scholarly journals Classroom Games: A Market for Lemons

1999 ◽  
Vol 13 (1) ◽  
pp. 205-214 ◽  
Author(s):  
Charles A Holt ◽  
Roger Sherman
Keyword(s):  
Asymmetric Information ◽  
Market Failure ◽  
Quality Standards ◽  
Full Information ◽  
Information Market ◽  
Market Outcomes ◽  
Market Prices ◽  
Total Surplus ◽  
Quality Grade ◽  
Low Levels

The incentives that arise in markets with asymmetric information are illustrated in the classroom exercise presented here. Student sellers choose both a quality ‘grade’ and a price for their products. Initially, both prices and grades for all sellers are posted, and buyers select from these offerings. In this full-information setup, the market prices and grades quickly reach efficient levels that maximize total surplus. Next, although sellers continue to choose grades and prices, only prices (not grades) are posted for buyers to see when they shop. The grades and prices then fall to inefficiently low levels. The observed market outcomes in this exercise can stimulate useful discussion of asymmetric information, market failure, and remedies such as quality standards and warranties.

scholarly journals The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation

2018 ◽  
Vol 10 (4) ◽  
pp. 211-242 ◽  
Author(s):  
Christopher R. Knittel ◽  
Ryan Sandler
Keyword(s):  
Market Failure ◽  
Social Cost ◽  
Deadweight Loss ◽  
Negative Externalities ◽  
Market Outcomes ◽  
Welfare Impact ◽  
Second Best ◽  
Pigouvian Taxes ◽  
Gasoline Taxes ◽  
Optimal Taxes

When consumers or firms don’t face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second-best optimal taxes. (JEL D62, H21, H23, H71, H76, Q53, R48)

Asymmetric Information and Corporate Risk Management by Using Foreign Currency Derivatives

2012 ◽  
Vol 15 (01) ◽  
pp. 1250004 ◽  
Author(s):  
Bingxuan Lin ◽  
Chen-Miao Lin
Keyword(s):  
Risk Management ◽  
Asymmetric Information ◽  
Information Asymmetry ◽  
Foreign Currency ◽  
Corporate Risk Management ◽  
Currency Derivatives ◽  
Medium Level ◽  
Low Levels ◽  
Corporate Risk ◽  
Very High

We examine how information asymmetry affects a firm's incentive to hedge versus speculate by using foreign currency derivatives. We find a quadratic relation between asymmetric information and a firm's risk management activities. In particular, we find that the firms facing medium level of information asymmetry are more likely to hedge, while firms with very high and low levels of asymmetric information tend to speculate. Moreover, we find that our results hold primary for firms operating in highly competitive industries.

Redesigning the Market for Volunteers: A Donor Registry

2020 ◽  
Vol 66 (8) ◽  
pp. 3528-3541 ◽  
Author(s):  
Stephanie A. Heger ◽  
Robert Slonim ◽  
Ellen Garbarino ◽  
Carmen Wang ◽  
Daniel Waller
Keyword(s):  
Field Experiment ◽  
Labor Markets ◽  
Whole Blood ◽  
Market Failure ◽  
Blood Donors ◽  
Market Outcomes ◽  
Market Clearing ◽  
Intention To Treat ◽  
Price Signals ◽  
Volunteer Labor

This paper addresses volunteer labor markets where the lack of price signals, nonpecuniary motivations to supply labor, and limited fungibility of supply lead to market failure. To address the causes of the market failure, we conduct a field experiment with volunteer whole blood donors where we introduce a market-clearing mechanism (henceforth: the Registry). Our intention-to-treat estimates suggest that subjects invited to the Registry, regardless of joining, are 66% more responsive to critical shortage appeals than control subjects. While the Registry increases supply during a critical shortage episode, it does not increase supply when there is no shortage; thus, the Registry significantly improves coordination between volunteer donors and collection centers, thereby improving market outcomes. We find evidence that the Registry’s effectiveness stems from crowding-in volunteers with purely altruistic motives and volunteers with a preference for commitment. This paper was accepted by Yan Chen, decision analysis.

Asymmetric Information, Market Power, and the Underpricing of New Stock Issues in Germany, 1882–1892

2010 ◽  
Vol 70 (3) ◽  
pp. 630-656 ◽  
Author(s):  
Caroline Fohlin
Keyword(s):  
Asymmetric Information ◽  
Market Power ◽  
Market Share ◽  
Agency Problems ◽  
Information Market ◽  
Nonfinancial Firms

Investors in new stock issues in Germany in the 1880s experienced low spreads between the price they paid for stock and the price at which they could sell the stock in the market. Stock issuing companies paid substantial fees to underwriting banks, and these costs increased with the underwriter's market share. Bank's faced lower issuing costs than did nonfinancial firms. These patterns are consistent with a situation in which underwriters exploited their access to better information (agency problems) and had market power, but do not support the supposed lemons problems that motivated the imposition of stringent regulations in 1896.

