ch19 - CHAPTER 19 THE ECONOMICS OF INFORMATION The problems...

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CHAPTER 19 THE ECONOMICS OF INFORMATION The problems in this chapter stress the economic value of information and illustrate some of the consequences of imperfect information. Only a few of the problems involve complex calculations or utilize calculus maximization techniques. Rather, the problems are intended primarily to help clarify the conceptual material in the chapter. Comments on Problems 19.1 This problem illustrates the economic value of information and how that value is reduced if information is imperfect. 19.2 This is a continuation of Problem 18.5 that illustrates moral hazard and why its existence may prompt individuals to forego insurance. 19.3 Another illustration of moral hazard and how it might be controlled through cost-sharing provisions in insurance contracts. 19.4 This is an illustration of adverse selection in insurance markets. It can serve as a nice introduction to the topic of optimal risk classifications and to some of the economic and ethical problems involved in developing such classifications. 19.5 This is a simple illustration of signaling in labor markets. It shows that differential signaling costs are essential to maintaining a separating equilibrium. 19.6 An illustration of the economic value of price information. Notice that the utility of owning the TV is already incorporated into the function U ( Y ) so all Molly wants to do is minimize the TV’s cost. 19.7 A continuation of Problem 19.6 which uses material from the extensions to calculate the optimal number of stores to search. 19.8 A further continuation of Problems 19.6 and 19.7 that involves computation of an optimal reservation price. 19.9
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This note was uploaded on 11/06/2009 for the course ECON ECON111 taught by Professor Smith during the Spring '09 term at Punjab Engineering College.

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ch19 - CHAPTER 19 THE ECONOMICS OF INFORMATION The problems...

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