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on Contract Theory and Applications |
| By: | Timothy Perri |
| Abstract: | Maybe. Lemon’s and signaling models generally deal with different welfare problems, the former with withdrawal of high quality sellers, and the latter with socially wasteful signals. However, with asymmetric information, high productivity workers may not (absent signaling) be employed where they are valued the most. If one’s productivity is known in alternative employment, signaling that overcomes the lemon’s problem at a cost will only occur if it increases welfare. If individual productivity is unknown in alternative employment, again signaling may occur and will overcome the lemon’s problem, but it may lower welfare. Key Words: Lemons, signaling, and sorting |
| JEL: | D82 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:13-13&r=cta |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, Princeton University); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We analyze the welfare consequences of a monopolist having additional information about consumers' tastes, beyond the prior distribution; the additional information can be used to charge different prices to different segments of the market, i.e., carry out "third degree price discrimination." We show that the segmentation and pricing induced by the additional information can achieve every combination of consumer and producer surplus such that: (i) consumer surplus is non-negative, (ii) producer surplus is at least as high as profits under the uniform monopoly price, and (iii) total surplus does not exceed the efficient gains from trade. As well as characterizing the welfare impact of price discrimination, we examine the limits of how prices and quantities can change under price discrimination. We also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market. |
| Keywords: | First degree price discrimination, Second degree price discrimination, Third degree price discrimination, Private information, Privacy, Bayes correlated equilibrium |
| JEL: | C72 D82 D83 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1896&r=cta |
| By: | Giuseppe Attanasi; Pierpaolo Battigalli; Elena Manzoni |
| Abstract: | In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a first step in this direction, focusing on models of guilt aversion in the Trust Game. We consider two alternative modeling assumptions: (i) guilt aversion depends on the role played in the game, because only the "trustee" can feel guilt for letting the co-player down, (ii) guilt aversion is independent of the role played in the game. We show how the set of Bayesian equilibria changes as the upper bound on guilt sensitivity varies, and we compare this with the complete-information case. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game. JEL classification: C72, C91, D03. Keywords: Psychological games, Trust Game, guilt, incomplete information. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:480&r=cta |
| By: | Tobias Berg; Manju Puri; Jorg Rocholl |
| Abstract: | Poor loan quality is often attributed to loan officers exercising poor judgment. A potential solution is to base loans on hard information alone. However, we find other consequences of bypassing discretion stemming from loan officer incentives and limits of hard information verifiability. Using unique data where loans are based on hard information, and loan officers are volume-incentivized, we find loan officers increasingly use multiple trials to move loans over the cut-off, both in a regression-discontinuity design and when the cut-off changes. Additional trials positively predict default suggesting strategic manipulation of information even when loans are based on hard information alone. |
| JEL: | G01 G2 G21 G3 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19051&r=cta |
| By: | Marc Sangnier (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM)); Yanos Zylberberg (CREI - Centre de Recerca en Economia Internacional - Universitat Pompeu Fabra) |
| Abstract: | Leaders' misbehaviors may durably undermine the credibility of the state. Using individual level survey in the aftermath of geo-localized social protests in Africa, we find that trust in monitoring institutions and beliefs in social coordination strongly evolve after riots, together with trust in leaders. As no signs of social unrest can be recorded before, the social conflict can be interpreted as a sudden signal sent on a leader's action from which citizens extract information on the country's institutions. Our interpretation is the following. Agents lend their taxes to a leader with imperfect information on the leader's type and the underlying capacity of institutions to monitor her. A misbehavior is then interpreted as a failure of institutions to secure taxes given by citizens and makes agents (i) reluctant to contribute to the state effort, (ii) skeptical about the contributions of others. |
| Keywords: | social conflicts; norms of cooperation; trust; institutions |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00822377&r=cta |
| By: | Gaurab Aryal |
| Abstract: | In this paper I estimate a model of competitive nonlinear pricing with multidimensional adverse selection. I model competition using a Stackelberg duopoly and solve the multidimensional screening problem by aggregating the multidimensional type into a single dimensional type. I study identification and estimation of the utility and cost parameters and the joint density of consumer types. The truncated marginal densities of the aggregated types can be nonparametrically identified but not the joint density. I use the classic Cramér-von Mises and Vuong’s test to select one parametric family of copula to estimate the joint density from the unspecified marginals. Using a unique data for advertisements collected from two Yellow Pages Directories in Central Pennsylvania I find that: (a) Joe copula characterizes the joint density of adverse selection; (b) there is a substantial heterogeneity among advertisers; (c) the estimated density rationalizes why there is more competition at the lower end of the ads than at the upper end; (d) consumers treat the ads as substitutes; and (e) a counterfactual exercise suggests that there is a substantial (3.8% of the sales) loss of welfare due to asymmetric information. |
| Keywords: | Competitive Nonlinear Pricing, Multidimensional Screening, Identification, Advertisement, Copula |
| JEL: | C14 D22 D82 L11 L13 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-610&r=cta |
| By: | Paul Hubert (Ofce sciences-po) |
| Abstract: | The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions. |
| Keywords: | Monetary policy, ECB, Private forecasts, Influence, Structural Var |
| JEL: | E52 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1304&r=cta |
| By: | Florian Hoffmann; Roman Inderst; Marco Ottaviani |
| Abstract: | Using personal data collected on the internet, fi?rms and political campaigners are able to tailor their communication to the preferences and orientations of individual consumers and voters, a practice known as hypertargeting. This paper models hypertargeting as selective disclosure of information to an audience with limited attention. We characterize the private incentives and the welfare impact of hypertargeting depending on the wariness of the audience, on the intensity of competition, and on the feasibility of price discrimination. We show that policy intervention that bans the collection of personally identi?able data (for example, through stricter privacy laws requiring user consent) is bene?ficial when consumers are naive, competition is limited, and fi?rms are able to price discriminate. Otherwise, privacy regulation often back?fires. Keywords: Hypertargeting, selective disclosure, limited attention, consumer privacy regulation, personalized pricing, competition. JEL Classi?fication: D83 (Search; Learning; Information and Knowledge; Communication; Belief), M31 (Marketing), M38 (Government Policy and Regulation). |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:479&r=cta |