Piero Tedeschi - Academia.edu (original) (raw)

Papers by Piero Tedeschi

Labor-market intermediaries play an important role in turnover in many labor markets. This paper ... more Labor-market intermediaries play an important role in turnover in many labor markets. This paper analyzes one class of such intermediaries, namely, search firms. The authors first model the hiring decision of the firm in both succession and replacement planning. They show that employers will, in equilibrium, use search firms to find new hires even where the search firms have no

Economia E Politica Industriale, 2007

Industrial Organization, Sep 14, 2005

ABSTRACT In this paper, we prove that two firms may prefer not to include a termination clause in... more ABSTRACT In this paper, we prove that two firms may prefer not to include a termination clause in their partnership contract, thus inducing a costly termination in case of failure of the joint project. This ex-post inefficiency induces partners to exert large levels of non-contractible efforts (investments) in order to decrease the probability of failure. Therefore, the absence of a termination clause works as a "discipline device" that mitigates the hold-up problem within the partnership. We show that writing a contract without a termination clause is a credible commitment even when partners can add such a clause in the contract in any moment of their relationship. Comparative statics analysis suggests that contracts lacking a termination clause are suited to alliances in R&D, when partners are not rivals or when they have strong technological complementarities.

In this paper we develop a model of product quality and firms' reputation. If quality is not veri... more In this paper we develop a model of product quality and firms' reputation. If quality is not verifiable and there is repeated interaction between firms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that competitive firms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. Positive profit are generated in equilibria characterized by the emergence of a social norm which prescribes a minimum quality level. Moreover, we demonstrate that more concentrated industry structures deliver better quality and higher social and consumer welfare. This finding should induce cautiousness in enhancing competition when product quality is at stake. We derive our results in the specific context of after-sales service quality provided by insurance companies. Yet, we argue that our analysis is of general applicability.

SSRN Electronic Journal, 2000

Both borrowers and lenders can be socially responsible (SR). Ethical banks commit to …nancing onl... more Both borrowers and lenders can be socially responsible (SR). Ethical banks commit to …nancing only ethical projects, which have social pro…tability but lower expected revenues than standard projects. Instead, no credible commitment exists for SR borrowers. The matching between SR borrowers and ethical banks reduces the frictions caused by moral hazard. However, when the type of the borrowers is not observable, then standard borrowers have incentives to invest in ethical projects pretending to be SR. We show that the separation of borrowers entails costs that are paid by SR entrepreneurs but are relatively low because standard lenders o¤er an outside option that relaxes the self-selection constraint of the borrowers. Technically, we solve a Contract Proposal Game where informed principals (borrowers) o¤er di¤erent menus of contracts to heterogeneous agents (banks). We show that market segmentation improves e¢ ciency and solves the problem of multiplicity of equilibria in Contract Proposal Games.

In this paper we develop a model of product quality and …rms' reputation. If quality is not v... more In this paper we develop a model of product quality and …rms' reputation. If quality is not veri…able and there is repeated interaction between …rms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that …rms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. The result is genereated in equilibria which sustains minimum quality standard as the (equilibrium) outcome of a social norm. Moreover, we demonstrate that more concentrated industry structures deliver higher quality and social welfare. Hence, when quality is an issue, competition is not necessarily bene…cial for consumers in our setup. We derive our results in the speci…c context of after-sales service quality provided by insurance companies because we document, through an example, that providing high quality is particularly ...

SSRN Electronic Journal, 2000

This paper investigates banks' corporate social responsibility. The credit market is composed of ... more This paper investigates banks' corporate social responsibility. The credit market is composed of two sectors: one for standard and one for ethical projects. Since ethical banks are committed to investing in ethical projects, standard and ethical banks compete in the market for ethical projects. The latter have also a social profitability, but a lower expected revenue with respect to standard ones. If their expected revenue is not too low, ethical projects are undertaken by motivated borrowers. The latter obtain a benefit (a social responsibility premium) from accomplishing ethical projects in general and a premium for successful interaction when trading with ethical banks in the case the project is successful. If the expected profitability of ethical projects is sufficiently close to that of standard ones and/or the premium for successful interaction of motivated borrowers is sufficiently high, ethical banks are active, both sectors of the credit market exist and the whole market is fully segmented. This result holds true irrespective of the information structure: only moral hazard on the borrower side, moral hazard and screening on the borrower side. The optimal contract in our setup is always a debt contract. However, its precise form and welfare properties depend on the information structure. Jel classification: D86, G21, G30.

