INFORMATION ECONOMICS
Critical Concepts in Economics
Edited by Michael R. Baye and David E. M. Sappington
Volume I Foundations of Information Economics
Routledge R Taylor & Francis Croup LONDON AND NEW YORK C CONTENTS
VOLUME I Contents vii Chronological table of reprinted articles and chapters xv Acknowledgements xx
General introduction 1 MICHAEL R. BAYE AND DAVID E. M. SAPFINGTON
PARTI Modeling risk, uncertainty, and beliefs
1 The expected-utility hypothesis and the measurability of utility 35 MILTON FRIEDMAN AND L. J. SAVAGE
2 Risk aversion in the small and in the large 50 JOHN W. PRATT
3 Erratum: risk aversion in the small and in the large 67 JOHN W. PRATT
4 Rules for ordering uncertain prospects 68 JOSEF HADAR AND WILLIAM R. RUSSELL
5 Increasing risk: I. a definition 82 MICHAEL ROTHSCHILD AND JOSEPH E. STIGLITZ
6 Prices vs. quantities 102 MARTIN L. WEITZMAN
7 Good news and bad news: representation theorems and applications 123 PAUL R. MILGROM
VII CONTENTS
8 Sequential equilibria 138 DAVID M. KREPS AND ROBERT WILSON
9 Signaling games and stable equilibria 174 IN-KOO CHO AND DAVID M. KREPS
PART 2 Information and the functioning of markets
10 Counterspeculation, auctions, and competitive sealed tenders 215 WILLIAM VICKREY
11 The economics of information 244 GEORGE J. STIGLER
12 The market for "lemons": quality uncertainty and the market mechanism 262 GEORGE A. AKERLOF
13 The vertical integration of production: market failure considerations 275 OLIVER E. WILLIAMSON
14 Job market signaling 290 MICHAEL SPENCE
15 Equilibrium in competitive insurance markets: an essay on the economics of imperfect information 309 MICHAEL ROTHSCHILD AND JOSEPH STIGLITZ
16 Monopoly and product quality . 329 MICHAEL MUSSA AND SHERWIN ROSEN
17 On the impossibility of informationally efficient markets 346 SANFORD J. GROSSMAN AND JOSEPH E. STIGLITZ
18 The role of market forces in assuring contractual performance 369 BENJAMIN KLEIN AND KEITH B. LEFFLER
19 Credit rationing in markets with imperfect information 394 JOSEPH E. STIGLITZ AND ANDREW WEISS
viii CONTENTS
VOLUME II
Acknowledgements vii
PART 3 Contracting with moral hazard
20 Moral hazard and observability 3 BENGT HOLMSTROM
21 Moral hazard in teams 25 BENGT HOLMSTROM
22 The first-order approach to principal-agent problems 48 WILLIAM R ROGERSON
23 Limited liability and incentive contracting with ex-ante action choices 61 ROBERT D. INNES
24 Multitask principal-agent analyses: incentive contracts, asset ownership, and job design 83 BENGT HOLMSTROM AND PAUL R. MILGROM
PART 4 Tournaments
25 Rank-order tournaments as optimum labor contracts 115 EDWARD P. LAZEAR AND SHERWIN ROSEN
26 Prizes and incentives: towards a general theory of compensation and competition 139 BARRY J. NALEBUFF AND JOSEPH E. STIGLITZ
PART 5 Contracting with adverse selection
27 An exploration in the theory of optimum income taxation 175 J. A. MIRRLEES
28 Using cost observation to regulate firms 220 JEAN-JACQUES LAFFONT AND JEAN TIROLE
IX CONTENT.S
29 Countervailing incentives in agency problems TRACY R. LEWIS AND DAVID E. M. SAPPINGTON
PART 6 Contractual incompleteness
30 The costs and benefits of ownership: a theory of vertical and lateral integration SANFORD J. GROSSMAN AND OLIVER D. HART
31 Incomplete contracts and strategic ambiguity B. DOUGLAS BERNHEIM AND MICHAEL D. WHINSTON
PART 7 Authority and collusion in organizations
32 Hierarchies and bureaucracies: on the role of collusion in organizations JEAN TIROLE
33 Formal and real authority in organizations PHILIPPE AGHION AND JEAN TIROLE
