# Tag Info

8

The problem you are facing has probably both: Moral Hazard and Adverse Selection. We have hidden action by the doctor (you can't really observe his level of effort during the surgery), therefore we have Moral Hazard. Additionally, you (probably) can not know beforehand of the doctor is a good or bad doctor, so his type (good or bad) is unknown. So, there ...

5

Bayesian Nash equilibrium is a set of strategies $\{\sigma_i\}$ one for each player and some beliefs $\{\mu_i\}$ also one for each player such that $\sigma_i$ is a best response for player $i$ given his belief, $\mu_i$, and the beliefs are Bayesian for all players, given their information. Each strategy $\sigma_i$ is a function from the set of types to a (...

5

Judging from the reference you provide, this refers to whether the set $\Theta$ is ordered or not. For example, natural numbers or the alphabet are ordered sets. In the context of moral hazard problems, examples could be effort, or ability. Since this is a numerical variable, it is an ordered set. In the paper you mention, the phrase "one dimensional, ...

5

In PO, you want all types with opportunity cost $r(\theta)\leq \theta$ to trade, because the firm gets more productivity than the worker has to give up on home productivity ("opportunity cost"). By your assumptions $r(\theta_H) < \theta_H$ and $r(\theta_L)>\theta_L$ such that in PO, L shall stay at home and H shall work. However, you need to ...

5

A degenerate joint normal is distribution is one in which you cannot find a PDF for the distribution. They assume you can. (The covariance matrix is invertible). Let $f(s_1,s_2\dots,s_n,v)$ be the distribution. If I was to exchange $s_1$ for $s_2$, $f(s_2,s_1,\dots,s_n,v) = f(s_1,s_2\dots,s_n,v)$, the distribution does not change. And you can exchange as ...

5

I'm not sure what exactly you're looking for, but here are some wild guesses: Bolton and Dewatripont (2005) Contract Theory, MIT Press. [Probably Chapters 5 and 6] Maskin and Tirole (1990) "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values", Econometrica 58: 379-409. Maskin and Tirole (1992) "The ...

4

If free speech is narrowly defined to only include true claims, true and false claims can be perfectly distinguished, the harm of false claims perfectly measured, and all claims are either true or false, then false claims are really no different than other forms of pollution. A standard pigovian tax should internalize the externalities and encourage the ...

4

There is a large economic literature on intellectual property rights. However, the issue seems far from settled on what even the optimal duration for patents are. Note that open source is even a step further than a 0 day patent duration. A strong case for your view would probably be found in Boldrin/Levine: http://levine.sscnet.ucla.edu/general/intellectual/...

4

I don't know if you refer to the extensive margin (some borrowers not being able to get credit) or to the intensive margin (one borrower not being able to get as much credit as (s)he wants). If you are referring to the former, one of the theoretical papers for borrowing constraints on markets with asymmetric information is the following one: Stiglitz and ...

4

This definitely is not a complete answer. But I can imagine the case of increasing returns to scale. Or natural entry barrier. Increasing returns to scale is often discussed in international trade theory, but it can be also relevant here. Example: think about commercial aircraft industry, dominated by Boeing and Airbus. Aircraft industry is seen as ...

4

The main reason differential topology had some success in economics is that supplies powerful methods to show that something holds generically, mainly Sard's theorem and the transversality theorem. Some of these methods have been generalized to contexts without differentiability, see for example the paper "A Prevalent Transversality Theorem for Lipschitz ...

4

Well, I will try to answer 4. We know that the asset liquidation value $\tilde{v}$ is an affine function of the singals thus we have that $$\tilde{v}=\bar{v}+\sum_{i=1}^{N}\tilde{s}^i\Rightarrow \tilde{v}=\bar{v}+N\underbrace{\frac{\sum_{i=1}^{N}\tilde{s}^i}{N}}_{\tilde{s}^i}\Rightarrow\tilde{v}=\bar{v}+N\tilde{s}^i$$ where the $\tilde{s}^i$ is the average ...

4

Contracting with an informed principal is not so easy because the agent can learn about the principal's type from the kind of contract offered. This introduces signaling, which can quickly get messy. The other answer already mentioned the three seminal papers in that literature. I think Myerson's paper fits best for your goal to understand moral hazard with ...

