Tag Archives: asymmetric information

Back from Barcelona GSE "Trobada" VIII

I have no idea with what "trobada" means, and apparently it is not a spanish word. Yes, it is from Catalan and it means "conference"..... So Barcelona GSE "Trobada" VIII is the annual conference for GSE afflicted professors.

This year it is held in a very beautiful and historical building, Casa Convalescència. Oh, I admit I should have brought my camera there. What a pity! I can only download some pictures from the Internet and paste them here.

Casa Convalescència

1-FOTOS_NUEVAS_HOTEL_010

Today's topics were very interesting. I listened to three presentations.

Prof. Giacomo Ponzetto (CREI-UPF and Barcelona GSE)
"Politics, Asymmetric Information, and Protectionism"

Prof. Johannes Gierlinger (UAB and Barcelona GSE)
"Hedging Priors: On Novel Instruments to Insure against Ambiguity"

Prof. Davide Cantoni (UPF and Barcelona GSE)
"Natural Experiments in Economic History"

I was there because  the last one, natural experiments in economic history, attracted me. It was a very brilliant idea to "design" natural experiment in economic history. Well, one interesting thing is that nearly all people admit that we need to learn economic history, but this course is still not available here (sorry, it is available. I made a mistake), and not many students will actually registered for it, perhaps due to the way it is taught and the form of exam.

Another thing I was considering for the whole morning was that what's the difference between the questions European economists care about and those from U.S. or China. In China we don't need to think about "lobby", since the political system is so different. If institution plays an important role in determining the economic growth speed and pattern, what can we conclude from China's example?  Is the potential lobby power (like the pressure from big companies) growing and influencing policy makers? Will they still consider the global situation and make a wise choice?

A big problem for China now may be the exchange rate. G20 Conference is holding, and everyone is predicting the trend of future's world economy. I have heard that whenever the Chinese department of commerce is going to make a new economic policy, they will face different pressure from all related industries. Therefore, can they still stay balanced and choose the best strategy for the whole economy? It is definitely hard, and we cannot forecast the result. Economic models cannot tell everything in the real world. We can learn from economic theories, or the real history.

[Update 2010.10.24]

1. Thanks for Jodi's email, and now I update the new pictures. For more, see http://www.flickr.com/photos/barcelonagse/sets/72157625216250106/

2. I emailed Prof. Davide Cantoni and got the list of papers he mentioned on the conference (He is really a nice guy, and I do want to take his economic history course now). I'd like to paste the list here, and so, enjoy~~~

Acemoglu, Johnson, Robinson, "Colonial Origins of Comparative Development" (http://ideas.repec.org/a/aea/aecrev/v91y2001i5p1369-1401.html)

Jeremiah Dittmar, "Information Technology and Economic Change: The Impact of the Printing Press" (http://www.jeremiahdittmar.com/research)

James Feyrer and Bruce Sacerdote, "Colonialism and Modern Income: Islands as Natural Experiments" (http://ideas.repec.org/a/tpr/restat/v91y2009i2p245-262.html

)

Elise Huillery, "History Matters: The Long Term Impact of Colonial Public Investments in French West Africa" (http://econ.sciences-po.fr/elise-huillery/papers)

Melissa Dell "The Persistent Effects of Peru's Mining Mita" (http://econ-www.mit.edu/grad/mdell/papers)

A paper that gives a good review on this strand of research more generally is Nathan Nunn's contribution to the "Annual Review":

http://www.economics.harvard.edu/faculty/nunn/files/Nunn_ARE_2009.pdf

What Do We Pay For Asymmetric Information? The Mechanism Evolution of Reputation, Punishment and Barriers to Entry in Online Markets

Well, in fact it is not a piece of news. It is the title of a paper I wrote last winter. After finishing it, I went on doing something else and forgot it. Now it is already a new spring, I do not want to submit it to any journals since I have nothing fresh to add into it. Without anything new, I don't have the incentive to edit it. Therefore, I share it with you here.

Title

What Do We Pay For Asymmetric Information? The Mechanism Evolution of Reputation, Punishment and Barriers to Entry in Online Markets

Abstract

The appearance of the Internet reduces transaction costs greatly, and brings the boom of online markets. While we are trying to regard it as the most realistic approximation of perfect competition market, the asymmetric information and a series of problems caused by it stop us from dreaming. As the old saying goes, there is no free lunch. This summer witnessed the collapse of the reputation system in Taobao, the biggest online transaction website in China. In fact, during the evolution of mechanisms in online markets, reputation, punishment and barriers to entry have been established in turn. What do we pay for maintaining these mechanisms? In which circumstance will they be effective?

In this paper I try to build a series of models within the principal-agent framework and repeated games to explain why and what we should pay for asymmetric information while enjoying shopping online. Specifically, these mechanisms are considered step by step and their boundary validation conditions are discussed. Finally, as the conclusion indicates, in a larger range that a mechanism is effective, the more opportunity cost should be paid as a rent for information.

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Probability, Information and Economics

These days I was busy reading the biography of John Maynard Keynes, the most famous economist in the past century. One point mentioned in that book attracted my attention -- that is about his ideas on probability.

Every one who has studied macroeconomics must know a word "rational expectations". That is a great issue if talked. Simply, as the wikipedia says,

To assume rational expectations is to assume that agents' expectations are wrong at every one instance, but correct on average over long time periods. In other words, although the future is not fully predictable, agents' expectations are assumed not to be systematically biased and use all relevant information in forming expectations of economic variables.

Here  I do not want to say much about it. I'd like to mention another area, Information Economics. Typically, information economics deals with the situation that there is asymmetric information between principal and agent. Then as we all know, there is moral hazard and adverse selection. With the application of game theory, the common issues can be solved. However, seldom do I read paper discussing about the role of information in economic activities in other approaches. Therefore, followed Keynes' idea, I wonder what will happen if the spread of information is introduced into the economic activities.

Simply, probability reflects the situation that we do not know enough about how the real world functions. Therefore, we use probability to describe the combination every possible result. There is an interesting question: the normal distribution. I'll talk about it later on.

As the aim of science, we are pursuing the ability to predict. I know many people will have different ideas, but it does not matter much. At least, we want to know the mechanisms in every particular field. That is, we are pursuing "certainty" instead of "uncertainty". From uncertainty to probability, then to certainty, in this way we know much better about the real world. It is an old philosophic issue: is there a fixed point?

Then what will happen if the knowledge spreads? I have not got a clear understanding yet. The disappearance of probability is too hard to imagine. We can use "normal distribution" to describe some phenomenons, such as people's height, weight. The result is a description of a group, but not that accurate for a particular person. To predict a person's height, for example, we should get enough information, if applicable, his gene, his nutrition, and what he did in the past... Maybe it is too hard to define what is "enough". Anyway, the probability can be replaced under a special circumstance.

In the first step, I want to talk about how the spread of information influences the social activities. I think we have underestimated the importance of information in economics, or we have no applicable models to explain. I do not know whether more modern mathematical tools are needed in the explanations. As least, I need to read more about the history of probability, including the famous debate between frequency school and Bayesian. And maybe more knowledge about psychology and communication are essential. I want to talk about it later after learning measure theory.