Information Asymmetry and Levels of Agency Relationships

1998 ◽  
Vol 35 (3) ◽  
pp. 277-295 ◽  
Author(s):  
Debi Prasad Mishra ◽  
Jan B. Heide ◽  
Stanton G. Cort
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Ownership Structure ◽  
Agency Problems ◽  
Customer Relationship ◽  
Price Premiums ◽  
Agency Relationships ◽  
Institutional Differences ◽  
Service Managers

Many marketing exchanges are characterized by an information asymmetry between suppliers and customers. Specifically, customers are faced with both adverse selection and moral hazard problems that involve, respectively, uncertainty about supplier characteristics and the risk of quality cheating. Drawing on prior research, the authors propose that agency problems in a customer relationship can be resolved by means of customer bonds and price premiums, which serve as signals and supplier incentives, respectively. The authors also propose that adverse selection and moral hazard problems exist in relationships between suppliers and their employees. Similar to the customer relationship, these problems can be addressed with signals and incentives of various kinds. The authors present hypotheses regarding the agency problems in both of these relationships and test them empirically in the context of automotive service purchases. Data obtained from 287 service managers support the hypotheses. The data also suggest that institutional differences across service outlets (e.g., ownership structure and size) influence how the two types of agency problems are managed.

Transparency and Executive Compensation

2014 ◽  
pp. 412-433
Author(s):  
Raghavendra Rau
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Executive Compensation ◽  
Adverse Selection ◽  
Agency Problems ◽  
And Performance

There are two major types of agency problems: adverse selection and moral hazard. Changing the transparency of executive compensation is one solution to reducing the two agency problems. I define transparency as any mechanism that reduces the information asymmetry between executives and investors. In this chapter, I discuss how executive compensation is structured, and discuss major regulations that have affected compensation. Finally, I examine how increasing the transparency of these schemes affects the pay level and performance relationship to the executives and how executives modify their behavior to affect transparency as a result of their pay structure.

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).

scholarly journals When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

2019 ◽  
Vol 56 (5) ◽  
pp. 749-766 ◽  
Author(s):  
Minkyung Kim ◽  
K. Sudhir ◽  
Kosuke Uetake ◽  
Rodrigo Canales
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Customer Relationship Management ◽  
Private Information ◽  
Information Acquisition ◽  
Relationship Management ◽  
Selection Effect ◽  
Sales Performance ◽  
Customer Relationships ◽  
Customer Relationship

At many firms, incentivized salespeople with private information about customers are responsible for customer relationship management. Although incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. The authors investigate the sales performance–moral hazard trade-off in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, the authors detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard, leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales-enhancing effects, clarifying the importance of multidimensional incentives for customer relationship management. Reducing private information (through job transfers) hurts customer maintenance but has greater impact on productivity by moderating adverse selection at acquisition. This article also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

scholarly journals Sistem Informasi Dalam Hubungan Prinsipal – Agen Di RSU-BLUD Bahteramas, Kota Kendari Provinsi Sulawesi Tenggara

2021 ◽  
Vol 3 (1) ◽  
pp. 76-85
Author(s):  
Zainul Abidin
Keyword(s):  
Information Systems ◽  
Moral Hazard ◽  
Adverse Selection ◽  
Supervisory Board ◽  
Agency Problems ◽  
Complete Information ◽  
Qualitative Approach ◽  
Conventional Systems ◽  
Reporting Procedures

 This study aims to analyze the information systems that occur, especially in terms of reporting procedures, budgeting systems and the role of the supervisory board at the Bahteramas Hospital, Kendari City, Southeast Sulawesi Province. This research uses a qualitative approach. The results show that the reporting procedure uses a combination of computers and manuals, but manual systems are still dominant. The budgeting system still uses conventional systems and also uses performance-based budgets. The supervisory board has carried out its duties, but it is still not optimal. Even so, there is complete information where the principal knows what the agent is doing. Even though in reality, there are still agency problems (moral hazard and adverse selection) both potentially and factually. For example, negligence in the supply of drugs, but on the whole does not hinder the disclosure of information by the principal.