Research in Economics, 2000

We propose a general formal structure for symmetric information delegation games that encompasses... more We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non-separable utility. Secondly, we prove that the results are robust to the introduction of secret side-contracts, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

SSRN Electronic Journal, 2000

Many couples do not sign prenuptial agreements, even though this often leads to costly and ineffi... more Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing a prenuptial agreement. Partners which have high productivity in marital activities wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement, under specific circumstances. We also investigate conditions that make this contract incompleteness an optimal form of contracting and we briefly discuss the effects of enforceable and/or mandatory premarital agreements on the rate of divorce and on the social welfare. Finally, our model suggests that there is no major objection in making prenuptial agreements enforceable, but also that there are not good reasons to make them mandatory.

PLoS ONE, 2014

The economics models of reputation and quality in markets can be classified in three categories. ... more The economics models of reputation and quality in markets can be classified in three categories. (i) Pure hidden action, where only one type of seller is present who can provide goods of different quality. (ii) Pure hidden information, where sellers of different types have no control over product quality. (iii) Mixed frameworks, which include both hidden action and hidden information. In this paper we develop a pure hidden action model of reputation and Bertrand competition, where consumers and firms interact repeatedly in a market with free entry. The price of the good produced by the firms is contractible, whilst the quality is noncontractible, hence it is promised by the firms when a contract is signed. Consumers infer future quality from all available information, i.e., both from what they know about past quality and from current prices. According to early contributions, competition should make reputation unable to induce the production of high-quality goods. We provide a simple solution to this problem by showing that high quality levels are sustained as an outcome of a stationary symmetric equilibrium.

Knowledge spillovers and labor mobility in industrial clusters are interrelated phenomena. A firm... more Knowledge spillovers and labor mobility in industrial clusters are interrelated phenomena. A firm's knowledge is embodied in the entrepreneur and in the specialized workers. Knowledge can spill over from one firm to another through two channels: direct revelation from one entrepreneur to another and labor mobility. We show that, in equilibrium, an entrepreneur can disclose information to another in order

The Geneva Risk and Insurance Review, 2014

SSRN Electronic Journal, 2000

We propose a general formal structure for symmetric information delegation games that encompasses... more We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable

SSRN Electronic Journal, 2000

We study a game in which two competing sellers supplying experience goods of di¤erent quality can... more We study a game in which two competing sellers supplying experience goods of di¤erent quality can induce a perspective buyer into a bad purchase through (costly) deceptive advertising. We characterize the equilibrium set of the game and argue that an important class of these outcomes features pooling behavior at the pricing stage while requiring low quality sellers to air false claims about their product. These claims deceive the buyer and induce a bad purchase with positive probability. Although the low-quality product is purchased with positive probability in these equilibria, the buyer's (expected) utility can be higher than in a fully separating equilibrium. This result suggests that, surprisingly, deceptive practices may actually enhance competition. Finally, we characterize the optimal deterrence by a regulatory agency that seeks to punish deceptive practices. We show that consumer surplus maximization requires lower deterrence than social welfare maximization. The analysis is robust to various extensions.

We study the relationship between process and product innovations in vertically differentiated du... more We study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).

Journal of Institutional and Theoretical Economics ( …, 1989

... Probation has traditionally been viewed as a period during which the firm discovers something... more ... Probation has traditionally been viewed as a period during which the firm discovers something about a new hire's abilities. ... the firm would wish to hire the "bad" workers rather than the "good" workers and so the workers could simply be relabeled. ...

Journal of Labor Economics, 1987

Labor-market intermediaries play an important role in turnover in many labor markets. This paper ... more Labor-market intermediaries play an important role in turnover in many labor markets. This paper analyzes one class of such intermediaries, namely, search firms. The authors first model the hiring decision of the firm in both succession and replacement planning. They show that employers will, in equilibrium, use search firms to find new hires even where the search firms have no

Labor-market intermediaries play an important role in turnover in many labor markets. This paper ... more Labor-market intermediaries play an important role in turnover in many labor markets. This paper analyzes one class of such intermediaries, namely, search firms. The authors first model the hiring decision of the firm in both succession and replacement planning. They show that employers will, in equilibrium, use search firms to find new hires even where the search firms have no

Economia E Politica Industriale, 2007

Industrial Organization, Sep 14, 2005

ABSTRACT In this paper, we prove that two firms may prefer not to include a termination clause in... more ABSTRACT In this paper, we prove that two firms may prefer not to include a termination clause in their partnership contract, thus inducing a costly termination in case of failure of the joint project. This ex-post inefficiency induces partners to exert large levels of non-contractible efforts (investments) in order to decrease the probability of failure. Therefore, the absence of a termination clause works as a "discipline device" that mitigates the hold-up problem within the partnership. We show that writing a contract without a termination clause is a credible commitment even when partners can add such a clause in the contract in any moment of their relationship. Comparative statics analysis suggests that contracts lacking a termination clause are suited to alliances in R&D, when partners are not rivals or when they have strong technological complementarities.

