Announcements

ECONOMICS SEMINAR - Mustafa Došan

Author: CASE
Time: 13:00
Location: CASE 127

KOC UNIVERSITY

FACULTY OF ADMINISTRATIVE SCIENCES AND ECONOMICS

ECONOMICS SEMINAR

MONDAY ,20 FEBRUARY ,2017

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Speaker  :  Mustafa Došan- University of Pennsylvania

Title        : Dynamic Incentives for Self-Monitoring

Date        : 20 February 2017 -MONDAY

Time       : 13:00-14:30

Place      : CAS 127

Abstract:  This paper studies a dynamic information acquisition problem within a regulation framework. Each period, the agent (he) would like to undertake a new project, which may cause social harm. He can acquire costly information about the type of the projects by self-monitoring, but the efforts spent on self-monitoring are not observed. There are no monetary transfers; instead, the regulator uses future regulatory behavior for incentive provision. When the regulator has full commitment power, the regulator can induce costly self-monitoring and revelation of ''bad news'' in an initial phase of the optimal policy. During this phase, the agent is promised a higher continuation utility (in the form of future regulatory approval) each time he discloses bad news; otherwise, he is downgraded to a lower continuation utility. If the regulator internalizes self-monitoring costs, the agent is either blacklisted or whitelisted in the long run. When she does not internalize the cost, blacklisting is replaced by a temporary probation state, and whitelisting is the unique long run outcome. This result suggests that whitelisting, which may appear to be a form of regulatory capture, may instead be a consequence of optimal policy. When the regulator has limited commitment power, in that she cannot commit to a policy with a negative continuation value, the results change remarkably. If the expected social harm of a project is higher than its economic benefits, whitelisting disappears. In this case, if the regulator does not internalize the self-monitoring costs, the policy never reaches a stable outcome and fluctuates over time.