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 need toborrow from banks. Conventional wisdom says that, in this class of economies, the competitiveequilibrium is typically inefficient.We show that this conventional wisdom rests on one implicit assumption: entrepreneurscan only borrow from banks. If an additional market is added to provide entrepreneurs withadditional funds, efficiency can be attained in equilibrium. An important characteristic of thisadditional market is that it must be non-exclusive, in the sense that entrepreneurs must be ableto simultaneously borrow from many different lenders operating in it. This makes it possible toattain efficiency by pooling all entrepreneurs in the new market while separating them in themarket for bank loans.

Predicting adverse events in children with fever and chemotherapy-induced neutropenia: the prospective multicenter SPOG 2003 FN study.

PURPOSE To develop a score predicting the risk of adverse events (AEs) in pediatric patients with cancer who experience fever and neutropenia (FN) and to evaluate its performance. PATIENTS AND METHODS Pediatric patients with cancer presenting with FN induced by nonmyeloablative chemotherapy were observed in a prospective multicenter study. A score predicting the risk of future AEs (ie, serious medical complication, microbiologically defined infection, radiologically confirmed pneumonia) was developed from a multivariate mixed logistic regression model. Its cross-validated predictive performance was compared with that of published risk prediction rules. Results An AE was reported in 122 (29%) of 423 FN episodes. In 57 episodes (13%), the first AE was known only after reassessment after 8 to 24 hours of inpatient management. Predicting AE at reassessment was better than prediction at presentation with FN. A differential leukocyte count did not increase the predictive performance. The score predicting future AE in 358 episodes without known AE at reassessment used the following four variables: preceding chemotherapy more intensive than acute lymphoblastic leukemia maintenance (weight = 4), hemoglobin > or = 90 g/L (weight = 5), leukocyte count less than 0.3 G/L (weight = 3), and platelet count less than 50 G/L (weight = 3). A score (sum of weights) > or = 9 predicted future AEs. The cross-validated performance of this score exceeded the performance of published risk prediction rules. At an overall sensitivity of 92%, 35% of the episodes were classified as low risk, with a specificity of 45% and a negative predictive value of 93%. CONCLUSION This score, based on four routinely accessible characteristics, accurately identifies pediatric patients with cancer with FN at risk for AEs after reassessment.

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.

Optimal contracts, adverse selection and social preferences: An experiment

It has long been standard in agency theory to search for incentive-compatible mechanisms on the assumption that people care only about their own material wealth. However, this assumption is clearly refuted by numerous experiments, and we feel that it may be useful to consider nonpecuniary utility in mechanism design and contract theory. Accordingly, we devise an experiment to explore optimal contracts in an adverse-selection context. A principal proposes one of three contract menus, each of which offers a choice of two incentive-compatible contracts, to two agents whose types are unknown to the principal. The agents know the set of possible menus, and choose to either accept one of the two contracts offered in the proposed menu or to reject the menu altogether; a rejection by either agent leads to lower (and equal) reservation payoffs for all parties. While all three possible menus favor the principal, they do so to varying degrees. We observe numerous rejections of the more lopsided menus, and approach an equilibrium where one of the more equitable contract menus (which one depends on the reservation payoffs) is proposed and agents accept a contract, selecting actions according to their types. Behavior is largely consistent with all recent models of social preferences, strongly suggesting there is value in considering nonpecuniary utility in agency theory.

The adverse effects of environmental policy in green markets

We model green markets in which purchasers, either firms orconsumers, have higher willingness-to-pay for lesspolluting goods. The effectiveness of pollution reductionpolicies is examined in a duopoly setting. We show thatduopolists' strategic behaviour may increase pollutionlevels. Maximum emission standards, commonly used in greenmarkets, improve the environmental features of products.Nonetheless, overall pollution levels will rise becausegovernment regulation also affects market shares and bootsfirms' sales. Consequently, social welfare may be reduced.We also explore the effects of technological subsidies andproduct charges, including differentiation of charges.

Adverse events to antiretrovirals in the Swiss HIV Cohort Study: effect on mortality and treatment modification.

