平狄克微观经济学Markets with Asymmetric Ination.ppt

1、Chapter 17,Markets with Asymmetric Information,Chapter 17,2,Topics to be Discussed,Quality Uncertainty and the Market for Lemons Market Signaling Moral Hazard The Principal-Agent Problem Managerial Incentives in an Integrated Firm Asymmetric Information in Labor Markets: Efficiency Wage Theory,Chapt

2、er 17,3,Introduction,We can see what happens when some parties know more than others asymmetric information Frequently a seller or producer knows more about the quality of the product than the buyer does Managers know more about costs, competitive position and investment opportunities than firm owne

3、rs,Chapter 17,4,Quality Uncertainty and the Market for Lemons,Asymmetric information is a situation in which a buyer and a seller possess different information about a transaction The lack of complete information when purchasing a used car increases the risk of the purchase and lowers the value of t

4、he car Markets for insurance, financial credit and employment are also characterized by asymmetric information about product quality,Chapter 17,5,The Market for Used Cars,Assume Two kinds of cars high quality and low quality Buyers and sellers can distinguish between the cars There will be two marke

5、ts one for high quality and one for low quality,Chapter 17,6,The Market for Used Cars,High quality market SH is supply and DH is demand for high quality Low quality market SL is supply and DL is demand for low quality SH is higher than SL because owners of high quality cars need more money to sell t

6、hem DH is higher than DL because people are willing to pay more for higher quality,Chapter 17,7,The Lemons Problem,PH,PL,QH,QL,Market price for high quality cars is $10,000. Market price for low quality cars is $5000. 50,000 of each type are sold.,Chapter 17,8,The Market for Used Cars,Sellers know m

7、ore about the quality of the used car than the buyer Initially buyers may think the odds are 50/50 that the car is high quality Buyers will view all cars as medium quality with demand DM However, fewer high quality cars (25,000) and more low quality cars (75,000) will now be sold Perceived demand wi

8、ll now shift,9,The Lemons Problem,PH,PL,QH,QL,Medium quality cars sell for $7500, selling 25,000 high quality and 75,000 low quality.,The increase in QL reduces expectations and demand to DLM. The adjustment process continues until demand = DL.,Chapter 17,10,The Market for Used Cars,With asymmetric

9、information: Low quality goods drive high quality goods out of the market - the lemons problem The market has failed to produce mutually beneficial trade Too many low and too few high quality cars are on the market Adverse selection occurs; the only cars on the market will be low quality cars,Chapte

10、r 17,11,Market for Insurance,Older individuals have difficulty purchasing health insurance at almost any price They know more about their health than the insurance company Because unhealthy people are more likely to want insurance, the proportion of unhealthy people in the pool of insured people ris

11、es Price of insurance rises so healthy people with low risk drop out proportion of unhealthy people rises, increasing price more,Chapter 17,12,Market for Insurance,Ex: Auto insurance companies are targeting a certain population males under 25 They know some of the males have low probability of getti

12、ng in an accident and some have a high probability If they cant distinguish among insured, they will base premium on the average experience Some with low risk will choose not to insure, which raises the accident probability and rates,Chapter 17,13,Market for Insurance,A possible solution to this pro

13、blem is to pool risks Health insurance government takes on role as with Medicare program Problem of adverse selection is eliminated Insurance companies will try to avoid risk by offering group health insurance policies at places of employment and thereby spreading risk over a large pool,Chapter 17,1

14、4,Market for Insurance,The Market for Credit Asymmetric information creates the potential that only high risk borrowers will seek loans Can end up with a lemons problem again However, banks and credit agencies use credit histories to gauge risk of borrowers,Chapter 17,15,Importance of Reputation and

15、 Standardization,Asymmetric Information and Daily Market Decisions Retail sales return policies Antiques, art, rare coins real or counterfeit Home repairs unique information Restaurants kitchen status,Chapter 17,16,Implications of Asymmetric Information,How can these producers provide high-quality g

