Mancur Olson, Jr.(2000)"Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor”

This is a study to explain why there is big difference between rich countries and poor ones.　In this paper, author adapt new or endogenous growth models feature externalities that increase with investment or with stocks of human or tangible capital and can readily explain why countries with high per capita incomes grow as fast or faster as low-income countries.

As an explanation for the fastest-growing countries are poor countries, it says poor countries on average have opportunities to grow faster than riches, but poor economic policy or institution prevent it.


Q What is endogenous model?

Douglass C.North(1991)”Institutions”

Institutions include formal(laws, constitutions) and informal(conventions, traditions). This paper shows relationship between economic development and institutional development, because in economic history, institutions are given.

In this paper, institutions made to make monopolistic situation first, because there is no authority and someone who has more skill and information get more power and for them, monopoly is the best way to keep profit. However, this monopolistic situation makes a gap between players. This emerge competition, evolution, incremental development. Less profitable player tries to get more profit to create better institution, and monopolistic situation will become weak because it is weakness of whole country in terms of national competition.

However, “good” institution depends on environment. If one institution is good in U.S., it does not mean it will work in Latin America.

Ross Levine(2005)"Law, Endowments and Property Rights”

This is a research to inspect historically-formed questions; Property rights are affected by law and endowments? Many researchers show property rights are crucial for personal welfare and economic development, but they did not show the reason for differences in property rights among countries.

In this paper, author test the relation between law and property rights, and endowments and property rights. Law means common law(British) and civil law(French). And common law has better property rights than civil one because latter was made to minimize jurisdiction. Endowments mean inequality of wealth. If there is inequality of wealth between people, elites made law to protect and exploit others. And if wealth are equal, law is made for equality.

In conclusion, historical hypothesis is proved.

David S. Lamdes(2006)”Why Europe and the West? Why not China”

This is a study to explain the reason why China lose westerners nevertheless it exceeded western before 19 century.

According to the paper, there were two chances to develop, but China failed. The reason is social system and value.

Chance 1: continuing technology
Lacked a free market and institutionalized property rights.
Lager value of society weights custom and consensus.
-in Europe, Judaeo-Christian respect for labor as religious value
-free market is self-development system because an enterprise is free and innovation worked and paid, that rulers and vested interests were narrowly constrained in what they could do to prevent or discourage innovation.

Chances 2:learn from western
One consequence was a prudent, almost instinctive, resistance to change
Another consequence was a plague of lies and misinformation: officials wrote and told their superiors what they wanted to hear: or what the subordinate thought the superior would want to hear.

Lecture 13: Coordination Problems

Today’s lecture was the last lecture. It was about coordination problems; matching players to achieve efficient outcomes. This is an area of incentive problems.

Multiple Payoff-equivalent Equilibria:
This is a kind of meet friend game(if they meet with each other in the same place, they will be happy otherwise, not. And the place is indifferent)
To attain coordination, we can use sequentially decision, communication, third-party recommendation, and convention.

Multiple Payoff-ranked Equilibria:
This is a kind of previous case, but one place is better than the other. In this case, pure strategy equilibria is same.

Payoff vs Risk(Stag hunt)
Consider previous game + Chicken(two same strategies’ pares are indifferent, and the others are only one player gets outcome).
There are two equilibriums. One is Pareto-dominant, the other is risk-dominant(because if one does not want to get Pareto-dominant equilibrium, one can make sure to get at least something slightly lower than Pareto-dominant equilibrium) there is two ways to attain coordination.
self-signaling:
action is an action chosen partly to secure good news about one’s traits or abilities, even when the action has no causal impact on these traits and abilities.
Self-commitment:
To show willingness to do something.

In this game, it is difficult to know what was perceived by other people.
Coordination on efficient outcomes is reached often with two-side communication, less often with one-sided communication, and very rarely without communication.

Without communication, if third party(public) suggestion is given, they can accept the suggestion if it is efficient equilibria, but otherwise, not.

