Adverse selection, credit and efficiency: The case of the missing market

We analyze a standard environment of adverse selection in credit markets. In our environment,entrepreneurs who are privately informed about the quality of their projects needto borrow in order to invest. Conventional wisdom says that, in this class of economies, thecompetitive equilibrium is typically inefficient.We show that this conventional wisdom rests on one implicit assumption: entrepreneurscan only access monitored lending. If a new set of markets is added to provide entrepreneurswith additional funds, efficiency can be attained in equilibrium. An important characteristic ofthese additional markets is that lending in them must be unmonitored, in the sense that it doesnot condition total borrowing or investment by entrepreneurs. This makes it possible to attainefficiency by pooling all entrepreneurs in the new markets while separating them in the marketsfor monitored loans.

Hiring and firing costs, adverse selection and long-term unemployment

In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model,firms use discretion in terms of whom to fire and, thus, low quality workers are more likely to be dismissed than high quality workers. Moreover, as hiring and firing costs increase, firms find it more costly to hire a bad worker and, thus, they prefer to hire out of the pool of employed job seekers rather than out of the pool of the unemployed, who are more likely to turn out to be 'lemons'. We use microdata for Spain and the U.S. and find that the ratio of the job finding probability of the unemployed to the job finding probability of employed job seekers was smaller in Spain than in the U.S. Furthermore, using U.S. data, we find that the discrimination of the unemployed increased over the 1980's in those states that raised firing costs by introducing exceptions to the employment-at-will doctrine.

Dynamic adverse selection and debt

This paper argues that the strategic use of debt favours the revelationof information in dynamic adverse selection problems. Our argument is basedon the idea that debt is a credible commitment to end long term relationships.Consequently, debt encourages a privately informed party to disclose itsinformation at early stages of a relationship. We illustrate our pointwith the financing decision of a monopolist selling a good to a buyerwhose valuation is private information. A high level of (renegotiable)debt, by increasing the scope for liquidation, may induce the highvaluation buyer to buy early at a high price and thus increase themonopolist's expected payoff. By affecting the buyer's strategy, it mayreduce the probability of excessive liquidation. We investigate theconsequences of good durability and we examine the way debt mayalleviate the ratchet effect.

A model of collateral, investment and adverse selection

This paper characterizes the relationship between entrepreneurial wealth and aggregate investmentunder adverse selection. Its main finding is that such a relationship need not bemonotonic. In particular, three results emerge from the analysis: (i) pooling equilibria, in whichinvestment is independent of entrepreneurial wealth, are more likely to arise when entrepreneurialwealth is relatively low; (ii) separating equilibria, in which investment is increasing inentrepreneurial wealth, are most likely to arise when entrepreneurial wealth is relatively highand; (iii) for a given interest rate, an increase in entrepreneurial wealth may generate a discontinuousfall in investment.

X-ray photoelectron spectroscopy of oxygen adsorbates on Al(111): Theory experiment

We present the result of polar angle resolved x¿ray photoemission spectroscopy on Al(111)/O and cluster calculations of the O(1s) binding energy (BE) for various model situations. In the experimental data two O(1s) peaks are observed, separated by 1.3 eV. The angular behavior (depth¿resolution) could indicate that the lower BE peak is associated with an O atom under the surface, and the higher BE peak with an O atom above the surface. Equally, it could indicate oxygen islands on the surface where the perimeter atoms have a higher O(1s) BE than the interior atoms. The cluster calculations show that the former interpretation cannot be correct, since an O ads below the surface has a higher calculated O(1s) BE than one above. Cluster calculations simulating oxygen islands are, however, consistent with the experimental data.

Debating the centre : the theory of principal qualificand (mukhyavisesya) in classical Indian philosophy

