chapter-17-Markets-with-Asymmetric-Information-平狄克.ppt
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1、Chapter 17Markets with Markets with Asymmetric Asymmetric InformationInformation1Chapter 1Topics to be DiscussednQuality Uncertainty and the Market for LemonsnMarket SignalingnMoral HazardnThe Principal-Agent Problem2Chapter 1Topics to be DiscussednManagerial Incentives in an Integrated FirmnAsymmet
2、ric Information in Labor Markets:Efficiency Wage Theory3Chapter 1IntroductionnWe will study how imperfect information influences resource allocation and the price system.4Chapter 1nThe Market for Used CarslAssumeuBuyers and sellers can distinguish between high and low quality carsuThere will be two
3、marketsQuality Uncertaintyand the Market for Lemons6Chapter 1The Lemons ProblemPHPLQHQLSHSLDHDL5,00050,00050,000The market for high and lowquality cars when buyers and sellerscan identify each car10,000DLDMDM75,00025,000With asymmetric information buyers will find it difficult to determine quality.T
4、hey lower their expectations of the average quality ofused cars.Demand for low and high quality used cars shifts to DM.DLMDLMThe increase in QLreduces expectations anddemand to DLM.The adjustment processcontinues until demand=DL.7Chapter 1nThe Market for Used CarslWith asymmetric information:uLow qu
5、ality goods drive high quality goods out of the market.uThe market has failed to produce mutually beneficial trade.uToo many low and too few high quality cars are on the market.uAdverse selection occurs;the only cars on the market will be low quality cars.Quality Uncertaintyand the Market for Lemons
6、8Chapter 1Implications of Asymmetric InformationnAutomobile InsurancelQuestionsuWhat impact does asymmetric information and adverse selection have on insurance rates and the delivery of automobile accident insurance?uHow can the government reduce the impact of adverse selection in the insurance indu
7、stry?The Market for Insurance10Chapter 1Implications of Asymmetric InformationnThe Market for CreditlAsymmetric information creates the potential that only high risk borrowers will seek loans.lQuestionuHow can credit histories help make this market more efficient and reduce the cost of credit?11Chap
8、ter 1Implications of Asymmetric InformationnQuestionlHow can these producers provide high-quality goods when asymmetric information will drive out high-quality goods through adverse selection.lAnsweruReputation13Chapter 1Lemons in Major League BaseballnAsymmetric information and the market for free
9、agentslIf a lemons market exists,free agents should be less reliable(disabled)than renewed contracts.15Chapter 1Player DisabilityAll Players4.7312.55165.4Renewed players4.769.68103.4Free agents4.6717.23268.9Days Spent on Disabled List per SeasonPrecontractPostcontract Percentage Change16Chapter 1nQu
10、estionlIf you are a team owner,what steps would you take to reduce the asymmetric information for free agents?Lemons in Major League Baseball18Chapter 1Market SignalingnThe process of sellers using signals to convey information to buyers about the products quality helps buyers and sellers deal with
11、asymmetric information.19Chapter 1Market SignalingnStrong SignallTo be effective,a signal must be easier for high quality sellers to give than low quality sellers.lExampleuHighly productive workers signal with educational attainment level.20Chapter 1Market SignalingnA Simple Model of Job Market Sign
12、alinglAssumeuTwo groups of workerslGroup I:Low productivity-AP&MP=1lGroup II:High productivity-AP&MP=2lThe workers are equally divided between Group I and Group II-AP for all workers=1.521Chapter 1Market SignalingnA Simple Model of Job Market SignalinglAssumeuCompetitive Product MarketlP=$10,000lEmp
13、loyees average 10 years of employmentlGroup I Revenue=$100,000(10,000/yr.x 10)lGroup II Revenue=$200,000(20,000/yr.X 10)22Chapter 1Market SignalingnSignaling With Education to Reduce Asymmetric Informationly=education index(years of higher education)lC=cost of attaining educational level ylGroup I-C
14、I(y)=$40,000ylGroup II-CII(y)=$20,000y24Chapter 1Market SignalingnSignaling With Education to Reduce Asymmetric InformationlAssume education does not increase productivitylDecision Rule:uy*signals GII and wage=$20,000uBelow y*signals GI and wage=$10,00025Chapter 1SignalingYears ofCollegeValue ofColl
15、egeEduc.0$100KValue ofCollegeEduc.Years ofCollege1234560123456$200K$100K$200KGroup IGroup IICI(y)=$40,000yOptimal choice of y for Group IHow much educationshould a person obtain?The education decisionis based on benefits/costcomparison.B(y)B(y)y*y*B(y)=increase inwage associated witheach level of ed
16、ucationCII(y)=$20,000yOptimal choice of y for Group I26Chapter 1SignalingnCost/Benefit ComparisonlDecision rule works if y*is between 2.5 and 5lIf y*=4uGroup I would choose no schooluGroup II would choose y*uRule discriminates correctly28Chapter 1SignalingnEducation does increase productivity and pr
17、ovides a useful signal about individual work habits.29Chapter 1Market SignalingnGuarantees and WarrantieslSignaling to identify high quality and dependabilitylEffective decision tool because the cost of warranties to low-quality producers is too high31Chapter 1Moral HazardnMoral hazard occurs when t
18、he insured party whose actions are unobserved can affect the probability or magnitude of a payment associated with an event.32Chapter 1Moral HazardnDetermining the Premium for Fire InsurancelWarehouse worth$100,000lProbability of a fire:u.005 with a$50 fire prevention programu.01 without the program
19、33Chapter 1Moral HazardnDetermining the Premium for Fire InsurancelWith the program the premium is:u.005 x$100,000=$500lOnce insured owners purchase the insurance,the owners no longer have an incentive to run the program,therefore the probability of loss is.01l$500 premium will lead to a loss becaus
20、e the expected loss is not$1,000(.01 x$100,000)34Chapter 1The Effects of Moral HazardMiles per Week0$0.5050100140CostperMile$1.00$1.50$2.00D=MBMCWith moral hazard insurance companies cannot measure mileage.MC to$1.00 andmiles driven increases to 140miles/week-inefficient allocation.MCMC is the margi
21、nal costof driving.With no moral hazard and assuming insurance companies can measure milesdriven MC=MB at$1.50 and100 miles/week-efficient allocation.35Chapter 1Reducing Moral Hazard-Warranties of Animal HealthnScenariolLivestock buyers want disease free animals.lAsymmetric information existslMany s
22、tates require warrantieslBuyers and sellers no longer have an incentive to reduce disease(moral hazard).nQuestionlHow can this moral hazard be reduced?36Chapter 1Crisis in the Savings and Loan IndustrynQuestionlHow many people know the financial strength of their bank?lWhy not?lDeposit insurance,mor
23、al hazard,and failures in the S&L industry37Chapter 1nCost of the S&L Bailoutl1,000+failed institutionsl$200 billion(1990)lTexas alone-$42 billion(1990)lAgency expenditures-$100 million(1990)nQuestionlHow can this moral hazard be reduced?Crisis in the Savings and Loan Industry38Chapter 1The Principa
24、l-Agent ProblemnAgency Relationship lOne persons welfare depends on what another person doesnAgentlPerson who actsnPrincipallPerson whom the action effects39Chapter 1The Principal-Agent ProblemnCompany owners are principals.nWorkers and managers are agents.nOwners do not have complete knowledge.nEmp
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