Optimal Contracts for Time-Inconsistent Consumers with Heterogeneous Beliefs

• 成果类型: Article; Early Access
• 署名作者: Gao, Buqu; Guo, Liang
• 署名单位: Hunan University; City University of Hong Kong
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.02653
• 发表日期: 2024
• 关键词: time inconsistency; Sophistication; naivete; screening; Contract design

摘要

In many markets (e.g., cell phones, video games), firms offer menus of contracts that include some tariffs charging per-use prices above marginal cost and others below marginal cost. We term this puzzling phenomenon as two-sided deviations from marginal cost pricing and present a potential explanation based on two well-recognized consumer characteristics. The first one is that consumers' actual consumptions may depart systematically from their initial plans (i.e., time-inconsistent preferences). In addition, consumers can be either sophisticated or naive in their beliefs about their time inconsistency (i.e., heterogenous beliefs). We characterize properties of the optimal contracts for a firm to screen the time-inconsistent consumers with heterogeneous beliefs. We articulate the conditions under which the optimal menu may account for two-sided deviations from marginal cost pricing. We also show that, contrary to intuition, a higher degree of time inconsistency may reduce firm profit and increase social welfare. Meanwhile, reducing consumer naivete may harm the society. Moreover, we confirm that our main results are robust to the presence of time-consistent consumers.