IDEAS home Printed from https://ideas.repec.org/p/cre/crefwp/113.html
   My bibliography  Save this paper

Quality Undersupply and Oversupply

Author

Abstract

I analyze a market in which a price-taking buyer buys a variable-quality good from a population of sellers, contrasting the case where quality is a seller's private information to that where it is public information. Average quality traded under private information can be either higher (quality oversupply) or lower (quality undersupply) than under public information, depending on sellers' preferences. We are likely to see quality undersupply if (i) sellers' preferences exhibit substitutability between the variable-quality good and the numéraire good, and/or (ii) sellers view the numéraire good as a luxury good relative to the variable-quality good. Reverse arguments hold for quality oversupply. J'analyse un marché dans lequel un acheteur achète un bien de qualité variable d'une population de vendeurs. Je compare deux cas, celui où la qualité est connue des vendeurs seulement (information privée) et celui où la qualité est connue publiquement (information publique). La qualité moyenne vendue sur le marché avec information privée peut être supérieure ou inférieure à la qualité moyenne vendue sur le marché avec information publique, selon les préférences des vendeurs. Elle aura tendance à être supérieure si (i) les préférences des vendeurs manifestent une substituabilité entre le bien à qualité variable et le bien numéraire, et/ou (ii) les vendeurs considèrent le bien numéraire comme un bien de luxe par rapport au bien à qualité variable.

Suggested Citation

  • Max Blouin, 2000. "Quality Undersupply and Oversupply," Cahiers de recherche CREFE / CREFE Working Papers 113, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:113
    as

    Download full text from publisher

    File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah113.ps
    File Function: Main text
    Download Restriction: no

    File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah113.pdf
    File Function: Main text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    2. Kim, Jae-Cheol, 1985. "The Market for "Lemons" Reconsidered: A Model of the Used Car Market with Asymmetric Information," American Economic Review, American Economic Association, vol. 75(4), pages 836-843, September.
    3. Douglas Gale, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 229-255.
    4. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    5. Wilson, Charles A, 1979. "Equilibrium and Adverse Selection," American Economic Review, American Economic Association, vol. 69(2), pages 313-317, May.
    6. Frank Hahn, 1978. "On Non-Walrasian Equilibria," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 1-17.
    7. Douglas Gale, 1996. "Equilibria and Pareto optima of markets with adverse selection (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 207-235.
    8. Prescott, Edward C & Townsend, Robert M, 1984. "General Competitive Analysis in an Economy with Private Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
    9. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-1819, November.
    10. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
    11. Riley, John G, 1979. "Informational Equilibrium," Econometrica, Econometric Society, vol. 47(2), pages 331-359, March.
    12. Alessandro Lizzeri & Igal Hendel, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, vol. 89(5), pages 1097-1115, December.
    13. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blouin, Max R., 2003. "Quality undersupply and oversupply," Journal of Economic Theory, Elsevier, vol. 109(1), pages 130-139, March.
    2. Dosis, Anastasios, 2018. "On signalling and screening in markets with asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 75(C), pages 140-149.
    3. Inderst, Roman, 2005. "Matching markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 121(2), pages 145-166, April.
    4. Diasakos, Theodoros M. & Koufopoulos, Kostas, 2018. "(Neutrally) Optimal Mechanism under Adverse Selection: The canonical insurance problem," Games and Economic Behavior, Elsevier, vol. 111(C), pages 159-186.
    5. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    6. Joao Correia-da-Silva, 2009. "Uncertain delivery in markets for lemons," Levine's Working Paper Archive 814577000000000121, David K. Levine.
    7. Alberto Bisin & Piero Gottardi, 2000. "Decentralizing Incentive Efficient Allocations of Economies with Adverse Selection," Econometric Society World Congress 2000 Contributed Papers 0855, Econometric Society.
    8. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 257-280, February.
    9. Dosis, Anastasios, 2019. "Optimal ex post risk adjustment in markets with adverse selection," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 52-59.
    10. Correia-da-Silva, João, 2012. "General equilibrium in markets for lemons," Journal of Mathematical Economics, Elsevier, vol. 48(3), pages 187-195.
    11. Belen Jerez, 2000. "General Equilibrium with Asymmetric Information: A Dual Approach," Econometric Society World Congress 2000 Contributed Papers 1497, Econometric Society.
    12. João Correia-da-Silva, 2015. "Two-period economies with price-contingent deliveries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 509-525, August.
    13. Dionne, G. & Doherty, N., 1991. "Adverse Selection In Insurance Markets: A Selective Survey," Cahiers de recherche 9105, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    14. Maarten Janssen & Santanu Roy, 2004. "On durable goods markets with entry and adverse selection," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(3), pages 552-589, August.
    15. Raj Chetty & Emmanuel Saez, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Chapters, in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 85-114, National Bureau of Economic Research, Inc.
    16. Izquierdo, Segismundo S. & Izquierdo, Luis R., 2007. "The impact of quality uncertainty without asymmetric information on market efficiency," Journal of Business Research, Elsevier, vol. 60(8), pages 858-867, August.
    17. Noldeka, G. & Samuelson, L., 1994. "Learning to Signal in Market," Working papers 9409, Wisconsin Madison - Social Systems.
    18. De Feo, Giuseppe & Hindriks, Jean, 2014. "Harmful competition in insurance markets," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 213-226.
    19. Forges, Francoise & Minelli, Enrico & Vohra, Rajiv, 2002. "Incentives and the core of an exchange economy: a survey," Journal of Mathematical Economics, Elsevier, vol. 38(1-2), pages 1-41, September.
    20. Mailath, George J. & Nöldeke, Georg, 2008. "Does competitive pricing cause market breakdown under extreme adverse selection?," Journal of Economic Theory, Elsevier, vol. 140(1), pages 97-125, May.

    More about this item

    Keywords

    adverse selection; income effect; substitution effect;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cre:crefwp:113. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stéphane Pallage). General contact details of provider: http://edirc.repec.org/data/crefeca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.