Questions tagged [asymmetric-information]
The asymmetric-information tag has no usage guidance.
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Information asymmetry and market failure
Markets with information asymmetry frequently result in a loss of efficiency relative to perfect information, see e.g.; moral hazard.
Yet I have seen the claim
Information asymmetry isn't a market ...
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Banerjee and Duflo - Do Firms Want to Borrow More? - Theoretical model
I am reading Banerjee and Duflo's (2014) seminal paper on credit constraints faced by firms in India.
In their theoretical model (see page 11, namely figure 1), they show that, if firms are credit not ...
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Value of information in the Moral hazard in teams context
I have a few mathematical problems with the paper Moral hazard in teams 1982 by Bengt Holmstrom, especially in chapter 3. (sufficient statistic) page 330 following
The welfare problem can be stated as:...
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Definition of information structure in an incomplete information game
I try to understand the model in this paper, pages 48-49. (Bergemann, D., & Morris, S. (2019). Information design: A unified perspective. Journal of Economic Literature, 57(1), 44–95. https://doi....
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Asymmetric Information Problem
I am unclear on how to set up the expected values for both the principal and agent. I have the answer but no steps. Any help would be appreciated?
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In a standard labor market signaling game, which weak Perfect-Bayesian equilibria (PBE) are actually sequential equilibria?
In a standard labor market signaling game with two types, the only "sensible" equilibria are the least-cost separating equilibria; as such these are the equilibria that survive a standard ...
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Understanding How to Counter the Winner's Curse
In both popular level books on economics/rationality/etc., and videos of actual economics lectures, I keep running into the suggestion to bid in a common value auction as though victory is already ...
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What are some market-based solutions to the problem of information asymmetry posed by experience goods and credence goods?
I would like to know how the market, if left to itself (i.e. no government intervention allowed), would solve the problem of information asymmetry in experience goods as well as credence goods. What ...
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In games of Bayesian Persuasion, under what conditions is Receiver better off than under uninformative signals?
I've been working through a few Bayesian Persuasion (BP) models à la Kamenica and Gentzkow (2011), and a feature that seems to arise often is that commitment to a persuasion mechanism is Pareto ...
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Information Asymmetry in capital markets: EU ad-hoc announcements/8-K filings in other countries
In many countries, companies whose securities are traded on a stock exchange are subject to an ad-hoc disclosure requirement. This ad-hoc announcement publication duty refers to the obligation to ...
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The intuitive criterion
I have asked a similiar question before, but I would very much appreciate if someone would say if my reasoning in this particular case is correct.
Consider the down below:
For part a) I have found ...
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How to understand the intuitive criterion
I am studying for my exam in MicroEconomics 2 which involves game theory and I have trouble with understanding the intuitive criterion and how to use it. Consider the down below signalling game.
...
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Walsh, Monetary Policy Book, Page 329....How come lender's return in case of default is that?
I was trying to understand the model of credit on page 328 of Carl Walsh's Monetary Policy and Theory Book.
"Loans are, however, characterized by more than just their interest rate. For example, ...
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Signalling in a moral hazard contract with informed principals (that know their own type before contracting)
I was studying Laffont & Martimort textbook for a paper, but their section on moral hazard contract with informed principals assumes that the principal only knows his own type after contracting.
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Exchange Houses game - Bayesian Game
Can anyone help me understand how to solve this type of asymmetric information Bayesian game?
So the game is a different version of the Tadelis 'trading house games'. It involves 2 players
that each ...
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How to find $\phi$, that denotes the correlation of signals among informed traders?
Since I do not have an answer on Quantitative Finance in my question I cross-post here the problem to tag some other categories
The following assumptions are part of the paper of Back, Chao and ...
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Adverse Selection: Positive Selection of Worker Types (Mas-Collel)
I'm reviewing some question from Mas-Collel and I am stuck on a chapter 13 question related to adverse selection.
Consider a model of positive selection in which there are workers of two possible ...
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Some questions about Kyle's model in Continuous Auctions and Insider Trading (1985)
I was trying to understand Kyle'e Theorem 1 in page $1319$ in Continuous Auctions and Insider Trading
in 1985. As we can see by the proof, this factor $\beta=\frac{1}{2\lambda}$ refers to the ...
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Pooling equilibrium in akerlof's lemon market with certification cost
Consider a market for 300 used cars where 1/3 of all cars are good quality cars and the rest are bad quality cars. All these cars are owned by (potential) sellers to begin with and each seller owns ...
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Informed traders do know the cross section of the privately known signal between each other
I am having the following setup of privately known signals and I am trying to understand an assumption. Here, I quote the setup.
Consider two agents idexed by $i=\{1,2\}$ and each one observes some ...
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Signalling Game, Multiple Signals
I am solving a three-stage game in a supply chain with one buyer and one supplier. The supplier has private information on its production capacity. The supplier also has the option to sell to the ...
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Signalling game with multiple signal [duplicate]
I am solving a signaling game where the manufacturer has private information about its production capacity. It can signal it using the wholesale price or limiting the order quantity of the buyer. Have ...
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Signalling Game
In the signaling game, we have two or more types that have distinct distribution.
I wonder did you come across any signaling game where the types have continuous distribution?
I am not sure whether ...
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Some basic questions on infromation asymmetry
How does asymmetric information and bid-ask spread are connected? For instance, economic theory tells us that, the more the problem of information asymmetry, the higher the spread is. What is the ...