In this paper we develop a model of product quality and firms' reputation. If quality is not veri... more In this paper we develop a model of product quality and firms' reputation. If quality is not verifiable and there is repeated interaction between firms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that competitive firms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. Positive profit are generated in equilibria characterized by the emergence of a social norm which prescribes a minimum quality level. Moreover, we demonstrate that more concentrated industry structures deliver better quality and higher social and consumer welfare. This finding should induce cautiousness in enhancing competition when product quality is at stake. We derive our results in the specific context of after-sales service quality provided by insurance companies. Yet, we argue that our analysis is of general applicability.

SSRN Electronic Journal, 2000

Both borrowers and lenders can be socially responsible (SR). Ethical banks commit to …nancing onl... more Both borrowers and lenders can be socially responsible (SR). Ethical banks commit to …nancing only ethical projects, which have social pro…tability but lower expected revenues than standard projects. Instead, no credible commitment exists for SR borrowers. The matching between SR borrowers and ethical banks reduces the frictions caused by moral hazard. However, when the type of the borrowers is not observable, then standard borrowers have incentives to invest in ethical projects pretending to be SR. We show that the separation of borrowers entails costs that are paid by SR entrepreneurs but are relatively low because standard lenders o¤er an outside option that relaxes the self-selection constraint of the borrowers. Technically, we solve a Contract Proposal Game where informed principals (borrowers) o¤er di¤erent menus of contracts to heterogeneous agents (banks). We show that market segmentation improves e¢ ciency and solves the problem of multiplicity of equilibria in Contract Proposal Games.

In this paper we develop a model of product quality and …rms' reputation. If quality is not v... more In this paper we develop a model of product quality and …rms' reputation. If quality is not veri…able and there is repeated interaction between …rms and consumers, we show that reputation emerges as a means of disciplining the former to deliver high quality. In order to that, we also prove that …rms can extract some rent in producing high quality, thus providing a solution to Stiglitz (1989) puzzle, alternative and complementary to Hörner's (2002) one. The result is genereated in equilibria which sustains minimum quality standard as the (equilibrium) outcome of a social norm. Moreover, we demonstrate that more concentrated industry structures deliver higher quality and social welfare. Hence, when quality is an issue, competition is not necessarily bene…cial for consumers in our setup. We derive our results in the speci…c context of after-sales service quality provided by insurance companies because we document, through an example, that providing high quality is particularly ...

SSRN Electronic Journal, 2000

This paper investigates banks' corporate social responsibility. The credit market is composed of ... more This paper investigates banks' corporate social responsibility. The credit market is composed of two sectors: one for standard and one for ethical projects. Since ethical banks are committed to investing in ethical projects, standard and ethical banks compete in the market for ethical projects. The latter have also a social profitability, but a lower expected revenue with respect to standard ones. If their expected revenue is not too low, ethical projects are undertaken by motivated borrowers. The latter obtain a benefit (a social responsibility premium) from accomplishing ethical projects in general and a premium for successful interaction when trading with ethical banks in the case the project is successful. If the expected profitability of ethical projects is sufficiently close to that of standard ones and/or the premium for successful interaction of motivated borrowers is sufficiently high, ethical banks are active, both sectors of the credit market exist and the whole market is fully segmented. This result holds true irrespective of the information structure: only moral hazard on the borrower side, moral hazard and screening on the borrower side. The optimal contract in our setup is always a debt contract. However, its precise form and welfare properties depend on the information structure. Jel classification: D86, G21, G30.

