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Asymmetric Information Economics

from Stigliz New Economics

Category: ECO
Published: 2002

Shiro Yabushita (藪下史郎)

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Asymmetric Information Economics


  1. Preface:
  2. Limit of the traditional economics:
  3. Birth of a new economics;
  4. Market under asymmetric information:
  5. Moral hazard and economic activities:
  6. Organization and systems:
  7. Macro economy and asymmetric information:
  8. Japanese economy in 1990s and financial uncertainty:
  1. 序文:
  2. 伝統的経済学の限界:
  3. 新しい経済学の誕生:
  4. 非対称情報下の市場:
  5. モラルハザードと経済活動:
  6. 組織と制度:
  7. マクロ経済学と非対称情報:
  8. 1990年代の日本経済と金融不安:

Premises of perfect competitive market; Joseph E. Stigliz; Causes of asymmetric information; Adverse selection; Moral hazarad; Japanese labor practices; Institutionalism vs. Neoclassical economics; Stability vs. Efficiency Trade-off; Nash Equilibrium; Bent Demand Curve; Liquidity Trap; Money Supply;


>Top 0. Preface:

  • Market economics under asymmetric information has emerging since last three decades, and has established a knew genre of modern economics.
  • What is an asymmetric information, and which affects what kind of impacts on our economic activities.

0. 序文:

  • 非対称情報下での市場経済論の登場
  • 非対称情報とは何か

>Top 1. Limit of Traditional Economics:

  • Adam Smith:
    • All mighty 'invisible hand' in the market mechanism.
    • There should be neither unsold dead stock nor unemployment.
    • Unemployed workers are only waiting for better jobs.
    • Neoclassic economics has inherited these principles in latter 20C.
    • Supply and Demand chart attaining Equilibrium was a typical explanation of this theory; automatically adjusted by God's invisible hand.
    • Marginal cost and marginal profit:
  • Premises of perfect competitive market:
    1. Uniformity of goods:
    2. Completeness of information:
    3. Property of goods:
      • Problems: stealing, environmental issues
    4. Function of the state: mechanism to compliment incompleteness of market mechanism: Cf. Night watch state
      • Function of currency: financial institutions
        • Bad (non-performing) loan
      • Transaction cost
      • Safety net:
        • Labor conditions: education
        • Social disparity:
        • Unemployment rate
        • Social insurance

1. 伝統的経済学の限界:

  • アダムスミスの見えざる手の限界:
  • 完全競争市場の前提条件
    1. 商品の同質性
    2. 情報の完全性
    3. 所有権の確立・保護
    4. 完全競争市場を補完する国家の機能
  • 独占市場:


>Top 2. Birth of New Economics:

  • Birth of New Economics:
    • 2001 Nobel Prize of Economics: "Market under asymmetric information"
      • George Acarov; Michael Spense; Joseph Stiglitz
      • Unified analysis of Micro & Macro economics under incomplete information
    • Joseph Eugene Stigliz (1943- ): born in Gary, Indiana, an industrial city of US Steel
      • graduated Amherst University in MA; Liberal Art
      • at MIT: studied problems of competition equilibrium
      • doctorate at Cambridge University
      • became professor of Yale in 1967 at 27.
      • specialized in economic growth, technology development, income distribution, finance, global economy
      • "The Economics of the Public Sector"; asymmetric information and incentive policies.
      • 1969-70: Nairobi University in Kenya.
      • Insurance market, Labor market, and Financial market under incomplete information
      • CEA (Council of Economic Advisers) of Clinton Administration, then World Bank chief economist, and criticized IFM policy on 1997 Asian financial crisis
    • Conventional economics (including Paul Samuelson)
      • Micro economics under complete market mechanism
      • Macro economics; incomplete employment of Keynesian economics
    • Acalov: "Lemon market"
      • rejected by "American Economic Review" and UK "Review of Economic Study", and "Journal of Political Economy" of Chicago University

2. 新しい経済学の誕生:

  • スティグリッツの経済理論
    • "公共経済学"
    • 経歴
    • Liberal Arts重視の大学教育



>Top 3. Market under Asymmetric Information:

