ICSID-CSDSI Research Seminar
HSE International Center for the Study of Institutions and Development (ICSID) and NES Center for the Study of Diversity and Social Interactions held another session of their joint Research Seminar on Diversity and Development on May 16, 2017.
Philippe Gagnepain, Professor at Paris School of Economics and Université Paris 1, presented his paper "Full versus binary menus: What are the welfare gains?" (co-authored by David Martimort).
Abstract: This study focuses on the contractual relationships between public authorities and operators. The new theory of regulation suggests that, in a situation of asymmetric information, the principal may propose the agent a complex menu of linear contracts in order to maximize social welfare. While this practice is well understood from a theoretical point of view, it is di fficult to implement in practice; instead, simple binary menus are frequently used in reality. Rogerson (2003) and Chu and Sappington (2007) have suggested through a theoretical exercise that simple binary menus capture a substantial share of the gains achievable by the full optimal menu (at least 75%). A first goal of our paper is to challenge these results empirically in the particular case of the local public sector. Our preliminary results are much more pessimistic than those obtained by these authors. As a by-product, we investigate whether the major source of bene fit in contract design comes either from better designing cost reimbursement rules or extending contract length.
As usual the event was held jointly with the seminar “Political Economy”.