16、oods when asymmetric information will drive out high-quality goods through adverse selection? Reputation You hear about restaurants or stores that have good or bad service and quality Standardization Chains that keep production the same everywhere McDonalds, Olive Garden,Chapter 17,17,Implications o

17、f Asymmetric Information,You look forward to a Big Mac when traveling, even if you would not typically buy one at home, because you know what to expect Holiday Inn once advertised “No Surprises” to address the issue of adverse selection,Chapter 17,18,Lemons in Major League Baseball,Rules in baseball

18、 changed so that after 6 years a player could either re-sign with their team or become a free agent and try to sign with another team Free agents create a secondhand market in baseball players If a lemons market exists, free agents should be less reliable (disabled) than renewed contracts,Chapter 17

19、,19,Player Disability,Chapter 17,20,Lemons in Major League Baseball,Findings Days on the disabled 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,Chapter 17,21,Market Signaling,The proc

20、ess of sellers using signals to convey information to buyers about the products quality For example, how do workers let employers know they are productive so they will be hired?,Chapter 17,22,Market Signaling,Weak signal could be dressing well Is weak because even unproductive employees can dress we

21、ll Strong Signal To be effective, a signal must be easier for high quality sellers to give than low quality sellers Example Highly productive workers signal with educational attainment level,Chapter 17,23,Model of Job Market Signaling,Assume two groups of workers Group I: Low productivity Average Pr

22、oduct a = 0; R = $15,000 R = $10,000 or $20,000, w = 0 R = $40,000; w = $24,000 R = $30,000; Profit = $18,000 Net wage = $2,000 w = R - $18,000 Net wage = $2,000 High effort,Chapter 17,65,Incentives in the Principal-Agent Framework,Conclusion Incentive structure that rewards the outcome of high leve

23、ls of effort can induce agents to aim for the goals set by the principals,Chapter 17,66,Managerial Incentives in an Integrated Firm,In integrated firms, division managers have better (asymmetric) information about production than central management Two Issues How can central management elicit accura

24、te information? How can central management achieve efficient divisional production?,Chapter 17,67,Managerial Incentives in an Integrated Firm,We will focus on firms that are integrated Horizontally integrated Several plants produce the same or related products Vertically integrated Firm contains sev

25、eral divisions, with some producing parts and components that others use to produce finished products,Chapter 17,68,Managerial Incentives in an Integrated Firm,Possible Incentive Plans Give plant managers bonuses based on either total output or operating profit Would encourage managers to maximize o

26、utput Would penalize managers whose plants have higher costs and lower capacity No incentive to obtain and reveal accurate cost and capacity information,Chapter 17,69,Managerial Incentives in an Integrated Firm,Ask managers about their costs and capacities and then base bonuses on how well they do r

27、elative to their answers Qf = estimate of feasible production level B = bonus in dollars Q = actual output B = 10,000 - .5(Qf - Q) Incentive to underestimate Qf,Chapter 17,70,Managerial Incentives in an Integrated Firm,If manager estimates capacity to be 18,000 rather than 20,000, and if the plant o

28、nly produces 16,000, her bonus increases from $8000 to $9000 Dont get accurate information about capacity and dont insure efficiency Bonus still tied to accuracy of forecast,Chapter 17,71,Managerial Incentives in an Integrated Firm,Modify scheme by asking managers how much their plants can feasibly

29、produce and tie bonuses to it Bonuses based on more complicated formula to give incentive to reveal true feasible production and actual output If Q Qf ,B = .3Qf + .2(Q - Qf) If Q Qf ,B = .3Qf - .5(Qf - Q),Chapter 17,72,Managerial Incentives in an Integrated Firm,Assume true production limit is Q* =

30、20,000 Line for 20,000 is continued for outputs beyond 20,000 to illustrate the bonus scheme but dashed to signify the infeasibility of such production Bonus is maximized when firm produces at its limit of 20,000; the bonus is then $6000,Chapter 17,73,Incentive Design in an Integrated Firm,Output (u

