Research In Progress

 

“Optimal Wage Commitment under Career Concern”

This paper explores the optimal time pattern of wage commitment in a career concern framework. It is shown that by choosing the appropriate length of wage commitment the over-signaling problem in Holmstrom (1982) can be alleviated, and efficiency can be improved. This paper proves that in a general n-period discrete model, given that the social welfare function is super concave (maximized value of a concave function is also concave in exogenous parameters), updating the wage period by period is optimal when the effort level is below the first best one. However, the optimal wage commitment deviates from the time pattern in the classical model when the effort is above the first-best level. This paper also shows that the first best effort level can be restored if severance pay is allowed to be contingent on past history of employment.

 

“On an Efficient Mechanism with Ex Post Individual Rationality Constraint”

This paper explores existence of an efficient allocation which is interim incentive compatible, ex post individually rational (IR) and ex post budget balance. Two basic results are shown. (1) In private value with linear preference situation, there exist mechanisms meeting all of these four requirements whenever the Vickery mechanism runs expected surplus. Furthermore, the agent’s ex post payoff can be non-decreasing in his own type regardless of other bidders’ realizations (ex post monotonicity). This result is stronger than well known existence theorems, in which interim IR constraint is considered (Krishna and Perry, 1998; Ledyard and Palfrey, 2007). To indicate the significance of the ex post IR constraint, it is shown that when the ex post individual rationality constraint is imposed, no efficient partner-dissolving mechanism exists, in contrast to Crampton, Gibbons and Klemperer (1987), keeping everything else the same. (2) In the public good and concave preference situation, this paper provides a generalization of the Myerson-Satterthewaite theorem, justifying how divisibility of object, initial endowment distribution, and preferences affect possibility of no trade. An explicit example is shown to indicate that if preferences are concave, the Myerson-Satterthewaite theorem does not hold even though the initial endowment allocation is extreme.