scholarly journals Optimal Contracts for Agents with Adverse Selection

2020 ◽  
Vol 2020 ◽  
pp. 1-17
Author(s):  
Chao Li ◽  
Zhijian Qiu
Keyword(s):  
Information Asymmetry ◽  
Adverse Selection ◽  
Mixed Model ◽  
Selection Model ◽  
Individual Agent ◽  
High Type ◽  
Optimal Contracts ◽  
Effort Level ◽  
Different Types ◽  
Separating Equilibrium

Due to information asymmetry, adverse selection exists largely in the multiagent market. Aiming at these problems, we develop two models: pure adverse selection model and mixed adverse selection and moral hazard model. We make the assumption that a type of agent is discrete and effort level is continuous in the models. With these models, we investigate the characters that make an optimal contract as well as the conditions under which the utility of a principal and agents can be optimized. As a result, we show that, in the pure adverse selection model, the conditions to reach the optimal utility of a principal and individual agents are that a principal needs to design different contracts for different types of agents, and an individual agent chooses the corresponding type of contracts. For the mixed model, we show that incentive constraint for agents plays a very important role. In fact, we find that whether a principal provides high-type contract or a separating equilibrium contract depends on the probability of existence of low-type agents in the market. In general, if a separating equilibrium contract is issued, then information asymmetry will cause the utility of the high-type agents to be less than that of the case in full information.

The Role of Behavioral Frictions in Health Insurance Marketplace Enrollment and Risk: Evidence from a Field Experiment

2021 ◽  
Vol 111 (5) ◽  
pp. 1549-1574
Author(s):  
Richard Domurat ◽  
Isaac Menashe ◽  
Wesley Yin
Keyword(s):  
Health Insurance ◽  
Field Experiment ◽  
Positive Selection ◽  
Adverse Selection ◽  
Low Income ◽  
Market Risk ◽  
Selection Model ◽  
Heterogeneous Effects ◽  
Low Income Consumers

We experimentally varied information mailed to 87,000 households in California’s health insurance marketplace to study the role of frictions in insurance take-up. Reminders about the enrollment deadline raised enrollment by 1.3 pp (16 percent) in this typically low take-up population. Heterogeneous effects of personalized subsidy information indicate misperceptions about program benefits. Consistent with an adverse selection model with frictional enrollment costs, the intervention lowered average spending risk by 5.1 percent, implying that marginal respondents were 37 percent less costly than inframarginal consumers. We observe the largest positive selection among low income consumers, who exhibit the largest frictions in enrollment. Finally, we estimate the implied value of the letter intervention to be $25 to $53 per month in subsidy dollars. These results suggest that frictions may partially explain low take-up for marketplace insurance, and that interventions reducing them can improve enrollment and market risk in exchanges. (JEL C93, G22, G52, H75, I13)

scholarly journals The Tripartite Regulation Game of Carbon Financial Products Based on the Prospect Theory

2020 ◽  
Vol 8 ◽  
Author(s):  
Xiaoran Yu ◽  
Guanglong Dong ◽  
Changyu Liu
Keyword(s):  
Information Asymmetry ◽  
Prospect Theory ◽  
Bounded Rationality ◽  
Influencing Factors ◽  
Financial Institutions ◽  
Behavioral Strategy ◽  
Financial Products ◽  
Different Types ◽  
Game Players ◽  
High Information

Because of the high information asymmetry of carbon financial products (CFPs), financial institutions infringing on the rights of investors occurred worldwide. However, few studies focused on how to protect investors effectively. In this paper, from the perspective of regulation, we analyze the game relationships among governments, financial institutions, and investors. Following this, the tripartite regulation game of CFPs is further constructed. Meanwhile, centered on heterogeneity and bounded rationality, we divide participants in this game into two types: tough or weak ones, and the strategies for different types of game players are compared based on the prospect theory. Moreover, through discussion of the deterrence equilibrium, challenge equilibrium, and separation equilibrium, the crucial influencing factors of the behavioral strategy are explored separately. Finally, some countermeasures of CFPs are put forward for governments to design appropriate regulation policies.

scholarly journals Communication for Coproduction: Increasing Information Credibility to Fight the Coronavirus