31、nits per year),2,000,4,000,6,000,10,000,0,10,000,20,000,30,000,40,000,Bonus ($ per year),8,000,If Qf = 30,000, bonus is $4,000, the maximum amount possible.,Qf = 30,000,Qf = 10,000,If Qf = 10,000, bonus is $5,000.,Qf = 20,000,If Qf = Q* = 20,000, bonus is $6,000.,Chapter 17,74,Efficiency Wage Theory

32、,In 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,Chapter 17,75,Efficiency Wage Theory,The efficiency wage theory can explain the presence of unemployment and wage discrimination In

33、 developing countries, productivity depends on the wage rate for nutritional reasons,Chapter 17,76,Efficiency Wage Theory,The shirking model can be better used to explain unemployment and wage discrimination in the United States Assumes perfectly competitive markets However, workers can work or shir

34、k Since performance information is limited, workers may not get fired,Chapter 17,77,Efficiency Wage Theory,If workers are paid market clearing wage w*, they have incentive to shirk If they get caught and fired, they can immediately get a job elsewhere for same wage Firms have to pay a higher wage to

35、 make loss higher from shirking Wage at which no shirking occurs is the efficiency wage,Chapter 17,78,Efficiency Wage Theory,All firms will offer more than market clearing wage, w*, say we (efficiency wage) In this case, workers fired for shirking face unemployment because demand for labor is less t

36、han market clearing quantity,Chapter 17,79,Without shirking, the market wage is w*, and full-employment exists at L*,Unemployment in a Shirking Model,Quantity of Labor,Wage,The no-shirking constraint gives the wage necessary to keep workers from shirking.,At the equilibrium wage, We the firm hires L

37、e workers creating unemployment of L* - Le.,Chapter 17,80,Efficiency Wages at Ford Motor Company,Labor turnover at Ford 1913: 380% 1914: 1000% Average pay = $2 - $3 Ford increased pay to $5,Chapter 17,81,Efficiency Wages at Ford Motor Company,Results Productivity increased 51% Absenteeism was halved

38、 Profitability rose from $30 million in 1914 to $60 million in 1916,Chapter 18,Externalities and Public Goods,Chapter 17,83,Topics to be Discussed,Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources Public Goods Private Preferences for Public G

39、oods,Chapter 17,84,Externalities,Externalities arise between producers, between consumers, or between producers and consumers Externalities are the effects of production and consumption activities not directly reflected in the market They can be negative or positive,Chapter 17,85,Externalities,Negat

40、ive Action by one party imposes a cost on another party Plant dumps waste in a river, affecting those downstream The firm has no incentive to account for the external costs that it imposes on those downstream,Chapter 17,86,Externalities,Positive Action by one party benefits another party Homeowner p

41、lants a beautiful garden where all the neighbors benefit from it Homeowner did not take their benefits into account when deciding to plant,Chapter 17,87,Negative Externalities and Inefficiency,Scenario plant dumping waste Marginal External Cost (MEC) is the increase in cost imposed on fishermen down

42、stream for each level of production Marginal Social Cost (MSC) is MC plus MEC We can show the competitive market firm decision and the market demand and supply curves,Chapter 17,88,Negative Externalities and Inefficiency,Assume the firm has a fixed proportions production function and cannot alter it

43、s input combinations The only way to reduce waste is to reduce output Price of steel and quantity of steel initially produced given by the intersection of supply and demand,Chapter 17,89,Negative Externalities and Inefficiency,The MC curve for the firm is the marginal cost of production Firm maximiz

44、es profit by producing where MC equals price in a competitive firm As firm output increases, external costs on fishermen also increase, measured by the marginal external cost curve From a social point of view, the firm produces too much output,Chapter 17,90,External Costs,Firm output,Price,Industry

45、output,Price,Firm will produce q1 at P1.,There is MEC of production from the waste released. The MSC is true cost of production.,The profit maximizing firm produces at q1 while the efficient output level is q*.,Chapter 17,91,External Costs,By not producing at the efficient level, there is a social c

46、ost on society.,Chapter 17,92,External Cost,Negative externalities encourage inefficient firms to remain in the industry and create excessive production in the long run,Chapter 17,93,Positive Externalities and Inefficiency,Externalities can also result in too little production, as can be shown in an

