Production and financial policies under asymmetric information

We propose an extension of the standard general equilibrium model with production and incomplete markets to situations in which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant. We establish the existence of equilibria and discuss the nature of the inefficiencies introduced by the presence of asymmetric information. We also illustrate the properties of the model in three simple examples. We would like to thank Alberto Bisin, Armando Dominioni, Piero Gottardi, Tito Pietra, Paolo Siconolfi, and an anonymous referee for useful suggestions and comments.     

Equilibrium theory with asymmetric information and infinitely many states

Radner (Econometrica 36, 31–58 1968) proved existence of a competitive equilibrium for differential information economies with finitely many states. We extend this result to economies with infinitely many states of nature. Each agent observes a public and a private signal. The publicly observed signal may take infinitely many values but, in order to get existence, we assume that private signals only take finitely many values. Actually, there is no hope to get a general existence result since Podczeck et al. (Vienna University Working Papers 2008) already proposed non-existence results. We would like to thank a referee and the Associate Editor for valuable suggestions and remarks. The actual version of the paper has benefited from their comments. This work commenced while V.F. Martins-da-Rocha and P.K. Monteiro were visiting RGEA. Carlos Hervés Beloso acknowledges support from BEC2003-09067-C04-01 (Ministerio de Ciencia y Tecnología and FEDER) and PGIDT04XIC30001PN (Xunta de Galicia). V.F. Martins-da-Rocha acknowledges partial financial support from PRONEX. P.K. Monteiro acknowledges the financial support of CNPq/Edital Universal 02/2006.     

信息不对称与机构操纵——中国股市机构与散户的博弈分析

中国股市中 ,股票二级市场价格常常在短期内发生剧烈变化。这种现象产生的原因在于 ,在信息不对称情况下 ,机构通过操纵上市公司基本面信息来影响股票交易价格 ,以获得超额收益。鉴于机构之间信息不对称程度远远低于机构与散户之间信息不对称程度 ,发展机构投资者可以最终减少市场操纵行为 ,机构在投资者中所占比例与市场整体被操纵程度的关系可以用倒“U”形曲线表示。     

The value of information in asymmetric all-pay auctions

This note analyzes a two-player all-pay auction with incomplete information. More precisely, one bidder is uncertain about the size of the initial advantage of his rival modeled as a head start in the auction.I derive the unique Bayesian Nash equilibrium outcome for a large class of cumulative distribution functions of the head start. The stronger player generates an informational rent if and only if his head start distribution is not stochastically dominated by a uniform distribution. I identify why my results for an uncertain head start differ qualitatively from uncertainty about a cost function or a valuation.     

EDGAR on the internet: The welfare effects of wider information distribution in an experimental market for risky assets

Policies such as the SEC’s Fair Disclosure Rule, and technologies such as SEC EDGAR, aim to disseminate corporate disclosures to a wider audience of investors in risky assets. In this study, we adopt an experimental approach to measure whether this wider disclosure is beneficial to these investors. Price-clearing equilibrium models based on utility maximization and non-revealing and fully-revealing prices predict that in a pure exchange economy, an arbitrary trader would prefer that no investors are informed rather than all are informed; non-revealing theory further predicts that an arbitrary trader would prefer a situation in which all traders are informed rather than half the traders are informed. These predictions can be summarized as “None > All > Half”. A laboratory study was conducted to test these predictions. Where previous studies have largely focused on information dissemination and its effects on equilibrium price and insider profits, we focus instead on traders’ expected utility, as measured by their preferences for markets in which none, half, or all traders are informed. Our experimental result contradicts the prediction and indicates “Half > None > All”, i.e. subjects favor a situation where a random half is informed. The implication is that in addition to testing predictions of price equilibrium, experiments should also be used to verify analytical welfare predictions of expected utility under different policy choices. JEL Classification D82, D53, G14, L86 This work was largely completed while this author was at The Hong Kong University of Science and Technology.     

Market games with asymmetric information: the core

This paper concerns cores of economies with asymmetric information. Alternative definitions of the information available to traders in coalitions and the cooperative games they generate are analyzed. An important technical result states that such NTU games in characteristic function form are well defined. Properties of various cores with asymmetric information are examined. Sufficient conditions on information sharing rules are provided for the induced games to be totally balanced or balanced, so that their cores are nonempty. Incentive compatibility issues are considered. Finally, a perspective on this research area is provided.     

