26 research outputs found

    Uninformed Winners Under Adverse Selection

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    This paper presents a static model of a market for a quality-differentiated good. In one version quality is observable, in the other it is not. It is shown that some agents who are uninformed when quality is unobservable may have higher utility than they do when it is observable. This is more likely to happen when goods of intermediate quality are scarce.Adverse selection, uninformed agents

    Warlords, Famine and Food Aid: Who Fights, Who Starves?

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    We examine the effects of famine relief efforts (food aid) in regions undergoing civil war. In our model, warlords seize a fraction of all aid and use it to feed soldiers. They hire their troops within a population of farmers heterogeneous in skills. We determine the equilibrium distribution of labor in this environment and study how the existence and allocation strategies of a benevolent food aid agency affect this equilibrium. Our model allows us to precisely predict who will fight and who will work in every circumstance.Food aid, civil war, warlords, famine

    Humanitarian Relief and Civil Conflict

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    We examine the effects of famine relief efforts (food aid) in regions undergoing civil war. In our model, warlords seize a fraction of all aid entering the region. How much they loot affects their choice of army size; therefore the manner in which aid is delivered influences warfare. We identify a delivery plan for aid which minimizes total recruitment in equilibrium.Humanitarian aid, food aid, civil war, warlords, famine

    Addressing the Food Aid Curse

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    In this paper, we build a model of agrarian economies in which a kleptocratic government taxes farmers to maximize its life-time utility. The model is a dynamic general equilibrium model in which the subsistence of farmers requires a minimum level of consumption. We analyze the effect that a benevolent food aid agency can have in such an environment. If it expects the food aid agency to intervene, the kleptocratic government will starve its farmers, in a clear case of the Samaritan's dilemma. We show that the likelihood of man-made famines, however, can be greatly reduced if the food aid agency intervenes with probability slightly lower than one. No aid agency devoted to saving lives, however, can commit to such policy. We propose a solution to this food aid curse.Food aid, famines, commitment

    Practices

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    We examine an economy where professionals provide services to clients and where a professional can sell his practice to another. Professionals vary in quality, and clients in their need (or willingness-to-pay) for high-quality service. efficiency is measured as the number of matches between high-quality professionals and high-need clients. However, agent types are unobservable a priori. We find that trade in practices can facilitate the transmission of information about agent types; sometimes full efficiency is achieved. In cases where it is not, a tax on the sale of practices (based on the seller's age) can be used to achieve full efficiency. In addition, a ceiling on the price of services can be used to adjust the distribution of surplus between clients and professionals, while preserving efficiency.signaling, professional services, practices, goodwill

    Practices

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    We examine an economy where professionals provide services to clients and where a professional can sell his practice to another. Professionals vary in quality, and clients in their need (or willingness-to-pay) for high-quality service. efficiency is measured as the number of matches between high-quality professionals and high-need clients. However, agent types are unobservable a priori. We find that trade in practices can facilitate the transmission of information about agent types; sometimes full efficiency is achieved. In cases where it is not, a tax on the sale of practices (based on the seller's age) can be used to achieve full efficiency. In addition, a ceiling on the price of services can be used to adjust the distribution of surplus between clients and professionals, while preserving efficiency

    On the Pricing of Replacement Parts

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    This paper presents a model in which a good is made up of two parts, and each part asts one or two periods, with known probabilities. The analysis includes consumer decisions regarding part replacement, as well as profit maximization under monopoly and oligipoly. It is found that firms have incentives to supply all part for replacement, rather than force the consumer to replace the entire good when a single part is needed. In oligopoly, the non-collusive equilibrium when parts are not compatible acress brands involves pricing entire goods below marginal cost and individual parts above marginal cost. The paper also puts forward a testable hypothesis about the auto parts market, namely that the emergence of generic auto parts in the 1980s and 1990s may have not only driven down the prices of parts with which they competed, but also driven up the prices of other parts.replacement parts, capital replacement, aftermarkets, compatibility, antitrust.