  • Causes of asymmetric information:
    • Disparity of information between seller and buyer:
      • Seller has more information about goods during production process.
    • Asymmetric information increases due to economic development
      • Division of labor
      • IT technology; e-Commerce
  • Case-1: Used car market:
    • Asymmetric information in used-car market:
      • Buyer has no information about a particular car.
      • 'Lemon' used-cars may be included
      • Lemon used cars increase according to sales price decreases.
    • Demand curve will not show down trend.
      • There are two equilibrium points in the chart (1)
      • The chart (2) indicates there is no equilibrium point.
  • >Top Case-2: Insurance Market:
    • Uncertainty and risk
    • Lottery buyers don't buy their dreams, but risks. Dreams are not real, which are essentially uncertain.
    • Risk challengers and Risk evaders
    • Entity who has no essential information:
      • In used-car market: Buyer
      • In insurance market: Insurance company
    • 'Adverse selection' (or cacogenics)
    • Quality of information
      • It costs to maintain credibility of information
        • Declare of origin of production
        • Brand image


3. 非対称情報下の市場:

  • 非対称情報とその原因



  • 逆選択 (逆淘汰)

>Top 4. Moral Hazard and Economic Activities:

  • What is 'moral hazard'?
    • Lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance (by Oxford Dictionary)
    • Or it even means that insurance policyholder intentionally make or neglect to avoid accident to get the insured amount.
    • Insurance company needs to consider risks of adverse selection and moral hazard.
    • Expected Profit and Safety Rate (q):
  • expectedprofitcurve_safetyrate
      • Blue line: No insured case; q=0 no fire, q=1 fire surely occurs.
      • c = h(q) is the cost spent for fire prevention when safety rate is q (0≦q≦1)
  • Effort for Fire Prevention (Fig. Right below):
    • The marginal cost curve crosses at q*, where the maximus expected profit will be (4q* +1) -h(q*).
    • Safety rate is determined endogenously by the policyholder; depending on insurance premium and insured amount.
  • Social Security issues:
    • Medical and welfare costs are getting serious in recent years.
    • Medical services are mostly operated by non-profit basis.
    • Medical consultation, examination, operation fee, and medicine fee are covered substantial by medical insurance.
    • Moral hazard in medical services:
      • Excess examination, excess medicine
    • Generally, stability (or fairness) and efficiency have trade-off relationship.

4. モラルハザードと経済活動:

  • モラルハザードとは
  • 安全確立と火災防止費用:



>Top 5. Organization and Systems

  • Japanese labor practices: Most of Japanese companies adopted (or at least until 1990) following labor practices:
    • Permanent employment
    • Less labor mobility
    • Seniority payment system
    • In-house HRD or OJT
    • Enterprise union
    • Long-term business transaction
    • Stable shareholders
    • Employee-centric management
    • Indirect finance; Main banking system
  • Institutionalism vs. Neoclassical economics:
  • New system economics takes a serious view on asymmetric information and various transactions costs, including globalization in economies.
    • Corporate governance
    • Separation of ownership and management; Principal-agent relationship
    • Active shareholders; banks, labors, trade partners
    • Incentive mechanism in labors
    • Function of NPO's
    • Formal rules and informal rules
    • Fixed and incentive in pay system
  • Centralized or decentralized corporate organization
  • Stability vs. Efficiency Trade-off:
    • Stable pay may cause moral hazard
    • Efficient pay based on achievement may cause instability in pay
    • this relationship is applicable to Agricultural tenant-farming system.
  • Nash Equilibrium:
    • a stable state of a system involving the interaction of different participants , in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged .
    • Any one partner select the present situation because of too much changing cost.

5. 組織と制度:

  • 日本の労働慣行
  • 制度学派経済学 (W.C.Michell)
  • 新古典派経済学


  • 賃金の安定性と生産性のトレードオフ



  • ナッシュ均衡

>Top 6. Macro Economics and Asymmetric Information:

