efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

the origins of ethnolinguistic diversity this study explores the determinants of ethnolinguistic diversity within as well as across countries shedding light on its geographic origins the empirical analysis conducted across countries virtual countries and pairs of contiguous regions establishes that geographic variability captured by variation in regional land quality and elevation is a fundamental determinant of contemporary linguistic diversity the findings are consistent with the proposed hypothesis that differences in land endowments gave rise to location specific human capital leading to the formation of localized ethnicities jel j15 j24 z13

the political economy of linguistic cleavages article i nfo this paper uses a linguistic tree describing the genealogical relationship between all 6912 world languages to compute measures of diversity at different levels of linguistic aggregation by doing so we let the data inform us on which linguistic cleavages are most relevant for a range of political economy outcomes rather than making ad hoc choices we find that deep cleavages originating thousands of years ago lead to better predictors of civil conflict and redistribution the opposite pattern emerges when it comes to the impact of linguistic diversity on growth and public goods provision where finer distinctions between languages matter 2011 elsevier b v all rights reserved

women s work and economic development using a cross country dataset and microdata from india and thailand we examine how women s work status changes with economic development several clear patterns emerge women s labor force participation first declines and then rises with development women move from work in family enterprises to work as paid employees fertility declines and gender gaps in education narrow women s education levels and those of their spouses appear to be important determinants of women s labor market activities broad welfare indicators such as mortality rates and education levels indicate that women s well being improves on average with development both in absolute terms and relative to men

growth forecasts belief manipulation and capital markets abstract we analyze how a benevolent privately informed government agency would optimally release information about the economy s growth rate when the agents hold heterogeneous beliefs we model two types of agent conforming and dissenting the former has a prior that is identical to that of the government agency whereas the latter has a prior that differs from that of the government agency we identify both informative and uninformative equilibria informative equilibria are equilibria in which the government agency s equilibrium signal leads to a revision of beliefs we demonstrate that the uninformative equilibria can in fact dominate the informative ones in terms of ex post social welfare

welfare improving asymmetric information in dynamic insurance markets this article presents a two period asymmetric learning model of insurance markets when information about past accidents is not shared by insurers asymmetries of information develop through time equilibrium contracts exist are payoff unique and display a realistic bonus malus pattern eliminating asymmetries through information sharing is welfare decreasing in contrast with past contributions on insurance and adverse selection when second period contract offers cannot be contingent on initial contract choice a strict increase in welfare is obtained through menus of contracts although initial contract choice is in itself worthless information

fishing downstream the political economy of effective administered protection it is common knowledge that consuming downstream industries are harmed by import barriers placed on primary or intermediate upstream products the authors empirically examine th e natural result of these forces the flow of protection winding its way downstream after first discussing the effects of upstream protecti on on the supply and demand for protection downstream the authors exam ine recent trends in u s antidumping and countervailing duty cases in t wo major industry sectors metals and chemicals which between them fil ed more than 70 percent of all such cases in both chemicals and metals the tendency for upstream import protection to spread downstream is observed

facilitating consumer learning in insurance markets what are the welfare effects we model a monopoly insurance market where consumers can learn their accident risks at a cost c we then ask what are the welfare effects of a policy that reduces c if c is sufficiently small c c marginally reducing c hurts the insurer and weakly benefits the consumer finally a reduction in c that is successful meaning that the consumer gathers information after the reduction but not before it can hurt both parties this article is protected by copyright all rights reserved

the value of public information in a cournot duopoly we derive alternative sufficient conditions for the value of public information to be either positive or negative in a cournot duopoly where firms technology exhibits constant returns to scale

can markets stimulate rights on the alienability of legal claims the alienability of legal claims holds the promise of increasing access to justice and fostering development of law i develop a principal agent framework where litigation funders provide expertise in reducing uncertainty in agents disutility of production the model leads to the counterintuitive prediction that litigation funders prefer cases with novel issues and social surplus is positively correlated with legal uncertainty consistent with the model court backlog court expenditures and a slowing in average time to completion are associated with third party funding cases with third party funding receive more citations and are reversed less often than comparable cases without such arrangements

does anticipated information impose a cost on risk averse investors a test of the hirshleifer effect this paper theoretically and empirically investigates how the risk of future adverse price changes created by the anticipated arrival of information influences risk averse investors trading decisions in institutionally imperfect capital markets specifically i examine how the selling activity of individual investors immediately following an earnings announcement is influenced by the tradeoff between risk sharing benefits of immediate trade and explicit transaction costs imposed on such trades consistent with my theoretically derived predictions i find that investors current trading decisions are less sensitive to the incremental transaction costs created by short term capital gains taxes on trading profits as both the duration and intensity of the risk of future adverse price changes increase this evidence is consistent with an incremental cost to investors that results from the revelation of precise information which is commonly referred to as the hirshleifer effect

