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Questions tagged [asymmetric-information]

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24 views

Does the efficient market hypothesis create the following paradox?

The efficient market hypothesis states that it's impossible to beat the market because the market is most likely more rational, and more knowledgeable, than you are. This creates a problem for someone ...
3
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1answer
122 views

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, $x_i$ ...
2
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1answer
78 views

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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0answers
79 views

Why the market clearing process depends on assumption of perfect and costless information?

Can anyone give me an intuitive explanation why it is often argued that market cannot clear (i.e. supply and demand of something does not match and there is no equilibrium, so the market gets mired in ...
0
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0answers
90 views

What is the difference between the leader and the follower in Stackelberg's model of duopoly?

There is explanation that I was given (maybe I misunderstood it), but it doesn't look plausible: The difference is asymmetrical information, namely that one firm knows the reaction function of its ...
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0answers
19 views

Unemployment Insurance: Comparing Effort Levels in NUI, FB, and SB

Given an agent that is maximizing: $\mathop{\max}\limits_e$ $eu(w-\tau)+(1-e)u(b)-\psi(e)$ Where $e\in[0,1]$ is the probability of being employed given som effort level. $\psi(e)$ is convex and $u(\...
0
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3answers
101 views

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 ...
3
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0answers
38 views

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 ...
2
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1answer
276 views

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 ...
1
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1answer
58 views

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? ...
1
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2answers
60 views

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 ...
0
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1answer
85 views

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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1answer
110 views

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 ...
5
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1answer
272 views

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 ...
2
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1answer
129 views

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 ...
2
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1answer
195 views

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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0answers
255 views

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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0answers
236 views

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, ...
5
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1answer
59 views

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 ...
1
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0answers
322 views

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 ...
6
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3answers
128 views

Is there an economic reason why employees don't share salary information with each other?

In Western society, one's salary is often a taboo topic and people tend to not tell other people what they earn. In China by contrast, I have been told that asking one's salary is fairly normal ...
1
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1answer
76 views

Is the lack of information on customer behaviour good for banks?

Discussing chapter 18 on Microeconomic Theory Basic Principles and Extensions - Nicholson and Snyder book - regarding Asymmetric information a student raise an interesting point of view regarding the ...
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3answers
824 views

Does the demand for bad quality products increase when there is information asymmetry?

Situation 1 In a situation where we have two markets one with good quality products and the other with bad quality products, if we are in a situation where the buyer knows which is the good product ...
4
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1answer
87 views

What is the classic paper that derives borrowing constraints from asymmetric information?

In reading the Wikipedia article about the "financial accelerator," I read this Firms’ ability to borrow depends essentially on the market value of their net worth. The reason for this is the ...
5
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1answer
368 views

Moral Hazard or Adverse Selection?

I pay the doctor before he conducts the surgery. Can anyone explain to me whether this statement shows moral hazard or adverse selection?
3
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2answers
80 views

Derivation on p.99 of Salanie, The Economics of Taxation (2nd edition)

Starting on p. 98 of Salanie's "The Economic of Taxation" (2nd edition), it explains To probe it more rigorously, let us define the utility of taxpayer $w$ when he claims to have productivity $w'$: ...
5
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4answers
473 views

The Backward Bending Supply Curve, Asymmetric Information, and Monopoly

This recent question about when monopoly is undesirable made me curious about when monopoly is actually desirable? I was reminded of an argument for the efficiency of monopolies when moral hazard ...