learns its efficiency and chooses the level of cost-reducing effort. The optimal mechanism sequentially screens the firm's types and achieves a higher level of welfare than its static counterpart. The contract is indirectly implemented by a sequence of transfers, consisting of a fixed advance payment based on the reported cost estimate, and an ex-post compensation linear in cost performance.