Harmful Unbundling

Companies have been unbundling their product: they have been selling separately products and services that were traditionally sold together. In doing so, they have raised their profits. This paper uses a model to show how companies can use unbundling to increase profits and decrease competition. Unbundling raises problems when it increases information cost, information asymmetry, and barriers to entry. This paper also discusses the US case laws that have grasped with these issues of bundling and unbundling.

In Pursuit of Knowledge: Preschoolers Expect Agents to Weigh Information Gain and Information Cost When Deciding Whether to Explore

When deciding whether to explore, agents must consider both their need for information and its cost. Do children recognize that exploration reflects a trade-off between action costs and expected information gain, inferring epistemic states accordingly? In two experiments, 4- and 5-year-olds (N=144; of diverse race and ethnicity) judge that an agent who refuses to obtain low-cost information must have already known it, and an agent who incurs a greater cost to gain information must have a greater epistemic desire. Two control studies suggest that these findings cannot be explained by low-level associations between competence and knowledge. Our results suggest that preschoolers’ Theory of Mind includes expectations about how costs interact with epistemic desires and states to produce exploratory action.

The role of information cost in student loan market

Student loans are popular among university in support of young people to afford tuition fees, as US change its financial aid policy from grants to loans. Thus, the efficiency in student loan market is very important for the development of higher education, especially, human capital formation in this process. To complement the centerpiece for the relationship between human capital formation, credit market and economic performance in long run, a model which is derived from Boyd and Smith 1 to explore the role of information cost in the market. This work tried to indicate the fact that, higher development in credit market reduces the information cost in student loans, which would lead to higher contribution of human capital formation to economic growth.

What Role(s) Do Village Committees Play in the Withdrawal from Rural Homesteads? Evidence from Sichuan Province in Western China

Village committees, as grassroots spontaneously formed by rural collective members in China’s hierarchy system, play an irreplaceable role in the management of rural public affairs. Based on the filed survey dataset taken from three pilot counties/districts in Sichuan province, we explored the significant role that village committees played in farmers’ withdrawal from rural homesteads (WRH). Our empirical results, according to binary logistic regression (BLR) modelling, indicated that the WRH was significantly affected by the triple roles of village committees, among which information intermediary was the most effective followed by the trust builder and then the coordinated manager. Firstly, village committees’ involvement facilitated the WRH by improving policy transparency and decreasing information cost. Secondly, the depth of village committees’ participation (i.e., being involved in multiple phases) positively affected the WRH given its signification of the participation of farmers. Whereas the breadth of participation (i.e., considering various demands of different participants) negatively affected the process of WRH by reducing the decision-making efficiency. Thirdly, farmers’ trust in institutions played a positive role in the WRH, but their confidence in village cadres had limited impact. We therefore argue that promising village committees should act as “all-round stewards” in the decision-making of rural households, which not only includes the transmit of information between those above and those below, but also needs to actively strive for farmers’ trust by letting their voice heard. Based on our empirical findings, this paper finally proposed some policy suggestions, such as strengthening mutual communication, empowerment of rural grassroots, encouraging farmers’ participation and improving formal institutions.

REAL OPTION SIGNALING GAMES OF DEBT FINANCING USING EQUITY GUARANTEE SWAPS UNDER ASYMMETRIC INFORMATION

We analyze the real option signaling game models of debt financing of a risky project under information asymmetry, where the firm quality is only known to the firm management but not outsiders. The firm decides on the optimal investment timing of the risky project that requires upfront fixed funding cost and subsequent operating costs. The fixed funding cost is financed via either direct bank loan or entering into a three-party equity guarantee swap (EGS) that involves a bank granting the loan and third party guarantor. Under the EGS agreement, the guarantor is obligated to pay all the future coupon stream to the bank upon default of the firm. In return for the provision of the guarantee, the guarantor obtains certain proportional share of equity of the firm at the time when the swap agreement is signed. The share of equity demanded by the guarantor depends on the outside investors’ belief on the firm quality. The low-type firm has the incentive to mimic the investment strategy of being high-type in terms of investment timing and share of equity. The high-type firm may adopt the appropriate separating strategy by speeding up investment or choosing an alternative financing choice. The resulting loss of the real option value of the investment opportunity represents the information cost under separating strategies. We examine the incentive compatibility constraints faced by the firm under different quality types and discuss characterization of the separating and pooling equilibriums. Unlike the usual assumption of perpetuity of investment opportunity, our real option model assumes the time window of the investment opportunity to be finite. We explore how the information cost and nature of separating and pooling equilibriums evolves over the finite time span of the investment opportunity. The information costs and investment thresholds exhibit interesting time-dependent behaviors. We examine the firm’s investment and financing choice between EGS and the direct bank loan against time and other parameters via comparison of the corresponding information costs and investment thresholds.