information and securities a note on pareto dominance and the second best a unified analysis is provided of two related problems the first concerns the welfare impact of changing the set of tradeable securities in an incomplete market economy the second concerns the welfare implications of changing the common information structure faced by all agents both problems arise from a common second best framework in which expanding the set of trading opportunities can lead to a pareto worsening journal of economic literature classification number 026 rl 1987 academic press inc in this note we provide a unified analysis of two related problems the first concerns the welfare impact of changing the set of tradeable securities in an incomplete market economy the second concerns the welfare implifications of changing the common information structure faced by all agents we will discuss apparent paradoxial results that arise in both problems using a single geometric example the example provides a clear illustration of the source of the apparent paradoxes both problems arise from a common second best framework by second best we mean the lipsey lancaster 20 idea of additional constraints on allocations over and above resource availability constraints our discussion brings together two related but distinct literatures the we are greatly indebted to james ohlson for many constructive comments and to david kreps and n v long for comments on a previous draft

optimality of the disclosure of private information in a production exchange economy this study provides an analysis of the effects on individual welfare of information revelation in a production exchange economy it is shown that the total effect of information revelation on an agent s utility level may be decomposed into three elements a price effect a shareholding effect and a production effect through this decomposition it is demonstrated that although a pareto improvement need not result from information revelation there are perspectives from which the release can be considered beneficial the major conclusion of previous studies of information revelation in a heterogeneous beliefs economy is that the release will not result in general in an economic equilibrium pareto superior to that which would have existed without the disclosure this result by itself does not give an understanding of how information revelation affects agents utility nor does it give much guidance to those regulatory bodies charged with deciding whether or not to mandate information disclosure this study provides further insight into the effects on individual welfare of information revelation in a general production exchange economy it is shown that the total effect of information revelation on an agent s utility level may be decomposed into three elements a price effect a shareholding effect and a production effect the price effect is the change in the agent s utility caused by the change in prices resulting from the revelation of information keeping shareholdings and production fixed the shareholding effect is the change in his utility resulting from the change in his shareholdings caused by the release of information the production effect is the change in his utility caused by the change in the production plan of each firm due to the information revelation conditions are given under which the signs of these three effects will be positive or negative for a given agent the finding that the production effect is positive for some agents and negative for others is of particular interest since it is counter to a result of arrow and hirshleifer they have argued that owners of production processes gain utility by having information revealed before production plans are fixed because they are then able to adjust those plans to account for the additional information it is shown here that such a conclusion can only be made in general when owners of each production process have homogeneous beliefs finally it is

lobbying counterlobbying and the structure of tariff protection in poor and rich countries a political economy model of protection is used to determine endogenously the intersectoral patterns of protection three propositions are derived that are consistent with the stylized patterns of tariff protection in rich and poor countries nominal protection rates escalate with the degree of processing protection is higher on average in poor countries and rich countries protect agriculture relatively more than they protect manufacturing whereas poor countries do the reverse numerical simulations for archetypal rich and poor economies confirm that the endogenously determined structure of protection is broadly consistent with observed patterns of protection

information and the market for lemons this paper revisits akerlofs 1970 classic adverse selection market and asks the following question do greater information asymmetries reduce the gains from trade perhaps surprisingly the answer is no better information on the selling side worsens the buyers curse thus lowering demand but may shift supply as well whether trade increases or decreases depends on the relative sizes of these effects a characteization is given on the other hand improving the buyers information i e making private information public unambiguously improves trade so long as market demand is downward sloping

monetary mystique secrecy and central banking abstract the paper contains a discussion of the role of secrecy in the implementation of monetary policy it documents the federal reserve s defense of secrecy as argued in a recent freedom of information act suit the federal reserve s arguments are evaluated on the basis of economic theory theoretical papers related to the secrecy issue are reviewed the discussion highlights a number of potential benefits and costs of central bank secrecy and identifies some conditions under which secrecy could be socially beneficial

sufficient conditions for public information to have social value in a production and exchange economy conditions are derived under which all consumers in a production and exchange economy will prefer at least weakly disclosure of public information to no such disclosure the conditions involve consumer endowments the allocative efficiency of the financial market and value maximizing behavior by firms cases exist where consumers will prefer disclosure of public information in a production and exchange economy although they would be indifferent to such disclosure in an otherwise similar pure exchange economy the difference in results is due purely to the fact that in production and exchange economies information may be used to reallocate resources across time and firms thus highlighting the fundamental difference between the role of information in pure exchange and in production and exchange economies

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

the efficiency of competitive equilibria in insurance markets with asymmetric information abstract this paper addresses the relationship between competitive equilibria and efficient allocations in an insurance market with asymmetric information using the definition of second best efficiency proposed by harris and townsend 1981 for environments characterized by informational assmmetry the efficiency properties of several proposed market equilibria are examined we find an analogue to the first optimality theorem a miyazaki wilson equilibrium always results in a second best allocation

contracts with endogenous information abstract i study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition when posteriors satisfy two dimensional versions of the standard first order stochastic dominance and concavity convexity of the distribution function conditions a first order approach is justified under the same conditions informativeness and riskiness of reports are equivalent high powered contracts that make the agent s informational rents more risky are used to increase incentives for information acquisition insensitive contracts are used to reduce incentives for information gathering the value of information to the agent is always positive the value of information to the principal is ambiguous

