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Publications
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Binary Payment
Schemes: Moral Hazard and Loss Aversion,
with Daniel Müller and Philipp Weinschenk, American Economic Review,
2010, Vol. 100 (5): 2451-2477.
View external abstract
(Working
Paper Version as PDF)
We modify the principal-agent model with moral hazard
by assuming that the agent is expectation-based loss averse according to Kőszegi
and Rabin (2006, 2007). The optimal contract is a binary payment scheme
even for a rich performance measure, where standard preferences predict a
fully contingent contract. The logic is that due to the stochastic
reference point, increasing the number of different wages reduces the
agent's expected utility without providing strong additional incentives.
Moreover, for diminutive occurrence probabilities for all signals the
agent is rewarded with the fixed bonus if his performance exceeds a
certain threshold.
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Performance
of Procrastinators: On the Value of Deadlines, with Daniel Müller,
Theory and Decision, 2011, Vol.
70: 329-366.
View external abstract
(Working
Paper Version as PDF).
Earlier study has shown that procrastination can be explained by
quasi-hyperbolic discounting. We present a model of effort choice over
time that shifts the focus from completion of to performance on a single
task. We find that being aware of the own
self-control problems may reduce a person’s performance as well
as his or her overall well-being, which is in
contrast to the existing literature on procrastination. Extending this
framework to a multi-task model, we show that interim
deadlines help a quasi-hyperbolic discounter
to structure his or her workload more efficiently, which in turn leads to better performance. Moreover, being
restricted by deadlines increases a
quasi-hyperbolic discounter’s well-being. Thus, we provide a
theoretical underpinning for
recent empirical evidence and numerous casual observations.
Working
Papers
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Relaxing Competition Through Quality and Tariff Differentiation;
previous title: Can
Price Discrimination Lead to Product Differentiation? A Vertical
Differentiation Model,
Bonn Econ Discussion Paper No. 2/2007 (download.pdf).
In this paper, I compare two-part tariff competition to
linear pricing in a vertically differentiated duopoly. Consumers have
identical tastes for quality but differ in their preferences for quantity.
The main finding is that quality differentiation occurs in equilibrium if
and only if two-part tariffs are feasible. Furthermore, two-part tariff
competition encourages entry, which in turn increases welfare.
Nevertheless, two-part tariff competition decreases consumers' surplus
compared to linear pricing.
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Price Discrimination in Input Markets:
Downstream Entry and Welfare, with Daniel Müller,
2010 (download.pdf).
The
extant theory on price discrimination in input markets takes the structure
of the intermediate industry as exogenously given. This paper endogenizes
the structure of the intermediate industry and examines the effects of
banning third-degree price discrimination on market structure and welfare.
We identify situations where banning price discrimination leads to either
higher or lower prices for all downstream firms. These findings are driven
by the fact that upstream profits are discontinuous due to entry being
costly. Moreover, permitting price discrimination fosters entry which in
many cases improves welfare. Nevertheless, entry can also reduce welfare
because it may lead to a severe inefficiency in production.
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Uncertain Demand,
Consumer Loss Aversion, and Flat-Rate Tariffs,
with Konrad Mierendorff,
2011
(download.pdf).
We consider a model of firm pricing and consumer choice, where consumers
are loss averse and uncertain about their future demand. Possibly,
consumers in our model prefer a flat rate to a measured tariff, even
though this choice does not minimize their expected billing amount---a
behavior in line with ample empirical evidence. We solve for the
profit-maximizing two-part tariff, which is a flat rate if (a) marginal
costs are not too high, (b) loss aversion is intense, and (c) there are
strong variations in demand. Moreover, we analyze the optimal nonlinear
tariff. This tariff has a large flat part when a flat rate is optimal
among the class of two-part tariffs.
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Price Discrimination in Input Markets:
Quantity Discounts and Private Information,
with Daniel Müller,
2010 (download.pdf).
We consider a monopolistic supplier's optimal choice of wholesale tariffs
when downstream firms are privately informed about their retail costs.
Under discriminatory pricing, downstream firms that differ in their ex
ante distribution of retail costs are offered different tariffs. Under
uniform pricing, the same wholesale tariff is offered to all downstream
firms. Irrespective of the pricing regime, the quantities procured by less
efficient firms are distorted downwards. In contrast to the extant
literature on nonlinear wholesale contracts, we find that banning
discriminatory wholesale contracts---the usual legal practice in the EU
and US---often is beneficial for consumers and social welfare. The reason
is that under uniform pricing the average probability of the downstream
firms to produce at high costs determines the quantity distortion, whereas
under price discrimination it depends only on the probability with which a
given downstream firm produces at high cost.
Work in
Progress
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