Pooling Contract Research Articles

Designing contracts and information jointly

We consider a Bayesian persuasion problem with hidden action. When the principal can decide on both information structure and monetary transfer, which relies on the stochastic output, then full separation or full pooling contract is optimal.

Phase transformation and powder densification behavior of the polyamide-12 during powder bed fusion process

The phase transformation and densification behaviors are two critical research topics in the semi-crystalline polymer Laser Powder Bed Fusion (L-PBF) process. This study first introduces a thermal model incorporating crystallization kinetics to study the temperature evolution and phase transformation behavior during the L-PBF of polyamide-12 (PA12). The model highlights the delayed solidification behavior represented by the overall degree of crystallization compared with the temperature evolution during the cooling stage. A thermo-hydrodynamic model is then developed based on the thermal model to predict densification behavior and investigate the contraction under various processing conditions, incorporating powder densification kinetics. Numerical studies reveal that the contraction of the melt pool lags behind the movement of the laser beam significantly because the densification is not a transient but a continuing process accompanied by the fusion phase transformation. The model is validated by comparing the melt pool contraction obtained by experimental measurement and numerical simulation on single-track sintering. The reasonable thermal interaction during multiple-track simulations is proven to improve the final density noticeably. Finally, a two-laser scanning strategy is proposed to enhance the density of polymer L-PBF components.

Aridification of Northwest Australia and Nutrient Decline in the Timor Sea During the 40 Kyr World

AbstractStudying tropical hydroclimate and productivity change in the past is critical for understanding global climate dynamics. Northwest Australia is an ideal location for investigating Australian monsoon dynamics, the variability of the Indonesian Throughflow (ITF), and their impact on past productivity and Pacific warm pool evolution, which remain poorly understood during the 40 kyr world in the mid‐early Pleistocene. In this study, we present multi‐proxy records from International Ocean Discovery Program (IODP) Site U1483 in the Timor Sea spanning the last 2,000 ka, including orbitally‐resolved records from the 40 kyr world between 2,000 and 1,300 ka. Our results suggest that northwest Australia underwent a step of increased aridification and that productivity in the Timor Sea declined during the transition from ∼1,700 to ∼1,400 ka. We attribute this aridification to the reduced moisture supply to this region caused by the ITF restriction and warm pool contraction. We ascribe the declined productivity to a decrease in the nutrient supply of the Pacific source water associated with global nutrient redistribution. At orbital timescale, multiple mechanisms, including sea level changes, monsoon, and the Intertropical Convergence Zone (ITCZ) dynamics, and variations in the ITF and Walker circulation could have controlled variations of productivity and terrigenous input in the Timor Sea during the 40 kyr world. Our bulk nitrogen and benthic carbon isotope records suggest a strong coupling to biogeochemical changes in the Pacific during this period. This research contributes to a better understanding of tropical hydroclimate and productivity changes during the 40 kyr world.

Asset Pricing with Cohort‐Based Trading in MBS Markets

ABSTRACTAgency mortgage‐backed securities (MBSs) with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to‐be‐announced (TBA) contracts with delivery flexibility. This parallel trading environment generates distinctive effects on MBS pricing and trading: (i) Although cheapest‐to‐deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP yields positively, with the effect stronger for lower‐value SPs; (ii) high selling pressure amplifies the effects of MBS heterogeneity on SP yields; and (iii) greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.

Incentive contract design for embedded low-carbon service supply chain under information asymmetry of carbon abatement efficiency

Facing asymmetric carbon abatement information of the energy service company (ESCO), the manufacturer not only suffers from economic losses, but also is unable to achieve the optimum emission reduction effect. For a manufacturer, designing incentive contracts plays an essential role in reducing losses resulted from ESCO information asymmetry. However, previous studies have ignored the manufacturer's contract design issue when facing different types of ESCO with high or low abatement efficiency, and disregarded manufacturer with different goals in choosing a contract. To fill this research gap, this study aims to investigate the manufacturer's contract design issue and explore the issue of the manufacturer's contract selection according to its different goals. To achieve this objective, this research focuses on the embedded low-carbon service supply chain, including a manufacturer and an ESCO with different carbon abatement efficiency. First, this study develops the full information model (the basic model). Furthermore, this research considers the information asymmetry of different ESCO's carbon abatement efficiency to develop the screening and pooling contract models. This study comparatively analyzes the contract selection of the manufacturer with different goals, including carbon reduction level, profit, or cooperation period. The results show that when cooperating with high-efficiency ESCO, the manufacturer providing the screening contract could obtain a higher carbon reduction level compared with providing the pooling contract. In contrast, when cooperating with low-efficiency ESCO, the manufacturer providing the pooling contract would obtain a higher carbon reduction level. The manufacturer should choose the pooling contract if pursuing higher profit. In addition, the manufacturer should choose to provide the pooling contract if seeking long-term cooperation. The findings are helpful for the manufacturer's decision-making to cooperate with ESCO under the asymmetric information of carbon abatement.