Weak-Link Games:
Each player’s payoff is determined by the own choice and minimum of opponents’ choice.
For any number of players, there are 7 pure strategy equilibria(each player chooses same number in games)

Evidences:
By experiments, if number of player is increasing, the outcome become worse(because people think there are someone to choose 1).
Moreover, Increasing specialization(team size) can be dangerous. Raise team size only gradually, after having coordinated on a good outcome.

Organizational Languages:
Player: manager and workers
Rule: in 20 round, a manager teaches a worker a order of 8 of 16 pictures. And after that, half of workers join other managers’ pair and taught same thing as other workers do.

Result:
Over first 20 rounds, an efficient and relationship specific language develops (experienced workers are better than inexperienced)

It shows mergers lead to short-run loss of performance(of more than 25%), because of language mismatch.
We can say subjects overestimate value of mergers; they guessed that completion times would not decline so much.
Subjects attributed part of the decline to inefficient newcomers: workers rate new managers worse than old; managers rate new workers worse. Despite understanding that their task is harder (in this experiment, the work itself is same)

Multiple Efficient Equilibria;
“Battle of sexes”
(payoff matrix is like a chicken game, but two equilibriums are indifferent; one is good for one, another is good for another person), but if each of them choose same strategy, they get nothing.

In this game, one-side communication usually reach coordination.
Two-side communication, coordination achieved in 55% of cases if one round of communication; three round is 63%.
Without communication, coordination in 48% of cases.

Authority:
Formal authority: label(King, Boss)
Real authority is an equilibrium outcome

The label(boss, king) indicates that subordinates are supposed to play according to the authority’s directives, and to ignore competing massages from others(If players are given the role of king or servant, they can reach agreement easier than no role)

Remarks:
Labels only affect play if some convention(like the above) is attached.
A player has real authority if all others play the suggested equilibrium.
Formal authority is worthless absent real authority.
Authority only admits choice of equilibrium(do not affect strategy or payoff itself)

Absolute Authority:
The right a player can induce her preferred equilibrium.
If a player has absolute authority, efficient equilibrium is often not achieved because the player does not have credibility.

Divided Authority:
Magna Carta, and the Glorious Revolution gives king better position. Division of power can make everyone stronger by strengthening their commitment abilities.

Lecture12: Bounded Rationality

Today's subject was another type of economic psychological theory; bounded rationality. For bounded recall, the teacher told us relation of memory in Prisoners’ Dilemma, Tid-for-tat strategy, indirect reciprocity. As for Self-serving bias, he mentioned about some experiments and field study. Finally, he treated Time Inconsistency using three period models. What was interesting for me was he mentioned about similarity between economics and biology in the argument of “organization”. That was exactly what I thought!

Bounded recall:
This is a supplement of memory for game because memory is important for institutional solution to incentive problems. In fact, in the repeated two-player prisoners’ dilemma, needed memory is only one period.

Example: Sequential Prisoners’ Dilemma
Player: 1 and 2
Rules: choose C or D, repeatedly
Payoff: U(C,C) U(C,D) U(D,C) U(D,D)
Outcome: U(C,C)=a U(C,D)=b U(D,C)=c U(D,D)=d
C=cooperates, D=defets

Strategies:
Tit-for-tat(TFT): do always others do
TFT is stable when δ is sufficiently large, but it is vulnerable if there is some mistakes to choose. A better strategy is forgiving TFT. Even better is WSLS(Win-Stay Lose-Shift). This means first one sets a target of his payoff, and if the payoff is higher than the target, he stays. Otherwise, he change. If constant positive probability another round isδ>a/b, it is ESS(Evolutionary Stable
Strategy; the strategy to reach maximization without other hypothesis, and Nash equilibrium that can explain social evolution.)

Indirect Reciprocity:
When players switch partners often, with reputation across interactions, cooperation is sustainable. To consider (i) cooperate unless the opponent is known defector, (ii) always defect, necessary condition for cooperation in equilibrium is q>a/b). but of course, one-period memory of actions does not quite suffice because we do not see types, only behaviors.

The justification of government:
According to David Hume, the reasons for needs of government are:
(i) People do not have impartial view
(ii) People cannot plan for long time
(iii) There are public goods

Self-serving Bias:
Agents may have self-serving interpretations of fairness.

