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When parties present divergent econometric evidence, the court may view such evidence as contradictory and thus ignore it completely, without conducting closer analysis. We develop a simple method for distinguishing between actual and merely apparent contradiction based on the statistical concept of the “severity” of the furnished evidence. Again using “severity”, we also propose a method for reconciling divergent findings in instances of mere seeming contradiction. Our chosen application is that of damage estimation in follow-on cases.
Agencies around the world are in the process of developing taxonomies and standards for sustainable (or ESG) investment products. A key assumption in our model is that of non-consequentialist private investors (households) who derive a "warm glow" decisional utility when purchasing an investment product that is labelled as sustainable. We ask when such labelling is socially beneficial even when the socialplanner can impose a minimum standard on investment and production. In a model of financial constraints (Holmström and Tirole 1997), which we close to include consumer surplus, we also determine the optimal labelling threshold and show how its stringency is affected by determinants such as the prevalence of warm-glow investor preferences, the presence of social network effects, or the relevance of financial constraints at the industry level.
Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.
Our starting point is the following simple but potentially underappreciated observation: When assessing willingness to pay (WTP) for hedonic features of a product, the results of such measurement are influenced by the context in which the consumer makes her real or hypothetical choice or in which the questions to which she replies are set (such as in a contingent valuation analysis). This observation is of particular relevance when WTP regards sustainability, the “non-use value” of which does not derive from a direct (physical) sensation and where perceived benefits depend heavily on available information and deliberations. The recognition of such context sensitivity paves the way for a broader conception of consumer welfare (CW), and our proposed standard of “reflective WTP” may materially change the scope for private market initiatives with regards to sustainability, while keeping the analytical framework within the realm of the CW paradigm. In terms of practical implications, we argue, for instance, that actual purchasing decisions may prove insufficient to measure consumer appreciation of sustainability, as they may rather echo learnt but unreflected heuristics and may be subject to the specific shopping context, such as heavy price promotions. Also, while it may reflect current social norm, the latter may change considerably over time as more consumers adopt their behavior.
Prospective welfare analysis - extending willingness-to-pay assessment to embrace sustainability
(2022)
In this paper we outline how a future change in consumers’ willingness-to-pay can be accounted for in a consumer welfare effects analysis in antitrust. Key to our solution is the prediction of preferences of new consumers and changing preferences of existing consumers in the future. The dimension of time is inextricably linked with that of sustainability. Taking into account the welfare of future cohorts of consumers, concerns for sustainability can therefore be integrated into the consumer welfare paradigm to a greater extent. As we argue in this paper, it is expedient to consider changes in consumers’ willingness-to-pay, in particular if society undergoes profound changes in such preferences, e.g., caused by an increase in generally available information on environmental effects of consumption, and a rising societal awareness about how consumption can have irreversible impacts on the environment. We offer suggestions on how to conceptionalize and operationalize the projection of such consumers’ changing preferences in a “prospective welfare analysis”. This increases the scope of the consumer welfare paradigm and can help to solve conceptual issues regarding the integration of sustainability into antitrust enforcement while keeping consumer surplus as a quantitative gauge.
This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model general information environments via the stochastic process of the likelihood-ratio. The martingale property of this performance metric captures the information benefit of deferral. Costs of deferral may result from both the agent's relative impatience as well as her consumption smoothing needs. If the relatively impatient agent is risk neutral, optimal contracts take a simple form in that they only reward maximal performance for at most two payout dates. If the agent is additionally risk-averse, optimal contracts stipulate rewards for a larger selection of dates and performance states: The performance hurdle to obtain the same level of compensation is increasing over time whereas the pay-performance sensitivity is declining.
Misselling through agents
(2009)
This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring sales-force compensation, firms trade off the expected losses from "misselling" unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives. JEL Classification: D18 (Consumer Protection), D83 (Search; Learning; Information and Knowledge), M31 (Marketing), M52 (Compensation and Compensation Methods and Their Effects).