PART 8 Contract renegotiation
34 Incomplete contracts and renegotiation OLIVER HART AND JOHN MOORE
VOLUME III
Contents A cknowledgemen ts
PART 9 Auctions
35 Optimal auction design ROGER B. MYERSON
36 Optimal auctions JOHN G. RILEY AND WILLIAM F. SAMUELSON CONTENTS
37 A theory of auctions and competitive bidding 42 PAUL R. MILGROM AND ROBERT J. WEBER
38 Auctions versus negotiations 78 JEREMY BULOW AND PAUL KLEMPERER
39 Internet advertising and the generalized second-price auction: selling billions of dollars worth of keywords 99 BENJAMIN EDELMAN, MICHAEL OSTROVSKY AND MICHAEL SCHWARZ
PART 10 Bargaining
40 Incentive compatibility and the bargaining problem 127 ROGER B. MYERSON
41 Efficient mechanisms for bilateral trading 141 ROGER B. MYERSON AND MARK A. SATTERTHWAITE
PART 11 Search
42 Economics of information and job search 161 J. J. MCCALL
43 A model of price adjustment 175 PETER A. DIAMOND
44 Searching for the lowest price when the distribution of prices is unknown 187 MICHAEL ROTHSCHILD
45 A simple model of equilibrium price dispersion 211 JENNIFER F. REINGANUM
46 Optimal search 219 PETER MORGAN AND RICHARD MANNING
PART 12 The pricing of information
47 Information gatekeepers on the Internet and the competitiveness of homogeneous product markets 247 MICHAEL R. BAYE AND JOHN MORGAN
XI CONTENTS
PART 13 Advertising and price signaling
48 Advertising as information PHILLIP NELSON
49 Price and advertising signals of product quality PAUL R. MILGROM AND JOHN ROBERTS
PART 14 Communication
50 Strategic information transmission VINCENT P. CRAWFORD AND JOEL SOBEL
51 Multiple referrals and multidimensional cheap talk MARCO BATTAGLINI
52 Modes of communication
MATHIAS DEWATRIPONT AND JEAN TIROLE
VOLUME IV
Contents
A cknowledgemen ts
PART 15 Modeling industry outcomes 53 Supply function equilibria in oligopoly under uncertainty PAUL D. KLEMPERER AND MARGARET A. MEYER
54 Bertrand competition when rivals' costs are unknown DANIEL F. SPULBER
PART 16 Collusion
55 A theory of oligopoly GEORGE J. STIGLER
xii CONTENTS
56 Rational cooperation in the finitely repeated prisoners' dilemma 78 DAVID M. KREPS, PAUL MILGROM, JOHN ROBERTS, AND ROBERT WILSON
57 Noncooperative collusion under imperfect price information 86 EDWARD J. GREEN AND ROBERT H. PORTER
58 The folk theorem in repeated games with discounting or with incomplete information 102 DREW FUDENBERG AND ERIC MASKIN
PART 17 Deterring entry through reputation of limit pricing
59 Reputation and imperfect information 129 DAVID M. KREPS AND ROBERT WILSON
60 Limit pricing and entry under incomplete information: an equilibrium analysis 155 PAUL R. MILGROM AND JOHN ROBERTS
61 Predation, reputation, and entry deterrence 173 PAUL R. MILGROM AND JOHN ROBERTS
PART 18 Regulation
62 Regulating a monopolist with unknown costs. 207 DAVID P. BARON AND ROGER B. MYERSON
63 Planning under incomplete information and the ratchet effect 229 XAVIER FREIXAS, ROGER GUESNERIE AND JEAN TIROLE
64 Exclusive dealing, common agency, and multiprincipals incentive theory 252 DAVID MARTIMORT
PART 19 Innovation
65 Uncertainty, industrial structure, and the speed of R&D 293 PARTHA DASGUPTA AND JOSEPH E. STIGLITZ
66 Uncertain innovation and the persistence of monopoly 327 JENNIFER F. REINGANUM
Xlll CONTENTS
PART 20 Commitment
67 Oligopoly and financial structure: the limited liability effect JAMES A. BRANDER AND TRACY R. LEWIS
68 Equilibrium incentives in oligopoly CHAIM FERSHTMAN AND KENNETH L. JUDD
69 Commitment and observability in games
KYLE BAGWELL
Index
xiv