讲义不对称信息.ppt

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1、Chapter Thirty-SixAsymmetric InformationInformation in Competitive MarketsuIn purely competitive markets all agents are fully informed about traded commodities and other aspects of the market.uWhat about markets for medical services,or insurance,or used cars?Asymmetric Information in MarketsuA docto

2、r knows more about medical services than does the buyer.uAn insurance buyer knows more about his riskiness than does the seller.uA used cars owner knows more about it than does a potential buyer.Asymmetric Information in MarketsuMarkets with one side or the other imperfectly informed are markets wit

3、h imperfect information(不完全信不完全信息息).uImperfectly informed markets with one side better informed than the other are markets with asymmetric information(不对称信息不对称信息).Asymmetric Information in MarketsuIn what ways can asymmetric information affect the functioning of a market?uFour applications will be c

4、onsidered:0adverse selection(逆向选择逆向选择)0signaling(信号传递信号传递)0moral hazard(道德风险道德风险)0incentives contracting.Adverse SelectionuConsider a used car market.uTwo types of cars;“lemons”and“peaches”.uEach lemon seller will accept$1,000;a buyer will pay at most$1,200.uEach peach seller will accept$2,000;a buy

5、er will pay at most$2,400.Adverse SelectionuIf every buyer can tell a peach from a lemon,then lemons sell for between$1,000 and$1,200,and peaches sell for between$2,000 and$2,400.uGains-to-trade are generated when buyers are well informed.Adverse SelectionuSuppose no buyer can tell a peach from a le

6、mon before buying.uWhat is the most a buyer will pay for any car?Adverse SelectionuLet q be the fraction of peaches.u1-q is the fraction of lemons.uExpected value to a buyer of any car is at mostAdverse SelectionuSuppose EV$2000.uEvery seller can negotiate a price between$2000 and$EV(no matter if th

7、e car is a lemon or a peach).uAll sellers gain from being in the market.Adverse SelectionuSuppose EV$2000.uA peach seller cannot negotiate a price above$2000 and will exit the market.uSo all buyers know that remaining sellers own lemons only.uBuyers will pay at most$1200 and only lemons are sold.Adv

8、erse SelectionuHence“too many”lemons“crowd out”the peaches from the market.uGains-to-trade are reduced since no peaches are traded.uThe presence of the lemons inflicts an external cost on buyers and peach owners.Adverse SelectionuHow many lemons can be in the market without crowding out the peaches?

9、uBuyers will pay$2000 for a car only ifAdverse SelectionuHow many lemons can be in the market without crowding out the peaches?uBuyers will pay$2000 for a car only ifuSo if over one-third of all cars are lemons,then only lemons are traded.Adverse SelectionuA market equilibrium in which both types of

10、 cars are traded and cannot be distinguished by the buyers is a pooling equilibrium.uA market equilibrium in which only one of the two types of cars is traded,or both are traded but can be distinguished by the buyers,is a separating equilibrium.Adverse SelectionuWhat if there is more than two types

11、of cars?uSuppose that0car quality is uniformly distributed between$1000 and$20000any car that a seller values at$x is valued by a buyer at$(x+300).uWhich cars will be traded?Adverse SelectionSeller values10002000Adverse Selection100020001500Seller valuesAdverse Selection100020001500The expected valu

12、e of anycar to a buyer is$1500+$300=$1800.Seller valuesAdverse Selection100020001500The expected value of anycar to a buyer is$1500+$300=$1800.So sellers who value their cars atmore than$1800 exit the market.Seller valuesAdverse Selection10001800The distribution of valuesof cars remaining on offerSe

13、ller valuesAdverse Selection100018001400Seller valuesAdverse Selection100018001400The expected value of anyremaining car to a buyer is$1400+$300=$1700.Seller valuesAdverse Selection100018001400The expected value of anyremaining car to a buyer is$1400+$300=$1700.So now sellers who value their carsbet

14、ween$1700 and$1800 exit the market.Seller valuesAdverse SelectionuWhere does this unraveling of the market end?uLet vH be the highest seller value of any car remaining in the market.uThe expected seller value of a car isAdverse SelectionuSo a buyer will pay at mostAdverse SelectionuSo a buyer will p

15、ay at mostuThis must be the price which the seller of the highest value car remaining in the market will just accept;i.e.Adverse SelectionAdverse selection drives out all carsvalued by sellers at more than$1600.Adverse Selection with Quality ChoiceuNow each seller can choose the quality,or value,of

