Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building
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...
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Online Access: | http://www.mdpi.com/2073-4336/4/3/532 |
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doaj-142a844bd2d74c49bca733df719bbf122020-11-25T01:06:38ZengMDPI AGGames2073-43362013-09-014353256010.3390/g4030532Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire BuildingDidier LausselAna Pinto BorgesJoão Correia-da-SilvaWe 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).http://www.mdpi.com/2073-4336/4/3/532multidimensional screeningregulationprocurementempire buildingadverse selection |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Didier Laussel Ana Pinto Borges João Correia-da-Silva |
spellingShingle |
Didier Laussel Ana Pinto Borges João Correia-da-Silva Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building Games multidimensional screening regulation procurement empire building adverse selection |
author_facet |
Didier Laussel Ana Pinto Borges João Correia-da-Silva |
author_sort |
Didier Laussel |
title |
Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building |
title_short |
Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building |
title_full |
Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building |
title_fullStr |
Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building |
title_full_unstemmed |
Multidimensional Screening with Complementary Activities: Regulating a Monopolist with Unknown Cost and Unknown Preference for Empire Building |
title_sort |
multidimensional screening with complementary activities: regulating a monopolist with unknown cost and unknown preference for empire building |
publisher |
MDPI AG |
series |
Games |
issn |
2073-4336 |
publishDate |
2013-09-01 |
description |
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). |
topic |
multidimensional screening regulation procurement empire building adverse selection |
url |
http://www.mdpi.com/2073-4336/4/3/532 |
work_keys_str_mv |
AT didierlaussel multidimensionalscreeningwithcomplementaryactivitiesregulatingamonopolistwithunknowncostandunknownpreferenceforempirebuilding AT anapintoborges multidimensionalscreeningwithcomplementaryactivitiesregulatingamonopolistwithunknowncostandunknownpreferenceforempirebuilding AT joaocorreiadasilva multidimensionalscreeningwithcomplementaryactivitiesregulatingamonopolistwithunknowncostandunknownpreferenceforempirebuilding |
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