On Tariff Adjustment in a Principal Agent Game

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# On Tariff Adjustment in a Principal Agent Game - PowerPoint PPT Presentation

On Tariff Adjustment in a Principal Agent Game. Harri Ehtamo Kimmo Berg Mitri Kitti. Systems Analysis Laboratory Helsinki University of Technology www.sal.hut.fi. Principal-agent games. Seller-buyer price tariff Manager-worker wage contract Taxation Public good (Groves mechanism, 1973)

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On Tariff Adjustmentin a Principal Agent Game

Harri Ehtamo

Kimmo Berg

Mitri Kitti

Systems Analysis Laboratory

Helsinki University of Technology

www.sal.hut.fi

Principal-agent games

Manager-worker wage contract

Taxation

Public good (Groves mechanism, 1973)

Auctions

Bargaining

max ub(t(x), x) (IC)

V(x) - t(x) = 0 (IR)

x0

us (t, x) = t – c(x)

ub (t, x) = V(x) - t

Solution by a linear tariff: t = a + kx

V´(x) = k = c´(x)

V(x) = a + kx = t

Linear tariff: t = t + c´(x)(x - x)

The linear tariff:

us = const.

c(x)+d

V(x)

ub = const.

t

d

x

Use production cost for pricing:

t = c(x) + d nonlinear pricing

t = t + c´(x)(x - x) linear pricing

Incomplete information –high and low consumer

qHV(x), qLV(x); V(x) known; pH, pL known

Compute BN-equilibrium directly,

or userevelation principle

Here: VH, VL unknown =>

BR-dynamics

q2

q1 = r1(q2)

q21

q2 = r2(q1)

q1

q10

q12

Bayesian Nash equilibrium

Highest type first:

V´(qH,xH) = c´(xH)

Other types in descending order: Find xi

F[V´(qi,xi),V´(qi+1,xi),c´(xi)]=0 i = 0,...,H-1

Determining price levels

q0 first:

t0=V(q0,x0)

Other types:

Indifferent to the

previous bundle

ti

t0

quantities known

x0

xi

Start

quantities

prices

End

type

"take it or leave it"

Lowest

Highest

• Simple Adjustment rules with approximations