mechanism design by an informed principal private values with transferable utility we provide a solution to the informed principal problem in the independent private values setting with monetary transfers the principal s private information creates signaling considerations that may distort the implemented allocation we show that there is no distortion all principal types implement an allocation that is optimal for the principal ex ante before he she learns his her type as an application we consider settings with linear utility for bilateral exchange in which the principal is one of the traders the solution is a combination of a participation fee a buy out option for the principal and a resale stage with posted prices

the use of mathematical models in financial accounting well over a year ago it was proposed that i write a survey paper for this conference which discussed the role of mathematical models in financial accounting the difficulty with this assignment is that mathematical models have been used to address a wide variety of issues in financial accounting and a paper which touched on all of them would probably be unable to examine any single one in depth therefore i have chosen in financial accounting three popular mathematical modeling themes and have interpreted these themes in the context of a competitive equilibrium market model to lend greater cohesiveness to the discussion i refer to the three topics chosen as 1 assessing the consequences of public disclosure 2 formalizing the notion that markets are efficient with respect to information and 3 understanding the effect of increased public disclosure on private incentives to acquire information other areas in financial accounting which use mathematical models but are not discussed here include income measurement valuation models i e models which map accounting variables or other information into equi

cascading contingent protection and vertical market structure abstract cascading contingent protection may occur when protection of an upstream industry transfers injury to the downstream industry and increases the likelihood that this industry asks and receives protection this paper examines cascading protection within a sequential petitioning model where the upstream industry acts as leader the analysis identifies market structure and the vertical linkage between the upstream and the downstream industry as important determinants of the occurrence of cascading protection it is shown that the circumstances which make cascading protection more likely to occur also make it more likely that this protection has serious negative welfare consequences

women empowerment and economic development women empowerment and economic development are closely related in one direction development alone can play a major role in driving down inequality between men and women in the other direction empowering women may benefit development does this imply that pushing just one of these two levers would set a virtuous circle in motion this paper reviews the literature on both sides of the empowerment development nexus and argues that the interrelationships are probably too weak to be self sustaining and that continuous policy commitment to equality for its own sake may be needed to bring about equality between men and women

competition policy collusion and tacit collusion in this paper i pursue three goals the first is to model collusion in a way that is distinct from noncooperative collusion the second and third are to develop a particular specification of a standard model of noncooperative collusion that permits explicit solution for equilibrium outputs and reversion thresholds and to extend this analysis to allow for a deterrence based competition policy that investigates conduct based on observed high prices investigation thresholds

toward a theory of financial accounting welfare and public information in this paper we employ the concepts of neoclassical welfare economics to consider the role of publicly available information in various market configurations modeling pure exchange economies the need for such a study arises for several reasons first while the existing process of producing and disseminating accounting information may with some oversimplification be described as generating publicly available information there has been no systematic study of the effects of such a process on either the allocational efficiency of a market or on the broader welfare implications of such information for the participants transacting in such a market second the existing literature fails at least to some extent to capture the flavor or spirit of the role of public information in a market setting at first glance it might appear that information would have no social benefit in a pure exchange economy since it does not increase the aggregate supply of consumptive goods across states and dates as will be demonstrated this impression is not justified as a general conclusion the important dimension of information is that it affects perceived risks

competition with hidden knowledge in markets where product quality is diffuse and verification by buyers is sufficiently costly high quality sellers have an incentive to signal to buyers by investing in some activity that is more costly for low quality sellers unfortunately with competition among buyers over the price paid for each level of the signal there is in general no nash equilibrium however it is sufficient for equilibrium that i low quality sellers would under symmetric information choose not to enter the market and ii the rate at which the marginal cost of signaling declines across types is sufficiently large

speculation optimism and differential information speculative trading has for quite some time been an important question for at least two reasons firstly as a positive question of whether speculative behavior basically is caused by differences in information or by differences in aversion to risk secondly the question is related to the informational efficiency of decentralized market systems if access to information not currently available to the market makes possible a speculative profit the incentive to acquire information may be too excessive from a social point of view the aim of this paper is to clarify the relationship between information and speculation in his seminal article on information acquisition in decentralized market economies hirshleifer 12 showed that the private value of acquiring information depends critically on the speculative profits to be made from this information hirshleifer 12 distinguished between information foreknowledge which affects productive decisions and information which only has implications for exchange similarly fama and laffer 5 distinguish between operational information which improves a firms operating decisions and trading information which only affects trading decisions it is argued due to the speculative profits to be made from having access to information not available to the market that there are excessive private incentives to acquire information without any relevance for productive decisions

the chilling trade effects of antidumping proliferation advocates of antidumping ad laws downplay their negative effects by arguing that the trade flows that are subject to ad are small and their distortions negligible but while the adverse effect of ad on product level trade has long been established the question remains whether there are trade effects at the aggregate level the recent proliferation wave of ad laws and their use provides us with a unique policy change to estimate the true trade effects of adopting and enforcing ad laws for this purpose we estimate the effect of ad on bilateral trade flows between the new adopters of ad laws and their trade partners using a gravity model of annual observations 1980 2000 our estimates show that ad has trade chilling effects on aggregate import volumes but the impacts are heterogeneous across sectors we find that new tough users experience a chilling of their aggregate imports of 14 billion us a year or 5 9 as a result of ad measures for some countries like mexico and india the dampening effects of ad laws on trade flows are found to substantially offset the increase in trade volumes derived from trade liberalization