Tort Case Experiment:
Self-biased leads disagreement, and if they know each other the rate of impasses become smaller.

A field study:
Public school teacher’s negotiation.
Both employers and teachers use wages in comparison districts as argument, but the comparison is biased. Incidence of strikes is related difference in comparison group. A solution is to add some teacher to board, or to adapt job rotation.

Time inconsistency:
Even a single person may have problems making credible commitments to herself:
The reason for prohibitions is for the merit of a person who wants to do such things.

Time inconsistent model:
U=u(c0)+βΣδu(ct) (if δ<1, the agent is time inconsistent. And δ=1, it is the same as conventional model: U=Σδu(ct))

If taken three period model, Utility is
U= In c1 + βδInc2 +βδ2Inc3
Total income is Y. Suppose interest rate is zero, then
C1+c2+c3-Y=0

Case(i); Full Commitment
Optimization through three period
Case(ii): No Commitment
Consider c3*=Y-c1-c2, c2+c3=Y-c1, and solve c1* to maximize period 1.

If there is no commitment, consumption is higher in Period 2 and lower in Period 3. and if the agents cannot commit, he is worse off. Suppose if politician propose a compulsory pension scheme forcing people to consume less in period 2 and more in period 3. Politician will be elected because they want someone to force them save money for period 3.

Another implications:
1. Why people save illiquid assets:
People want something force them to save money
2. Why they borrow and save simultaneously
People want something force them to save money
3. Why consumption drops heavily at retirement
People views spot time utility optimization
4. Why people agree to ban drugs and prostitution
People thinks it is good for themselves even if they want to do so.
5. Xenical and Antabus
People want to diet or be healthy even if they do not try

Dual Process Mind?
Ambiguity aversion and loss aversion.
There are two ways to decide: instinctive and cognitive
Analyzing dual-self model: long-run/short-run self: period 1 is much and 2 and 3 is less.

Luigi Guiso, Paola Sapienza and Luigi Zingales(2006)”Does Culture Affect Economic Outcomes?”

This is a application economical analysis to culture. In recent years, some research about relation between cultures and economic outcomes emerged through better techniques of cultural analysis. This paper summarizes these approach and achievements.

In this paper, authors define culture as “those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation”, and affect society through prior beliefs and values or preferences.

First, it shows direct impact of culture on expectation and preferences. Second it describes the fact that beliefs and preferences have an impact on economic outcomes. And last, it demonstrates interaction between culture and economics. But it also takes the thought that culture changes slowly and therefore culture is given for people in the culture.


In conclusion, it shows culture affects economical outcomes, and even a culture which was made when it was useful becomes a constraint for another situation, it remains.

Questions:
What is basic logic for effectiveness of culture to beliefs and preferences?

C.K.Prahalad,"The Innovation Sandbox”

This is the paper to promote business in developing countries through innovation to make it possible for poor to access. It describes some successful organization in India, and extracts principles of innovation.

For innovation, key of action is followings:
1. Specialization(=focus on niche)
2. Pricing(=low)
3. Capital Intensity(=Scale merit)
4. Talent Leverage(=specialization of HR)
5. Workflow(=management)
6. Customer Acquisition(=customer driven)
7. Value and Organziation(=Culture)

It is resembles industry structure analysis such as Porter’s five forces. Ultimately, the principle of success of business is same in any situation.

Barry R. Weingast(2005)”The Constitutional Dilemma of Economic Liberty”

This is an application of game theory to constitution problem. In developing countries, there are still no good governance even if they have constitution. This paper approaches with view of self-enforcing from simple government to emergence of constitution. And it shows some implication to make good constitution for developing countries.

In conclusion, it shows two things. First is need of shock to improve constitution because sometime constitutions in developing countries do not match the situations in the countries. Second is adjustment; to remake and add more regulation to meet people’s demand.

Questions:
What is the model for constitution?
Why shock is needed in theory?