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Information asymmetry modeling
Is there any cook book, in finance, for models in information asymmetry, so as to make some practice?
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What is the implicaiton of agent risk neutrality in moral hazard?
I heard that risk-neutrality of agent in moral hazard imply that the action associated with first-best and the one associated with second-best will be the same. Is it true and why is it so?
Are there ...
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What does "steep incentive contract" mean in the context of adverse selection?
This term was mentioned in a slide and when I looked online, the only thing which I could find talking about this is this paper.
For example,in the cost-plus-incentive contract
$$x(T, c) = a(T) - a'...
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What does commitment in adverse selection mean?
In this slide deck, p15. it says
"The revelation principle requires that the principal can fully commit to the terms of the contract. If this is not the case, an indirect mechanism, which allows for ...
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Examples of firms having private information about negative event
as the title says, I am searching for examples where a firm incurs a negative event, for instance, a stockout, a supply chain glitch or investments that went wrong. In the best case the firm was in ...
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Is Bayes correlated equilibrium relevant for dynamic games?
Consider the following classification of solution concepts
...
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How far must one reason up the belief hierarchy?
In games of imperfect information, one must reason about the belief on the state of nature, the beliefs of other player's beliefs of their beliefs, and so on. This is referred to as the belief ...
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Robust asymmetric information?
Bergeman and Morris (2014) explain how the concept of Bayesian Correlated equilibrium contains all the robust predictions in games of incomplete information. In particular, their question is what are ...
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Definition of Bayesian Nash equilibrium
I have a basic doubt on the definition of Bayesian Nash equilibrium.
Consider the following game:
1) $N$ players.
2) Each player $i$ has a type, assigned by nature and denoted by $\epsilon_i$.
...
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Insurance and Hirshleifer effect
I am trying to understand the statmement that 'public information kills insurance opportunity' -- referred to as Hirshleifer effect. Does it (in general) lead to some undesirable outcomes? Could you ...
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Market for lemons derivation
Akerlof's 1970 paper models the utility of two trading groups as
$$
U_1 = M + \sum_{i=1}^n x_i \\
U_2 = M + \sum_{i=1}^n \frac{3}{2} x_i
$$
where $M$ is the consumption of good other than cars, $x_i$ ...
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Asymmetric information assumption
This question isn't about asymmetric information per se but rather one of the assumptions. Consider a market for second hand cars; there are lemons (low-quality cars) and plums (high-quality cars).
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Looking for a term that explains market participants that lie about their participation to gain access to said market
I'm Looking for a term that explains the behavior of a market participants that will lie or exaggerate how much or what they offer in order to gain access to a market that would otherwise be ...
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Common knowledge in model formulation and solution
Economics models usually assume that the structure of the economy is common knowledge among agents.
Mathematically, an event is common knowledge if it lies in the meet of all agents' information ...
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Recent economics theories that involve differential topology?
The original development of general equilibrium theories involved differential topology.
I wonder if there are any recently developed theories, in any field of economic theories, that utilize ...
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What is one dimensional, ordered type?
I am reading papers about moral hazard. What is one dimensional, ordered type $\theta\in\Theta$?
What is one dimensional, not ordered type $\theta\in\Theta$?
Could you please give an example?
...
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Literature request: Any articles on the signalling theory / game theory / asymmetric information of the firms' recruiting process?
I'd like to read more about the recruiting process of firms. Signalling theory and game theory can be a useful tool to better understand this phenomena.
For example:
Applicants, who ask for higher ...
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What are some applications of Akerlof's 'lemons' in goods and services markets?
How can the idea of Akerlof's 'lemons' be applied to goods and services markets (that doesn't include second-hand cars)?
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Can lying be disincentivized without serious curtailments of free speech?
In the new age of Alternate Facts, one might argue that many actors personally benefit hugely from lying, at the expense of other sectors of society.
Economically speaking you might argue that this is ...
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Equilibria in Signaling and Screening
I am now studying the Spence's job market model using both signaling and screening.
It turns out that, when a worker's reservation value = 0 (she can get 0 if she does not get employed), then both ...
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Moral hazard with linear effort and two possible outcomes
Suppose you have a risk averse principal and a risk averse agent with utility functions $v(q_i - w_i)$ and $u(w_i)$, respectively, where $i = \{H,L\}$, and $q$ is output and $w$ is the wage. The ...
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difference between screening game and moral hazard game
What is the difference between screening game and moral hazard game?
I know that in screening game, TYPE is not known by the principal, while in moral hazard game, EFFORT is not observed by the ...
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LEN-Model equivalency
Starting position is a principal-agent-model with incomplete information (moral hazard) and the following properties:
Agent utility: $u(z)=-e^{(-r_az)}$
Principal utility: $B(z)=-e^{(-r_pz)}$
Effort ...
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How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium?
How does Joseph Stiglitz and Greenwald explain why markets with imperfect information fail to have a pareto efficient equilibrium? What premises do they use to come to that conclusion?
For example, ...
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Evidence that open source production processes increase efficiency and/or consumer surplus?
Is there peer reviewed evidence that open source production processes increase efficiency and/or consumer surplus? It seems that the first theorem of welfare economics requires complete markets which ...
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Which economic game theory model is most similar to poker?
Propeties the model should have:
Well motivated: the game is actually is a plausible model of a real world situation. Maybe with some parameters learnt from data.
Complete: it is a complete game ...
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