Research in Economics, 2000

We propose a general formal structure for symmetric information delegation games that encompasses... more We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non-separable utility. Secondly, we prove that the results are robust to the introduction of secret side-contracts, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

SSRN Electronic Journal, 2000

Many couples do not sign prenuptial agreements, even though this often leads to costly and ineffi... more Many couples do not sign prenuptial agreements, even though this often leads to costly and inefficient litigation in case of divorce. In this paper we show that strategic reasons may prevent agents from signing a prenuptial agreement. Partners which have high productivity in marital activities wish to signal their type by running the risk of a costly divorce. Hence this contract incompleteness arises as a screening device. Moreover, the threat of costly divorce is credible since the lack of an ex-ante agreement leads to a moral hazard problem within the couple, which induces partners to reject any ex-post amicable agreement, under specific circumstances. We also investigate conditions that make this contract incompleteness an optimal form of contracting and we briefly discuss the effects of enforceable and/or mandatory premarital agreements on the rate of divorce and on the social welfare. Finally, our model suggests that there is no major objection in making prenuptial agreements enforceable, but also that there are not good reasons to make them mandatory.

PLoS ONE, 2014

The economics models of reputation and quality in markets can be classified in three categories. ... more The economics models of reputation and quality in markets can be classified in three categories. (i) Pure hidden action, where only one type of seller is present who can provide goods of different quality. (ii) Pure hidden information, where sellers of different types have no control over product quality. (iii) Mixed frameworks, which include both hidden action and hidden information. In this paper we develop a pure hidden action model of reputation and Bertrand competition, where consumers and firms interact repeatedly in a market with free entry. The price of the good produced by the firms is contractible, whilst the quality is noncontractible, hence it is promised by the firms when a contract is signed. Consumers infer future quality from all available information, i.e., both from what they know about past quality and from current prices. According to early contributions, competition should make reputation unable to induce the production of high-quality goods. We provide a simple solution to this problem by showing that high quality levels are sustained as an outcome of a stationary symmetric equilibrium.

Knowledge spillovers and labor mobility in industrial clusters are interrelated phenomena. A firm... more Knowledge spillovers and labor mobility in industrial clusters are interrelated phenomena. A firm's knowledge is embodied in the entrepreneur and in the specialized workers. Knowledge can spill over from one firm to another through two channels: direct revelation from one entrepreneur to another and labor mobility. We show that, in equilibrium, an entrepreneur can disclose information to another in order

The Geneva Risk and Insurance Review, 2014

SSRN Electronic Journal, 2000

We propose a general formal structure for symmetric information delegation games that encompasses... more We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable

SSRN Electronic Journal, 2000

We study a game in which two competing sellers supplying experience goods of di¤erent quality can... more We study a game in which two competing sellers supplying experience goods of di¤erent quality can induce a perspective buyer into a bad purchase through (costly) deceptive advertising. We characterize the equilibrium set of the game and argue that an important class of these outcomes features pooling behavior at the pricing stage while requiring low quality sellers to air false claims about their product. These claims deceive the buyer and induce a bad purchase with positive probability. Although the low-quality product is purchased with positive probability in these equilibria, the buyer's (expected) utility can be higher than in a fully separating equilibrium. This result suggests that, surprisingly, deceptive practices may actually enhance competition. Finally, we characterize the optimal deterrence by a regulatory agency that seeks to punish deceptive practices. We show that consumer surplus maximization requires lower deterrence than social welfare maximization. The analysis is robust to various extensions.

We study the relationship between process and product innovations in vertically differentiated du... more We study the relationship between process and product innovations in vertically differentiated duopolies. A process innovation can lead two competing firms to improve the quality of their goods introducing a product innovation. In fact, a cost reducing innovation has two effects: it spurs production and it enhances price competition. The former effect induces both firms to increase quality. The latter encourages differentiation, inducing low quality firm to decrease it. Therefore, high quality firm always improves its quality, while the other may or may not. The prevailing effect depends on the nature of quality costs (fixed or variable).

Journal of Institutional and Theoretical Economics ( …, 1989

... Probation has traditionally been viewed as a period during which the firm discovers something... more ... Probation has traditionally been viewed as a period during which the firm discovers something about a new hire's abilities. ... the firm would wish to hire the "bad" workers rather than the "good" workers and so the workers could simply be relabeled. ...

Journal of Labor Economics, 1987

Labor-market intermediaries play an important role in turnover in many labor markets. This paper ... more Labor-market intermediaries play an important role in turnover in many labor markets. This paper analyzes one class of such intermediaries, namely, search firms. The authors first model the hiring decision of the firm in both succession and replacement planning. They show that employers will, in equilibrium, use search firms to find new hires even where the search firms have no