Linda Babcock, George Loewenstein(1997)"Explaining Bargaining Impasse: The Role if Self-Serving Biases”

This is a paper about contract theory. It suggests concept of Self-serving bias, which is fair mind depends on the view(not actually situation), and self interest. This biases occurs when there is asymmetrical view from a person, and lead negotiation to a impasse.

This concept of self-serving biases is useful for explaining contradiction such as reason for effectiveness of job search assistance. This area is between economics and psychology. Through the way of experiment is different, these two science is the same essencially.

Credibility

Today was the last lecture of Business English. Two DCS and two LIP. They were great, actually.

Last individual presenter was a girl who was good at previous presentations. Actually, her presentation was not as good as my expectation. But everyone listened carefully, and that made an active discussion after that. I thought that credibility is important for all situations.

After the lecture, I asked teacher about how to study English in Japan. He told me three things. Read English books, watch DVD spoken in and written in English, and join some conversation in English. Actually, these are great way to study.

I will keep studying English, and in the next study abroad, I will become like English-Japanese.

Gary D. Libecap and Steven N. Wiggins, (1984),”Contractual Responses to the Common Pool: Prorationing of Crude Oil Production”

This paper is application of game theory and inspection of it. The paper try to describe effect of bargaining cost to institutions, forms of contract.

In conclusion, it shows concentration has positive effect for output, and form of contract. But, like the prisoner’s dilemma, contracts take form of prorationing even if it is costly.

Tore Ellingsen and Magnus Johannesson(2007),”Paying Respect”

This is a paper about the non-monetary incentive. In pure economics, people work for only monetary incentive. However, it is not true for real world, because workers get utility from respect from employers and co-workers.

There are two models about behavioral agency theory; the social preference approach, and the social esteem approach. Former focuses relationship among people, and latter focuses social value and its influence to incentives. In this paper, authors adapt the former, and discuss evidence that workers respond to attention, symbolic rewards, and trust. Finally, they demonstrate through model of respect and incentives, relation between incentives and respect, and effect of respect to labor markets.

Conclusion is that, economic analysis is wrong to insist that all people always work for money only.

Questions:
What is the model in the paper?
What is the core concept and differences of attention, rewards, respect…?

Sum up the lecture

Sum up the lecture

Today was the last lecture of Sustainable Management. At the first part, teacher said she was disappointed about our poor participation in the course. That was true, but it was difficult to discuss about sustainability, especially in her class, I thought…

Any way, she summarized the structure of the lecture. It was interesting for me. The lecture consisted;

1. Concept:
Concept of Sustainability

2. Business:
CSR, conduct
sustainable market and enterprize
supply chain, customers sustainability
sustainable leadership
financial market and cooperate responsibility

3. Standerize:
social entrepreneur
reporting
social standard

4. Poverty reduction:
poverty reduction


From the all over the course, I learned three things about sustainability.

First is complexity of network. To consider sustainability, we have to look supply chain, from raw material to customer, even to recycle. Network becomes more complex and more long-term, and communication become more and more important.

Second is standardization. To make communication efficient, a system of certification is needed. It should be international one. And in terms of financial market, sustainability should be evaluated. This generates some report of CSR, and indexes.

Last one is poverty reduction. Ultimately, sustainability relates poverty and developing countries because the concept of sustainability is global, and one of the biggest polluters in the future world will be developing countries.

At the same time, I leaned that there are not solid method or theory in sustainability. I do not know why, but I think “sustainability” should not be an independent subject, should be one theme of some business administration because there is some trade-off in real and theory, and sustainability is only theory and ideals.

C.K.Prahalad and Stuart L. Hart, ”The Future at the Bottom of the Pyramid”

This is a proposal for MNCs to enter the Bottom of the Pyramid; Tier 4, the market where people’s annual per capita income is less than $1,500, but the population is 4,000 millions.

Authors pointed that some unreasonable assumption, such as poor market is for government and NGO, has prevented MNCs from Tier 4. But actually, Tier 4 is also area for MNCs and can improve MNCs activity.

As Tier 4 is important for MNC, MNC is important Tier 4, because only MNCs has Resources, Leverages, Bridges, and Transfers. To make use of these advantages, MNCs should build a local base of support, conduct R&D focused on the poor, Form new alliances, increase employment intensity, and reinvest cost structures.

