Tymofiy Mylovanov

Stochastic mechanisms in settings without monetary transfers: The regular case

We analyze relative performance of stochastic and deterministic mechanisms in an environment that has been extensively studied in the literature on communication (e.g., [Vincent P. Crawford, Joel Sobel, Strategic information transmission, Econometrica 50 (6) (1982) 1431-1451]) and optimal delegation (e.g., [Bengt Holmstrom, On the theory of delegation, in: M. Boyer, R.E. Kihlstrom (Eds.), Bayesian Models in Economic Theory, North-Holland, 1984, pp. 115-141]): a principal-agent model with hidden information, no monetary transfers, and single-peaked preferences. We demonstrate that under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agents bias, the optimal mechanism is deterministic. We also provide an explicit characterization of this mechanism.

Veto-based delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the Veto-Power Principle: any incentive-compatible outcome can be implemented through veto-based delegation with an endogenously chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: (1) to design the default outcome and (2) to ensure that she has almost no formal control over the agents decisions.

PERSUASION OF A PRIVATELY INFORMED RECEIVER

We study persuasion mechanisms in linear environments. A privately informed receiver chooses between two actions. A sender designs a persuasion mechanism that can condition the information disclosed to the receiver on the receiver’s report about his type. We establish the equivalence of implementation by persuasion mechanisms and by experiments. We also characterize the optimal persuasion mechanisms. In particular, if the density of the receiver’s type is log-concave, then the optimal persuasion mechanism reveals the state if and only if the state is below a threshold. We apply our results to the design of media censorship policies.

Informed-principal problem with moral hazard, risk neutrality, and no limited liability

We consider a principal–agent moral-hazard problem with risk-neutral parties and no limited liability in which the principal has private information. The principals private information creates signaling considerations that may distort the implemented outcome. These distortions can explain, e.g., efficiency wages (Beaudry, 1994) and muted incentives (Inderst, 2001). We show that in a large class of environments these distortions vanish if the principal is allowed to offer sufficiently rich contracts.

OPTIMAL ARBITRATION: OPTIMAL ARBITRATION

We study common arbitration rules for disputes of two privately informed parties, final offer and conventional arbitration. Conventional arbitration is shown to be an optimal arbitration rule in environments with transferable utility, while final offer arbitration is optimal if utility is nontransferable and the parties’ interests are not too aligned. These results explain the prevalence of both arbitration rules in practice.

The future of CIS and CEE countries

This article is based on a panel discussion on the future of transition countries 25 years after the dissolution of the Soviet Union. All the contributors have long professional and personal experience of various aspects of the transition process so far and provide different perspectives on what to expect for the region in the future. However, the need for continued reform in many areas of the respective economies are highlighted to ensure inclusive and sustainable growth in the future. A continued focus on enhancing productivity is the key to future economic success. Investments in human and physical capital need to be complemented with strengthening the fundamental institutions that make such investments possible and desirable for all relevant stakeholders. It will not be an easy reform process, but the alternatives are much less desirable for the vast majority of people in these countries.