微观经济学英文课件：chapter-17 Markets with Asymmetric Information

1、Chapter 17Markets with Asymmetric Information1Chapter 1Topics to be DiscussedQuality Uncertainty and the Market for LemonsMarket SignalingMoral HazardThe Principal-Agent Problem2Chapter 1Topics to be DiscussedManagerial Incentives in an Integrated FirmAsymmetric Information in Labor Markets: Efficie

2、ncy Wage Theory3Chapter 1IntroductionWe will study how imperfect information influences resource allocation and the price system.4Chapter 1Quality Uncertaintyand the Market for LemonsThe lack of complete information when purchasing a used car increases the risk of the purchase and lowers the value o

3、f the car.5Chapter 1The Market for Used CarsAssumeBuyers and sellers can distinguish between high and low quality carsThere will be two marketsQuality Uncertaintyand the Market for Lemons6Chapter 1The Lemons ProblemPHPLQHQLSHSLDHDL5,00050,00050,000The market for high and lowquality cars when buyers

4、and sellerscan identify each car10,000DLDMDM75,00025,000With asymmetric information buyers will find it difficult to determine quality. They lower their expectations of the average quality ofused cars. Demand for low and high quality used cars shifts to DM.DLMDLMThe increase in QLreduces expectation

5、s anddemand to DLM. The adjustment processcontinues until demand = DL. 7Chapter 1The Market for Used CarsWith asymmetric information:Low quality goods drive high quality goods out of the market.The market has failed to produce mutually beneficial trade.Too many low and too few high quality cars are

6、on the market.Adverse selection occurs; the only cars on the market will be low quality cars.Quality Uncertaintyand the Market for Lemons8Chapter 1Implications of Asymmetric InformationMedical InsuranceQuestionIs it possible for insurance companies to separate high and low risk policy holders?If not

7、, only high risk people will purchase insurance.Adverse selection would make medical insurance unprofitable.The Market for Insurance9Chapter 1Implications of Asymmetric InformationAutomobile InsuranceQuestionsWhat impact does asymmetric information and adverse selection have on insurance rates and t

8、he delivery of automobile accident insurance?How can the government reduce the impact of adverse selection in the insurance industry?The Market for Insurance10Chapter 1Implications of Asymmetric InformationThe Market for CreditAsymmetric information creates the potential that only high risk borrower

9、s will seek loans.QuestionHow can credit histories help make this market more efficient and reduce the cost of credit?11Chapter 1Implications of Asymmetric InformationThe Importance of Reputation and StandardizationAsymmetric Information and Daily Market DecisionsRetail salesAntiques, art, rare coin

10、sHome repairsRestaurants12Chapter 1Implications of Asymmetric InformationQuestionHow can these producers provide high-quality goods when asymmetric information will drive out high-quality goods through adverse selection.AnswerReputation13Chapter 1Implications of Asymmetric InformationQuestionWhy do

11、you look forward to a Big Mac when traveling even though you would never consider buying one at home.Holiday Inn once advertised “No Surprises” to address the issue of adverse selection.14Chapter 1Lemons in Major League BaseballAsymmetric information and the market for free agentsIf a lemons market

12、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 SeasonPrecontractPostcontractPercentage Change16Chapter 1FindingsDays on the disable

13、d list increase for both free agents and renewed players.Free agents have a significantly higher disability rate than renewed players.This indicates a lemons market.Lemons in Major League Baseball17Chapter 1QuestionIf you are a team owner, what steps would you take to reduce the asymmetric informati

14、on for free agents?Lemons in Major League Baseball18Chapter 1Market SignalingThe process of sellers using signals to convey information to buyers about the products quality helps buyers and sellers deal with asymmetric information.19Chapter 1Market SignalingStrong SignalTo be effective, a signal mus

15、t be easier for high quality sellers to give than low quality sellers.ExampleHighly productive workers signal with educational attainment level. 20Chapter 1Market SignalingA Simple Model of Job Market SignalingAssumeTwo groups of workersGroup I: Low productivity-AP & MP = 1Group II: High productivit

16、y-AP & MP = 2The workers are equally divided between Group I and Group II-AP for all workers = 1.521Chapter 1Market SignalingA Simple Model of Job Market SignalingAssumeCompetitive Product MarketP = $10,000Employees average 10 years of employmentGroup I Revenue = $100,000 (10,000/yr. x 10)Group II R

17、evenue = $200,000 (20,000/yr. X 10)22Chapter 1Market SignalingWith Complete Informationw = MRPGroup I wage = $10,000/yr.Group II wage = $20,000/yr.With Asymmetric Informationw = average productivityGroup I & II wage = $15,00023Chapter 1Market SignalingSignaling With Education to Reduce Asymmetric In

18、formationy = education index (years of higher education)C = cost of attaining educational level yGroup I-CI(y) = $40,000yGroup II-CII(y) = $20,000y24Chapter 1Market SignalingSignaling With Education to Reduce Asymmetric InformationAssume education does not increase productivityDecision Rule:y* signa

19、ls GII and wage = $20,000Below y* signals GI and wage = $10,00025Chapter 1SignalingYears ofCollegeValue ofCollegeEduc.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 educat

20、ion decisionis based on benefits/costcomparison.B(y)B(y)y*y*B(y) = increase inwage associated witheach level of educationCII(y) = $20,000yOptimal choice of y for Group I26Chapter 1SignalingYears ofCollegeValue ofCollegeEduc.0$100KValue ofCollegeEduc.Years ofCollege1234560123456$200K$100K$200KCI(y) =

21、 $40,000yOptimal choice of y for Group IB(y)B(y)y*y*Benefits = $100,000CostCI(y) = 40,000y$100,000 2.5Choose no educationCII(y) = $20,000yOptimal choice of y for Group IBenefits = $100,000CostCII(yO)= 20,000y$100,000$20,000y*y* Qf ;B = .3Qf + .2(Q - Qf)If Q Qf ;B = .3Qf - .5(Qf - Q)61Chapter 1Incent

22、ive Design in an Integrated FirmOutput(units per year)2,0004,0006,00010,000010,00020,00030,00040,000Bonus($ peryear)8,000If Qf = 30,000,bonus is $6,000,the maximumamount possible.Qf = 30,000Qf = 10,000If Qf = 10,000,bonus is $5,000Qf = 20,000If Qf = 20,000,bonus is $4,00062Chapter 1Asymmetric Inform

23、ation in Labor Markets: Efficiency Wage TheoryIn a competitive labor market, all who wish to work will find jobs for a wage equal to their marginal product.However, most countries economies experience unemployment.63Chapter 1The efficiency wage theory can explain the presence of unemployment and wag

24、e discrimination.In developing countries, productivity depends on the wage rate for nutritional reasons.Asymmetric Information in Labor Markets: Efficiency Wage Theory64Chapter 1The shirking model can be better used to explain unemployment and wage discrimination in the United States.Assumes perfect

25、ly competitive marketsHowever, workers can work or shirk.Since performance information is limited, workers may not get fired.Asymmetric Information in Labor Markets: Efficiency Wage Theory65Chapter 1Without shirking, the market wageis w*, and full-employment exists at L*Demand forLaborw*L*SLUnemploy

26、ment in a Shirking ModelQuantity of LaborWageNo-ShirkingConstraintThe no-shirkingconstraint givesthe wage necessaryto keep workers from shirking.weLeAt the equilibrium wage, We the firm hires Le workerscreating unemployment of L* - Le.66Chapter 1Efficiency Wages at Ford Motor CompanyLabor turnover at Ford 1913: 380%1