The economics of information: Lying and cheating in markets and organizations
This text is designed to take undergraduate and graduate students through the key issues and theoretical background to give an understanding of the impact of imperfect and asymmetric information in an economic context. At each stage Molho analyzes and explains the information problem using clear models that set the outcome under imperfect information against that under full information. The book is divided into four major sections covering:
- Adverse selection problems under private information;
- The role of signaling mechanisms;
- Moral hazard;
- Transaction mechanisms under imperfect information. Each section of the book also looks at the experimental studies that test the predictions of theory.
Information is now a key issue in decision making in economics and business. Knowledge is a vital resource which confers strategic advantages on those that possess it, and provides the possibility of misuse and abuse with increasingly dangerous economic consequences.
- Introduction: Private Information and Hidden Action.
Part I: Adverse Selection: The Market for Lemons:
- Quality Uncertainty and the Market for Lemons.
- Adverse Selection: The Wilson Model.
- Lemons Problems: Experimental Evidence.
Part II: Signalling:
- Job Market Signalling.
- Screening: A Self-Selection Mechanism.
- Further Literature on Signalling Theory.
- Signalling/Screening Behaviour: Experimental Evidence.
Part III: Moral Hazard:
- Moral Hazard: Shareholder/Management Relations.
- Moral Hazard: A Principal-Agent Model.
- Further Literature on Moral Hazard and Agency Theory.
- Moral Hazard: Experimental Evidence.
Part IV: Mechanism Design: Applications to Bargaining and Auctions:
- Mechanism Design and the Revelation Principle: A Bargaining Example.
- Auction Design: Theory.
- Auction Design: Experimental Evidence.
- Concluding Comments.
Appendix: Brief Notes on Probability Distributions, Baye's Rule, Expected Utility Theory and Game Theory.