# 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, ...

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

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

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 ...

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

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

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 ...

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

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 ...

2

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

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

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 ...

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

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 ...

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 ...

1

From Bolton and Dewatripont Contract Theory (2005, p.135): "In the absence of risk aversion on the part of the agent and no wealth constraints, the first best can be achieved by letting the agent "buy" the output from the principal." This quote is in the context of a simple two outcome model.

1

What about a meme agent? (e.g. an agent mimics the qualities of another agent to "fool" regulators, competitors, consumers.)

1

There is the famous 1973 "Job Market Signalling" paper by Michael Spence.

1

Health insurance. If an insurance company must charge a single premium because they cannot distinguish between low risk and high risk individuals, they will charge a premium based on average risk. As a result the proportion of high risk individuals in the pool of insured individuals increases, whilst the proportion of low risk individuals decreases (healthy ...

1

principal: $\max_{w_h,w_l,e}p(e)v(q_h-w_h)+(1-p(e))v(q_l-w_l)$ subject to (IR) $~~~~~p(e)u(w_h-c(e))+(1-p(e))u(w_l-c(e))\geq \bar u$ (IC)$~~~~~~e\in arg\max_{\tilde e}p(e)u(w_h-c(e))+(1-p(e))u(w_l-c(e))$ Replace the IC with the FOC approach: (IC'))$~~~~~~p'(e)u(w_h-c(e))+p(e)u'(w_h-c(e))(-c'(e))-p'(e)u(w_l-c(e))+(1-p(e))u'(w_l-c(e))(-c'(e))=0$ ...

1

Moral hazard models feature agents' hidden actions (or these actions are not contractible). For example, a manager's contract cannot determine a wage contingent on the manager's effort, only contingent on other observable outcomes such as "success" / "no success" of a project. The next two classes of models assume that actions are observable/contractible, ...

1

Basel II opened the possibility towards "your individual interest rate" by allowing (and encouraging) banks to use more advanced methods of estimating Credit Risk, individualizing even, customer-per-customer, for example using Advanced-Internal ratings-based approach. This means that the banks can lower interest rates towards clients that score better ...

1

In the second case (information asymmetry) there is only a single market. This may be the market for the product with unknown quality or in case of adverse selection it may be a market for the bad quality product alone. Assuming there is no adverse selection the reservation price of a consumer w.r.t. the unknown good is the expected value of his reservation ...

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