CONTRACT DESIGN AND SELF-CONTROL WITH ASYMMETRIC INFORMATION

Jianye Yan, Binqing Xiao and Sanxi Li

Economic Inquiry, 2014, vol. 52, issue 2, 618-624

Abstract: type="main" xml:lang="en">

We study optimal contracting by a monopolistic seller of investment goods to a time-inconsistent consumer and, in doing so, introduce asymmetric information to the model of DellaVigna and Malmendier (2004). We find (1) the below-marginal-cost-pricing rule may fail for a low-value consumer; (2) the firm's profit is no longer unaffected by the consumer's short-run impatience, as the latter is sophisticated. We find that there is an important threshold value of short-run patience. When the consumer's short-term patience is below this level, then, as the patience increases, the firm suffers. When the consumer's short-run patience is above this threshold, then, as it increases, the firm benefits. Finally, we show that unlike monopoly, perfect competition with asymmetric information achieves the first-best outcome. (JEL D03, D82, D91)

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1111/ecin.12068 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:52:y:2014:i:2:p:618-624

Ordering information: This journal article can be ordered from
https://ordering.onl ... s.aspx?ref=1465-7295

Access Statistics for this article

Economic Inquiry is currently edited by Tim Salmon

More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().