Is Ignorance Bliss? The Effect of Asymmetric Information between Spouses on Intra-household Allocations

By Carolina Castilla and Thomas Walker

American Economic Review, May 2013

We conducted a field experiment in Southern Ghana to test the effect of asymmetric information on intrahousehold allocation. A lottery was conducted, where prizes were distributed in public and in private. The results indicate that asymmetric information ...

Economic Experts versus Average Americans

By Paola Sapienza and Luigi Zingales

American Economic Review, May 2013

We compare answers to policy questions by economic experts and a representative sample of the US population. We find a 35 percentage point difference between the two groups. This gap is only partially explained by differences in ideological or personal ch...

The Lure of Authority: Motivation and Incentive Effects of Power

By Ernst Fehr, Holger Herz, and Tom Wilkening

American Economic Review, June 2013

Authority and power permeate political, social, and economic life, but empirical knowledge about the motivational origins and consequences of authority is limited. We study the motivation and incentive effects of authority experimentally in an authorit...

Lemons Markets and the Transmission of Aggregate Shocks

By Pablo Kurlat

American Economic Review, June 2013

I study a dynamic economy featuring adverse selection in asset markets. Borrowing-constrained entrepreneurs sell past projects to finance new investment, but asymmetric information creates a lemons problem. I show that this friction is equivalent to a tax...

Private Information and the Allocation of Land Use Subsidies in Malawi

By B. Kelsey Jack

American Economic Journal: Applied Economics, July 2013

Efficient targeting of public programs is difficult when the cost or benefit to potential recipients is private information. This study illustrates the potential of self-selection to improve allocational outcomes in the context of a program that subsid...

Platform Competition under Asymmetric Information

By Hanna Halaburda and Yaron Yehezkel

American Economic Journal: Microeconomics, August 2013

We consider platform competition in a two-sided market, where the two sides (buyers and sellers) have ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology. We find that platform competition may lead to a market...

Homophily in Peer Groups

By Mariagiovanna Baccara and Leeat Yariv

American Economic Journal: Microeconomics, August 2013

The focus of this paper is the endogenous formation of peer groups. In our model agents choose peers before making contributions to public projects, and they differ in how much they value one project relative to another. Thus, the group's preference compo...

Contracts for Agents with Biased Beliefs: Some Theory and an Experiment

By Anja Sautmann

American Economic Journal: Microeconomics, August 2013

This paper experimentally tests the predictions of a principal-agent model in which the agent has biased beliefs about his ability. Overconfident workers are found to earn lower wages than underconfident ones because they overestimate their expected pa...

Too Far Away? The Effect of Distance to Headquarters on Business Establishment Performance

By Arturs Kalnins and Francine Lafontaine

American Economic Journal: Microeconomics, August 2013

In the population of over 1.7 million Texan sales-tax collecting business establishments, we show that greater distance to owner headquarters is associated with shorter establishment longevity. For the lodging industry, where we have revenue data, inc...

Asymmetric Information between Employers

By Lisa B. Kahn

American Economic Journal: Applied Economics, October 2013

This study explores whether potential employers have the same information about worker ability as the incumbent firm. I develop a model of asymmetric learning that nests the symmetric learning case and allows the degree of asymmetry to vary. I then sho...

Information Asymmetries in Consumer Credit Markets: Evidence from Payday Lending

By Will Dobbie and Paige Marta Skiba

American Economic Journal: Applied Economics, October 2013

Information asymmetries are prominent in theory but difficult to estimate. This paper exploits discontinuities in loan eligibility to test for moral hazard and adverse selection in the payday loan market. Regression discontinuity and regression kink ap...

The Cost of Contract Renegotiation: Evidence from the Local Public Sector

By Philippe Gagnepain, Marc Ivaldi, and David Martimort

American Economic Review, October 2013

Contract theory claims that renegotiation prevents attainment of the efficient solution that could be obtained under full commitment. Assessing the cost of renegotiation remains an open issue from an empirical viewpoint. We fit a structural principal-a...

Spontaneous Discrimination

By Marcin Pęski and Balázs Szentes

American Economic Review, October 2013

We consider a dynamic economy in which agents are repeatedly matched and decide whether or not to form profitable partnerships. Each agent has a physical color and a social color. An agent's social color acts as a signal, conveying information about th...

Do We Follow Others When We Should? A Simple Test of Rational Expectations: Comment

By Anthony Ziegelmeyer, Christoph March, and Sebastian Krügel

American Economic Review, October 2013

The payoff of actions is estimated and the resulting empirical payoff is controlled for in regression analyses to formulate a test of rational expectations in information cascade experiments. We show that the empirical payoff of actions is a function of e...

Optimal Contract under Moral Hazard with Soft Information

By Guillaume Roger

American Economic Journal: Microeconomics, November 2013

I study a model of moral hazard with soft information: the agent alone observes the stochastic outcome of her action; hence the principal faces a problem of ex post adverse selection. With limited instruments the principal cannot solve these two proble...

Middlemen Margins and Globalization

By Pranab Bardhan, Dilip Mookherjee, and Masatoshi Tsumagari

American Economic Journal: Microeconomics, November 2013

We study a competitive theory of middlemen with brand-name reputations necessary to overcome product quality moral hazard problems. Agents with heterogeneous abilities sort into different sectors and occupations. Middleman margins do not equalize acros...

A Procurement Auction for Toxic Assets with Asymmetric Information

By Olivier Armantier, Charles A. Holt, and Charles R. Plott

American Economic Journal: Microeconomics, November 2013

The proposed 2008 TARP auction was intended to remove "toxic" assets from portfolios of financially stressed banks. The Treasury selected a design whereby bids to sell different securities would be normalized by "reference prices" that reflect relative...

Bargaining with Deadlines and Private Information

By William Fuchs and Andrzej Skrzypacz

American Economic Journal: Microeconomics, November 2013

We study dynamic bargaining with private information and a deadline. As commitment power disappears, there is a clear "deadline effect." That is, trade takes place smoothly before the deadline and with an atom right at the deadline. Prices, timing of t...

Corruption Dynamics: The Golden Goose Effect

By Paul Niehaus and Sandip Sukhtankar

American Economic Journal: Economic Policy, November 2013

Theoretical work on disciplining corrupt agents has emphasized the role of expected future rents -- for example, efficiency wages. Yet taken seriously this approach implies that illicit future rents should also deter corruption. We study this "golden g...

Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts

By Benjamin R. Handel

American Economic Review, December 2013

This paper investigates consumer inertia in health insurance markets, where adverse selection is a potential concern. We leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia, and develop and estim...