perfect equilibria in sequential bargaining games with nonlinear utility functions bargaining over a price between a seller and a buyer is analyzed as a noncooperative sequential game the perfect equilibrium of the game depends on the shape of the players utility functions which may be nonlinear it also depends on the discount rates of the two players if discount rates approach zero and the ratio between them equals one the equilibrium price will correspond to the nash bargaining solution a bargaining game with a finite number of potential bargaining periods is also studied the equilibrium price approaches the nash bargaining price when the number of potential periods becomes large

the value of information in efficient risk sharing arrangements suppose that agents share risks in competitive markets we show that better information makes everyone worse off if the economy has a representative agent that is the economy s demand for state contingent consumption equals the demand of a hypothetical agent who owns all the economy s wealth the representative agent moreover is normatively unrepresentative although each agent dislikes information the representative agent is indifferent although we emphasize pure exchange our results imply that a representative agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing even if it performs well otherwise

gender inequality and economic growth a cross country analysis abstract this paper investigates empirically the determinants of economic growth for a set of semi industrialized export oriented economies in which women provide the bulk of labor in the export sector the primary hypothesis tested is that gender inequality which contributes to women s relatively lower wages was a stimulus to growth via the effect on exports during 1975 95 empirical analysis shows that gdp growth is positively related to gender wage inequality in contrast to recent work which suggests that income inequality slows growth evidence also indicates that part of the impact of gender wage inequality on growth is transmitted through its positive effect on investment as a share of gdp

gathering information before signing a contract after being offered a contract an agent has the possibility to observe the state of nature this enables him to refuse the contract in unfavorable states but burdens him with an observation cost the authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms later they show that the principal finds it profitable to organize competition between several agents even though he has monopoly power and can push a single agent down to his reservation utility copyright 1992 by american economic association

quick responses in duopoly ensure monopoly pricing if firms in a homogeneous duopoly game can respond with negligible delay to their rival s price changes equilibrium is unique at the monopoly price

managed trade the us mexico sugar suspension agreements under the 1994 north american free trade agreement mexican sugar producers were ultimately granted free access to the us sugar market while all other suppliers including us refiners were subject to supply quotas following a surge in imports of mexican sugar the american sugar coalition initiated anti dumping and countervailing duty adcvd proceedings against mexico in early 2014 in december 2014 the adcvd cases were halted as a result of two suspension agreements negotiated between the us and mexico this paper contributes to a small number of empirical studies that have estimated the impact of suspension agreements we measure the impacts of the adcvd filings and the suspension agreements on us domestic raw and refined prices the raw to refined margin and the quantity and composition of sugar imports from mexico results suggest us raw sugar prices increased by 3 per lb 14 under adcvd proceedings equivalent to an ad valorem tariff between 40 and 50 while the suspension agreements increased us raw sugar prices by 5 70 tariff equivalent us refined sugar prices increased by similar amounts under the adcvd proceedings and the suspension agreements 4 5 per lb ultimately both the adcvd proceedings and the suspension agreements significantly reduced sugar imports from mexico us sugar refiner economic welfare hinges critically on the quantity and composition of raw sugar imports as such refiner revenue following the adcvd filings and suspension agreements is estimated to have declined by 16 relative to a free trade environment

wto tariff commitments and temporary protection complements or substitutes abstract there is a long held notion in the trade policy literature that traditional tariff instruments and temporary protection tp measures are substitutes despite this prediction there is only mixed empirical evidence for a link between tariff reductions and the usage pattern of antidumping safeguard and countervailing duties based on recent theoretical advances i argue in this paper that the relevant trade policy margin for implementing tp measures is instead tariff overhangs the difference between wto bound and applied tariffs lower tariff overhangs constrain countries to raise their mfn applied rates without legal repercussions independent of past tariff changes using detailed sectoral data for a sample of 30 wto member countries during the period 1996 2014 i find strong evidence for an inverse link between tariff overhangs and tp activity this result implies that tariff overhangs and tp measures are substitutes vindicating the importance of existing tariff commitments as a key determinant of alternative protection instruments

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

persistence of gender inequality the role of ethnic divisions gender inequality remains a fundamental challenge for global policymakers given that it has detrimental implications for growth and human capital formation however studies examining the roots of

the political economy of scandinavian neutrality the article examines whether three of the neutral nations of eu rope sweden switzerland and finland have adhered to their choice of armed neu trality by being self reliant on their own defenses using a joint product model the authors specify a reduced form equation for a nation s demand for military expenditures empirical estimates of these demands suggest that sweden free rod e on nato after institution of the doctrine of flexible response however the o thertwo netural nations have been self reliant throughout the period 1957 82 w ith pooled data cross equation restrictions highlight theessential differences between nato and nonaligned scandinavian countries copyright 1986 by the editors of the scandinavian journal of economics