Price Delegation or Not? The Effect of Heterogeneous Sales Agents

In this study, we examine the effect of the differences in both sales ability and reservation utility on the design of the pricing scheme and compensation contract under asymmetric information. Heterogeneity with ability‐dependent reservation utility generates conflicted screening and pooling effects that preclude separating and pooling equilibria, respectively; with which agents may work harder under either centralized or delegated pricing scheme than if they were homogeneous and, in certain scenarios, no premiums (information rents) are paid. These findings are driven by the dynamics between the differences in agents’ reservation utilities and in their effort costs or rewards that arise when their true types are concealed. We show that optimal separating contracts generate the same profit under centralized and delegated pricing because separating contracts under centralization retain the pricing flexibility of delegation. However, a certain form of pooling contract under delegated pricing can outperform the optimal pooling contract under centralization because the upside of pricing flexibility under delegation dominates the downside caused by reduced effort incentives. Under the optimal contracts, delegated pricing is as profitable to the firm as centralized pricing when the difference of reservation utilities is small or when the difference is large but the ability gap is small, and delegation is preferred when the difference of reservation utilities is moderate or when both the difference and the ability gap are large.

Optimal sequential contract with a risk‐averse supplier

AbstractWe study optimal contracts in environments where a risk‐averse supplier discovers cost information privately and gradually over time: the supplier is privately informed about its cost uncertainty at the time of contracting and discovers the realization of cost condition privately after contracting and before production. We show that both the buyer and the supplier prefer more cost uncertainty when the supplier is not very risk‐averse but less cost uncertainty when the supplier is sufficiently risk‐averse. However, the buyer always prefers to contract before the cost uncertainty resolves regardless of the supplier's degree of risk aversion. The nature of the optimal contract also depends on the supplier's risk preference. A separating contract is optimal when the supplier is not very risk‐averse; however, a pooling contract, which offers the same contract terms regardless of the cost uncertainty, can be optimal when the supplier becomes sufficiently risk‐averse. Moreover, the optimal production schedule is often characterized by “inflexible rules.”

How does business incubator motivate start-ups based on super-network: A dynamic capability perspective

Network-based incubation has undergone rapid developments and the incubation mechanism has begun to change recently. To incentive the start-ups on the basis of ensuring its own interests, the incubator needs to design a feasible contract. According to network theory, a single network cannot adequately describe the heterogeneous alliances of incubated start-ups in the business incubator. Therefore, by constructing super-network structure of incubated start-ups, this paper designs two types of linear incentive contracts and uses numerical simulation to further discuss the model. The results indicate that the business incubator should design the contract according to the different capability levels and risk preference degree of start-ups: linear screening contract (LSC) is more effective to motivate the incubated start-ups to improve the capability, while the incentive effect will be weakened by the increasing proportion of high-capability start-ups; for high risk-preference start-ups, linear pooling contract (LPC) is superior than LSC. The results can serve as a theoretical direction for the business incubator to effectively distinguish different capability levels of start-ups and make better decision on contract design to motivate start-ups on the basis of ensuring the maximization of its own utility.

Asset Pricing with Cohort-Based Trading in MBS Markets

Agency MBSs with diverse characteristics are traded in parallel with individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment has distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver (CTD) issues are present only in TBA contracts and absent from SP trading by definition, MBS heterogeneity associated with CTD discounts affects SP returns positively, with the effect stronger for lower-value SPs; (2) High selling pressure amplifies the effects of MBS heterogeneity on SP returns; (3) Greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.