Trade and financial liberalization with asymmetric information in bank financing

We investigate trade and financial openness in a small developing country where entrepreneurs need bank financing to operate in an import‐competing sector but banks do not observe their ability. This informational asymmetry causes adverse selection of low‐ability individuals into entrepreneurship and also prevents poor but able individuals from being entrepreneurs. We find that trade opening improves national welfare, but a tax is needed on foreign financial capital. Trade opening reduces an income gap between the rich and the poor, while financial opening affects this income gap ambiguously.     

Pessimistic information gathering

An agent gathers information on productivity shocks and accordingly produces on behalf of a principal. Information gathering is imperfect and whether it succeeds or not depends on the agent's effort. Contracting frictions come from the fact that the agent is pessimistic on the issue of information gathering, and there are both moral hazard in information gathering, private information on productivity shocks and moral hazard on operating effort. An optimal menu of linear contracts mixes high-powered, productivity-dependent screening options following “good news” with a fixed low-powered option otherwise.     

Existence of Edgeworth equilibria for economies with asymmetric information

We analyze a general equilibrium model with asymmetrically informed agents. A basic and well-known consequence of asymmetric information is the failure of equal treatment property. Despite of this, we show that in every replica economy a private core allocation, which treats agents of the same type equally, exists. This result is provided in the framework of two different models, with and without expectations, and it suffices to guarantee in both cases the existence of a private Edgeworth equilibrium. The author is grateful to an anonymous referee for his/her careful reading and helpful comments and acknowledges support by Research Grant no. 2006132713-005 (Ministero Italiano dell’Università e della Ricerca).     

Competition in the stock market with asymmetric information

We build a game theoretical model to examine how the level of information advantage of insiders and the competition between insiders and sophisticated investors affect stock price movements and traders’ trading strategies and profits. We show that the competition between insiders and sophisticated investors can reduce the losses of less sophisticated investors, and thus alleviates the disadvantaged position of the less sophisticated investors. Further, traders’ profits are affected by the accuracy of insiders’ private information, and the number of days that insiders have obtained the information in advance. These findings show the importance of information transparency and the role of sophisticated investors in limiting insiders’ trading advantages and mitigating the expropriation of investors by insiders.     

Recursive equilibrium in endogenous growth models with incomplete markets

This paper analyzes the existence of recursive equilibria in a class of convex growth models with incomplete markets. Households have identical CRRA-preferences, production displays constant returns to scale with respect to physical and human capital, and all markets are competitive. There are aggregate productivity shocks that affect aggregate returns to physical and human capital investment (stock returns and wages), and there are idiosyncratic shocks to human capital (idiosyncratic depreciation shocks) that only affect individual human capital returns. Aggregate and idiosyncratic shocks follow a joint Markov process. Conditional on the aggregate state, idiosyncratic shocks are independently distributed over time and identically distributed across households. Finally, households have the opportunity to trade assets in zero net supply with payoffs that depend on the aggregate shock, but markets are incomplete in the sense that there are no assets with payoffs depending on idiosyncratic shocks. It is shown that there exists a recursive equilibrium for which equilibrium prices (returns) only depend on the exogenous aggregate shock variable (the wealth distribution is not a relevant state variable). Moreover, the allocation associated with this recursive equilibrium is identical to the equilibrium allocation of an economy in which households live in autarky and face both aggregate and idiosyncratic risk.I would like to thank for helpful comments Peter Howitt, Bob Lucas, Michael Magill, Tomo Nakajima, Herakles Polemarchakis, Martine Quinzii, Kevin Reffett, an anonymous referee, and seminar participants at various universities and conferences.     

