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Mixed signals : investment distortions with adverse selection

Darst, R. Matthew; Refayet, Ehraz - 2019

We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two …-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are … trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type …

Persistent link: https://www.econbiz.de/10012181247

Moral Hazard and Efficiency in General Equilibrium with Anonymous Trading

Acemoglu, Daron - 2010

A "folk theorem" originating, among others, in the work of Stiglitz maintains that competitive equilibria area always or "generically" inefficient (unless contracts directly specify consumption levels as in Prescott and Townsend, thus bypassing trading in anonymous markets). This paper...

Persistent link: https://www.econbiz.de/10013144184

Chapter 10. Recursive Contracts and Endogenously Incomplete Markets

Golosov, M.; Tsyvinski, A.; Werquin, N. - In: Handbook of macroeconomics : volume 2, v. 2A-2B SET, (pp. 725-841). 2016

In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems—the theory of recursive contracts. Recursive...

Persistent link: https://www.econbiz.de/10014024287

Enduring Relationships in an Economy with Capital and Private Information

Khan, Aubhik; Popov, Latchezar; Ravikumar, B. - 2020

We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to...

Persistent link: https://www.econbiz.de/10014048739

Moldy Lemons and Market Shutdowns

Chang, Jin-Wook; Darst, Matthew - 2022

This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass...

Persistent link: https://www.econbiz.de/10013293231

Why does the Cost of Credit Intermediation Increase for Small Firms Relative to Large Firms during Recessions? A Conceptual and Empirical Analysis.

Ramirez, Miguel; Pandey, Aalok - Department of Economics, Trinity College - 2012

. These firms are forced to cut back on their investment and consumption spending which, in turn, exacerbates the recession …

Persistent link: https://www.econbiz.de/10010692897

Inefficiency and regulation in credence goods markets with altruistic experts

Farukh, Razi; Kerkhof, Anna; Loebbing, Jonas - 2020

We study a credence goods problem - that is, a moral hazard problem with non-contractible outcome - where altruistic experts (the agents) care both about their income and the utility of consumers (the principals). Experts' preferences over income and their consumers' utility are convex, such...

Persistent link: https://www.econbiz.de/10012431181

Asymmetric information and the securitization of SME loans

Albertazzi, Ugo; Bottero, Margherita; Gambacorta, Leonardo - 2021

Using all loans granted to firms recorded in the Italian credit register, we estimate correlations between risk-transfer and default probabilities to gauge the severity of informational asymmetries in the loan securitization market. First, the analysis confirms the presence of information...

Persistent link: https://www.econbiz.de/10012487672

Norms, incentives and information in income insurance

Lindbeck, Assar; Persson, Mats - 2015

In this paper, we ask under what conditions norms can enhance welfare by mitigating moral hazard in income insurance. We point out a particular role of norms, namely to compensate for insurers' difficulties in monitoring the behavior of insured individuals. Thus, the functioning of social norms...

Persistent link: https://www.econbiz.de/10010482983

The optimal contract under adverse selection in a moral-hazard model with a risk-averse agent

Maréchal, François; Thomas, Lionel - In: Games 9 (2018) 1/12, pp. 1-22

This paper studies the optimal contract offered by a risk-neutral principal to a risk-averse agent when the agent’s hidden ability and action both improve the probability of the project being successful. We show that if the agent is sufficiently prudent and able, the principal induces a higher...

Persistent link: https://www.econbiz.de/10011849217

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