endogenous information adverse selection and prevention implications for genetic testing policy we examine public policy toward the use of genetic information by insurers individuals engage in unobservable primary prevention and have access to different prevention technologies thus insurance markets are affected by moral hazard and adverse selection individuals can choose to take a genetic test to acquire information about their prevention technology information has positive decision making value that is individuals may adjust their behavior based on the result of the test however testing also exposes individuals to uncertainty over the available insurance contract so called classification risk which lowers the value of information in our analysis we distinguish between four different policy regimes determine the value of information under each regime and associated equilibrium outcomes on the insurance market we show that the policy regimes can be pareto ranked with a duty to disclose being the preferred regime and an information ban the least preferred one

social value of public information re examined abstract as an extension of hirshleifer s horse race example into a competitive exchange market framework this paper quantitatively re examines the condition under which social value of public information can be positive for a prototype economy of two risk averse traders we prove that their discordance of beliefs makes the social value of a certain class of inconclusive information either positive or negative depending on whether their endowments are or are not predominantly associated with states they regard as more probable whereas it has been known that information acquisition is always socially wasteful under concordant beliefs

supplying information to facilitate price discrimination the authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller s product improved private information for buyers enables the seller to segment the market and charge higher prices to high value buyers however improved information can also provide rents to buyers in a variety of settings this tradeoff is optimally resolved at one of two extremes either buyers are supplied with the best available knowledge of their tastes or no information is supplied by the seller copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the value of screening mechanisms under alternative insurance possibilities abstract this paper investigates the welfare implications of symmetrical improvements in information and accompanying screening mechanisms which allow for improved matching of individuals to their respective risk classes unlike previous models used to investigate this phenomenon this paper allows for the possibility that individuals differ not simply according to exogenously specified unequal loss probabilities but rather that individuals possess different self protection technologies moreover various insurance contracting possibilities are also considered it is demonstrated that the structural form of the heterogeneity of technologies and the type of insurance contracts available in the market determine in an interactive way the value of information which improves the matching of individuals to risk class

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

on noncooperative oligopoly equilibrium in the multiple leader follower game abstract in this paper we provide new proofs of existence and uniqueness of a stackelberg market equilibrium for a multiple leader follower noncooperative oligopoly model in which heterogeneous firms compete on quantities to this end we consider a two stage game of complete and perfect information in which many leaders interact strategically with many followers the stackelberg market equilibrium constitutes a pure strategy subgame perfect nash equilibrium of this game existence and uniqueness are more difficult to handle in this framework insofar as the presence of several leaders and followers displays a richer set of strategic interactions then to prove existence we notably provide a new procedure to determine the conditions under which the optimal behavior of the followers may be written as functions of the sole strategy profile of the leaders some examples outline our procedure and discuss our assumptions

endogenous private information structures we formally incorporate the option to gather information into a game and thus endogenize the information structure we ask whether models with exogenous information structures are robust with respect to this endogenization any nash equilibrium of the game with information acquisition induces a nash equilibrium in the corresponding game with an exogenous structure we provide sufficient conditions on the structure of the game for which this remains true when nash is replaced by sequential we characterize the sequential nash equilibria of games with exogenous information structures that can arise as a sequential nash equilibrium of games with endogenous information acquisition

genetic adverse selection evidence from long term care insurance and huntington disease abstract individual personalized genetic information is increasingly available leading to the possibility of greater adverse selection over time particularly in individual payer insurance markets we use data on individuals at risk for huntington disease hd a degenerative neurological disorder with significant effects on morbidity to estimate adverse selection in long term care insurance we find strong evidence of adverse selection individuals who carry the hd genetic mutation are up to 5 times as likely as the general population to own long term care insurance this finding is supported both by comparing individuals at risk for hd to those in the general population and by comparing across tested individuals in the hd risk population with and without the hd mutation

gathering information before the contract is offered the case with two states of nature abstract focusing on a baron myerson model with two states of nature in the first part of the paper we study the contract that a principal would offer to an agent when he does not know whether the agent is informed or not about the state of nature in the second we endogenize the information of acquisition and show that in equilibrium a baron myerson type contract will never be offered

steel safeguards and the welfare of u s steel firms and downstream consumers of steel a shareholder wealth perspective this paper analyses the steel safeguards applied during 2001 3 results reveal that for shareholders of u s steel companies safeguards generated positive abnormal returns of approximately 6 the cancellation of the safeguards resulted in wealth gains of about 5 steel shareholders experienced negative abnormal returns of 5 in response to the wto ruling that the u s had violated wto law our results are consistent with the neoclassical view that producers gain at the expense of consumers also findings indicate that downstream consuming firms that diversify production in nafta countries avert some trade policy risk associated with higher steel costs caused by safeguard protection ce texte analyse l effet de la protection des acieries americaines au cours de la periode 2001 03 les resultats montrent que pour les actionnaires des societes americaines cette protection a engendre des profits anormaux de l ordre de 6 l annulation de cette protection a resulte en des gains de richesse d environ 5 les actionnaires des acieries ont subi des rendements anormaux negatifs de l ordre de 5 a la suite de la decision de l omc a savoir que les etats unis avaient enfreint la loi ces resultats sont consistants avec le point de vue neo classique qui suggere que les producteurs gagnent au detriment des consommateurs de plus les resultats indiquent que les entreprises consommatrices d acier en aval qui ont diversifie leur production dans les pays de l alena se sont premunies contre certains risques associes a la politique commerciale et aux hauts couts de l acier engendres par la protection

