{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

econ201 - 14 Asymmetric Information General description...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
14 Asymmetric Information General description: Some agents in the market possess private infor- mation that is unobserved by the rest. Leads (often) to the failure of competitive market models (Walrasian equilibrium). Solution concept is Bayesian-Nash equilibruim: each type of each agent plays a best response against se- lected strategies of all the others. Example: Take-it-or-leave-it o ff ers.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Important economic applications: Markets for lemons Signaling Adverse selection Moral hazard Auctions cover the whole di ff erent (?) sub- class of problems. Ex1: IPV environment vs Akerlof lemons model. Ex2: Procurement auctions vs Signaling. 14.1 Lemons market Owner of the car (Seller) knows better informa- tion about the car – quality q [0 , Q ] – seller’s value. Buyer values any given car higher (if knew the quality) – V = 3 2 q . Suppose some seller can sell a car at p . Would do that if q p .
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}