Ching-to Albert Ma

Quality Competition, Welfare, and Regulation

In this paper, we study the supply of quality in imperfectly competitive markets, and explore the role of regulation in markets where firms may use both quality and price to compete for customers. In a model where firms first choose qualities and then prices, we find that quality decisions have strategic effects: firms react to quality disadvantages by price reductions. Because of this strategic effect, firms do not have the correct incentive to set socially efficient quality levels. Price and quality competition results in a socially suboptimal quality level. Efficiency can be restored by lump-sum transfers and price regulatory policies. Simple price regulation may result in lower price and higher quality.

BARGAINING WITH DEADLINES AND IMPERFECT PLAYER CONTROL

This paper presents a game of strategic bargaining under deadlines whose equilibrium conforms to anecdotal and experimental information about real-life bargaining sessions. The model operates in continuous time and incorporates possible strategic delay and imperfect player control over the timing of offers (modeled by means of an exogenous random delay). In the unique symmetric Markov-perfect equilibrium, players adopt strategic delay early in the game, make and reject offers later on, and usually reach agreements late in the game, though they miss the deadline with positive probability. The expected division of the surplus is close to an even split. Copyright 1993 by The Econometric Society.

Renegotiation and Optimality in Agency Contracts

We analyse renegotiation in a hidden action principal-agent model. Contract renegotiation offers are made by the agent. A refinement is imposed on the principals beliefs: if precisely one action is optimal with respect to both the principals and the agents contracts, the principal believes that that action has been taken. With the refinement imposed, perfect-Bayesian equilibrium allocations are identical to the second best in the classical principal-agent model without renegotiation. When renegotiation is led by the agent and when equilibria satisfy the refinement, equilibrium allocations are ex ante efficient.

Moral hazard, insurance, and some collusion

A risk-averse consumer purchases an insurance policy; if she suffers a loss, she may receive services from a provider to recover some of the loss. Only the consumer and the provider know if the loss has actually occurred. The providers behavior is uncertain. With some positive probability, the provider is honest, reporting the loss information truthfully to the insurer; with the complementary probability, the provider reports the information strategically, by writing a side-contract with the consumer to maximize the joint surplus of the provider-consumer coalition. We show that there is a loss of generality in considering only collusion-proof contracts, and characterize equilibria implemented by collusion-proof and noncollusion-proof contracts. When the probability of a provider acting collusively is small, the equilibrium contract is not collusion-proof but approximately first-best. When the probability of a provider acting collusively is large, the equilibrium contract is independent of this probability and identical to the equilibrium collusion-proof contract when the provider is collusive with probability 1.

Optimal Health Care Contract under Physician Agency

We model asymmetric information arising from physician agency and its effect on the design of payment and health care quantity. The physician aims to maximize a combination of physician profit and patient benefit. The degree of substitution between profit and patient benefit in the physician agency is the physician’s private information, as is the patient’s intrinsic valuation of treatment quantity. The equilibrium mechanism depends only on the physician agency parameter, and exhibits extensive pooling, with prescribed quantity and payment being insensitive to the agency characteristic or patient’s actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

A Signaling Theory of Unemployment

This paper presents a signaling explanation for unemployment. The basic idea is that employment at an unskilled job may be regarded as a bad signal. Therefore, good workers who are more likely to qualify for employment at a skilled job in the future are better off being unemployed than accepting an unskilled job. We present conditions under which all equilibria satisfying the Cho-Kreps intuitive criterion involve unemployment. However, there always exist budget balancing wage subsidies and taxes that eliminate unemployment. Also, for any unemployment equilibrium, either there always exists a set of Pareto improving wage taxes and subsidies, or we give conditions under which there exists a set of Pareto improving wage taxes and subsidies.

Efficient allocation of a "prize"-King Solomon's dilemma

Abstract A planner is interested in allocating an indivisible good (a “prize”) to one of many agents in the economy. His objective is to give the prize to the agent who values it most, without any payments being made by the recipient. The planner, however, does not know the identity of this agent, while the agents themselves do. This paper shows how the planner can construct simple, multistage mechanisms with a unique subgame perfect equilibrium outcome. At this outcome, the agent who values the prize most gets it without any transfer of money being made by any of the agents or the planner.

Price and Quality Competition under Adverse Selection: Market Organization and Efficiency

Firms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices. Copyright 2003 by the RAND Corporation.

Regulating a Dominant Firm: Unknown Demand and Industry Structure

In this article, we study the optimal regulation of a dominant firm when an unregulated firm actively competes. Generally, the existence of an active rival imposes new and binding constraints on regulatory problems. We characterize optimal policies both when demands are known (complete information) and unknown (incomplete information) to the regulator. Optimal policies under complete information may set the price at the dominant firm above or below its marginal cost. Optimal policies under incomplete information may be either pooling or separating, constant over a range of the prior distribution of the firms private information, and leave no information rent to the firm.

Market conditions and general practitioners’ referrals

We study how market conditions influence referrals of patients by general practitioners (GPs). We set up a model of GP referral for the Norwegian health care system, where a GP receives capitation payment based on the number of patients in his practice, as well as fee-for-service reimbursements. A GP may accept new patients or close the practice to new patients. We model GPs as partially altruistic, and compete for patients. We show that a GP operating in a more competitive market has a higher referral rate. To compete for patients and to retain them, a GP satisfies patients’ requests for referrals. Furthermore, a GP who faces a patient shortage will refer more often than a GP who does not. Tests with Norwegian GP radiology referral data support our theory.