Some Economic Consequences of Adverse Selection
{'Code': '04050100', 'Directorate': {'Abbreviation': 'SBE', 'LongName': 'Direct For Social, Behav & Economic Scie'}, 'Division': {'Abbreviation': 'SES', 'LongName': 'Divn Of Social and Economic Sciences'}}
{'SignBlockName': 'Daniel H. Newlon', 'PO_EMAI': None, 'PO_PHON': None}
One party to an exchange often knows something relevant to the                  transaction that the other party does not know.  Such asymmetries               of information are pervasive in economic activity: for example,                 in the relationship between employer and employee when the                      employee's effort cannot be monitored perfectly; between insurer                and insured; between the stockholders and the manager of a firm;                between a socialist firm and the central planner; or between                    buyer and seller when the value of the item is uncertain.  This                 situation is called adverse selection because the asymmetries of                information can lead to inefficient outcomes.  This project                     provides new insights into a number of difficult and as yet                     unresolved aspects of adverse selection.                                                                                                                        The project consists of five parts.  First, it characterizes                    contracts for members of a team in the presence of both adverse                 selection (each team member's ability is known only to himself)                 and moral hazard (effort cannot be observed).  Preliminary                      results show that an optimal contract can be designed in which                  monitoring is not needed to prevent shirking by team members.                   Further research determines the results when a number of crucial                simplifying assumptions are relaxed.  Second, it analyzes bidder                rings, the efforts of bidders at repeat auctions to collude when                bidders either can or cannot make transfers among themselves.                   Bidders must overcome the asymmetric-information problem of not                 knowing how much each other values the item.  Third, the project                determines the best way of selling a unique item with a well-                   defined value which no one knows (like mineral rights).  Fourth,                the project studies auctions with decentralized information                     acquisition.  Most auction theory assumes that information is                   fixed, but, in practice, bidders can acquire more costly                        information.  For example, in mineral-rights bidding, geological                surveys can be done.  Fifth, the project uses the tools developed               in auction theory to model the securities-market price-formation                process.  The effects of particular market institutions like the                dealership market and the clearing house are determined.
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{'Code': '1320', 'Text': 'Economics'}
{'url': 'https://www.nsf.gov/awardsearch/download?DownloadFileName=1987&All=true', 'xml': '8721124.xml'}