Tuesday, March 8, 2011
Posted by D. Daniel Sokol
Michela Cella (Department of Economics, University Of Milan, Bicocca) and Federico Etro (Department of Economics, University Of Venice, Ca’ Foscari) describe Oligopolistic Screening and Two-way Distortion.
ABSTRACT: We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.