Effects of Incomplete Information: Partial Buyer Information, Optimal Risk Incentivization, and Use of Non-Monotonic Contracts

Abstract

This dissertation considers three problems related to the issue of asymmetric information. The first problem is that of increased information in markets with unknown quality. I show that an increase in information need not produce an increase in market efficiency, even if the volume of trade in the market increases. The second problem is the use of non-monotonic contracts. I show that subjects do not typically employ non-monotonic contracts when they are optimal, although they will more frequently if they know the agent receiving the contract is fully rational and profit-maximizing. The third problem is the use of relative performance evaluation in situations where agents make risky decisions. I show that relative performance evaluation is rarely better, and frequently worse, than other contracting structures.