Sequential cost-reimbursement rules

• Autor(a) principal: Andrade, Rodrigo Bomfim de
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: https://hdl.handle.net/10438/11736
• topic: Screening sequencial; Cost-sharing contracts; Dynamic regulation; Sequential screening; Compartilhamento de custos; Regulação dinâmica; Economia; Compartilhamento de custos; Contratos cost-plus

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.