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 Employment-Friendly Welfare Policy and Information Asymmetry: Evidence from Sweden and Korea

2016 ◽  
Vol 31 (1) ◽  
pp. 133-152
Author(s):  
Kwon Illoong ◽  
Lee Jin Ho
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Welfare Policy ◽  
Tax Policies ◽  
Unemployment Benefits ◽  
Policy Reforms ◽  
Welfare Policies ◽  
Selection Problems ◽  
Theoretical Predictions

This paper provides a simple theoretical framework for analyzing how welfare polices can affect the incentive to work and compares the recent welfare policy reforms of Sweden and Korea. Sweden has systematically reformed its welfare policies in response to slowing population and economic growth and an aging population. This paper shows that recent Swedish reforms of tax policies and unemployment benefits bear out theoretical predictions that such reforms will help reduce moral hazard and adverse selection problems. In comparison, recent Korean reforms of tax policies and unemployment benefits have focused on moral hazard problems but have largely ignored adverse selection problems.

scholarly journals A Student of Year 12 in Harrow International School Hong Kong

2018 ◽  
Vol 4 (3) ◽  
pp. 260
Author(s):  
Nanqi Zhou
Keyword(s):  
Hong Kong ◽  
Asymmetric Information ◽  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Financial Market ◽  
International School ◽  
Principal Agent ◽  
Principal Agent Problem ◽  
The Government

<p class="BodyA">George Akerlof introduced the idea that due to asymmetric information between the buyer and the seller in the lemons market, the market for second-hand vehicles will eventually go on the wane. Parallel to this argument, this essay discusses the extent of problem caused by information asymmetry in the financial market, with the most prominent issues being adverse selection, moral hazard and principal agent problem. Yet, with more regulation from the government and the market, some of these problems can be ameliorated, thus reducing the role that asymmetric information plays in the financial market.</p>

scholarly journals Research on Preventing Moral Hazard of Construction Project Based on Information Asymmetries

2014 ◽  
Vol 8 (1) ◽  
pp. 468-475 ◽  
Author(s):  
Pengcheng Xiang ◽  
Jinan Wang
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Optimization Model ◽  
Construction Project ◽  
Principal Agent ◽  
Information Asymmetries ◽  
Major Objective ◽  
Principal Agent Theory ◽  
Agent Theory

There exists the problem of information asymmetry among the participants in construction project who form economic partnerships one another. Information asymmetries among the participants in construction project places a premium on adverse selection and moral hazard. The major objective of this article is to implement the mechanisms of incentive and monitoring under the framework of principal-agent theory in analysis of moral hazard of construction project and to explore how to prevent it. The optimization model of incentive and monitoring under the circumstance of asymmetric information will be founded on the basis of the analysis of the effect of incentive and monitoring mechanisms in the principal- agent relationship. It indicates that reliability of information can be increased when bringing incentive and monitoring mechanisms into reward contract, which can prevent moral hazard of construction project.

scholarly journals Study on the governance mechanism of rural e-commerce service centers in rural China: agency problems and solutions

2019 ◽  
Vol 22 (3) ◽  
pp. 381-396 ◽  
Author(s):  
Yi Cai ◽  
Deqiang Wang ◽  
Chunping Xia ◽  
Cuicui Wang
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Local Governments ◽  
Evaluation System ◽  
Service Sector ◽  
Service Providers ◽  
Rural China ◽  
Agency Problems ◽  
Service Evaluation ◽  
Governance Mechanism

Agency problems, such as moral hazard and adverse selection, are prevalent in the public service sector, and the Chinese rural e-commerce service sector is no exception. With the focus on the top-down project ‘information and communication technology for development’ implemented in the underdeveloped areas in China, the rural e-commerce service center (RESC) operation mechanism was analyzed in this study. Based on the tension between RESC operators, local governments, and e-commerce service providers that was reported in a field survey, this study further employs the principal-agent framework to analyze the problems of asymmetric information. Based on this analysis, solutions are suggested that can remedy the moral hazard issues in rural e-commerce service delivery, including developing a service evaluation system, promoting the usage of ICTs, and enhancing rural social capital. To address the problem of adverse selection, the RESC recruitment process should be improved. Moreover, by dividing the potential RESC employees into native villagers and e-commerce entrepreneurs, the optimal subsidy schemes can be designed for both types of applicants according to their ability and sensitivity to incentive.

Information Problems in Competitive Markets and Their Impact on Labor Markets

2019 ◽  
pp. 189-211
Author(s):  
Hasan Bilgehan Yavuz
Keyword(s):  
Labor Market ◽  
Moral Hazard ◽  
Information Asymmetry ◽  
Labor Markets ◽  
Adverse Selection ◽  
Economic Efficiency ◽  
Transfer Of Knowledge ◽  
Economic Approach ◽  
Economic Agents ◽  
Full Knowledge

Economic agents should be fully informed in order to maximize welfare by removing market disruptions. The full knowledge which is one of the assumptions of the traditional economic approach has been rejected in the recent studies and it is stated that the information is lacking and asymmetric and therefore market disruptions come to the forefront. Information created under certain conditions that economic agents use in their decisions and actions does not remove the problems of adverse selection and moral hazard. Information asymmetry among individuals will be minimized through institutions to be established in the obtaining, usage, and transfer of knowledge. Institutions such as signaling and discrimination, which will be created in the labor market in particular, will be able to provide economic efficiency by selecting qualified staff and paying based on efficiency.

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