BACKGROUND: Antiretroviral therapy (ART) decreases morbidity and mortality in HIV-infected patients but is associated with considerable adverse events (AEs). METHODS: We examined the effect of AEs to ART on mortality, treatment modifications and drop-out in the Swiss HIV Cohort Study. A cross-sectional evaluation of prevalence of 13 clinical and 11 laboratory parameters was performed in 1999 in 1,078 patients on ART. AEs were defined as abnormalities probably or certainly related to ART. A score including the number and severity of AEs was defined. The subsequent progression to death, drop-out and treatment modification due to intolerance were evaluated according to the baseline AE score and characteristics of individual AEs. RESULTS: Of the 1,078 patients, laboratory AEs were reported in 23% and clinical AEs in 45%. During a median follow up of 5.9 years, laboratory AEs were associated with higher mortality with an adjusted hazard ratio (HR) of 1.3 (95% confidence interval [CI] 1.2-1.5; P < 0.001) per score point. For clinical AEs no significant association with increased mortality was found. In contrast, an increasing score for clinical AEs (HR 1.11,95% CI 1.04-1.18; P = 0.002), but not for laboratory AEs (HR 1.07, 95% CI 0.97-1.17; P = 0.17), was associated with antiretroviral treatment modification. AEs were not associated with a higher drop-out rate. CONCLUSIONS: The burden of laboratory AEs to antiretroviral drugs is associated with a higher mortality. Physicians seem to change treatments to relieve clinical symptoms, while accepting laboratory AEs. Minimizing laboratory drug toxicity seems warranted and its influence on survival should be further evaluated.

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.

Pharmacovigilance in pregnancy: adverse drug reactions associated with fetal disorders.

Abstract Objective: To provide the first update on drug safety profiles and adverse drug reactions (ADRs) associated with fetal disorders from the Swiss national ADR database. Methods: We conducted a retrospective study using data from 202 pharmacovigilance reports on drug-associated fetal disorders from the Swiss national ADR database from 1990 to 2009. Evaluated aspects included administrative information on the report, drug exposure, and disorders. Results: The ADR reporting frequency on the topic of fetal disorders has increased during the last 20 years, from only 1 report in 1991 to a maximum of 31 reports in 2008. Nervous system drugs were the most frequently reported drug group (40.2%) above all antidepressants and antiepileptics. The highest level of overall drug intake could be observed for the 1st trimester (85.4%), especially for the first 6 weeks of pregnancy. The most frequently reported types of fetal disorders were malformations (68.8%), especially those of the musculoskeletal and circulatory systems. A positive association was discovered between antiepileptics and malformations in general and in particular of the circulatory system and the eye, ear, face, and neck. Conclusions: The results suggest that the nervous system drug group bears an especially high risk for malformations. The most commonly identified drug exposures can help focus pharmacoepidemiologic efforts in drug-induced birth defects.

Predicting Adverse Events in Children with Fever and Chemotherapy-Induced Neutropenia. Results of the Prospective Multicenter SPOG 2003 FN Study

PURPOSE To develop a score predicting the risk of adverse events (AEs) in pediatric patients with cancer who experience fever and neutropenia (FN) and to evaluate its performance. PATIENTS AND METHODS Pediatric patients with cancer presenting with FN induced by nonmyeloablative chemotherapy were observed in a prospective multicenter study. A score predicting the risk of future AEs (ie, serious medical complication, microbiologically defined infection, radiologically confirmed pneumonia) was developed from a multivariate mixed logistic regression model. Its cross-validated predictive performance was compared with that of published risk prediction rules. Results An AE was reported in 122 (29%) of 423 FN episodes. In 57 episodes (13%), the first AE was known only after reassessment after 8 to 24 hours of inpatient management. Predicting AE at reassessment was better than prediction at presentation with FN. A differential leukocyte count did not increase the predictive performance. The score predicting future AE in 358 episodes without known AE at reassessment used the following four variables: preceding chemotherapy more intensive than acute lymphoblastic leukemia maintenance (weight = 4), hemoglobin > or = 90 g/L (weight = 5), leukocyte count less than 0.3 G/L (weight = 3), and platelet count less than 50 G/L (weight = 3). A score (sum of weights) > or = 9 predicted future AEs. The cross-validated performance of this score exceeded the performance of published risk prediction rules. At an overall sensitivity of 92%, 35% of the episodes were classified as low risk, with a specificity of 45% and a negative predictive value of 93%. CONCLUSION This score, based on four routinely accessible characteristics, accurately identifies pediatric patients with cancer with FN at risk for AEs after reassessment.