    Equilibrium in a Decentralized Market with Adverse Selection

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    This paper deals with volume of trade and distribution of surplus in markets subject to adverse selection. The benchmark case -- a variation of Akerlof's lemons model -- is that of a market where two qualities of a good are offered, in proportions such that, if a single price is required to clear the market, only the low-quality units of the good are traded. I show that if trade is decentralized, i.e. allowed to take place at different prices simultaneously in different parts of the market (via random pairwise meetings of agents), then all units of the good are traded, and all agents have positive ex-ante expected payoffs. This fundamental difference with the centralized benchmark does not diminish as discounting is gradually removed from the decentralized framework. The result holds for both the steady-state and non-steady-state versions of the model. Cet article traite du volume d'échange et de la distribution des gains dans les marchés sujets à la sélection adverse. Le point de repÚre est une variante du modÚle d'Akerlof (1970) dans laquelle deux qualités différentes d'un bien sont disponibles sur le marché mais une seule, la moindre, n'est vendue à l'équilibre. Je démontre que si le mécanisme d'échange est décentralisé, c'est-à-dire que les échanges peuvent s'effectuer à différents prix dans différentes parties du marché (via l'appariement aléatoire des agents), alors toutes les unités du bien seront vendues à l'équilibre, peu importe leur qualité. De plus, tous les agents ont un paiement anticipé positif au départ. Ces différences fondamentales avec les résultats d'Akerlof ne s'effacent pas lorsque l'escomptage des paiements dans le marché décentralisé est graduellement éliminé. Ce résultat est obtenu dans deux versions du modÚle décentralisé: une avec états stationnaires, l'autre sans.adverse selection, lemons, decentralized trading, pairwise meetings

    Overlapping Generations of Cars

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    The paper analyzes the dynamics of a resale market subject to adverse selection. Infinitely-lived agents deal in cars which last two periods. Car quality is exogenous and known only to sellers. I prove existence of steady-state equilibrium, then provide a full characterization: number of equilibria, stability, efficiency. Of note: the economy may be confined to one stable equilibrium when another exists which is Pareto-superior. I reconsider the model with the information asymmetry removed, and show that equilibrium in this case must be unique. The symmetric-information case is in general not Pareto-superior to the asymmetric-information one. Cet article analyse un marchĂ© de revente sujet Ă  la sĂ©lection adverse. Des agents Ă  vie infinie achĂštent et vendent des voitures qui ne durent que deux pĂ©riodes. La qualitĂ© d'une voiture est exogĂšne et n'est connue que de son propriĂ©taire. Je prouve l'existence d'un Ă©quilibre Ă  l'Ă©tat stationnaire, et fournis ensuite une caractĂ©risation complĂšte: nombre d'Ă©quilibres, stabilitĂ©, efficacitĂ©. A remarquer: l'Ă©conomie peut se trouver Ă  un Ă©quilibre stable alors qu'un autre existe qui lui est Pareto-supĂ©rieur. Je reconsidĂšre le modĂšle sans l'asymĂ©trie d'information, et dĂ©montre que dans ce cas-ci l'Ă©quilibre doit ĂȘtre unique. Le cas avec information symĂ©trique n'est en gĂ©nĂ©ral pas Pareto-supĂ©rieur Ă  celui avec information asymĂ©trique.adverse selection, dynamic substitution, steady-state equilibrium

    Quality Undersupply and Oversupply

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    I analyze a market in which a price-taking buyer buys a variable-quality good from a population of sellers, contrasting the case where quality is a seller's private information to that where it is public information. Average quality traded under private information can be either higher (quality oversupply) or lower (quality undersupply) than under public information, depending on sellers' preferences. We are likely to see quality undersupply if (i) sellers' preferences exhibit substitutability between the variable-quality good and the numĂ©raire good, and/or (ii) sellers view the numĂ©raire good as a luxury good relative to the variable-quality good. Reverse arguments hold for quality oversupply. J'analyse un marchĂ© dans lequel un acheteur achĂšte un bien de qualitĂ© variable d'une population de vendeurs. Je compare deux cas, celui oĂč la qualitĂ© est connue des vendeurs seulement (information privĂ©e) et celui oĂč la qualitĂ© est connue publiquement (information publique). La qualitĂ© moyenne vendue sur le marchĂ© avec information privĂ©e peut ĂȘtre supĂ©rieure ou infĂ©rieure Ă  la qualitĂ© moyenne vendue sur le marchĂ© avec information publique, selon les prĂ©fĂ©rences des vendeurs. Elle aura tendance Ă  ĂȘtre supĂ©rieure si (i) les prĂ©fĂ©rences des vendeurs manifestent une substituabilitĂ© entre le bien Ă  qualitĂ© variable et le bien numĂ©raire, et/ou (ii) les vendeurs considĂšrent le bien numĂ©raire comme un bien de luxe par rapport au bien Ă  qualitĂ© variable.adverse selection, income effect, substitution effect
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