Discussion Paper No. 24
November 3, 2021
Sequential versus Static Screening: an Equivalence Result
Author:
Abstract:
We show that every sequential screening model is equivalent to a standard text book static screening model. We use this result and apply well-established techniques from static screen- ing to obtain solutions for classes of sequential screening models for which standard sequen- tial screening techniques are not applicable. Moreover, we identify the counterparts of well– understood features of the static screening model in the corresponding sequential screening model such as the single-crossing condition and conditions that imply the optimality of deter- ministic schedules.
Keywords:
sequential screening; static screening; stochastic mechanisms;
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Discussion Paper No. 3
November 2, 2021
Certification and Market Transparency
Author:
Abstract:
In markets with quality unobservable to buyers, third-party certification is often the only instrument to increase transparency. While both sellers and buyers have a demand for certification, its role differs fundamentally: sellers use it for signaling, buyers use it for inspection. Seller induced certification leads to more transparency, because it is informative – even if unused. By contrast, buyer induced certification incentivizes certifiers to limit transparency, as this raises demand for inspection. Whenever transparency is socially beneficial, seller certification is preferable. It also yields certifiers larger profits, so that regulating the mode of certification is redundant.
Keywords:
market transparency; certification; information and product quality; asymmetric information;
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Discussion Paper No. 2
A Theory of Crowdfunding
Author:
Abstract:
Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost in- formation threatens this benefit. Crowdfunding’s after-markets enable consumers to actively implement deferred payments and thereby manage moral hazard. Popular crowdfunding platforms offer schemes that allow consumers to do so through con- ditional pledging behavior. Efficiency is sustainable only if expected returns exceed an agency cost associated with the entrepreneurial incentive problems. By reducing demand uncertainty, crowdfunding promotes welfare and complements traditional entrepreneurial financing, which focuses on controlling moral hazard.
Keywords:
crowdfunding; entrepreneurship; moral hazard; demand uncertainty;
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