Finally, Tier 4 ‘s market is made by local firm, MNCs, and global partnership.

Sustainable Finance

Today's lecture was hold by a PhD. student. But actually, she was better than the teacher, I thought because of English wise and knowledge of student's attitudes.

It was kind of a presentation in Business English class. Someone complained that she told only knowleage in the paper for the lecture, but for me, it was interesting.

The way to evaluate social investment:
*avoidance screening(negative screening)
*positive screening(choose best in industry, or bench mark)
(these are done by questionaires and talks)

The influence of shareholders:
*amplify external pressure on corporations
*legitimize CSR in the corporation
*take part in shaping norms about CSR overtime

I thought, CSR is a product for social investment.



And from the paper that the teacher presented us, I learned "system view"
That is the way to think sustaibability, social value in long term.

1. To understand the source of change
2. To predict the effect of the source to each external factor
3. To integrate each factor and imagine interaction between them

Sustainability is most difficult problem we have ever seen, I felt. But it means it is most interesting object at the same time.

Paul L. Joskow(1998)”Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets”

This paper examines the importance of long term contract when relation-specific investment is needed. In this research, 277 contracts are used to inspect the hypothesis that relation-specific investment leads durable contract, and the hypothesis strongly supported.

Questions:
What is simple model for this situation?
What is general implication for this?
Is econometrics interesting subject for me?

Thomas C. Schelling(1998)”Self-Command in Practice, in Policy, and in a Theory of Rational Choice”

This paper treats the dynamics of individual preference. People change their value at a certain time, and it is not unusual. In this paper, author first explains such self-command, and develop the concept for rational customer. And second, he takes some experiment, and last shows implications for welfare judgment.

Questions
What is the difference of self-command from simple model, and how the economical model change?
What it the implication for society or law?

Jean Tirole,(2000)”Corporate Governance”

This is an economic analysis of the concept shareholder value, and shareholder society. It shows, in conclusion, the implementation of the stakeholder society makes three lacks: pledgeable income, decision-making, and clear mission for management.

First, the paper starts analysis in a firm level, focusing on pledgeable income, monitoring, and control rights with simple framework. Second, the paper develop the previous analysis for society level to analyze shareholder society. And last it shows the cost and benefit shareholder society such as protecting noncontrolling stakeholders, convenants, exit options, flat claims, emerged fiduciary duty.

Questions:
What is the first basic model?
What is the logic of badness of shareholder society in game theory?
How to analyze cost and benefit?

Lecture 11: Social and Non-materialistic Preferences

In real world, there are more factors than simple pay-off. This is the lecture which justifies those factors.

Reciprocity: give and take
Trust: belief of goodness for someone

Interpretations:
1. Trust and positive reciprocity: You can trust me because I reward you
2. Trust and negative reciprocity: I trust because I punish you if you do not reward
3. Trust and reputation: You can trust me because my valuable reputation is at stake
4. Trust and reliability: You can trust me because I can optimize in this way in the game

Example 1: the Dictator game
Players: a dictator and a recipient
Rules: the dictator distributes 100 unit of money(M) to the recipient
Outcomes: distribute M, receive M
Payoffs:100-M, M

Surprisingly, most of the class choose 50!

Example 2: the trust game
Players: 1 and 2
Rules: if 1 chooses T, its payoff of (1, 2)=(20,20). If 1 chooses T and 2 R, its payoff is (25,25), if 2 does N, it is (15,30)
Outcomes: NT, (T,N),(T,R)
Payoffs(20,20),(15,30),(25,25)

In pure incentive theory, only (15,30) can be choose. But considering positive reciprocity, (25,25) can be chosen.

