Social Welfare in Search Games with Asymmetric Information

We consider a non-cooperative three-stage game played by two regulator-firm hierarchies. We suppose that raising public funds is socially costly and that market sizes are large enough. Contrary to what might be expected, we show that opening markets to international trade increases the per-unit emission-tax and decreases the per-unit R&D subsidy. It also increases the R&D level, production, and pollution when the marginal damage of pollution is sufficiently high, and, consequently, decreases the emission ratio and the social welfare. However, we think that these results might change if the market sizes are not too large or if we introduce asymmetric information.

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Optimization of Price, Default Ratio and Capital under Regulatory Criterion of Maximizing Social Benefit

Asia-Pacific Journal of Risk and Insurance ◽

10.1515/apjri-2017-0008 ◽

2018 ◽

Vol 12 (2) ◽

Cited By ~ 1

Author(s):

Hong Mao ◽

Zhongkai Wen

Keyword(s):

Asymmetric Information ◽

Social Welfare ◽

Social Benefit ◽

Insurance Market ◽

Insurance Companies ◽

Optimal Price ◽

Welfare Maximization ◽

Social Welfare Maximization ◽

Regulatory Criterion ◽

Direct Regulation

Abstract In this paper, we explore the optimal price, default ratio, and capital for insurance companies under social welfare maximization from regulators' perspective. From comparisons of cases under symmetric and asymmetric information in the insurance market, we find that an optimal regulatory objective should be set to maximize social benefit and induce fair benefit distribution in a transparent insurance market, and direct regulation on capital constraint can increase insurance demand and shareholders' benefits in a non-transparent market.

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Watershed Nutrient Trading Under Asymmetric Information

Agricultural and Resource Economics Review ◽

10.1017/s1068280500004020 ◽

2002 ◽

Vol 31 (2) ◽

pp. 221-232 ◽

Cited By ~ 9

Author(s):

Robert C. Johansson

Keyword(s):

Asymmetric Information ◽

Social Welfare ◽

Nonpoint Source ◽

Nutrient Pollution ◽

Second Best ◽

Nutrient Trading ◽

Monitoring Costs ◽

Efficiency Losses ◽

Shadow Value ◽

National Water

This study evaluates first- and second-best trading policies for regulating watershed phosphorus under asymmetric information. The trading policies are differentiated on the degree to which regulators observe point and nonpoint source abatement efforts. The efficiency losses attributable to these informational asymmetries and those of the second-best policies can be measured in social welfare, and provide regulators the shadow value of foregoing first-best measures. Given representative monitoring costs from national water monitoring programs, it is shown that under asymmetric information, the chosen second-best trading policies outperform first-best policies by 11% in the control of watershed nutrient pollution.

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Transaction Risk, Derivative Assets, and Equilibrium

Quarterly Journal of Finance ◽

10.1142/s2010139216500014 ◽

2016 ◽

Vol 06 (01) ◽

pp. 1650001 ◽

Cited By ~ 1

Author(s):

H. Henry Cao ◽

Dongyan Ye

Keyword(s):

Asymmetric Information ◽

Social Welfare ◽

Private Information ◽

Asset Prices ◽

Rational Expectations ◽

State Variables ◽

Underlying Asset ◽

Market State

We describe a rational expectations model in which there is not only asymmetric information about payoffs but also asymmetric information about the preference, proportion and precision of private information of investors. We define this payoff-irrelevant risk as transaction risk, which is described by market state variables unrelated to payoffs. When derivative assets are introduced, the prices of the derivative assets can reveal information about transaction risk. Due to the informational role of derivative-asset prices, introducing derivative assets can increase social welfare and the price of the underlying asset even though no investors are trading in these derivative assets.

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Incomplete Regulation, Asymmetric Information, and Collusion-Proofness

Economics Research International ◽

10.1155/2012/818716 ◽

2012 ◽

Vol 2012 ◽

pp. 1-17

Author(s):

Marco Meireles ◽

Paula Sarmento

Keyword(s):

Asymmetric Information ◽

Social Welfare ◽

Social Welfare Function ◽

Consumer Surplus ◽

Relative Importance ◽

Side Payments ◽

The Social ◽

Regulated Firm

In an incomplete regulation framework, the regulator cannot replicate all the possible outcomes by himself since he has no influence over some firms in the market. Due to asymmetric information, it may be better for the regulator to allow the unregulated firms to extract a truthful report from the regulated firm through side-payments under collusion, and therefore the “collusion-proofness principle” may not hold. In fact, by introducing an exogenous number of unregulated firms, social welfare differences seem to favour a collusion-allowing equilibrium. However, such result will depend on the relative importance given by the regulator to the consumer surplus in the social welfare function.

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