  • Japanese high growth age (1955 - 1980):
    • Unemployment rate: 1-2 %; but after 1990 increased 3%, 4%, then 5%.
    • Various types of unemployment: <Fig>
    • Labor Demand Curve shifts from D0 to D1
    • Total unemployment: NE
    • Spontaneous (or frictional) unemployment; MN who are obliged to be unemployed or be in vocational training until finding the next employment.
    • Non- Spontaneous unemployment; ME who want to work by present pay level.
    • Frictional unemployment
  • Lost decade or two decades in Japan:
    • a kind of Nash Equilibrium?
    • Deflation in commodity price
    • Decrease of GDP
    • Higher unemployment rate (5% or more)
  • Bent Demand Curve: <Fig>
    • Asymmetric or incomplete information affect Corporate Demand Curve; <Fig>
    • Even if one company raises price, customers will not totally escape to other company, because customers don't know price of other company's goods, due to asymmetric information. ; Demand curve shows decreasing trends.
    • If one company raises price, the present buyer of this company knows immediately the information and try to buy the goods from other company.; Demand drastically decreases
    • If one company decreases price, the present buyer from other company doesn't know the information, and may to come to this company; Demand less drastically increases.
    • Gradient of the point reducing price from the present becomes smaller than the case of increasing price.
    • Marginal Profit Curve discontinuously at Q* point.; Rigidity of price
  • Restricted Lending:
    • Bankers don't have enough information about the borrower.
    • If a banker increased lending loan rate, the banker's expected profit increase.
    • But the higher lending rate may cause higher probability of financial default of the borrower; 'Adverse selection' happens.
    • Increase of lending rate may increase bad borrowers.
    • The banker could not or should not increase the lending rate beyond r* point.
    • In Japan, indirect financing through major bank has been traditional.
    • This phenomenon also related to asymmetric information.

6. マクロ経済学と非対称情報:



  • 価格の硬直性
  • 貸付利子率と期待収益率:


>Top 7. Japanese Economy in 1990s and Financial Uncertainty:

  • James Tobin: "Liquidity trap" is happening in Japan since 1990:
    • could not depend on financial policy.
    • Fiscal policy will be difficult due to too much public debt.
    • Unemployment rate is more than 5%, seeming no improvement.
    • Balance sheet recession in banks and corporations matters.
  • Japanese economic fundamentals have shown:
    • GDP Growth: 9%+ until 1974 the first oil shock; then had shown 3-4% growth until 1990; but thereafter 0-1% growth.
    • CPI (Consumer Price Index): around 6% until 1982; exceptionally more than 20% after the first oil shock (1975).
    • CPI had been rather stable during the period of real estate bubble economy.
    • Since 1990 CPI tends to show downward, i.e., deflation trend.
    • The view about these facts are quite contrastive as follows:
      1. Japanese potentiality of economic growth should be higher; we should grow more.
      2. Japan has attained matured economy, could not expect high growth any more.; rather pursue GNH rather than GDP.
    • Economic growth is determined by:
      • Labor increase
      • Technological development
      • furthermore long-term growth depends on:
        • Educational investment
        • Deregulation and structural improvement
      • Higher unemployment rate is serious problem; due to insufficiency of aggregate demand.
      • Hitherto discussion on this issue has been confused short-term and long-term problems.
  • Money Supply:
    • In addition, money supply and object-economy are mutually related.
      • According to mentalists, fluctuation of money supply only affects nominal GDP, doesn't affect real GDP.
      • Money supply is the sum of cash and bank deposit.
      • But credit amount by banks affects to corporate and household economic activities.
    • Balance Sheet of Banks:
      • Bank deposit is debt item, while Loan and Credit amount is asset items.
      • Credit theory emphasizes that fluctuation of bank credit strongly relates object-economy.
      • In particular corporate management may affect bank's stability.
      • Conversely financial situation may affect corporate production and sales.
  • Arbin Fisher: analyzed 1930 Great Depression:
    • In economic depression period:
      1. Companies makes dumping to return debt.
      2. Causing price reduction, causing deflation.
      3. Causing to effective increase of corporate debt.
      4. Causing decrease of corporate asset value; deteriorating BS
      5. Causing decrease of production and employment
      6. Finally may cause bankruptcy
      7. Causing further negative impact to the economy

7. 1990年代の日本経済と金融不安

  • トービン:"流動性の罠"
  • 日本経済の基礎指標
    • GDP
    • CPI



  • 貨幣量:
  • Proper chart of economic trend is really eloquent.
  • Asymmetry is a source of dynamism, causing some change favorably or unfavorably to us, which is similar to physical phenomenon.
  • 適切な経済傾向の図は実に雄弁である。
  • 非対称性は物理現象と同様に、ダイナミズムの源泉であり、我々にとって幸か不幸かある種の変化を生じさせるものである。

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