Example3:the mini-ultimatum game
Players: 1 and 2
Rules: if 1 chooses F, its payoff of (1, 2)=(20,20). If 1 chooses U and 2 chooses A, its payoff is (80,20), if 2 chooses P, it is (0,0)
Outcomes: F, (U,A),(U,P)
Payoffs(50,50),(80,20),(0,0)

Example4:Involuntary trust and ultimatum games
Players: 1 and 2
Rules:1 already chose T, 2 can choose N or R
Outcomes: N,R
Payoffs(15,30),(25,25)

Players: 1 and 2
Rules:1 already chose T, 2 can choose A or P(=punish)
Outcomes: A,P
Payoffs(80,20),(0,0)

Fairness is one of factors to influence our decision.

Models(fairminded)

ui=mi－ψi*f(lmj-mil)

-mi is agent i’s net monetary payoff and j is not i
-ψi is non-negative parameter
-f is an increasing function

But it can not fully explain the reason of player 2’s action or popularity of 50:50.
Extensions of the fairness models are
*worthy audience
*signaling
*both

Example: Esteem for fairmindedness
???

In resent biology and psychology, human’s preference is hot issue. But reciprocity is one of biggest solution.

a negative aspects of positive evaluations

Today’s lecture was also Longer Individual Presentation.　There were four presentation about presentation skills, mafia, JPmorgan, and DLA Norgic. Interestingly, every presentation has same outline, introduction, agenda, contents(What, Why, How), conclusion. I think it is caused by the fact here is an economic focus school.

Familiar comments were amount of information. Someone said that information on slide was too much to understand. I was commented same thing. I thought, especially in not native language presentation, not linguistic communication is important.

Actually, I felt boring in some presentation because they did not put their effort on presentation. But no one pointed that because we had to say only positive comments. I think this―cannot discover core of problem―was the biggest shortcoming of positive evaluation.

Nobel Prize Lecture

Today I skiped my lecture, and went to the Nobel Prize Lecture.

My aim of today was:

1.to know the uniquenesses of novel prize winners
2.to get point of good presentations

and

1 was passion and simplicity

2 was
*simple structure(history to research), but humors are in some part
*fluent means succession of sentences
*change of volume is advanced skill, but it gives confidence
*change of slide's view(picture,script) is also effective

Asymmetric information 3: post contract

Even under a symmetric information, there can be private information about either:
What the agents do
The outcome of agents’ actions
The relevant circumstances facing the agents

In contracts, there are three trade-offs
1. incentives vs risk sharing( we will focus on this)
2. incentives vs rent extraction
3. incentive power vs incentive balance

And three solutions:
1. monitoring
2. incentive contracts
3. regulation (task design)

Model: principle(an employer) and agent(an worker)

Player: a risk neutral employer, a risk averse worker.
Rules:
Worker’s action is unobservable to the employer, only the outcome can be observed.
w wage = α＋βz
e effort
z observed outcome (profit) = e+x
x random variable (mean zero)
r measure of (absolute) risk aversion (worker not only care about wage but also care about risk)
C(e) workers’ disutility of effort
u(worker’s ulitity) is wbar-1/2*rVar〔ｗ〕

Outcomes:
The agent’s utility is
UA=α＋β(e+x)- C(e) -1/2*rVar〔α＋β(e+x)〕=α＋βe- C(e) -1/2*r2Var〔x〕
(because mean x is zero, andαand e is constant)
The principle utility is
UP=e-(α＋βe)
Method to optimum:
We should get β becauseα can allocate surplus in any desired way.
We want to maximize UA+UP
Two steps:
(i) Find the agent’s optimal choice of e for anyβ
β-c”(e)=0
(ii) Find principal’s optimal choice ofβ
Considering about (i), UA+UP = e-C(e)-1/2*r(C”(e))2Var〔x〕
(iii) find the condition which maximize UA+UP by differentiation.
e-C(e)-1/2*r(C”(e))2Var〔x〕is 1-C”(e)-rC”(e)C””(e)Var〔ｘ〕＝0
UsingC“(e)= β, this condition can be rewritten as
β=1/(1+rC““(e)Var〔ｘ〕)
Emprics:
(i)CEO’s saraly positively relate to his firm’s stock return.
(ii)For low return variability, the number is 20-25, and for high variability, it is around 2-5.
In general, CEO’s salary should connect to not only firm’s performance but also depend on negatively industries performance. but in reality, CEO’s salary is positively related industries performance but if there is big share holder, the relation becomes weaker.