The theory of language has occupied a special place in the history of Indian thought. Indian philosophers give particular attention to the analysis of the cognition obtained from language, known under the generic name of śābdabodha. This term is used to denote, among other things, the cognition episode of the hearer, the content of which is described in the form of a paraphrase of a sentence represented as a hierarchical structure. Philosophers submit the meaning of the component items of a sentence and their relationship to a thorough examination, and represent the content of the resulting cognition as a paraphrase centred on a meaning element, that is taken as principal qualificand (mukhyaviśesya) which is qualified by the other meaning elements. This analysis is the object of continuous debate over a period of more than a thousand years between the philosophers of the schools of Mimāmsā, Nyāya (mainly in its Navya form) and Vyākarana. While these philosophers are in complete agreement on the idea that the cognition of sentence meaning has a hierarchical structure and share the concept of a single principal qualificand (qualified by other meaning elements), they strongly disagree on the question which meaning element has this role and by which morphological item it is expressed. This disagreement is the central point of their debate and gives rise to competing versions of this theory. The Mïmāmsakas argue that the principal qualificand is what they call bhāvanā ̒bringing into being̒, ̒efficient force̒ or ̒productive operation̒, expressed by the verbal affix, and distinct from the specific procedures signified by the verbal root; the Naiyāyikas generally take it to be the meaning of the word with the first case ending, while the Vaiyākaranas take it to be the operation expressed by the verbal root. All the participants rely on the Pāninian grammar, insofar as the Mimāmsakas and Naiyāyikas do not compose a new grammar of Sanskrit, but use different interpretive strategies in order to justify their views, that are often in overt contradiction with the interpretation of the Pāninian rules accepted by the Vaiyākaranas. In each of the three positions, weakness in one area is compensated by strength in another, and the cumulative force of the total argumentation shows that no position can be declared as correct or overall superior to the others. This book is an attempt to understand this debate, and to show that, to make full sense of the irreconcilable positions of the three schools, one must go beyond linguistic factors and consider the very beginnings of each school's concern with the issue under scrutiny. The texts, and particularly the late texts of each school present very complex versions of the theory, yet the key to understanding why these positions remain irreconcilable seems to lie elsewhere, this in spite of extensive argumentation involving a great deal of linguistic and logical technicalities. Historically, this theory arises in Mimāmsā (with Sabara and Kumārila), then in Nyāya (with Udayana), in a doctrinal and theological context, as a byproduct of the debate over Vedic authority. The Navya-Vaiyākaranas enter this debate last (with Bhattoji Dïksita and Kaunda Bhatta), with the declared aim of refuting the arguments of the Mïmāmsakas and Naiyāyikas by bringing to light the shortcomings in their understanding of Pāninian grammar. The central argument has focused on the capacity of the initial contexts, with the network of issues to which the principal qualificand theory is connected, to render intelligible the presuppositions and aims behind the complex linguistic justification of the classical and late stages of this debate. Reading the debate in this light not only reveals the rationality and internal coherence of each position beyond the linguistic arguments, but makes it possible to understand why the thinkers of the three schools have continued to hold on to three mutually exclusive positions. They are defending not only their version of the principal qualificand theory, but (though not openly acknowledged) the entire network of arguments, linguistic and/or extra-linguistic, to which this theory is connected, as well as the presuppositions and aims underlying these arguments.

Vertical relations and local competition : an empirical approach

The analysis of vertical industry relations forms an essential element in the field of industrial organization. This paper tests hypotheses derived from transaction cost theory and the principal-agent problem in Chile’s petrol market. It shows that local competition plays an important role in the choice of a disintegrated vertical structure, and that low levels of service investment have the same effect. Conversely, the number of own-brand outlets and a high level of investment in services reduce the probability of disintegration. The paper demonstrates that vertical disintegration has a null effect on wholesale petrol prices and a positive effect on retail petrol prices of between 1.6 and 7 per cent, depending on fuel type.

Social control of public expenditures in a multilevel principal-agent approach

ABSTRACTThis study enhances the principal-agent model by incorporating a multilevel perspective and differences among agency situations. A theoretical discussion is developed using a proposed intersection of methodological focuses and a descriptive-exemplificative hypothetical analysis. The analysis is applied to public expenditure social control in representative democracies, and as a result, a principal-agent model unfolds that incorporates a decision-making perspective and focuses on formulation, negotiation, articulation, and implementation competencies. Thus, it is possible to incorporate elements into the principal-agent model to make it more permeable to individual, group, and societal idiosyncrasies with respect to public expenditure social control.

Dealing with Moral Hazard and Adverse Selection Simultaneously

Although Insurers Face Adverse Selection and Moral Hazard When They Set Insurance Contracts, These Two Types of Asymmetrical Information Have Been Given Separate Treatments Sofar in the Economic Literature. This Paper Is a First Attempt to Integrate Both Problems Into a Single Model. We Show How It Is Possible to Use Time in Order to Achieve a First-Best Allocation of Risks When Both Problems Are Present Simultaneously.

Federalismo: uma abordagem do problema do principal e do agente

The government has two objectives in this economy: make the states invest in thepriority sector and equalize wealth among states. Applying the model of the Principal-Agent Problem, we obtain that the federal system may not increase society 's wellfare when the states not necessarily invest in its respective thepriority sector. We also obtain that it is possible to implement an optimal mechanism where government equalize wealth among states without cost and can make states invest in thepriority sector.

Signaling in dynamic markets with adverse selection

Nesta dissertação, consideram-se trocas em mercados descentralizados com seleção adversa. Diferentemente da literatura até o momento, supomos que vendedores informados (e não compradores desinformados) fazem ofertas take-it-or-leave-it, de forma que sinalização através de preços é possível. Estabelecemos uma caracterização parcial do conjunto de equilíbrio, encontramos condições necessárias e suficientes para a existência de um equilíbrio e mostramos que todo equilíbrio apresenta sinalização se o problema de seleção adversa for suficientemente severo. Além disso, provamos o resultado surpreendente que o maior bem-estar atingido em equilíbrio é invariante às fricções do mercado. Também apresentamos condições necessárias e suficientes para a existência de equilíbrios separantes, que caracterizamos completamente. Mostramos que o conjunto de payoffs associados a equilíbrios separantes é invariante às fricções. Concluímos com uma caracterização completa do conjunto de equilíbrio com apenas dois tipos, e comparamos nossos resultados com os de Moreno e Wooders (2010), que analisam o caso em que compradores têm todo o poder de mercado. Nossos resultados mostram que sinalização através dos preços tem um impacto não trivial tanto nos resultados do mercado quanto no bem-estar.