16、her product.uTwo umbrellas;high-quality and low-quality.uWhich will be manufactured and sold?Adverse Selection with Quality ChoiceuBuyers value a high-quality umbrella at$14 and a low-quality umbrella at$8.uBefore buying,no buyer can tell quality.uMarginal production cost of a high-quality umbrella

17、is$11.uMarginal production cost of a low-quality umbrella is$10.Adverse Selection with Quality ChoiceuSuppose every seller makes only high-quality umbrellas.uEvery buyer pays$14 and sellers profit per umbrella is$14-$11=$3.uBut then a seller can make low-quality umbrellas for which buyers still pay$

18、14,so increasing profit to$14-$10=$4.Adverse Selection with Quality ChoiceuThere is no market equilibrium in which only high-quality umbrellas are traded.uIs there a market equilibrium in which only low-quality umbrellas are traded?Adverse Selection with Quality ChoiceuAll sellers make only low-qual

19、ity umbrellas.uBuyers pay at most$8 for an umbrella,while marginal production cost is$10.uThere is no market equilibrium in which only low-quality umbrellas are traded.Adverse Selection with Quality ChoiceuNow we know there is no market equilibrium in which only one type of umbrella is manufactured.

20、uIs there an equilibrium in which both types of umbrella are manufactured?Adverse Selection with Quality ChoiceuA fraction q of sellers make high-quality umbrellas;0 q 1.uBuyers expected value of an umbrella is EV=14q+8(1-q)=8+6q.uHigh-quality manufacturers must recover the manufacturing cost,EV=8+6

21、q 11 q 1/2.Adverse Selection with Quality ChoiceuSo at least half of the sellers must make high-quality umbrellas for there to be a pooling market equilibrium.uBut then a high-quality seller can switch to making low-quality and increase profit by$1 on each umbrella sold.Adverse Selection with Qualit

22、y ChoiceuSince all sellers reason this way,the fraction of high-quality sellers will shrink towards zero-but then buyers will pay only$8.uSo there is no equilibrium in which both umbrella types are traded.Adverse Selection with Quality ChoiceuThe market has no equilibrium0with just one umbrella type

23、 traded0with both umbrella types tradeduso the market has no equilibrium at all.uAdverse selection has destroyed the entire market!SignalinguAdverse selection is an outcome of an informational deficiency.uWhat if information can be improved by high-quality sellers signaling credibly that they are hi

24、gh-quality?uE.g.warranties,professional credentials,references from previous clients etc.uBut some form of signaling may be inefficient SignalinguA labor market has two types of workers;high-ability and low-ability.uA high-ability workers marginal product is aH.uA low-ability workers marginal produc

25、t is aL.uaL aH.SignalinguA fraction h of all workers are high-ability.u1-h is the fraction of low-ability workers.SignalinguEach worker is paid his expected marginal product.uIf firms knew each workers type they would 0pay each high-ability worker wH=aH0pay each low-ability worker wL=aL.SignalinguIf

26、 firms cannot tell workers types then every worker is paid the(pooling)wage rate;i.e.the expected marginal product wP=(1-h)aL+haH.SignalinguwP=(1-h)aL+haH cH.SignalinguSuppose that education has no effect on workers productivities;i.e.,the cost of education is a deadweight loss.SignalinguHigh-abilit

27、y workers will acquire eH education units if(i)wH-wL=aH-aL cHeH,and(ii)wH-wL=aH-aL cLeH.u(i)says acquiring eH units of education benefits high-ability workers.u(ii)says acquiring eH education units hurts low-ability workers.Signalingandtogether requireAcquiring such an education level crediblysignal

28、s high-ability,allowing high-abilityworkers to separate themselves fromlow-ability workers.SignalinguQ:Given that high-ability workers acquire eH units of education,how much education should low-ability workers acquire?uA:Zero.Low-ability workers will be paid wL=aL so long as they do not have eH uni

29、ts of education and they are still worse off if they do.SignalinguSignaling can improve information in the market.uBut,total output did not change and education was costly so signaling worsened the markets efficiency.uSo improved information need not improve gains-to-trade.Signaling or Human Capital

30、?The DebateuImplications of the two theories are differentH.C.theory:government,by subsidizing education,provides a way out of poverty.Signaling:the expenditures do not increase productivity.Socially wasteful.uIn the signaling model,education is still useful:sorting workers into the right jobs and i

