Flavio Toxvaerd

Time of the Essence

In most industries, ranging from information systems development to construction, an overwhelming proportion of projects are delayed beyond estimated completion time. This fact constitutes somewhat of a puzzle for existing theory. The present paper studies project delays and optimal contracts under moral hazard in a setting with time to build. Within this setup, project delays are found to be most likely to happen at early stages of development, and intimately connected to the degree of commitment of the procurer and the class of contracts that can be enforced. The firstbest, optimal spot contracting and optimal long-term contract scenarios are analyzed, as well as commonly encountered additional constraints on the long-term contract.

The economics of vaccination

The market for vaccinations is widely believed to be characterized by market failures, because individuals do not internalize the positive externalities that their vaccination decisions may confer on other individuals. Francis (1997) provided a set of assumptions under which the equilibrium vaccination pattern is socially optimal. We show that his conditions are not necessary for the welfare theorem to hold but that in general, the market yields inefficiently low vaccination uptake. Equilibrium non-optimality may obtain if (i) agents can recover from infection, (ii) vaccines are imperfect, (iii) individuals are ex ante heterogeneous, (iv) vaccination timing is inflexible or (v) the planning horizon is finite. Apart from the case with heterogeneity, inefficiencies result from the presence of strategic interaction.

A Theory of Optimal Deadlines

This paper sets forth a model of contracting for delivery in an environment with time to build and adverse selection. The optimal contract is derived and characterized and it takes the form of a deadline contract. Such a contract stipulates a deadline for delivery for each possible type of agent efficiency. The optimal contract induces inefficient delay by using delivery time as a screening device. Furthermore, rents are decreasing in the agent’s efficiency. In meeting the deadline, the agent’s effort is strictly increasing over time, due to discounting. It is shown that increasing the project’s gross value decreases delivery time, while the scale or difficulty of the project decreases it. Last, it is shown that the agent’s rents are increasing in both project difficulty and gross project value.

Dynamic Limit Pricing

This paper studies a simple multi-period model of limit pricing under one-sided incomplete information. I characterize pooling and separating equilibria, determine conditions under which the latter exist and study under which conditions on the primitives the equilibria involve limit pricing. The results are compared to a static benchmark. I identify two regimes that depend on the primitives of the model, namely a monopoly price regime and a limit price regime. In the former, the unique reasonable equilibrium involves immediate separation on monopoly prices. In the latter, I identify a unique class of reasonable limit price equilibria in which different types may initially pool for an arbitrary amount of time and then (possibly) separate. I argue that in a reasonable equilibrium, all signaling takes place in a single period (if the informed player is able to do so). If separation occurs in finite time, this involves setting prices that are so low that the inefficient incumbents profits from mimicking are strictly negative. With a sufficiently high discount factor, the losses from mimicking may become arbitrarily large.

Cross-Border Regulation

This note considers a simple Hotelling model with Bertrand competition between two firms, who belong to separate jurisdictions and are regulated by separate regulators. Welfare properties of different regulatory regimes are compared. These suggest that the presence of multiple, mutually competing, regulators may decrease overall welfare.