mixed strategy equilibrium in a market with asymmetric information in the mid 1970s several authors studied models of markets with asymmetric information in which equilibria do not exist although those authors focused on models of insurance and education it was recognized that similar nonexistence problems arise in a wide class of models with asymmetric information recently dasgupta and maskin have demonstrated that for a game theoretic version of at least one of those models although no equilibria may exist in pure strategies equilibria exist in mixed strategies in the present paper we construct a mixed strategy equilibrium for one member of the class spence s signalling model of education qualitative features of the equilibrium are explored

advantageous effects of regulatory adverse selection in the life insurance market we analyse the effects of regulations prohibiting the use of information to risk rate premiums in a life insurance market new information derived from genetic tests is likely to become increasingly relevant in the future many governments prohibit the use of this information thereby generatingregulatory adverse selection in our model individuals early in their lives know neither their desired level of life insurance later in life nor their mortality risk but learn both over time we obtain both positive and normative results that differ qualitatively from those in standard static models legislation prohibiting the use of genetic tests for ratemaking may increase welfare the effort to sequence the human genome completely is now effectively com pleted although a comprehensive understanding of the effects of most genes on health and mortality risks will still take substantial further effort it is likely that in the medium term future more and more information relevant to ratemaking in the life health and long term care insurance markets will become available in particular we will learn the effects of many genes on the likelihood of various illnesses and consequently individualslife expectancy 1 moreover new genetic tests for these genes will likely become much cheaper 2 allowing this information to be used by insurers raises the prospect of substantial changes in future pricing

on the status of the nash type of noncooperative equilibrium in economic theory in economic theory the nash type of noncooperative equilibrium is a widely used equilibrium concept nevertheless the concept is frequently misunderstood and misleading explanations and interpretations are often given this paper presents a sample of such frequently appearing misleading explanations and goes on to explain why they are misleading the case for using the nash noncooperative equilibrium concept is stronger than what is implied by the many misleading statements found in the literature a basic issue is whether it can be argued that decisions in accordance with the noncooperative equilibrium theory are individually rational decisions this issue is not covered by the classical rationality postulate in economic theory this problem is tackled by stating certain postulates which may be taken as defining individual rationality in situations of noncooperative interaction it is shown that nash behavior satisfies these postulates

holdups simple contracts and information acquisition abstract in a typical procurement setup several recent papers have shown that when complete contracting is not possible simple noncontingent contracts may suffice to solve the under investment problem this paper points out that a noncontingent contract offer such as a fixed price contract may induce the seller to acquire information on the future course of costs and only to accept the offer if the cost is low it is shown that sometimes the buyer prefers to wait and buy on the spot market than to offer a long term contract when the seller rejects a contract offer or the buyer chooses not to make one the seller will not make efficient investments because he expects to be held up on the spot market

optimal health insurance for multiple goods and time periods we examine the efficiency based arguments for second best optimal health insurance with multiple treatment goods and multiple time periods correlated shocks across health care goods and over time interact with complementarity and substitutability to affect optimal cost sharing health care goods that are substitutes or have positively correlated demand shocks should have lower optimal patient cost sharing positive serial correlations of demand shocks and uncompensated losses that are positively correlated with covered health services also reduce optimal cost sharing our results rationalize covering pharmaceuticals and outpatient spending more fully than is implied by static one good or one period models

segregation and the quality of government in a cross section of countries we provide a new compilation of data on ethnic linguistic and religious composition at the subnational level for a large number of countries using these data we measure segregation of groups within the country to overcome the endogeneity problem that arises because of mobility and endogenous in ternal borders we construct an instrument for segregation we find that more ethnically and lin guistically segregated countries i e those where groups live more spatially separately have a lower quality of government there is no relationship between religious segregation and governance trust is an important channel of influence it is lower in more segregated countries jel hi 1 h77 j15 017 z12 z13 racial and religious conflicts are often associated with poor politicoeconomic performance especially in developing countries economists have recently turned their attention to ethnolinguistic fractionalization as an explanation of differences in the pace of development starting with an influential paper by william easterly and ross levine 1997 since then many others have shown that fractionalization is negatively correlated with a host of policy outcomes and the quality of government 1 however many ethnically diverse countries the united states for instance are quite successful what makes different countries more or less capable of handling

market responses to antidumping laws some evidence from the u s chemical industry in this paper the authors provide empirical evidence of the effects of the u s antidumping law using monthly product specific macroeconomic data from the u s chemical industry over the 1976 88 period they analyze import responses highlighting the differences between allegedly dumped and nondumped import behavior at the various stages of an antidumping investigation the authors find a wide range of behavioral responses that do not necessarily appear to be dependent upon the final outcome of the investigations and in some cases contradict the accepted wisdom of the impacts these cases have upon import behavior