Designing Ecolabels In Order To Mitigate Market Failures

2005 ◽  
Vol 16 (4) ◽  
pp. 411-430 ◽  
Author(s):  
Douadia Bougherara ◽  
Gilles Grolleau
Keyword(s):  
Asymmetric Information ◽  
Qualitative Study ◽  
Public Goods ◽  
Market Failure ◽  
Jel Classification ◽  
Market Failures ◽  
Cognitive Support

For the market for ecofriendly characteristics of agrofood products to function effectively, means of mitigating asymmetric information, informational overload and public goods properties are necessary. Ecolabel success requires a design and an implementation capable of mitigating simultaneously these three sources of market failures. Our contribution differs from many to date by (1) introducing and analyzing the informational overload as a source of market failure and (2) considering the ecolabel, not only as a tool to re-establish information symmetry between the producer and consumer but also as a way to overcome informational overload and public goods problems. We analyze how these sources of market failures may be mitigated by providing information perceived as trustworthy, tying credence and public attributes to verifiable and private attributes and designing the ecolabel as a cognitive support for consumers. We provide an exploratory qualitative study of several French ecolabels to stress how they more or less succeed in attenuating the identified sources of market failures. Several implications for policymakers and managers are stressed. We conclude by suggesting several issues requiring further investigations. JEL Classification Numbers: D11, D21, L15

scholarly journals Transparency, asymmetric information and cooperation

2020 ◽  
Vol 50 (2) ◽  
pp. 267-294
Author(s):  
Gianna Lotito ◽  
Matteo Migheli ◽  
Guido Ortona
Keyword(s):  
Asymmetric Information ◽  
Public Goods ◽  
Social Behaviour ◽  
Partial Information ◽  
Relative Performance ◽  
The Other ◽  
Competitive Environment ◽  
Full Information ◽  
Public Goods Game ◽  
Per Se

Abstract We inquire experimentally whether asymmetric information in competitive settings and competition per se influence individual social behaviour. Participants perform a task and are remunerated according to two schemes, a non-competitive and a competitive one, then they play a standard public goods game. In the first scheme participants earn a flat remuneration, in the other they are ranked according to their performance and remunerated accordingly. Information about ranking and income before the game is played varies across three different treatments. We find that competition per se does not affect the amount of contribution. The time spent to choose how much to contribute is negatively correlated with the decision of cooperating fully. The main result is that full information about the relative performance in the competitive environment enhances the cooperation, while partial information reduces it.

scholarly journals Cream Skimming and Information Design in Matching Markets

2019 ◽  
Vol 11 (2) ◽  
pp. 250-276 ◽  
Author(s):  
Gleb Romanyuk ◽  
Alex Smolin
Keyword(s):  
Calculus Of Variations ◽  
Information Disclosure ◽  
Market Failure ◽  
Information Design ◽  
Full Information ◽  
Matching Markets ◽  
Coarse Information ◽  
Cream Skimming ◽  
Over Time

Short-lived buyers arrive to a platform over time and randomly match with sellers. The sellers stay at the platform and decide whether to accept incoming requests. The platform designs what buyer information the sellers observe before deciding to form a match. We show full information disclosure leads to a market failure because of excessive rejections by the sellers. If sellers are homogeneous, then coarse information policies are able to restore efficiency. If sellers are heterogeneous, then simple censorship policies are often constrained efficient as shown by a method of calculus of variations. (JEL C78, D82, D83)

Sustainability indicators for fisheries in integrated coastal area management

2000 ◽  
Vol 51 (5) ◽  
pp. 513 ◽  
Author(s):  
Charles Perrings
Keyword(s):  
Coastal Area ◽  
Market Failure ◽  
Sustainability Indicators ◽  
Economic Indicators ◽  
Market Prices ◽  
Coastal Systems ◽  
Coastal Area Management ◽  
The Impact ◽  
Area Management

The paper reviews the limitations of decentralized economic indicators (market prices) of the effect of land–ocean interactions on marine capture fisheries, considers the potential for improvement of those indicators, and identifies alternative indicators that can inform remedial policy where there is market failure. The primary indicators of the impact of land–ocean interactions on marine capture fisheries are decentralized prices net of the effect of taxes and subsidies; these are the indicators that guide private use of watersheds, and estuarine and coastal systems.

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