Asymmetric Information Economics from Stigliz New Economics	Category: ECO Published: 2002 #1419b
	Shiro Yabushita (藪下史郎)	up 14830

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

Summary	要約
>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 (30年以前より) 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: Uniformity of goods: Completeness of information: Property of goods: Problems: stealing, environmental issues 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 商品の同質性 情報の完全性 所有権の確立・保護 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): 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: Japanese potentiality of economic growth should be higher; we should grow more. 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: Companies makes dumping to return debt. Causing price reduction, causing deflation. Causing to effective increase of corporate debt. Causing decrease of corporate asset value; deteriorating BS Causing decrease of production and employment Finally may cause bankruptcy 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" 1990以降の日本 日本経済の基礎指標 GDP CPI     貨幣量:

Comment

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。