Browsing by Author "Sappington, DEM"

Now showing 1 - 3 of 3
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    Information management in incentive problems
    (Journal of Political Economy, 1997-08-01) Lewis, TR; Sappington, DEM
    We extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he chooses an unobservable level of cost-reducing effort. Concerns about information acquisition cause important changes in standard incentive contracts. Reward structures with extreme financial payoffs arise, and super-high-powered contracts are coupled with contracts that entail pronounced cost sharing. However, if the principal can assign the planning and production tasks to two different agents, then all contracting distortions disappear and, except for forgone economies of scope, the principal achieves her most preferred outcome.
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    Motivating wealth-constrained actors
    (American Economic Review, 2000-09-01) Lewis, TR; Sappington, DEM
    We examine how owners of productive resources (e.g., public enterprises or financial capital) optimally allocate their resources among wealth-constrained operators of unknown ability. Optimal allocations exhibit: (1) shared enterprise profit - the resource owner always shares the operator's profit; (2) dispersed enterprise ownership -resources are widely distributed among operators of varying ability; (3) limited benefits of competition - the owner may not benefit from increased competition for the resource; and, sometimes, (4) diluted incentives for the most capable - more capable operators receive smaller shares of the returns they generate. Implications for privatizations and venture capital arrangements are explored. (JEL D82, D44, D20).
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    Optimal industrial targeting with unknown learning-by-doing
    (Journal of International Economics, 1995-05-01) Dinopoulos, E; Lewis, TR; Sappington, DEM
    We examine a government's optimal targeting policy when it has limited information about the learning curves of domestic producers. Popular arguments suggest that in order to promote learning-by-doing, the government might want to protect domestic producers from foreign competition by temporarily closing the domestic market to foreign producers. We identify a set of conditions under which such trade intervention is not optimal. Instead, domestic welfare is better fostered either by no government intervention, or by providing subsidies to the most capable domestic producers who are willing to set a particularly low domestic price for their product. © 1995.