22 research outputs found
Coarse Information Leads to Less Effective Signaling
No full textThis study considers firms’ coarse information about a worker’s possible types in Spence’s (1973) job market signaling model. Using incentive compatibility constraints appropriate to coarse information, we derive perfect Bayesian equilibria, which are refined into a unique equilibrium by invoking an extension of Cho and Kreps’ (1987) Intuitive Criterion. In the unique refined equilibrium, a high-type worker may acquire a higher education level with a lower wage than in Spence’s (1973) model. This implies that education signaling may be less effective signal when firms have coarse information about a worker’s possible types compared to that in Spence (1973). © 2018, Korean Econometric Society. All rights reserved.11scopuskc
Patent Signaling of Startups Can Be Less Effective under Coarse Information
No full textA startup may have little track record and investors may not have the exact information
about an entrepreneur’s true success probability. To model this, we consider a patent
signaling model for startup financing where the entrepreneur signals his type by acquiring
patents at his own cost and investors have coarse information about the entrepreneur’s
true success probability. Rather than having the exact information about
each type’s true success probability, investors only perceive the ranges of the entrepreneur’s
possible success probabilities. Adopting perfect Bayesian equilibrium
(PBE) as a solution concept, we consider only pure-strategy separating and pooling
PBEs of the signaling game between the entrepreneur and investors. By invoking an
extension of Cho and Kreps’ (1987) Intuitive Criterion adapted to our model, we obtain
the unique least-cost perfect Bayesian equilibrium. In the refined equilibrium, as investors
consider a higher success probability of each type, it takes more equity share.
Furthermore, a high-type entrepreneur may get a smaller equity share despite of acquiring
a higher level of patent than in the benchmark where investors know the exact possible
success probabilites of the entrepreneur. This implies that coarse information faced
by investors may lead to less effective patent-signaling than in the benchmark.22Ykc
Strategic Delegation with Network Externality and Product Compatibility
No full textWe investigate the effects of network externality and product compatibility on strategic delegation under price competition in duopoly. We extend the Hoernig (2012) to the case in which product compatibility is endogenously determined and is built into network effects. When the spillover effect for network size depends on the rival’s choice of product compatibility, perfect compatibility is a dominant strategy for each manager. Thus, endogenizing product compatibility excludes the equilibrium of Hoernig (2012) who assumes no compatibility between products. In equilibrium, firm owners require their managers to be more aggressive than profit maximizer if network externality is sufficiently strong but not too strong.22kc
Stock-Based Compensation and Insider Trading with Liquidity Signal
No full textWe study a stock-based executive (CEO) compensation contract for the case where the insider receives a signal about the demand of liquidity traders in the stock market. The single-period model of Kyle (1985) is adopted for deriving the stock market equilibrium. Based on the equilibrium stock price, the optimal linear contract for executive compensation is obtained by applying a standard principal-agent model. Surprisingly, it is found that the firm’s liquidation value is not used in the optimal executive compensation contract in both our model and the benchmark model (where there is no signal about liquidity). We also make comparative statics for the equilibrium stock price and the optimal executive compensation contract with respect to exogenous parameters.22Nkc
Survival, Arbitrage, and Equilibrium with Financial Derivatives in Constrained Asset Markets
No full textThe Effects of Strategic Delegation on Price Competition with Product Compatibility and Network Externalities
No full text2