3

It seems to me based on the 2019 JEL review of the same authors that they had published more-or-less what you ask about in a 2015 paper about monopolies and price discrimination (as an application of their BCE theory); see section 5 (and 5.1 in particular) in the 2019 paper. Here the relevant information is the monopolist's knowledge of the consumers ...

3

A type-1 seller will trade her car only if the car's measure of quality $x$ (privately known) is less than or equal to the average car quality in the market, $\mu$. $x \in [0,2]$ since no buyer values a car more than $2$ and a car cannot be sold for less than $0$. To find the probability of a car having quality less than or equal to $\mu$, we consider the ...

3

In this setting, both buyers and sellers are usually assumed to be risk neutral. So adding an additional layer of uncertainty over seller's valuation is not really going to change the model's prediction in any "qualitative" way, in the sense that market unraveling (perhaps only partial in this case) is still an inevitable outcome, even though the exact ...

3

Two remarks: Firstly, there is some research on subjective wellbeing, where a common theme is that people's happiness seems to depend more on a relative comparison of their material wellbeing to that of those around them than it does on their absolute level of material wellbeing. If two people share salary information then it will generally be true that one ...

3

3

I think it is the chain rule. Let $w'(w) = w$, since we are looking for revealing mechanisms. The condition $$\frac{\partial V}{\partial w'} (w'(w),w) = 0$$ holds for all $w$ because the mechanism is revealing for all types. As the (not partial) differentiate w.r.t. $w$ of the right hand side is 0, the same goes for the differentiate of the left hand size, ...

3

Why are you doing $\frac{\partial^2 V}{\partial w'^2}$ ? Even if it is said that $w^{'}=w$ at the optimum, it should be taken different when you differentiate it for first order conditions. So, you differentiate it according to $w^{'}$ and $w$.

3

It is true that when both principal and agent are risk neutral, the first best can be obtained despite asymmetric information. You should refer to a textbook, such as MWG (ch.14), for the technical details of such models. I'll give an intuitive explanation here. The intuition of the result lies in optimal risk sharing between the principal and the agent. ...

3

The trick with Bayesian games is to recognize that the players learn in equilibrium from the strategies of the other players. That is, you cannot simply take the unconditional expectation of $v_i$ when calculating strategies. For example, you may be tempted to say that both players decide to trade whenever, $v_i\leq E(\alpha v_j-c)=0.5\alpha-c$ and $v_j\leq ... 2 I don't recognize your moral hazard example, but there are a couple situations where a monopoly is desirable. A monopoly is desirable when the cost of entry is close to zero or good substitutes are available, and the economies of scale are always increasing. One might argue that Amazon.com, Google, and other internet companies are cases of this. The ... 2 I haven't seen the model you mention (so this answer should be taken with a grain of salt!) but, intuitively, I guess the story would go something like this: Suppose a firm is selling insurance. If price is very low then selling is not very profitable so supply is low. Higher prices cause selling insurance to become more profitable so supply increases. If ... 2 The difference between signaling and screening stems from the fundamental difference in bargaining power- who offers the contract for which her utility is the highest. While in screening the uniformed party proposes the contracts, in signaling it is the informed party. For your general conjecture, I refer to Stiglitz and Weiss (1990): "Sorting Out the ... 2 It sounds like you have a background in game theory. Here is a Game Theory text available for free through RAND if you (or anyone else) wants a refreasher: http://www.rand.org/pubs/commercial_books/CB113-1.html Below are some articles from which you should be able to draw information. Most are not specific to recruiting, but the underlying theory is ... 2 Banks that were not bailed out in the 2008 recession and went insolvent i.e. Washington Mutual, IndyMac, Franklin Bank, First National Bank of Nevada e.t.c. You could also look into firms that were sanctioned by the Securities and Exchange Commission (SEC). I do not know the names of the top of my head but a simple google search should suffice. 2 Two points. Common knowledge is defined by Aumann in terms of partitions, not$\sigma$-algebras. There is generally no natural correspondence between these. The grand state space is trivially common knowledge. So however you conceive of the relevant states, something that holds everywhere, such as the structure of the model, is common knowledge even if ... 2 From the perspective of the buyer, he is receiving 1 two-dimensional signal. After observing a combination of the wholesale price and limit order, the buyer can update their beliefs about the supplier's capacity using Bayes rule. Let me show it: Let$c\in [0,1]\$ be the supplier's capacity (just for simplicity of notation I assumed it is in the interval from ...

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