inequality does cause underdevelopment insights from a new instrument consistent with the provocative hypothesis of engerman and sokoloff 1997 2000 this paper confirms with cross country data that agricultural endowments predict inequality and inequality predicts development the use of agricultural endowments specifically the abundance of land suitable for growing wheat relative to that suitable for growing sugarcane as an instrument for inequality is this paper s approach to problems of measurement and endogeneity of inequality the paper finds inequality also affects other development outcomes institutions and schooling which the literature has emphasized as mechanisms by which higher inequality lowers per capita income it tests the inequality hypothesis for development institutional quality and schooling against other recent hypotheses in the literature while finding some evidence consistent with other development fundamentals the paper finds high inequality to independently be a large and statistically significant barrier to prosperity good quality institutions and high schooling

informing consumers about their own preferences we analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences e g about their future demand for a utility such as electricity or telecommunication when more consumers become informed we show that this benefits also those consumers who remain uninformed as it reduces the firm s incentives to extract information rent by reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage policy can further improve welfare as contracts become more efficient the last observation stands in contrast to earlier findings by cremer and khalil american economic review 1992 where all consumers are uninformed

axiomatic characterizations of rational choice in strategic environments for more than forty years economists have wrestled with the elusive notion of rational behavior in strategic environments generating a variety of competing approaches even for simple simultaneous move games four distinct solution concepts including the notions of nash equilibria correlated equilibria rationalizability and iterated dominance currently have some standing as theories of strategic rationality here i propose four axioms for rational choice in strategic environments and use these to characterize the sets of pure strategies that players may select under each of the solution concepts mentioned above my results underscore both the similarities and differences between the four concepts

sufficient and necessary conditions for information to have social value in pure exchange this paper extends corrects and unifies earlier statements concerning the social value of public information as well as the no trading conditions in pure exchange sufficient and necessary conditions are provided for both the single period and two period cases in a postsignal trading model the social value of information is shown to be closely linked to the allocational efficiency of the market the degree of homogeneity of prior beliefs and of information structures the time additivity of preferences and the efficiency of endowments we conclude that the case in favor of public information is much stronger than previously suggested

on allocative distortions in problems of self selection this article considers the general structure of self selection models by imposing conditions which permit the ordering of agents by their preferences we provide a characterization of the distortions inherent in the sorting process

the efficiency effects of categorical discrimination in the insurance industry recent public policy debate has focused concern on the equity dimensions of categorical discrimination based on sex age or race in insurance and similar markets we consider the efficiency effects of such discrimination and establish that costless imperfect categorization always enhances efficiency when categorization entails a nonnegligible resource cost however no unambiguous efficiency ranking of informational regimes is possible when categorization is costless we demonstrate that government having no better information than market participants can effect redistribution without assuming dictatorial control of the market implying that a market equilibrium with costless categorization is potentially pareto superior to one without it when categorization is costly however the market may categorize when pareto improvements are not possible

the social value of hidden information in adverse selection economies abstract when agents possess imperfect hidden knowledge at the time contracts are negotiated the social value of agents having access to additional hidden knowledge before contracts are implemented is positive to the extent that incentive constrained agents are sorted more finely but is negative to the extent that incentive constraining agents impose more stringent signalling requirements on others hence the intuition developed by hirshleifer 1971 marshall 1974 and milgrom and stokey 1982 that privately acquired information has neither positive nor negative social value when agents possess no prior hidden knowledge does not apply when agents possess imperfect hidden knowledge during contractual negotiations

smoking skydiving and knitting the endogenous categorization of risks in insurance markets with asymmetric information we analyze the efficiency and market equilibirum effects of endogenous categorization where insurance companies classify risks on the basis of insureds voluntary consumption of products that are correlated with underlying loss propersities and we show that the use of such categorization may permit the attainment of first best allocations as competitive nash equilibria the optimal insurance premium involves a trade off between the use of categorization to correct moral hazard externalities generated by the consumption of the product and the use of differential consumption to sort heterogeneous consumers thereby mitigating the social costs of adverse selection the efficiency consequences of taxing or subsidizing aggregate as opposed to individual consumption is also considered

testing in models of asymmetric information this paper explores the role of testing in models of asymmetric information we demonstrate conditions under which testing for underlying characteristics can overcome adverse selection problems and lead to a full information competitive equilibrium this paper provides a more general statement of mirrlees result on the optimal use of infinite fines where testing cannot fully resolve the problems associated with asymmetric information we outline the source of the difficulties our results developed in the context of a labour market can be directly extended to other environments in problems with asymmetric information testing to discover an agent s chosen action or underlying characteristics may significantly reduce the cost of moral hazard and adverse selection

adverse selection with endogenous information in insurance markets abstract models of adverse selection assume that risk type is known to the consumer but not to the insurer many analyses suggest that information has zero social value and negative prior value why then would consumers become informed what is the incentive to gather information and why does adverse selection arise we show that the private value of information is non negative only if insurers cannot observe consumers information status or if consumers can conceal their informational status we examine the existence and characterization of equilibria under different configurations of information costs and benefits finally we examine some welfare implications of the endogenous information model for public policy regarding genetic testing and for state regulations concerning hiv testing

the value of genetic information in the life insurance market abstract this paper analyzes the effects of additional information in a life insurance market under adverse selection individuals have an incentive to acquire information about their risk type if their informational status cannot be observed by insurers in aggregate however the existence of a testing opportunity has an effect on the equilibrium premium we describe the conditions under which from an ex ante standpoint all individuals gain all lose or in which some gain and some lose from the existence of the test

