scholarly journals Information Economics

2022 ◽  
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Corporate Strategy ◽  
Information Economics ◽  
Perfect Information ◽  
The Other ◽  
Neoclassical Economics ◽  
Organizational Governance ◽  
Protection Mechanisms ◽  
Game Theoretic

Information economics can be best described as a shift in the traditional neoclassical assumption of perfect information. Neoclassical economics assumes that all actors have access to perfect information and are rational in their behavior. Over the years, as scholars have realized that the assumptions of neoclassical economics are not an accurate reflection of the real world, other research streams have developed that relax these assumptions. Information economics is one such stream, arguing that actors or parties have differential access to information, which raises the concern of adverse selection and moral hazard when the actors or parties participate in a transaction. Adverse selection occurs when one party has more information about the product or service than the other party and it leads to a less profitable or riskier transaction for the uninformed party. Alternatively, moral hazard occurs after the transaction, where one party has an incentive to engage in risky behavior when the other party bears the cost of failure. Information economics offers insights to both these concerns and offers solutions in the form of signaling and protection mechanisms. Signaling theory, a component of information economics, addresses how one party can credibly convey information to its potential exchange partners to facilitate transactions. The concepts of information asymmetry and signaling have been widely used in economics and business research to understand concepts ranging from game theoretic models of investments to principal–agent relationships to adverse selection problems in transactions. Information economics offers strong foundations for research within management as it helps understand several phenomena related to organizational transactions. For instance, corporate strategy scholars have utilized the predictions stemming from information economics in acquisition research to study target search, selection, signaling behavior, acquisition contracting, premiums, and governance. Information economics also has broad potential to affect firms’ organizational governance and entry mode choices. The following paragraphs will discuss how this theory has been developed and provide a few applications of information economics in strategy and management research.

Agency, Information, and the Structure of Moral Problems in Business

2006 ◽  
Vol 28 (2) ◽  
pp. 177-195 ◽  
Author(s):  
Bryan W. Husted
Keyword(s):  
Asymmetric Information ◽  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Information Economics ◽  
Principal Agent ◽  
Ethical Problems ◽  
Agent Model ◽  
Moral Problems ◽  
Principal Agent Model

Many ethical problems in business can be characterized as having elements of incomplete and/or asymmetric information. This paper analyzes such problems using information economics and the principal-agent model. It defines the nature of moral problems in business and then applies principal-agent models involving adverse selection and moral hazard to these problems. Possible solutions to conditions of information asymmetry are examined in order to support the development of organizational virtue.

scholarly journals A MARKOV CHAIN MODEL FOR ISLAMIC MICRO-FINANCING

2019 ◽  
Vol 5 (4) ◽  
pp. 763-784
Author(s):  
Djaffar Lessy ◽  
Fouad Khoudjeti ◽  
Marc Diener ◽  
Francine Diener
Keyword(s):  
Markov Chain ◽  
Asymmetric Information ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Markov Chain Model ◽  
The Other ◽  
Chain Model ◽  
Business Sector ◽  
Islamic Banks ◽  
Strategic Default

            This paper introduces a Markov chain model for Islamic micro-financing, especially mudarabah  and murababah contract. Mudarabah and murabahah  are two Islamic micro-financing contracts that have enormous potential in creating a balance between the monetary and sharia sector because these two products are moving to manage the business sector which undoubtedly adds value to the economic movement directly.  On the other hand, these two contracts have the potential to cause problems in their implementation. The most common problem of the two contracts is asymmetric information, which consists of adverse selection and moral hazard. We propose the Markov chain model as a solution for the Islamic banks to reduce the risk because of adverse selection and moral hazard in mudarabah  and murabahah  contract. In our model, we also propose a mechanism to avoid strategic default in mudarabah contract. We observed two different probabilities of an applicant to become a beneficiary to find the solution to the problems. The results of this study, the bank can decrease the probability of an applicant to become a beneficiary to reduce the adverse selection and moral hazard in mudarabah  and murabahah contract.

AGENCY PROBLEM DALAM PENERAPAN PEMBIAYAAN AKAD MUDHARABAH PADA PERBANKAN SYARIAH

ALQALAM ◽  
2016 ◽  
Vol 33 (1) ◽  
pp. 46
Author(s):  
Aswadi Lubis
Keyword(s):  
High Risk ◽  
Asymmetric Information ◽  
Human Resources ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Agency Problem ◽  
Agency Problems ◽  
Islamic Banking ◽  
The Public

The purpose of writing this article is to describe the agency problems that arise in the application of the financing with mudharabah on Islamic banking. In this article the author describes the use of the theory of financing, asymetri information, agency problems inside of financing. The conclusion of this article is that the financing is asymmetric information problems will arise, both adverse selection and moral hazard. The high risk of prospective managers (mudharib) for their moral hazard and lack of readiness of human resources in Islamic banking is among the factors that make the composition of the distribution of funds to the public more in the form of financing. The limitations that can be done to optimize this financing is among other things; owners of capital supervision (monitoring) and the customers themselves place restrictions on its actions (bonding).

Investments and Risk Transfers

2017 ◽  
Vol 92 (6) ◽  
pp. 1-23 ◽  
Author(s):  
Tim Baldenius ◽  
Beatrice Michaeli
Keyword(s):  
Moral Hazard ◽  
Risk Premium ◽  
Bargaining Power ◽  
Risk Premia ◽  
The Other ◽  
Investment Risk ◽  
Incomplete Contracting ◽  
Risk Transfer ◽  
Specific Investments ◽  
Division Managers

ABSTRACT We demonstrate a novel link between relationship-specific investments and risk in a setting where division managers operate under moral hazard and collaborate on joint projects. Specific investments increase efficiency at the margin. This expands the scale of operations and thereby adds to the compensation risk borne by the managers. Accounting for this investment/risk link overturns key findings from prior incomplete contracting studies. We find that if the investing manager has full bargaining power vis-à-vis the other manager, he will underinvest relative to the benchmark of contractible investments; with equal bargaining power, however, he may overinvest. The reason is that the investing manager internalizes only his own share of the investment-induced risk premium (we label this a “risk transfer”), whereas the principal internalizes both managers' incremental risk premia. We show that high pay-performance sensitivity (PPS) reduces the managers' incentives to invest in relationship-specific assets. The optimal PPS, thus, trades off investment and effort incentives.

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