Incentives for Quality in Friendly and Hostile Informational Environments

Fleckinger, Glachant, Moineville

Description

Niveau: Supérieur
Incentives for Quality in Friendly and Hostile Informational Environments PRELIMINARY AND INCOMPLETE Pierre Fleckinger?, Matthieu Glachant†, Gabrielle Moineville‡ February 24, 2012 Abstract We develop a simple lemons model with endogenous quality where the amount of information available is quality-dependent. The distinctive feature of the analy- sis is to contrast friendly informational environments, in which the buyer has better information when quality is high than when it is low, and hostile environments, in which information is better when quality is low. Differences are clear-cut: Hostile en- vironments give rise to a bandwagon effect across sellers, which can lead to multiple equilibria. In contrast, friendly environments create free riding among sellers, which always induces a unique equilibrium. Comparative statics results are also contrasted. A key notion is that incentive provision is relatively better when the informational environment targets less expected evidence. The results shed new light on several in- sights of the literature on statistical discrimination, collective reputation and quality certification. Keywords: Moral Hazard, Asymmetric Information, Multiple Equilibria, Moni- toring, Lemons. JEL classification: D82. ?Paris School of Economics - University of Paris 1 & Cerna, Mines ParisTech. Centre d'Economie de la Sorbonne, 106-112 boulevard de l'Hopital, 75013 Paris. Email: †Cerna, Mines ParisTech, 60 bd St Michel, 75006 Paris.

• quality


• agent


• environments


• either related


• differences between


• quality prod- uct


• motivated agents


• better when

Sujets

• Moineville
• Friendly
• Quality
• Environment

Informations

• Publié par: chaeh
• Nombre de lectures: 13
• Langue: English

Extrait

IncentivesforQualityin FriendlyandHostileInformationalEnvironments P RELIMINARYAND I NCOMPLETE PierreFleckinger, ! MatthieuGlachant, † GabrielleMoineville ‡ February24,2012 Abstract Wedevelopasimplelemonsmodelwithendogenousqualitywheretheamount ofinformationavailableisquality-dependent.Thedistinctivefeatureoftheanaly- sisistocontrastfriendlyinformationalenvironments,inwhichthebuyerhasbetter informationwhenqualityishighthanwhenitislow,andhostileenvironments,in whichinformationisbetterwhenqualityislow.Differencesareclear-cut:Hostileen- vironmentsgiverisetoabandwagoneffectacrosssellers,whichcanleadtomultiple equilibria.Incontrast,friendlyenvironmentscreatefreeridingamongsellers,which alwaysinducesauniqueequilibrium.Comparativestaticsresultsarealsocontrasted. Akeynotionisthatincentiveprovisionisrelativelybetterwhentheinformational environmenttargetslessexpectedevidence.Theresultsshednewlightonseveralin- sightsoftheliteratureonstatisticaldiscrimination,collectivereputationandquality certification. Keywords:MoralHazard,AsymmetricInformation,MultipleEquilibria,Moni- toring,Lemons. JELclassification:D82. ! ParisSchoolofEconomics-UniversityofParis1&Cerna,MinesParisTech.Centred’Economiedela Sorbonne,106-112boulevarddel’Hoˆpital,75013Paris.Email: [e-mail] † Cerna,MinesParisTech,60bdStMichel,75006Paris.Email: [e-mail] . ‡ Cerna,MinesParisTech,60bdStMichel,75006Paris.Email: [e-mail] . 1

Contents 1Introduction 2Themodel 3Equilibriumanalysis 3.1Incentivesandcutoffequilibria.......................... 3.2Existenceandstability............................... 3.3Equilibriumcharacterization........................... 4ComparativeStatics 4.1Changesininformationalenvironment..................... 4.2Changeincosts................................... 5Applicationsandrelationtotheliterature 5.1Statisticaldiscrimination.............................. 5.2Collectivereputation................................ 5.3Qualitydisclosureandcertification........................ 6Conclusion AAppendix:SoftInformation BAppendix:motivatedagents,inefficientagentsandhazardousproducts CAppendix:OmittedProofs C.1ProofofProposition3................................ References 2 3 7 9 9 11 21 51 51 71 02 02 22 32 25 62 82 92 92 13

1Introduction Itiswidelyrecognizedthatbuyersmayhavelessinformationaboutcertainproductat- tributesthantheseller,implyingsevereinefficiencies.SincethepublicationofAkerlof’s paperin1970,thislemonproblemhasbeenexploredintheeconomicsliteraturefrom manydifferentperspectives.Acrucialyetwidelyoverlookedaspectisthat,inreality, theasymmetryofinformationbetweenbuyerandsellermaybemoreorlessseverede- pendingonthelevelofproductquality,andthatthishasimportantconsequencesforthe sellers’incentivestoprovidehighquality. Considertheexampleofthereliabilityofavehicle.Reliabilitybasicallymeansthe absenceofbreakdowns.Hence,whenacaractuallybreaksdown,itsqualityisdisclosed. 1 Butifnothingoccurs,itdoesnotmeanthatthevehiclewillnotbreakdowninthefuture. Inthiscase,experienceleadsconsumerstobemoreinformedaboutthequalityofpoorly reliableproductsthanaboutthatofreliableones. Inasimilarvein,anti-dopingtestsinsportcanonlyidentifyalimitedsetofperformance- enhancingdrugsanditiscommonknowledgethatcertaindopingsubstancesareunde- tectable.Asaresult,testsareabletoprovideevidenceofdoping,buttheyfailtoascertain itsabsence.Thatis,theycanonlyuncoverlowquality. Inothercircumstances,consumersreceivemoreinformativesignalswhenqualityis highratherthanlow.Forexample,amovieawardselectivelysignalsahigh-qualityprod- uct.Buttheconsumersareleftuncertainaboutthequalityofnon-awardedmovies:they couldbegoodorbad,giventhatnotallgoodmoviesreceiveaprize.Academicpublica- tionisanotherillustration:prestigiousjournals(mostly)includegoodpapers,butafrac- tionoftheunpublishedmanuscriptsareexcellent–notablythoseunderreview/revision atgoodjournals. Thoseexamplessuggestthatthequantityofinformationaboutagoodorserviceavail- abletoabuyeror,moregenerally,toauser,frequentlyvarieswiththelevelofproduct 1 Reliabilityistoalargeextentanexperiencegoodattributeinthatitisrevealedovertimeafterthe purchase.Butthisdoesnotpreventqualitydisclosuretoinfluencedemandeitherthroughrepeatedtrans- actionsorthroughreputationeffects.Alternatively,thepotentialbuyercantestthevehicleforashort periodandobtainsomeinformation–mostlyincaseofabreakdown. 3