blackwell s ordering and public information abstract we characterize a precise comparative static on welfare and the amount of public information in an economy under uncertainty results dating to hirshleifer amer econom rev 61 1971 561 have suggested that information can have negative value in such a setting but counterexamples using competitive equilibrium outcomes have suppressed general results to this effect we show that under the solution concept of implementable allocations the negative relationship between more public information in the sense of blackwell and welfare is fully general furthermore blackwell s ranking is necessary as well as sufficient to obtain our ranking and hence ours provides an equivalent characterization of his ordering

gender inequality endogenous cultural norms and economic development this research focuses on the role played by cultural norms in the long run persistence of gender inequalities cultural norms about gender roles are considered to be endogenous and can generate gender inequality and low development traps indeed when the gender gap is internalized it leads to inegalitarian views about gender roles due to these inegalitarian beliefs boys receive more education and the initial gender gap is reinforced the existence of gender inequality traps is pointed out by the world bank as a major obstacle for economic development wdr 2006 the present article allows for a better understanding of the persistence of such traps and the means to escape

economic versus cultural differences forms of ethnic diversity and public goods provision groups between group inequality bgi we show that elf cultural fractionalization cf and bgi measure different things and that the choice between them has an important impact on our understanding of which countries are most ethnically diverse furthermore empirical tests reveal that bgi has a large robust and negative relationship with public goods provision whereas cf elf and overall inequality do not diversity is widely held to make governance more difficult such diversity is associated with low production of public goods poor economic growth and high levels of corruption violence and civil conflict but diversity hardly sentences a country to poor political and economic outcomes latvia for example has better governance indicators than brazil and zambia has better governance indicators than nigeria even though these pairs of countries have similar levels of ethnolinguistic fractionalization elf why then do some countries cope more successfully with ethnic diversity than others this article addresses this question by focusing on the

genetic testing in competitive insurance markets with repulsion from chance a welfare analysis a central theme in the international debate on genetic testing concerns the extent to which insurance companies should be allowed to use genetic information when offering insurance contracts we provide a welfare analysis of this issue within a model of an insurance market with asymmetric information having the following crucial feature in addition to a state contingent consumption profile a person s well being depends on her attitude towards resolution of future health uncertainty and this attitude varies across the population we present stylized facts that motivate this approach in the formal analysis we find that both tested high risks and untested individuals are equally well off whether or not test results can be used by insurers individuals who test for being low risks on the other hand are made worse off by not being able to verify this to insurers this implies that in terms of welfare a regulatory regime in which the use of genetic information by insurers is allowed is better than one in which it is not allowed

inside trading and incentives the traditional arguments against inside trading insiders take advantage of other investors inside trading profits overcompensate managers see ross 1979 too much information is collected if inside trading is allowed see fama and laffer 1971 hirshleifer 1971 emphasize the social costs of prohibiting such trading without explaining the private incentives shareholders have to sanction this trading the efficiency argument in favor of inside trading inside trading improves the functioning of the stock market because information as a public good will be underproduced unless those who acquire it profit through inside trading demsetz 1969 does not explain shareholders support of inside trading because the owners of a firm do not seek to improve the efficiency of the stock market by sacrificing trading profits to insiders several alternative hypotheses for shareholders failure to impose restrictions on inside trading have been advanced this paper analyzes shareholders incentives to sanction inside trading i show that if a manager of a firm is initially compensated with earnings contingent contracts then the welfare of that manager and all of the firm s shareholders can be improved by allowing the manager to trade on his private information this result is established in the context of a multiple principal the shareholders single agent the manager model with the manager s trades observable ex post and is robust with respect to the specification of investors preferences and the definition of stock market equilibrium the topic of this paper originated in conversations with steve allen his comments as well as those of nicholas dopuch daniel fischel sanford grossman merton miller robert verrecchia and other members of the workshops on the applications of economics and on accounting research both at the university of chicago are gratefully acknowledged 1 for a list of such arguments see references in manne 1966 chap 1

agri environmental schemes adverse selection information structure and delegation this work analyzes alternative designs of agri environmental schemes and how different incentive mechanisms impact on their overall efficiency it focuses on spatial targeting and delegation in an asymmetric information context first the optimal contract under adverse selection is modeled this model underlines the trade off between information rents and allocative efficiency the impact of spatial targeting is then addressed disaggregated information structures increase the optimal efforts asked of the farmers it may also involve higher information rents and may reduce the net contributions of some farmers finally the consequences of delegating authority within the principal agent relationship are investigated the results illustrate that spatial targeting and delegation when combined have asymmetric impacts on farmers payoffs

bargaining with endogenous information two ex ante identically informed agents play a double auction over the division of a trading surplus with endogenous information and common values this paper shows that if information acquisition is not observable three types of inefficiencies can arise if the information cost is in an intermediate range no pure strategy equilibrium with trade exists although the agents maintain symmetric information if the information cost is low any trading equilibrium exhibits costly information acquisition if the agents face asymmetric information cost the akerlof s lemons problem arises as a self fulfilling equilibrium and only partial trade occurs