Questions tagged [asymmetric-information]
The asymmetric-information tag has no usage guidance.
45
questions
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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, ...
3
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2answers
35 views
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.
...
1
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1answer
92 views
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 ...
0
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2answers
81 views
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 ...
4
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1answer
50 views
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 ...
3
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0answers
86 views
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 ...
2
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1answer
125 views
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 ...
2
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1answer
53 views
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 ...
2
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1answer
38 views
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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0answers
27 views
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 ...
0
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0answers
40 views
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 ...
0
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1answer
79 views
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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32 views
Inforamtion asymmetry modeling
Is there any cook book, in finance, for models in information asymmetry, so as to make some practice?
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2answers
66 views
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 ...
2
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1answer
89 views
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'...
4
votes
2answers
77 views
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 ...
0
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1answer
49 views
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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0answers
40 views
Is Bayes correlated equilibrium relevant for dynamic games?
Consider the following classification of solution concepts
...
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0answers
34 views
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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1answer
105 views
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 ...
4
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1answer
359 views
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$.
...
3
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1answer
327 views
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 ...
5
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1answer
333 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
251 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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3answers
116 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 ...
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1answer
88 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
616 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 ...
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1answer
88 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?
...
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2answers
84 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
159 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
143 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 ...
4
votes
1answer
511 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
votes
1answer
160 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 ...
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1answer
312 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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votes
1answer
438 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 ...
0
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0answers
318 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
71 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 ...
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0answers
387 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 ...
5
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3answers
145 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 ...
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1answer
80 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
2k 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
104 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
526 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
86 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
737 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 ...
