(no abstract available)

This thesis studies existence and characterization of optimal solutions to the principal-agent problem with adverse selection for both discrete and continuous problems. The existence results are derived by the abstract concepts of differentiability and convexity. Under the Spence Mirrlees condition, we show that the discrete problem reduces to a problem that always satisfies the linear independence constraint qualification, while the continuum of type problem becomes an optimal control problem. We then use the Ellipsoid algorithm to solve the problem in the discrete and convex case. For the problem without the Spence Mirrlees condition, we consider different classes of constraint qualifications. Then we introduce some easy-to-check conditions to verify these constraint qualifications. Finally we give economic interpretations for several numerical examples. / Graduate

Venture Capital Contracts with Moral Hazard and Adverse Selection Abstract This study offers a discussion on the agency theory of venture capital, including the cases of one venture capitalist and one entrepreneur, one venture capitalist and two entrepreneurs, and two venture capitalists and one entrepreneur. The first model compares the effort levels of the two parties, one venture capitalist and one entrepreneur, when there is a double moral hazard problem. The results are as follows:(1)the effort levels under double moral hazard are lower than those under full information¡Ano matter if the contract is common stock or convertible debt ; (2) a suitably chosen convertible debt contract outperforms a common stock contract; and (3) in the equilibrium, the venture capitalist¡¦s net compensation is equal to his cost of capital. Secondly, the study extends to a double side moral hazard problem between one venture capitalist and two entrepreneurs. The results show: (1) the effort levels under double moral hazard are still lower than those under full information in the model; (2) one venture capitalist and two entrepreneurs will come up with a double moral hazard problem if they sign the common stock contract; and (3) the incentive to lessen the double moral hazard problem is the total profit shared conditionally by one venture capitalist and two entrepreneurs. Finally, this study develops a joint investment framework with an adverse selection problem. One entrepreneur is informed about the project¡¦s potential profitability but two venture capitalists are not .The results show:(1)if the entrepreneur reveals his private information, the individual management cost of two venture capitalists will be equal; (2)if the entrepreneur does not reveal his private information, the individual management cost of the two venture capitalists will be higher in an uncooperative situation; and (3)if the entrepreneur does not reveal his private information, the venture capitalists¡¦ effort levels will be higher in case their management knowledge is of substitutive nature than that of complementary nature. Key words¡Gventure capital, moral hazard, adverse selection

Yes / This paper investigates the influence that information asymmetry may possess upon the future volatility, liquidity, market toxicity and returns within cryptocurrency markets. We use the adverse selection component of the effective spread as a proxy for overall information asymmetry. Using order and trade data from the Bitfinex Exchange, we first document statistically significant adverse selection costs for major cryptocurrencies. Our results also suggest that adverse selection costs, on average, correspond to ten percent of the estimated effective spread, indicating an economically significant impact of adverse selection risk on transaction costs in cryptocurrency markets. We finally document that adverse selection costs are important predictors of intraday volatility, liquidity, market toxicity, and returns. / Türkiye Bilimler Akademisi. Grant Number: Outstanding Young Scientist. / The full-text of this article will be released for public view at the end of the publisher embargo on 11 Jan 2025.

Three independent models are built based on information asymmetric to analysis discipline effects brought by banks` issuance of subordinated debts. The research results offer the theory of subordinated debts discipline effects. First, an adverse selection model is built to examine banks¡¦ policies when issuing subordinated debts based on the banks¡¦ credit risks. The result shows that banks with lower credit risks are more likely to issue subordinated debts, since after the issuance, the yields of these debts are lower. When depositors observe the lower yields of the subordinated debts, they would presume that these banks have lower credit risks. As a result, banks with lower credit risks can decrease their operational costs by issuing subordinated debts. This model has demonstrated that the market can discipline banks indirectly through the issuance of subordinated debts. Second, a moral hazard model to show that issuing of subordinated debts by banks can bring direct market discipline and indirect market discipline to make their loans less risky. The direct market discipline means that the risk level of bank will be evaluated by professional investors. The investors will require that the yields accord to the banks risk. For lowering the cost of issuing subordinated debts, banks will make their loans less risky. The indirect market discipline means that the depositors would take the yields of these debts as a significant signal indicating banks risk levels. The depositors will decide to withdraw their savings when the bank signals a higher risk, and keep their saving when the bank signals a lower risk. I prove that issuing of subordinated debts by banks can bring about these two kinds of market discipline. The model has also demonstrated that if the bank supervisor can utilize the information of issuing subordinated debts effectively, they will achieve higher supervisory goal. Third, a reputation model is built to show that for reputation concerns, a bank would change its monitoring decisions if it issues subordinated debts. Reputation effect in banks is different in different scenarios. When the good banks probability of success is very high, reputation effect would induce the bad bank to start monitor it`s borrowers, and the efforts of bad banks monitoring would be increased by time. When the bad banks probability of success is very low, reputation effect would induce the good bank start monitoring its borrowers. and the efforts of bad banks monitoring would be decreases by time.