Other extensions:
Multiple tasks: Incentive power vs incentive balance
( if focus on one measure, it breaks the balance of incentive)
Monitoring
Multiple agents
-yardstick competition(ideal competition among different markets)
-credibility and tournaments

Appendix: Informativeness Principle and Filtering

Suppose pay can be made own output and competitor’s output.
z is own output = e+x
z2 is competitor’s = e2＋y
w is wage = α＋βｚ＋γｚ２

the worker’s expected utility is then
UA= α＋β(e+x)＋γ（ebar2+ybar）-C(e)-1/2rVar〔α＋β(e+x)＋γ（ebar2+y）〕
= α＋βe＋γebar2-C(e)-1/2r(β2Var〔x〕＋γ2Var〔y〕＋2βγCov〔x、y〕)

The problem is to chooseγso as to minimize
γ2Var〔ｙ〕＋２βrCov〔x,y〕

First order condition is

2γVar〔y〕+2βrCov〔x,y〕=0

Is γ=－βCov〔x、y〕/Var〔y〕

Asymmetric Information 2:post-contract and common values

This case is which buyer and seller knows a common value( not exactly each value, but a correlation to each value). Oil field is one example because oil price is common for all.

Signaling is costly and just a waste, but desirable. For example, price, education, gifts, non-profit, freedom, wages, and so on.

Example1: price and quality signal
Player: seller and quality sensitive customers(S), and quality insensitive customers(I)
Rule: two products: high quality and low quality.
High: cost is 1, value for S is 6, value for I is 5
Low: cost is 3, value for S and I is 4
Outcomes:
1. when quality is known:>efficient???

Example2:Education
Player: productive workers(P), unproductive workers(U)
Rule: P’s productivity is 2, and Us’ is 1. the productivity is privately known and cannot be revealed costlessly. Education shows their productivities. It costs 1/p.
Perfect Bayesian equilibrium which satisfies plausible restriction on out-of-equibrium beliefs.
Outcomes:
P takes education at a cost of 1/2, U takes nothing.

Terms:
Perfect Bayesian Equilibrium:
Bayesian Equilibrium in dynamic games.

Intuitive Creterion:
This is the method to eliminate multiple PBE. If there are deviation to improve payoff, it can be removed if it is Nash Equilibrium.

Pooling Equilibrium:
an equilibrium where senders with different types all choose the same message.

Separating equilibria:
an equilibrium where senders with different types choose different messages.

Example3: Gifts

Player: A and B
Rule: A wants to befriend with B, and it values 1 or 2. B wants to befriend with A only if A’s value is 2. Only A knows his value for friends.
Outcome: A can bring a gift to B.
Even if the gift is worthless for B, A would give the gift because it represents A’s value for friend is 2.

Example4: Effective wages(completely hard to understand…)

Player: employer, worker
Rule: employer has two job; good and bad. Good job’s productivity is qh, and bad one’s is ql. Worker can invest human capital p=qe. Employment is for two periods. In period 1,
Payoff:worker gets w, offered by employer, and in period 2, worker gets βqe where β<1/2(why?)
Outcome: in the least costly separating equilibrium, the employer offers w=o if q=ql, and w=(1-β) β(qh-ql)ql, if q=qh.

Keys:
(i) what is the effort given the worker’s belief about q?
(ii) how much must the good employer type pay to prove qh?

Asymmetric Information 1:pre-contract

Example1:Selling One Unit
Asymmetric information for seller
c = seller’s cost (publicly known)
v = buyer’s value (privately known)
p = offer price
F(p) = the probability that v is lower than p
seller guesses buyer’s value as distribution(here, we assume it is uniform on interval 〔0,vbar〕
seller’s optimal strategy is to make the offer p which maximizes benefit of seller

(p-c)(1-F(p))=(net profit)(probability that v is higher than p)=(p-c)(1-p/vbar)

And p=(c+vbar)/2 maximizes it. But it is inefficiently high.

