Multidimensional screening with complementary activities: regulating a monopolist with unknown cost and unknown preference for empire-building

Borges, Ana P., Correia da silva, Joao and Laussel, Didier (2013) Multidimensional screening with complementary activities: regulating a monopolist with unknown cost and unknown preference for empire-building. Games and Economic Behavior, 43 (3). pp. 532-560.

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Official URL: http://tse-fr.eu/pub/29929

Abstract

We study optimal regulation of a monopolist when intrinsic efficiency (intrinsic cost) and empire-building tendency (marginal utility of output) are private information but actual cost (difference between intrinsic cost and effort level) is observable. This is a problem of multidimensional screening with complementary activities. Results are mainly driven by two elements: the correlations between types; and the relative magnitude of the uncertainty along the two dimensions of private information. If the marginal utility of output varies much more (resp. less) across managers than the intrinsic marginal cost, then we have empire-building (resp. efficiency) dominance. In that case, an inefficient empire-builder produces more (resp. less) and at lower (resp. higher) marginal cost than an efficient money-seeker. It is only when variabilities are similar that we obtain the natural ranking of activities (empire-builders produce more while efficient managers produce at a lower cost).

Item Type: Article
Language: English
Date: 2013
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 26 Apr 2016 14:17
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29929
URI: http://publications.ut-capitole.fr/id/eprint/19149

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