Jul 2026· Studies in Nonlinear Dynamics & Econometrics· 0 citations· 20 references
Abstract
Abstract We study a dynamic contracting problem in which a principal designs an incentive contract when the agent’s bargaining weight is a state variable that evolves with realized performance. We extend a recursive bargaining-drift framework by allowing firm output to follow a bounded Pareto distribution, which generates tractable fat-tailed risk while preserving the monotone likelihood ratio property and related regularity conditions used to implement incentive compatibility. The optimal contract is characterized numerically via value function iteration on the bargaining state, and we quantify how tail thickness and drift intensity reshape the policy rules for compensation, continuation values, and the implied degree of insurance. Fat-tailed output increases state dependence and amplifies persistence in bargaining power, producing stronger feedback from extreme outcomes into future contract terms. In the data, we estimate a reduced-form analogue of the bargaining-drift law of motion using quantile regressions on U.S. executive compensation and show that the estimated responsiveness of incentive-heavy pay varies systematically across the compensation distribution in ways consistent with the model’s state-dependent predictions.
We study peer-to-peer (P2P) insurance contracting between a risk-averse P2P reinsurer and multiple risk-averse peers in an asymmetric Nash-bargaining framework, where all agents seek to improve expected utility relative to their disagreement points. Consistent with the expected value premium principle, we impose a price-fairness condition requiring each peer's expected contribution to be based on a common loading applied to the peer's expected loss. To justify the bargaining formulation relative to a standard fixed-weight weighted-sum optimization problem, we provide an axiomatic characterization showing that the Nash bargaining solution satisfies properties well suited to voluntary P2P insurance contracting in small pools. We establish the existence and uniqueness of the optimal contract and derive first-order characterizations for the full-, partial-, and zero-reinsurance regimes. To address subgroup formation, we develop computationally tractable sufficient conditions that rule out viable coalitional deviations, both with and without price fairness. Our numerical study investigates the impact of price fairness and pool size on the optimal contract and agents'welfare. Price fairness reduces dispersion in risk allocations and certainty-equivalent loadings among peers. Regarding pool size, welfare need not increase monotonically, highlighting that risk-pool expansion depends not only on diversification but also on the evolution of bargaining power.
T. Boonen, W. Chong, Kenneth Tsz Hin Ng et al.· 0 citations
Intent-based decentralized exchanges delegate execution to a competitive class of agents -- solvers -- whose behavior is shaped by protocol-designed reward rules. We measure how a change to those rules reshapes who captures value, using a governance-dated natural experiment: CoW Protocol CIP-74 (effective 8 December 2025), which replaced a fixed solver-reward cap with one tied to protocol revenue and introduced an ad-valorem volume fee. Using daily solver shares over 395 days, we find the reform reallocated trading value by order size. The robust signature is a monotone size gradient: concentration fell in small orders and rose in large ones across four order-value buckets (Spearman rho=1.00, exact permutation p=0.042) -- a pattern that survives dropping the single largest solver. Aggregate concentration also rose (volume-weighted HHI 0.176->0.241), substantially carried by the incumbent top solver. By trade count the market de-concentrated (count-HHI -0.060). A simple solver-economics model rationalizes the pattern: an ad-valorem fee is competitively neutral, while a revenue-linked reward cap raises the marginal payoff to inventory-rich solvers on large orders -- consistent with restricted-entry predictions (Chitra et al. 2024). A control venue (UniswapX) shows no matching break. We detect no change in average execution quality (~7 bps bound). A triple-difference exploiting a February 2026 fee cut is directionally consistent but underpowered. Reward design measurably reallocates who captures value in intent markets, without moving the average price users receive.