31、ncreasing productivityEducation could have positive social rate of return even if it does not increase a particular workers productivity.Adverse Selection in InsuranceuBike insurance Some areas have higher risk of theft than other areas.Insurance premium is based on average risk.Low risk consumers d

32、o not buy.Only sell insurance at high risk areas at high rates.Same with health insuranceSolution in the Insurance MarketuScreening for health risksFamily historyDisease historyuMandatory insuranceUniversity studentsWork-unit sponsoredUniversal coverageAdverse Selection and Moral HazarduAdverse sele

33、ction:hidden informationuMoral hazard:hidden actionMoral HazarduIf you have full bike insurance are you more likely to leave your bike unlocked?uMoral hazard is a reaction to incentives to increase the risk of a lossuand is a consequence of asymmetric information.Moral HazarduIf an insurer knows the

34、 exact risk from insuring an individual,then a contract specific to that person can be written.uIf all people look alike to the insurer,then one contract will be offered to all insurees;high-risk and low-risk types are then pooled,causing low-risks to subsidize high-risks.Moral HazarduExamples of ef

35、forts to avoid moral hazard by using signals are:0 higher life and medical insurance premiums for smokers or heavy drinkers of alcohol0 lower car insurance premiums for contracts with higher deductibles or for drivers with histories of safe driving.Incentives ContractinguA worker is hired by a princ

36、ipal to do a task.uOnly the worker knows the effort she exerts(asymmetric information).uThe effort exerted affects the principals payoff.Incentives ContractinguThe principals problem:design an incentives contract(激励和约激励和约)that induces the worker to exert the amount of effort that maximizes the princ

37、ipals payoff.Incentives Contractingue is the agents effort.uPrincipals reward isuAn incentive contract is a function s(y)specifying the workers payment when the principals reward is y.The principals profit is thusIncentives ContractinguLet be the workers(reservation)utility of not working.uTo get th

38、e workers participation,the contract must offer the worker a utility of at leastuThe workers utility cost of an effort level e is c(e).Incentives ContractingSo the principals problem is choose e tosubject to(participation constraint)To maximize his profit the principaldesigns the contract to provide

39、 the worker with her reservation utility level.That is,.Incentives Contractingthe principals problem is tosubject to(participation constraint)Incentives Contractingthe principals problem is tosubject to(participation constraint)Substitute for and solveIncentives Contractingthe principals problem is

40、tosubject to(participation constraint)The principals profit is maximized whenSubstitute for and solveIncentives ContractingThe contract that maximizes theprincipals profit insists upon theworker effort level e*that equalizesthe workers marginal effort cost tothe principals marginal payoff fromworker

41、 effort.Incentives ContractingHow can the principal induce theworker to choose e=e*?The contract that maximizes theprincipals profit insists upon theworker effort level e*that equalizesthe workers marginal effort cost tothe principals marginal payoff fromworker effort.Incentives Contractingue=e*must

42、 be most preferred by the worker.Incentives Contractingue=e*must be most preferred by the worker.uSo the contract s(y)must satisfy the incentive-compatibility(激励相容激励相容)constraint;Rental ContractinguExamples of incentives contracts:(i)Rental contracts:The principal keeps a lump-sum R for himself and

43、the worker gets all profit above R;i.e.uWhy does this contract maximize the principals profit?Rental ContractinguGiven the contractthe workers payoff isand to maximize this the worker should choose the effort level for whichRental ContractinguHow large should be the principals rental fee R?uThe prin

44、cipal should extract as much rent as possible without causing the worker not to participate,so R should satisfyi.e.Other Incentives Contractsu(ii)Wages contracts:In a wages contract the payment to the worker isw is the wage per unit of effort.K is a lump-sum payment.u and K makes the worker just ind

45、ifferent between participating and not participating.Other Incentives Contractsu(iii)Take-it-or-leave-it:Choose e=e*and be paid a lump-sum L,or choose e e*and be paid zero.uThe workers utility from choosing e e*is-c(e),so the worker will choose e=e*.uL is chosen to make the worker indifferent between participating and not participating.Incentives Contracts in GeneraluThe common feature of all efficient incentive contracts is that they make the worker the full residual claimant (剩余索取者剩余索取者)on profits.uI.e.the last part of profit earned must accrue entirely to the worker.