This mechanism is:
It is difficult for seller to optimize their benefit. And if seller cannot perfectly commit, it is also difficult to optimize. But If buyer makes offer, it is easy to optimize.

If seller has multiple units, he can make more money through quantity discounts. If so, the price for a low number of units will be inefficiently high.

Example2: Red Tape and Corruption

Player: entrepreneurs(E) and bureaucrat(B)
Rule:
B sells licenses to E, and it values 10 for E
E’s wealth is privately knowledge w=10(probability q), w=5(probability 1-q)
B’s price is 5 (if q<0.5), and 10 (if q>0.5)
B have red tape which impose additional cost t to E, but no cost for B.
With red tape t=5, B can charge a price of 5, and charge a bribe of 5-e.
E’s expecting wealth is
Without red tape
If q<0.5
:10-5=5
If q>0.5
:10+10q+5(1-q)-10=5q+5
Outcome
Payoff

Result: red tape is profitable.


Case: Oil Field Organization
If there are common pool problem, it predicts
(i) Excessive drilling
(ii) More concentrated ownership leads to smaller inefficiencies

And it was almost proved in different number of owner and different jurisdictions.

Tutoring

Today we had a tutorial for term paper of Sustainable Management. It was quite better than I had expected.

Before discussion, I was so anxious about what to ask and first of all, what was our main point, because our plan was so broad and abstract. What was worse, I could not express fully about that.

In the tutoring, we decided to focus on adaptation of household level energy generation in EU. First, one member represented we would focus on renewable resources, and this conversation lead the question “what is needed for adaptation of clean energy”. Next, one member stated household solar energy, and it lead private energy generation. And after that, teacher suggested us to focus on EU.

It was too good to be true because before the tutoring, Ian said he did not have any idea. I guess he planed to find some way in tutoring because if teacher agreed, it was easy to persuade other members. I leaned a lot about team management in this class.

sustainability and leadership

Today’s class was the worst class in my study in SSE. One of the reason was I did not read required article, but mainly it is caused by teacher’s skill.

The topic was so abstract, and contents had nothing new.

But I leaned something from the lecture:

1, concept of exampler: association needs leader, manager, and exampler.
2, students who are active has good preparation: I seated next a girl who gave opinion in every lecture. She read quite well and underlined a lot. It was great surprise for me, but it was natural for students.
3, likes attracts likes: I think the quality of guest was quite low. This caused by the teacher because in last term’s lecture, all guest were good and teacher was also great.

From next time, I will read and prepare for discussion!

Longer Individual Presentation

Today’s Business English was only Longer Individual Presentation, and this was my turn!

About my presentation, I got following comments:

bad
1. look script so much
2. too much information in one slide(characters are small)
3. topic is little more complex

good
1. good voice
2. good slide and color
3. hand action

Most impressive thing for me was everyone gave me comment after presentation, not question. I want to say thank you for everyone in class.


About other people’s presentation, what I felt was familiarity is important because it causes discussion with individual opinion. One of today’s topic was consuming attitudes and it caused interesting discussions.

Any way I have derived from big task, so I am happy now.

Nozick feedback

Today’s English class was Nozick feedback and longer individual presentation. In lecture I did not know the word “punctuation”=reading mark, but now I got it.

Nosick feedback:
1. long sentence can be divided by punctuation, or put the mark of illustration before the long part.
2. capitalism opposition> opposition to capitalism
3. If we… sometimes lacks subject. If we > let us
4. difference between OO, which/who XX, and OO which/who XX is that, former means all OO are XX, but latter limits OO only which/who is XX.
5. reason for one’s –ing or why S+V, strive(=to make a great effort to achieve)> aim
6. after ;, we can use capital if the sentence follows is long.
7. however should not be used in sentences, but can used with , , or first and last

Longer Individual presentation:
1. why/what/how are important
2. figure is standard of business communication
3. good chance is not necessary to say


present= give a gift (not represent)


About feedback of my assignment, I found there are many absences of “the”. And even Soviet Union, an unique object, needs “the”.

And there are some spelling mistake and chose of word such as present( not represent).

I will try to care about them.