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.

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.

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 CEO Expertise and the Design of Compensation Contracts: Evidence from Generalist versus Specialist CEOs

2020 ◽  
Author(s):  
Chunbo Liu ◽  
Wei Shi ◽  
K. C. John Wei
Keyword(s):  
Labor Market ◽  
Information Asymmetry ◽  
Executive Compensation ◽  
Adverse Selection ◽  
Boards Of Directors ◽  
Incentive Pay ◽  
Firm Characteristics ◽  
Compensation Contracts ◽  
Optimal Contracting ◽  
Contracting Process

Generalist CEOs receive higher pay than specialist CEOs. We examine the implications of CEO expertise for the structure of executive compensation. We follow contract theory and predict that information asymmetry induces generalist CEOs to overstate their ability to a larger extent when contracting with shareholders. Boards of directors take this into account by designing compensation contracts that link their pay more closely to firm performance. Our empirical results support this prediction, and the link is more pronounced when generalist CEOs are less known in the executive labor market or are hired externally. The results hold after we control for a battery of factors that potentially affect incentive pay, including firm characteristics and CEO ability. Overall, our results support the optimal contracting perspective of executive compensation and highlight the importance of CEO expertise generality in resolving adverse selection during the contracting process.

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.

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.

Why Delegate?

Why Delegate? ◽  
2021 ◽  
pp. 1-18
Author(s):  
Neil J. Mitchell
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Real World ◽  
Principal Agent ◽  
Wide Applicability ◽  
Political World ◽  
Everyday Lives ◽  
Political Incentives ◽  
Do So

There is no escaping the delegation relationship, whether in our everyday lives or in the wider economic or political world. This chapter introduces the central concepts that help us understand delegation such as principal, agent, information asymmetry, moral hazard, adverse selection, can’t control and won’t control and the various incentives to delegate. The aims of the book are to develop a broader more descriptively useful logic of delegation that has wide applicability and to do so in an informal and accessible way using real world examples. The book is structured around the variety of economic and political incentives to delegate, stretching from saving time and effort to saving reputation and position and finding someone to blame for wrongdoing.

“Man to Loan $1500 and Serve as Clerk”: Trading Jobs for Loans in Mid-Nineteenth-Century San Francisco

1994 ◽  
Vol 54 (1) ◽  
pp. 34-63 ◽  
Author(s):  
F. Halsey Rogers
Keyword(s):  
Nineteenth Century ◽  
Labor Market ◽  
Moral Hazard ◽  
Financial Markets ◽  
Adverse Selection ◽  
San Francisco ◽  
Capital Market ◽  
Pacific Coast ◽  
New Employees ◽  
Capital Market Imperfections

This paper explores the phenomenon of “job-loan trading”—in which employers offered jobs in exchange for substantial loans from their new employees—as practiced in mid-nineteenth-century California. A sample of newspaper advertisements from 1857–76 reveals that despite the obvious inefficiencies of linking labor and capital markets, job-loan trading was both common and profitable. I assess labor market bonding against moral hazard or adverse selection as a possible explanation, but conclude that the job-loan trades primarily provide evidence of substantial Pacific Coast capital market imperfections. This conclusion has implications for the broader question of how financial markets develop.

scholarly journals Information asymmetry on the market of non-banking financial services in Ukraine: causes, consequences, methods of control

2016 ◽  
Vol 5 (1) ◽  
pp. 29-37 ◽  
Author(s):  
Valentyna Levchenko ◽  
Myroslav Ostapenko
Keyword(s):  
Moral Hazard ◽  
Information Asymmetry ◽  
Adverse Selection ◽  
Financial Services ◽  
Opportunistic Behavior ◽  
Information Asymmetries ◽  
Key Participants ◽  
The Impact ◽  
Methods Of Control

The article examines the features of the impact of information asymmetry on the key participants of the market of non-banking financial services in Ukraine. It defines the basic reasons of its existence on the market. The analysis of the consequences of information asymmetry for the functioning of non-banking financial services in Ukraine shows that it creates the conditions for opportunistic behavior and leads to adverse selection and moral hazard on the market. Based on the research of existing methods and approaches to the reduction of information asymmetries the paper offers recommendations to overcome this problem on the market of non-banking financial services in Ukraine

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