This paper develops a stylized continuous-time framework for open-end fund investment in which state-dependent fund flows, passive benchmarking, and strategic manager–investor interaction are modeled jointly. The contribution is not a new Stackelberg solution concept; rather, it is the economic mechanism created by combining a scale-dependent value-added objective with endogenous subscription and redemption jumps. Fund flows are represented by marked compound Poisson processes, and the manager acts as leader while a representative investor chooses participation as a follower. Under bounded controls, bounded Lipschitz jump intensities, admissible jump-size distributions, and strict-concavity conditions, we establish positivity and moment bounds for the state process, provide sufficient conditions for the existence and uniqueness of a Markov feedback Stackelberg equilibrium, and state a jump-diffusion verification theorem. A transparent local feedback approximation and Monte Carlo robustness exercise illustrate how redemption pressure, subscription intensity, jump-size dispersion, benchmark volatility, and risk aversion affect active exposure and terminal fund wealth. The results show that stronger redemption pressure and benchmark-relative risk reduce active positions, whereas subscription incentives increase risk-taking only when expected value added compensates for flow-induced dilution. Within its stated assumptions, the model provides a tractable theoretical benchmark rather than an empirically validated structural model.
Yin Li, Yazhi Song, Can Zhou et al.· Mathematics· 0 citations
This paper studies general equilibrium when households and firms choose price-contingent schedules and market clearing determines prices. A unilateral schedule change therefore changes both an agent's realized allocation and the price at which it is evaluated. We call the resulting outcome a schedule equilibrium. The central object is the response of the clearing price to an agent's own schedule. This residual price response enters the household and firm first-order conditions, provides the strategic component of markups, and links conduct to observable equilibrium variation. We give conditions for existence, derive a trembling-hand refinement, and show how competitive, Cournot, and supply-function models arise as special cases. Applications to monopoly and vertical market power show how general-equilibrium feedback can alter familiar partial-equilibrium conclusions. We then allow firm mass, ownership, and technology to be endogenous. Free entry need not be efficient because entrants do not internalize their effect on the rest of the economy. Households choose capitalization and thereby ownership and firm creation, while investment moves active firms through production-function space. The same price-response mechanism therefore links market power, entry, ownership, and technological change within a common general-equilibrium framework.
We study optimal investment for insurers managing participating (profit-sharing) contracts under probability distortion and probability benchmark (aspiration) constraints. The problem combines three theoretical complexities: (i) nonconcave effective utilities induced by embedded guarantees and surplus-sharing rules, (ii) probability weighting capturing behavioral aspects of long-horizon decisions, and (iii) aspiration-type constraints formalizing solvency requirements. Using quantile formulations and concavification techniques, we derive explicit closed-form solutions for optimal terminal wealth and trading strategies in both complete and incomplete Black-Scholes markets. Our utility class accommodates the piecewise hyperbolic absolute risk aversion (PHARA) family and covers nonconcavities arising naturally in insurance contexts. The framework reveals how probability distortion weakens lock-in behavior and induces time inconsistency: under inverse S-shaped distortions, insurers overestimate upside probabilities and increase risky investment relative to undistorted benchmarks. Asymptotic analysis and numerical illustrations demonstrate regime switches in optimal policies driven by regulatory thresholds and capital constraints. Our results extend the hope-fear-aspirations framework of He and Zhou (2016) and provide practical insights for managing insurance balance sheets under behavioral preferences and solvency constraints.
Using Chinese A-share listed firms from 2005 to 2024, this paper systematically identifies whether equity incentives shape executive risk preferences and further affect firms' innovation orientation. To mitigate the negative weights and "bad comparison" problem of two-way fixed effects estimators under staggered adoption, this paper introduces cohort-robust estimators, randomization inference, two-way clustered standard errors, firm-block bootstrap mediation tests, and dose-response curves in addition to conventional event studies. The main findings are as follows. First, the implementation of equity incentives significantly increases executive risk preferences; in the cohort-robust event study, pre-treatment trends are flat and post-treatment effects increase monotonically. Second, the positive effect on innovation orientation is highly fragile: although the static model yields a significantly positive estimate, the Sun-Abraham estimates decline after treatment and even become significantly negative, suggesting that the positive coefficient from conventional TWFE is mainly driven by bias from staggered treatment. Third, the stimulated risk preference is consistently translated into real R&D investment, but not into innovation discourse in annual reports. Fourth, incentive intensity exhibits an inverted U-shaped relationship with both risk preference and innovation orientation. Accordingly, this paper argues that the policy value of equity incentives lies in channeling induced risk taking into real R&D investment and long-term value creation through moderate intensity, longer contract duration, and innovation-oriented performance clauses.
Mingkai Li· Advances in Economics, Manag...· 0 citations