Cohort Trading and Security Design: Theory and Evidence from Agency MBS Markets

Agency mortgage-backed securities (MBSs) are traded via both individual-asset-based specified pool (SP) contracts and cohort-based to-be-announced (TBA) contracts, which allow for the delivery of heterogeneous MBSs at a uniform price. We theoretically derive and empirically document the economic effects of cohort trading on issuers' security design: (1) Low-value and high-value loans are securitized into separate groups of MBSs sold in TBA and SP markets respectively; (2) issuers pool low-value loans together into TBA MBSs, consistent with arbitrary packaging practices based on the uniform TBA pricing; (3) issuers separate distinct high-value loans into multiple SP MBSs, suggesting that SP selling revenue exhibits a certain degree of convexity in MBS value; and (4) large issuers take more advantage of security design than small issuers do. Finally, we quantify the economic benefits of strategic security design to issuers to be 3 basis points in price, about 36% of the transaction costs for SP MBSs.

Asset Pricing with Cohort-Based Trading in MBS Markets

Agency MBSs with diverse characteristics are traded in parallel with individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts. This parallel trading environment has distinctive effects on MBS pricing and trading: (1) Although cheapest-to-deliver (CTD) issues are present only in TBA contracts and absent from SP trading by definition, MBS heterogeneity associated with CTD discounts affects SP returns positively, with the effect stronger for lower-value SPs; (2) High selling pressure amplifies the effects of MBS heterogeneity on SP returns; (3) Greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.

Dynamic contracting with limited commitment and the ratchet effect

We study dynamic contracting with adverse selection and limited commitment. A firm (the principal) and a worker (the agent) interact for potentially infinitely many periods. The worker is privately informed about his productivity and the firm can only commit to short‐term contracts. The ratchet effect is in place since the firm has the incentive to change the terms of trade and offer more demanding contracts when it learns that the worker is highly productive. As the parties become arbitrarily patient, the equilibrium outcome takes one of two forms. If the prior probability of the worker being productive is low, the firm offers a pooling contract and no information is ever revealed. In contrast, if this prior probability is high, the firm fires the unproductive worker at the beginning of the relationship.

Bilateral Information Disclosure in Adverse Selection Markets with Nonexclusive Competition

We study insurance markets with nonexclusive contracts, introducing bilateral endogenous information disclosure about insurance sales and purchases by firms and consumers. We show that a competitive equilibrium exists under remarkably mild conditions, and characterize the unique equilibrium outcome. With two types of consumers the outcome consists of a pooling contract which maximizes the well-being of the low risk type (along the zero profit pooling line) plus a supplemental (undisclosed and nonexclusive) contract that brings the high risk type to full insurance (at his own odds). We show that this outcome is extremely robust and constrained Pareto efficient. Consumer disclosure and asymmetric equilibrium information flows are critical in supporting the equilibrium. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Investigation of Dynamic Incentive of Supply Chain under Information Asymmetry for Screening

More and more high-end brand companies are exploring new markets by extending low-end product lines. When selecting agents in new markets, a principal often faces the problem of identifying the promotional ability of agents. This paper aims to study the dynamic incentive of supply chain under information asymmetry for the information screening in long-term supply chain cooperation. Also, it pioneers the rhythm of information disclosure in the extant literature. By establishing three two-stage supply chain models, this paper analyzes the impact of agents’ information disclosure speed on the brand. We find that it is better to separate agents earlier out of the brand perspective; the semiseparated contract is beneficial for the brand to control information disclosure speed more flexibly and get more profits from the retailer. But, from the perspective of the supply chain, it is also possible to prefer the mixed contract. Under certain conditions, the pooling contract could also increase the profits of supply chain and improve the allocation efficiency of supply chain.

On the interaction between asymmetric demand signal and forecast accuracy information

Demand information is critical information for manufacturers when contracting, whereas very often, both the demand signal and its accuracy are privately known by the retailer. To better understand the impact of these two types of asymmetric information and further the information structure preferences of both the retailer and the manufacturer, this paper first establishes a multi-dimensional screening model, and then discusses the contracting problem under several simpler but commonly investigated information structures. It demonstrates that for all the cases, the optimal contract has a threshold structure: the manufacturer offers a pooling contract when the unit production cost is lower or higher than a certain level, but offers a separating one when the unit production cost is intermediate. Further, it shows that the private demand signal and forecast accuracy information complement each other under certain circumstances, whereas under other circumstances, one dimensional asymmetric information might not have an impact on the other and even be detrimental to the retailer, which is quite interesting. Meanwhile, given that the forecast accuracy is asymmetric information, it reveals that retailer possessing more dimensional private information might benefit the manufacturer; however, if the demand signal is asymmetric information, obtaining more information on the forecast accuracy becomes important. Finally, the value of one particular type of information under one dimensional asymmetric information is not necessarily the same as that under two dimensional asymmetric information due to the interaction effect.