2020 ◽  
Vol 50 (6-7) ◽  
pp. 692-697 ◽  
Author(s):  
Huafang Li
Keyword(s):  
Health Outcomes ◽  
Information Asymmetry ◽  
Information Needs ◽  
Public Trust ◽  
Health Policies ◽  
Information Asymmetries ◽  
Information Intermediaries ◽  
Information Credibility ◽  
Different Types ◽  
Credible Information

Governments and citizens need to work together to fight and win the war against the coronavirus and coproduce better health outcomes. However, information asymmetries exist between the two parties and influence coproduction adversely. Effective communication by satisfying different types of citizens’ information needs can reduce the degree of information asymmetry and improve coproduction. When citizens distrust governments, governments can use credible information intermediaries, such as experts and volunteers, to increase information credibility. Increasing information credibility could further reduce information asymmetry, increase public trust, and motivate citizens to comply with health policies and coproduce better health outcomes.

scholarly journals Depreciation Choice and Future Operating Performance

2019 ◽  
Vol 9 (1) ◽  
pp. 89
Author(s):  
Marcus L. Caylor ◽  
Scott Whisenant
Keyword(s):  
Information Asymmetry ◽  
Adverse Selection ◽  
Operating Performance ◽  
Signaling Theory ◽  
Cash Flows ◽  
Future Prospects ◽  
Future Earnings ◽  
Accounting Choices ◽  
Straight Line ◽  
Accelerated Depreciation

In this study we test the argument that information asymmetry and the problems of adverse selection provide incentives for managers to use accounting choices to signal relatively higher future prospects. Specifically, we contend that firms use accelerated depreciation to credibly signal higher future earnings and cash flows, consistent with signaling theory. Compared to straight-line depreciation, accelerated depreciation reduces earnings in the earlier years of asset lives and produces more variability in earnings. Despite these drawbacks, hundreds of firms voluntarily use accelerated depreciation for at least some of their depreciable assets. Our results indicate that the use of accelerated depreciation foreshadows higher future earnings and cash flows for horizons of one, two, and three years ahead.

scholarly journals On the Possibility of Credit Rationing in the Stiglitz-Weiss Model

2009 ◽  
Vol 99 (5) ◽  
pp. 2012-2021 ◽  
Author(s):  
Lutz G. Arnold ◽  
John G. Riley
Keyword(s):  
Numerical Analysis ◽  
Adverse Selection ◽  
Joint Distribution ◽  
Credit Rationing ◽  
Selection Model ◽  
High Rate ◽  
Risk Class ◽  
Loan Rate ◽  
Expected Revenue ◽  
Low Rate

Contrary to what is usually assumed, the expected revenue for lenders as a function of the loan rate cannot be globally hump-shaped in the Stiglitz-Weiss (1981) adverse selection model with a continuum of types. This has important implications. First, if there is credit rationing, there must be at least two equilibrium loan rates. Second, while at the low rate loans are rationed, all those applicants willing to pay the high rate are then served. Numerical analysis shows that unless the joint distribution of risk class and output is rather special, the two loan rate outcome with rationing is unlikely. (JEL D82, G21)

The industrialization of translation

2012 ◽  
Vol 1 ◽  
pp. 143-168 ◽  
Author(s):  
Keiran J. Dunne
Keyword(s):  
Information Asymmetry ◽  
Adverse Selection ◽  
Large Scale ◽  
Quality Uncertainty ◽  
Related Services ◽  
Service Business ◽  
Price Pressure ◽  
Development Of Expertise ◽  
Uncertainty Information

Much has written by scholars on translation as product and as process, but relatively little attention has been paid to translation as a commercial service, business or industry. This article proposes a modest step in this direction by using microeconomics as a window through which to examine the industrialization of translation, focusing on causes, consequences and challenges. It begins by analyzing the outsourcing of translation and translation-related services. It then considers consequences of large-scale outsourcing, including quality uncertainty, information asymmetry, adverse selection, price pressure and perceived commoditization. Finally, the article explores challenges posed by these developments, including signaling and screening, the productivity imperative and the development of expertise. The article concludes with an overview of potential areas of research to be explored in this track in future issues.

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