If a quote contains information as formulated in theory, then it is possible to elicit the information from each quote. We offer a simple method to extract the private and the public information elements from the quote revision. The extraction is only required to know the trade direction of the previous trade. We then present empirical evidence that our estimates are informational pertinent by showing that they are highly correlated with transaction returns. Furthermore, contrasting to the pattern of the bid-ask spread, we show that the intraday private information elements are converging as trading progresses. This phenomenon is consistent to the prediction in the theory. Our public information elements also have a similar declining pattern as that of the private information element only with a different reason.

This paper examines the properties of the perfect Bayesian Nash equilibrium or equilibria in a model where the new car market coexists with the lemon market which has adverse selection problems. Under such a setting, it is shown that the price of a new car will be affected indirectly by the problems of adverse selection in the lemon market.

Abstract Information asymmetry in the financial market, especially in the financial organization, usually generates more serious consequences than those in the commodity market. How to reduce or remove the asymmetric information in a bank¡¦s credit rationing has been a challenge for a commercial bank. On the basis of the models developed by Stiglitz and Weiss (1981) and Barro (1986), this study attempts to analyze the issues, faced by a typical commercial bank, of adverse selection, moral hazard, and agent¡¦s reputation, and to simulate the results of such issues in a game-theoretic approach. The study has reached the following conclusions: 1. With regard to the adverse selection issue, this study concludes that if a bank wants to solve the problem of adverse selection on debit and credit, the decision must be made upon the objective evaluation that considers not only the reality and rational assumption but also the external signaling and screening information to assess the enterprise and its investment plan. 2. Regarding the moral hazard issue, this study concludes that if a bank has an effective incentive, the enterprise will automatically select the most beneficial items to the bank on debit. This mechanism reduces the bank¡¦s risk. On the other hand, if a penalty is set forth, then it will be more likely to prevent the moral hazard problem to occur. 3. By the moral hazard model, this study concludes that if an enterprise needs to enter the market to collect funds, it would imply that the game will continue infinitely. Owing to the benefits from reputation is increasing as the number of stage of the game increases, an enterprise will have a strong incentive to build his non-cheating reputation based on a long term consideration. Keywords: Asymmetric Information, Adverse Selection, Moral Hazard, Reputation, Game Theory.

The intrinsic features of woker, ``ability' and ``motivation', are useful resources of human capital that makes profit for the firm. The purpose of the study is to examine how the firm designs the optimal wage policy when worker's intrinsic features are private information. The study follows the mechainsm-design approach, by which models with single, as well as double, intrinsic feature(s) of worker are established, and best ``incentive wage packages' are deduced. We finded out that, under single intrinsic feature, the firm's optimal wage package entails that, the more output the higher wages; under double intrinsic features, the firm must takes the relative strength of intrinsic features of the worker into account when making the optimal incentive wage package.

This study constructs a two-step model to test the most prominent market timing factors. We decompose equity issuances into 1) firm-specific components, which are predicted by firms’ characteristics, and 2) market-wide components, which are predicted by aggregate time series measures. Our evidence shows that, at the firm level, firms with higher market-to-book ratio, smaller size, more growth opportunities, and fewer tangible assets are more likely to issue equity. At the aggregate level, a greater proportion of firms issue equity in years with higher aggregate market-to-book ratio and lower asymmetric information. After controlling for the aggregate market-to-book ratio and information asymmetry, sentiment has no direct effect on equity issuance. This paper provides direct evidence that firms time their favorable market conditions to reduce adverse selection costs, and to exploit higher individual security valuations or capture growth opportunities.