资产价格泡沫研究述评:实验金融学视角

本文从实验金融学的视角介绍了资产泡沫最新的定义和分类,阐述了投机性泡沫、理性泡沫与非理性泡沫之间的区别和联系,着重从信息对称、信息不对称、有限套利泡沫、异质信念和实验金融五个方面系统评述了资产价格泡沫理论的发展历程和新进展,指出该领域进一步的研究方向和中国开展资产价格泡沫研究的重要意义。研究表明,随着现代金融学的高速发展,学界对资产泡沫的研究日益深入。特别是非理性和实验金融学视角的引入,突破了传统金融框架的束缚,为这一课题研究带来了新的认知和理解。即便如此,目前仍无法根除资产泡沫产生的可能性。很多相关问题,如资产泡沫产生的时间和根本原因,仍然等待着学者们去探索和研究。     

信息不对称条件下的债务约束机制

债务水平表达了企业经营的信息,投资者利用这种信息可以评估企业的质量。在信息不对称条件下,债务首先成为红利的有效替代形式,具有减少企业自由现金流的作用,从而对管理者起到市场监督和提高资金使用效率的作用;其次,当企业出现债务违约时,就要进入破产程序,且由债权人决定是否清算或重组,为避免这种情况的发生,企业管理者将债务保持在最优水平;再者,债务期限结构的匹配模型,使得企业管理者将债务的期限结构保持在科学合理的状态,从而实现资本结构的优化。     

Strategic information exchange

We analyze a toy class of two-player repeated games with two-sided incomplete information. In our model, two players are facing independent decision problems and each of them holds information that is potentially valuable to the other player. We study to what extent, and how, information can be exchanged at equilibrium. We show that, provided oneʼs initial information is valuable to the other player, equilibria exist at which an arbitrary amount of information is exchanged at an arbitrary high rate. The construction relies on an indefinite, reciprocated, exchange.     

Incentives to (not) disclose energy performance information in the housing market

Disclosure of energy performance certificates (EPCs) is often incomplete, which hampers their effectiveness in relieving information asymmetries between landlords and tenants in the housing market. Even when a certificate is available, landlords do not always disclose it. This contradicts the unraveling result, according to which all landlords should disclose quality information unless it is costly to do so. We leverage a cross-sectional dataset of residential rental advertisements from the Belgian region of Brussels to empirically evaluate incentives to disclose an EPC. We find that two fundamental assumptions for the unraveling result are not confirmed in our setting: tenants do not necessarily value energy performance of rental property and do not appear to rationally adjust their expectations when faced with dwellings that withhold their EPC. The paper formulates specific policy advice for reforming EPC mechanisms to increase disclosure rates.     

Contracts with endogenous information

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.     

Bargaining with asymmetric information in non-stationary markets

Summary. The Rubinstein and Wolinsky bargaining-in-markets framework is modified by the introduction of asymmetric information and non-stationarity. Non-stationarity is introduced in the form of an arbitrary stochastic Markov process which captures the dynamics of market entry and pairwise matching. A new technique is used for establishing existence and characterizing the unique outcome of a non-stationary market equilibrium. The impact of market supply and demand on bilateral bargaining outcomes and matching probabilities is explored. The results are useful for examining such questions as why coordination failures and macroeconomic output fluctuations are correlated with real and monetary shocks. Received: July 22, 1994; revised version: January 21, 1998     

Learning in asymmetric duopoly markets: competition in information and market correlation

This paper explores experimentation and learning in asymmetric duopoly markets with product differentiation and demand uncertainty. We define the concepts of strategic substitutability and strategic complementarity in information and we show how both the mode of information competition and the transmission of information across markets affect duopoly experimentation. We relate information competition with market competition and we find that, when goods are substitutes and the correlation between market shocks is negative, firms will have a higher incentive to experiment in asymmetric markets than in symmetric ones. The opposite result follows when such correlation is positive. Also, when goods are complements the above findings are reversed.JEL Classification: D83, C72The authors thank partial financial support from the Spanish Ministry of Science and Technology under project B2000-1429, from the Spanish Ministry of Education and Science under project SEJ2004-07554 and from the “Generalitat Valénciana” under project GRUPOS04/13.     

The effect of oil prices on stock prices: fresh evidence from asymmetric causality tests

This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test developed by Hatemi-J is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the U.S. and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, the U.S. and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.     

Incomplete information in the acid rain game

This paper provides a model that attempts to deal with the transboundary nature of the acid rain problem, using a game theoretic approach consistent with mainstream economic theory. The general forms of cooperative and non cooperative equilibria in explicit and implicit set-up of the model are presented under the assumptions of complete and incomplete information.