Multidimensional screening with complementary activities: regulating a monopolist with unknown cost and unknown preference for empire building

DOI10.3390/G4030532MaRDI QIDQ2351245zbMATH OpenOpenAlexFDO

Authors Ana Pinto Borges, Didier Laussel, João Correia-da-Silva

Publication date 23 June 2015

Published in Games (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.3390/g4030532

zbMATH Keywords

adverse selectionempire buildingmultidimensional screeningprocurementregulation

Mathematics Subject Classification ID

Applications of game theory (91A80) Microeconomic theory (price theory and economic markets) (91B24)

Review text

Summary: We study the optimal regulation of a monopolist when intrinsic efficiency (intrinsic cost) and empire building tendency (marginal utility of output) are private information, but actual cost (the difference between intrinsic cost and effort level) is observable. This is a problem of multidimensional screening with complementary activities. Results are not only driven by the prior probabilities of the four possible types, but also by the relative magnitude of the uncertainty along the two dimensions of private information. If the marginal utility of output varies much more (less) across managers than the intrinsic marginal cost, there is empire building (efficiency) dominance. In that case, an inefficient empire builder produces more (less) and at lower (higher) marginal cost than an efficient money-seeker. It is only when variabilities are similar that there may be the natural ranking of activities (empire builders produce more, while efficient managers produce at a lower cost).

Recommendations

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Cites work

• Multidimensional screening.
• Regulating a manager whose empire-building preferences are private information

Cited in

(5)

• Monopoly regulation without the Spence-Mirrlees assumption
• Regulating a manager whose empire-building preferences are private information
• Satisficing and maximizing consumers in a monopolistic screening model
• DEALING WITH MONOTONICITY CONSTRAINTS IN SCREENING PROBLEMS: THE PRINCIPAL-AGENT MODEL
• Regulating a monopolist with limited funds

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