On the Ratchet Effect with Product Market Competition

• 成果类型: Article
• 署名作者: Bisceglia, Michele; Piccolo, Salvatore
• 署名单位: Universite de Toulouse; Universite Toulouse 1 Capitole; Toulouse School of Economics; University of Bergamo
• 刊物名称: RAND JOURNAL OF ECONOMICS
• ISSN/ISSBN: 0741-6261
• DOI: 10.1111/1756-2171.12499
• 发表日期: 2025
• 页码: 216-230
• 关键词: information; incentives; RENEGOTIATION; equilibrium; RISK

摘要

We study a two-period industry where firms are run by agents privately informed about their (persistent) costs, and principals can only use spot contracts. We characterize novel semi-separating equilibria where principals randomize in one or both periods. These equilibria have the following implications for industry dynamics and firms' performance. First, despite some principals learning their agents' type early on, aggregate output need not increase over time: the inefficiencies generated by the adverse selection problem can be persistent over time in competitive environments. Second, a more severe adverse selection problem may result in higher market prices, thereby increasing principals' profits.