New article by Malin Arve

3 May 2016 12:51

(updated: 7 September 2017 12:32)

New article by Malin Arve

The article "Dynamic Procurement under Uncertainty: Optimal Design and implications for Incomplete Contracts" by Maline Arve and Davide Martimort is forthcoming in the American Economic Review.

The article "Dynamic Procurement under Uncertainty: Optimal Design and implications for Incomplete Contracts" by Maline Arve and David Martimort is forthcoming in the American Economic Review.

Abstract:

We characterize the optimal dynamic contract for a long-term basic service when an uncertain add-on is required later on. Introducing firm risk aversion has two impacts. Profi.ts for the basic service can be backloaded to induce cheaper information revelation for this service: An Income E.ffect which reduces output distortions. The fi.rm must also bear some risk to induce information revelation for the add-on. This Risk E.ffect reduces the level of the add-on but hardens information revelation for the basic service. The interaction between these e.ffects has important implications for the dynamics of distortions, contract renegotiation and the value of incomplete contracts.