Download or read book Essays on Dynamic Contracting with Present Bias written by Tongyuan Shen and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies dynamic contracting models with present bias. The present bias is commonly modeled in two ways, dual-self present bias and hyperbolic discounting present bias. Dual-self present bias assumes that the agent consists of one long-run self and a sequence of short-run selves. The short-run self only cares about the instantaneous utility and performs an action every period as the doer. The long-run self may implement some self-control techniques and make the short-run self choose his favorable action at some cost. Hyperbolic discounting present bias introduces one additional present bias discount factor, [Lambda], into the standard time-discounted utility function. In the first chapter, a monopolistic seller offers to rent one unit of good to a dual-self present-biased buyer in each period. The buyer’s short-run self decides whether to accept the contract and rent the good. The buyer’s long-run self determines his information acquisition strategy, which is the probability of learning how much he values the good (i.e. his type) privately. The short-run self does not take the future equilibrium into consideration and asks for no information rent to reveal his type. In response, the long-run self restricts the information acquisition in the early period and acquires additional information in the later period. Such gradual information acquisition result also leads to a decreasing trend in prices. In the second chapter, a monopolistic seller offers to rent one unit of good to a hyperbolic-discounting present-biased buyer with private information about his type, that is, whether his per period value of consumption is H or L. The buyer naively believes that he would be less present-biased in the future. In the three-period version of my model, the period-1 buyer falsely predicts his period-2 present equilibrium. To satisfy the H type buyer’s incentive compatibility constraint based on his misprediction, in the first type of semi-separating equilibrium, the seller pays a higher information rent and induces less early information acquisition in period 1, benefiting the H type buyer. In the second type of semi-separating equilibrium, the H type buyer who has not rented the good in period 1 benefits from the unexpected separating equilibrium in period 2. The naivete is no longer a curse to the buyer as the agent. In the third chapter, a dual-self present-biased entrepreneur operates a two-stage project in a continuous-time framework. At each time point, the entrepreneur’s short-run self chooses whether to work, shirk or terminate the project. Working is costly but may bring a breakthrough in the current stage. After making the first breakthrough in stage 1, the project enters stage 2. After making the second breakthrough in stage 2, the entrepreneur gains the final reward. Without any intervention, the short-run self in the early stage of the project has no incentive to work; thus, the project is never finished. The long-run self signs a staged financing contract with an outside investor as the self-control technique. When intermediate progress is tangible, an equity-form contract induces the short-run self to choose the same action that the long-run would have chosen. When intermediate progress is intangible, a valuation-adjustment mechanism implements the long-run self’s optimal equilibrium.