Supply Contract Design with Asymmetric Corporate Social Responsibility Cost Information in Service Supply Chain

Corporate social responsibility (CSR) has become the focus of the company’s daily operations and strategic choices. At present, the supply risk events caused by the CSR violations of service providers in the service supply chain are frequent, which highlight the importance of formulating appropriate contracts to constrain the CSR level of providers. In the context of asymmetric CSR cost information, this paper analyzes the optimal contract parameters of integrators when providing screening contracts or pooling contracts and compares their impact on profits and the CSR level. The information asymmetry belongs to classic principal-agent problem, and we will use the revelation principle to design the contracts and solve this problem. The results that different contracts have different effects on the CSR level of different types of providers. A low-cost provider’s CSR level is the highest when a screening contract is provided, while a high-cost provider’s CSR level reaches the peak under a pooling contract. If pursuing profit maximization, the integrator should choose to provide a screening contract. When the integrator needs to ensure a higher average level of social responsibility, a pooling contract should be chosen. The findings also show that service cost is an important factor affecting the CSR level of the provider, and only when the providers’ service cost is low, will providers actively fulfill their social responsibility.

Promoting traceability for food supply chain with certification

Traceability systems are perceived as a powerful solution to cope with food safety issues. It is important to improve the traceability for food supply chains to address potential food safety events. This paper studies the sourcing decisions in a food supply chain, in which the buyer is exposed to potential food safety events due to supplier responsibility. It is shown that the buyer may fail to source from the supplier with high-level traceability on account of information asymmetry. To address this adverse selection problem, this paper employs the certification as a screening tool, and find that the buyer could separate the two types perfectly with a pooling contract with certification, if the probability of the high type is low; otherwise, a pooling contract only separate the two types partially. This paper further considers a setting in which traceability strengthens the food safety level. It is shown that the buyer prefers the supplier with high-level traceability even the unit cost incurred by food safety events or the probability of the supplier with high-level traceability is lower.

Welfare Impacts of Genetic Testing in Health Insurance Markets: Will Cross-Subsidies Survive?

Personalized medicine is still in its infancy, with costly genetic tests providing Little actionable information in terms of efficient prevention decisions. As a consequence, few people undertake these tests currently, and health insurance contracts pool all agents irrespective of their genetic background. Cheaper and especially more informative tests will induce more people to undertake these tests and will impact not only the pricing but also the type of health insurance contracts. We develop a setting with endogenous prevention decisions and we study which contract type (pooling or separating) emerges at equilibrium as a function of the proportion of agents undertaking the genetic test as well as of the informativeness of this test. Our results show that, ceteris paribus, the higher is the proportion of tested agents, the more likely is the emergence of a separating equilibrium that implies some risk discrimination. However, a better pooling contract in which policyholders undertake preventive actions (and lower their health risk) can be attained if the informativeness of the genetic tests increases sufficiently. Once the proportion of tested individuals reaches a threshold, we move abruptly from pooling to separating equilibrium, which unambiguously decreases social welfare. Once the equilibrium is of the separating type, social welfare increases with the genetic tests take-up rate, thanks to a composition effect.

Second-best mechanisms in queuing problems without transfers:The role of random priorities

This paper characterizes the second-best mechanism chosen by a benevolent planner under incentive compatibility constraints in queuing problems without monetary transfers. In the absence of monetary compensations, separation between types can only occur if jobs are processed with a probability strictly smaller than one for some configurations of the types. This entails a large efficiency cost, and the planner optimally chooses a pooling contract when types are drawn from a continuous distribution and when binary types are sufficiently close. In the binary model, a separating contract is optimal when the difference between high and low types is large, and results in a low probability of processing jobs when both agents announce high types.

Regulatory arbitrage and the efficiency of banking regulation

Abstract We study the efficiency of banking regulation under financial integration. Banks freely choose the jurisdiction where to locate their activities and have private information about their efficiency level. Regulators non-cooperatively offer any regulatory contract that satisfies information and participation constraints of banks. We show that the unique Nash equilibrium of the regulatory game is a simple pooling contract: financial integration is characterized by the inability for regulators to discriminate between banks with different efficiency levels. This result is driven by the endogenous restriction caused by regulatory arbitrage on the capacity of regulators to use several regulatory instruments.