Professional Documents
Culture Documents
17
Markets with
Asymmetric
Information
Prepared by:
Fernando & Yvonn
Quijano
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.
CHAPTER 17 OUTLINE
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17.1
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17.1
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17.1
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17.1
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17.1
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17.1
Asymmetric information is
prominent in the free-agent
market. One potential purchaser,
the players original team, has
better information about the
players abilities than other teams
have.
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17.2
MARKET SIGNALING
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17.2
MARKET SIGNALING
Equilibrium
Figure 17.2
Signaling
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17.2
MARKET SIGNALING
Equilibrium
Figure 17.2
Signaling
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17.2
MARKET SIGNALING
CostBenefit Comparison
In deciding how much education to obtain, people compare the
benefit of education with the cost.
People in each group make the following cost-benefit calculation:
Obtain the education level y* if the benefit (i.e., the increase in
earnings) is at least as large as the cost of this education.
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17.2
MARKET SIGNALING
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17.3
MORAL HAZARD
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17.3
MORAL HAZARD
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17.4
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17.4
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17.4
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17.4
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17.4
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17.4
Suppose, for example, that the owners offer the repairperson the
following payment scheme:
(17.1)
Under this system, the repairperson will choose to make a high level
of effort.
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17.4
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*17.5
MANAGERIAL INCENTIVES IN AN
INTEGRATED FIRM
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*17.5
MANAGERIAL INCENTIVES IN AN
INTEGRATED FIRM
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*17.5
MANAGERIAL INCENTIVES IN AN
INTEGRATED FIRM
Figure 17.4
Incentive Design in an Integrated Firm
Applications
Companies are learning that bonus schemes provide better results.
The salesperson can be given an array of numbers showing the bonus as a function of
both the sales target chosen by the salesperson and the actual level of sales.
Salespeople will quickly figure out that they do best by reporting feasible sales targets
and then working as hard as possible to meet them.
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17.6
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17.6
Figure 17.5
Unemployment in a Shirking Model
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17.6
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