高级微观经济学 (黄有光) AdverseSelectionSignalling-withFigures.docVIP

Adverse Selection, Signalling, and Screening (Po-Ting Liu’s notes, after revision by Yew-Kwang Ng) The pioneering analysis of adverse selection: Akerlof, G. “The market for lemons: quality uncertainty and the market mechanism”, Quarterly Journal of Economics, 1970, 89: 488-500. Advanced textbook coverage: Mas-Colell, Andreu, Whinston, Michael D. Green, Jerry R., Microeconomic theory, New York : Oxford University Press, 1995, Ch.13. The exposition below is based on these two important publications. The market for ‘lemons’ (bad used cars) The big price difference between new and used cars. Trying to offer an alternative explanation for this phenomenon, rather than the pure joy of owning a new car. Information of specific cars creates information asymmetry (seller knows more while buyer knows much less). Gresham’s Law: bad money drives out the good (incomplete). THE MODEL Qd = D (p, () ( = ((p) S = S(p) Thus, S (p) = D (p, ((p)) Two groups of traders U1 = M + ( xi and U2 = M +( (3/2) xi Further assumptions, They are all von Neumann-Morgenstern EU maximizers Group 1 has N cars with uniformly distributed quality x, 0 ( x ( 2 and group 2 has no cars Price of other goods M is 1 Y1 and Y2 as their respective incomes We can derive demands and supplies For Group 1, D1 = Y1 / p ( p D1 = 0 ( p S1 = pN /2 p= 2 with ( = p/2 For Group 2, D2 = Y2 / p 3(/2 p D2 = 0 3(/2 p S2 = 0 Total demand, D (p, () = (Y2+Y1)/p p ( D (p, () = Y2/p ( p 3/2( D (p, () = 0 p 3/2( Equilibrium: no transaction at all! Despite the fact at any price between 0 and 3, there are potential transactions SYMMETRIC INFORMATION CASE Buyers and sellers both do not know the quality. Supply, S (p) = N p 1 S (p) = 0 p 1 Demand, D (p) = (Y2+Y1)/p p 1 D (p) = Y2/p 1 p 3/2 D (p) = 0 p 3/2 Equilibrium, p = 1 if Y2 N p = Y2 / N if 2Y2/3 N Y2 p = 3/2 if N 2Y2/3 If N Y2, there is a gain in utility N/2 over the