We study the efficiency of information acquisition decisions in models with dispersed information and strategic considerations. Our main result is that information choice is typically inefficient because agents do not fully internalize the effects of their information on others. This ex-ante suboptimality is obtained even in environments where information is used efficiently ex-post. We demonst...

Consider a supply chain involving an independent retailer and an independent manufacturer. The manufacturer produces a single product and sells it exclusively through the retailer. Using this supply chain framework, we develop a game theoretic model to study two commonly observed practices of selling extended warranties: the manufacturer offers the extended warranty directly to the end consumer...

This paper develops a multi-attribute competition model for procurement of short life cycle products. In such an environment, the buyer installs dedicated production capacity at the suppliers before demand is realized. Final production orders are decided after demand materializes. Of course, the buyer is reluctant to bear all the capacity and inventory risk, and thus signs flexible contracts wi...

Stress tests have become an important component of the supervisory toolkit. However, the extent of disclosure of stress-test results remains controversial. We argue that while stress tests uncover unique information to outsiders — because banks operate in second–best environments with multiple imperfections — there are potential endogenous costs associated with such disclosure. First, disclosur...

We analyse how constraints on dealers’ risk bearing capacity affect market efficiency in the foreign exchange (FX) market. Dealers support by accommodating their customers’ trading demands through elastic liquidity provision normal times but when they face elasticity of weakens. Episodes tight dealer – for instance, due to high leverage, Value-at-Risk, and funding costs turn go hand with pric...

Many farmers in the developing world have limited access to agricultural technologies and markets. Mobile phone-enabled services that offer price information and market linkages could contribute towards bridging this gap by reducing uncertainty about expected profits, information asymmetries and market inefficiencies. This article uses the example of the price information and marketing service ...

Moral hazard and adverse selection create inefficiencies in private health insurance markets. We use claims data from a large firm to study the independent roles of both moral hazard and adverse selection. Previous studies have attempted to estimate moral hazard in private health insurance by assuming that individuals respond only to the spot price, end-of-year price, average price, or a relate...

Innovation policy is in need for a rational which allows the design and evaluation of policy instruments. In economic policy traditionally the focus is on market failures and efficiency measures are used to decide whether policy should intervene and which instrument should be applied. In innovation policy this rational cannot meaningfully be applied because of the uncertain and open character o...

We conducted preference assessments with 4 typically developing children to identify potential reinforcers and assessed the reinforcing efficacy of those stimuli. Next, we tested two predictions of economic theory: that overall consumption (reinforcers obtained) would decrease as the unit price (response requirement per reinforcer) increased and that the cost and benefit components that defined...