47、 example of home repair and landscaping Repairs generate external benefits to the neighbors Shown by the Marginal External Benefit curve (MEB) Marginal Social Benefit (MSB) curve adds MEB +D,Chapter 17,94,External Benefits,Repair Level,Value,When there are positive externalities (the benefits of rep

48、airs to neighbors), marginal social benefits (MSB) are higher than marginal benefits (D).,A self-interested home owner invests q1 in repairs. The efficient level of repairs q* is higher. The higher price P1 discourages repair.,Chapter 17,95,Ways of Correcting Market Failure,Assumption: The market fa

49、ilure is pollution Output decision and emissions decision are independent Firm has chosen its profit-maximizing output level MSC is marginal social cost of emissions Equivalent to MEC from before Upward sloping because of substantially increasing harm as pollution increases,Chapter 17,96,Ways of Cor

50、recting Market Failure,MCA is marginal cost of abating emissions Additional cost to firm of controlling pollution Downward sloping because when emissions are high, there is little cost to controlling them Large reductions require costly changes in production process,Chapter 17,97,Ways of Correcting

51、Market Failure,If the firm does not consider abatement, their profit maximizing level is 26 units of emissions Level where MCA is zero The socially efficient level of emissions is 12 where the MSC equals the MCA,Chapter 17,98,The Efficient Level of Emissions,2,4,6,Dollars/ Unit of Emissions,The effi

52、cient level of emissions is where MCA = MSC.,At Eo the marginal cost of abating emissions is greater than the marginal social cost.,At E1 the marginal social cost is greater than the marginal benefit.,Chapter 17,99,Ways of Correcting Market Failure,Firms can be encouraged to reduce emissions to the

53、efficient level in three ways: Emissions standards Emissions fees Transferable emissions permits,Chapter 17,100,Ways of Correcting Market Failure,Options for Reducing Emissions to E* Emissions Standard Set a legal limit on emissions at E* (12) Enforced by monetary and criminal penalties Increases th

54、e cost of production and the threshold price to enter the industry Emissions Fee Charge levied on each unit of emission,Chapter 17,101,Standards and Fees,Level of Emissions,Dollars/ Unit of Emissions,Chapter 17,102,Cost is less than the fee if emissions were not reduced.,Standards and Fees,Level of

55、Emissions,Dollars/ Unit of Emissions,3,12,Chapter 17,103,Ways of Correcting Market Failure,Standards Versus Fees Assumptions Policymakers have asymmetric information Administrative costs require the same fee or standard for all firms,Chapter 17,104,The Case for Fees,Assume two firms Same marginal so

56、cial cost curve Different marginal abatement cost curves MCA1 and MCA2 Emissions fees are preferable to standards in this case We want to reduce total emissions by 14 units The cheapest way to do that is for Firm 1 to reduce by 6 and Firm 2 by 8 units,Chapter 17,105,The Case for Fees,The cost minimi

57、zing solution would be an abatement of 6 for Firm 1 and 8 for Firm 2 and MCA1= MCA2 = $3.,Chapter 17,106,The Case for Fines,What if the regulatory agency forces each firm to cut emissions by 7 units? MAC for Firm 1 increases to $3.75 MAC for Firm 2 decreases to $2.50 This is not cost minimizing beca

58、use one firm can reduce emissions at a lower cost than the other firm Marginal cost of abatement must be equal between firms for reductions to occur at minimum cost,Chapter 17,107,The Case for Fees,The impact of a standard of abatement of 7 for both firms is illustrated. Not efficient because MCA2 M

59、CA1.,Chapter 17,108,Ways of Correcting Market Failure,Advantages of Fees When equal standards must be used, fees achieve the same emission abatement at a lower cost Fees create an incentive to install equipment that would reduce emissions further,Chapter 17,109,The Case for Standards,Assume we have Steep marginal social cost curve Flat marginal cost of abatement An emissions fee of $8 would be efficient but because of limited information, fee is set at $7 Firms emissions increase and with steep MSC, this will lead to significant additional social costs,Chap