Empirical Evidence on Adverse Selection

Loss Coverage ◽  
2017 ◽  
pp. 118-132
Author(s):  
Guy Thomas
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection

scholarly journals Hurdle Rate and Adverse Selection on Escalation of Commitment

2019 ◽  
Vol 3 (2) ◽  
Author(s):  
M. Arsyadi Ridha
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Escalation Of Commitment ◽  
Hurdle Rate ◽  
Hurdle Rates

This article tests the effect of hurdle rates and adverse selection on escalation of commitment. Participants consist of 135 junior managers who had passed two course of management. The result indicates that the managers with adverse selection conditions will tend not to continue unfavorable projects. This research also affirms that the managers with adverse selection conditions will be more likely not to continue projects that are not favorable under the conditions of self-set hurdle rates compared to the conditions of organization-set hurdle rates. This article may contribute to empirical evidence of a decline in comprehensive escalation of commitments. Keywords: adverse selection, self-set hurdle rates, organization-set hurdle rates, escalation  of commitment

Skimming from the Bottom: Empirical Evidence of Adverse Selection When Poaching Customers

2019 ◽  
Vol 38 (4) ◽  
pp. 543-566 ◽  
Author(s):  
Przemysław Jeziorski ◽  
Elena Krasnokutskaya ◽  
Olivia Ceccarini
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Customer Poaching

This paper demonstrates implications of adverse selection when conducting competitive customer poaching in markets with heterogeneous and privately known costs to serve.

scholarly journals Moral Hazard Effects of Corporate Bond Guarantee Purchases: Empirical Evidence from China

2018 ◽  
Vol 10 (5(J)) ◽  
pp. 100-115
Author(s):  
Xueying Zhang ◽  
Shansheng Gao ◽  
Jian Jiao
Keyword(s):  
Moral Hazard ◽  
Empirical Evidence ◽  
Adverse Selection ◽  
Credit Rating ◽  
Bond Market ◽  
Corporate Bond ◽  
Evidence Based ◽  
Corporate Bond Market ◽  
Selection Of ◽  
Better Than

This study examines corporate bond guarantees by developing a theoretical model that decomposes the overall impact of a guarantee into signalling and incentive effects and presenting empirical evidence based on data from China’s corporate bond market. Our empirical research yields considerable evidence for the effects we posit in the model and provides some important insights into the problems of adverse selection and moral hazard in China’s bond market. The empirical evidence shows that the bond issuer with lower credit rating are more willing to purchase a bond guarantee and guaranteed bonds have a higher issue spread yield than those non-guaranteed bonds, even though both have the same bond credit rating. Our findings suggest that moral hazard would be better than adverse selection to explain the self- selection of bond guarantees. Prior to bond issuance credit rating signal provides a mechanism to mitigate information inequality, while bond guarantees relieve information asymmetry afterwards. 

scholarly journals Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment

2015 ◽  
Vol 7 (3) ◽  
pp. 174-204 ◽  
Author(s):  
Gharad Bryan ◽  
Dean Karlan ◽  
Jonathan Zinman
Keyword(s):  
South Africa ◽  
Moral Hazard ◽  
Field Experiment ◽  
Empirical Evidence ◽  
Adverse Selection ◽  
Consumer Credit ◽  
Social Pressure ◽  
Theory And Practice ◽  
Ex Post ◽  
Ex Ante

Empirical evidence on peer intermediation lags behind both theory and practice in which lenders use peers to mitigate adverse selection and moral hazard. Using a referral incentive under individual liability, we develop a two-stage field experiment that permits separate identification of peer screening and enforcement. Our key contribution is to allow for borrower heterogeneity in both ex ante repayment type and ex post susceptibility to social pressure. Our method allows identification of selection on repayment likelihood, selection on susceptibility to social pressure, and loan enforcement. Implementing our method in South Africa we find no evidence of screening but large enforcement effects. (JEL D14, D82, G21, O12, O16)

Why Do Short Selling Bans Increase Adverse Selection and Decrease Price Efficiency?

2020 ◽  
Author(s):  
Peter N Dixon
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Information Acquisition ◽  
Market Price ◽  
Negative Information ◽  
Short Selling ◽  
Price Efficiency ◽  
Theoretical Predictions

Abstract When short selling is costly, owners of an asset have greater incentive to become informed than nonowners because trading on negative information is easier for them. Thus, information acquisition concentrates among investors owning the asset. A short selling ban restricts selling to only the relatively more informed investors who own the asset, increasing adverse selection but only on the sell side of the market. Price efficiency declines due to less overall information acquisition because a ban magnifies the disincentive to gather information for investors not owning the asset. Empirical evidence from the 2008 U.S. short selling ban is consistent with these theoretical predictions. (JEL G10, G14, G18)

Internal versus external CEO choice and the structure of compensation contracts

2013 ◽  
Vol 48 (4) ◽  
pp. 1301-1331 ◽  
Author(s):  
Frédéric Palomino ◽  
Eloïc Peyrache
Keyword(s):  
Moral Hazard ◽  
Empirical Evidence ◽  
Adverse Selection ◽  
Chief Executive Officer ◽  
Sufficient Conditions ◽  
Chief Executive ◽  
Candidate Selection ◽  
Compensation Scheme ◽  
Compensation Contracts ◽  
Ceo Pay

AbstractAny firm choosing a chief executive officer (CEO) faces a double problem: candidate selection and choice of a compensation scheme. We derive sufficient conditions where the unique optimal compensation scheme is a capped-bonus contract in a pure moral-hazard environment, while equity is used when the firm also faces adverse selection. Then, we provide a rationale for the simultaneous increases in CEO pay, use of equity in compensation, and external hiring of CEOs. Our results are consistent with empirical evidence that shows externally hired CEOs earn more than those internally hired and that externally hired CEOs get a higher fraction of their compensation equity based.

scholarly journals Is Organic Farming Risky? An Evaluation of WFRP in Organic and Conventional Production Systems

2020 ◽  
pp. 1-13
Author(s):  
Eric Belasco ◽  
Jeff Schahczenski
Keyword(s):  
Empirical Evidence ◽  
Adverse Selection ◽  
Financial Management ◽  
Production Systems ◽  
Organic Farms ◽  
Level Data ◽  
Conventional Farms ◽  
Conventional Production ◽  
Production History ◽  
Lower Loss

Abstract Farm-level data from the Farm Financial Management Database (FINBIN) are used to evaluate the effectiveness of Whole Farm Revenue Protection (WFRP) insurance in diverse farming operations. A panel of diverse Minnesota farms is used to establish actual production history and compute hypothetical performance over three years. This study characterizes the relative riskiness between organic and conventional farms and their comparative insurance performances by avoiding potential adverse selection issues in other studies. Empirical evidence is provided to dispute past empirical findings suggesting that organic farms are riskier than conventional farms, as measured by lower loss ratios.

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