D8 - Information, Knowledge, and Uncertainty
Information, Knowledge, and Uncertainty
In relational contracting the threat of punishment in future periods provides an incentive to not to cheat. However, to what extent do people actually carry out this punishment? We compare relational contracting patterns in Ghana and the United Kingdom by conducting a repeated principal agent lab experiment, framed in a labour market setting. Each period, employers make offers to workers, who can choose to accept or reject this offer and, after accepting and being paid, what effort to exert. The employers and workers interact repeatedly over several periods.
Firm surveys have shown that labour management in developing countries is often problematic. Earlier experimental research (Davies & Fafchamps, 2017) has shown that managers in Ghana are reluctant to use monetary incentives to motivate workers. This paper presents the results from a giftexchange game experiment in Ghana in which the worker can make a promise to the employer before a contract is offered (ex ante communication) and in which the employer can send negative or positive feedback to the worker after the worker has chosen effort (ex post communication).
We study whether individuals save more when information about their savings is shared with another village member (a “monitor”). We focus on whether the monitor’s effectiveness depends on her network position. Central monitors may be better able to disseminate information, and more proximate monitors may pass information to individuals who interact with the saver frequently. In 30 villages, we randomly assign monitors. Average monitors increase savings by 35 percent.
Agents often use noisy signals from their neighbors to update their beliefs about a state of the world. The effectiveness of social learning relies on the details of how agents aggregate information from others. There are two prominent models of information aggregation in networks: (1) Bayesian learning, where agents use Bayes’ rule to assess the state of the world and (2) DeGroot learning, where agents instead consider a weighted average of their neighbors’ previous period opinions or actions.
The paper reports the result of an experimental game on asset integration and risk taking. We and some evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a 'keeping-up-with-the-Joneses' hypothesis and and some evidence that subjects seek to keep up with winners, though not necessarily average earnings.
Is it possible, simply by asking a few members of a community, to identify individuals who are best placed to diffuse information? A model of diffusion shows how members of a community can, just by tracking gossip about others, identify those who are most central in a network according to “diffusion centrality” – a network centrality measure that predicts the diffusion of a piece of information seeded with a network member.
This paper describes the evolution of the various information sharing mechanisms that have emerged in Mexico; it studies their evolution, regulation and market structure. Sharing mechanisms alleviate the effects of asymmetric information in the credit market. It is known that the development of the credit market and information sharing mechanisms are closely related. We show that in Mexico information sharing has been limited because of the relatively minor role credit has played in the economy.
The paper, motivated by the extent of government involvement in the financial sectors of many countries, presents a model of a link between financial intermediation and economic growth. The model conceptualizes a financial leverage coefficient, a construct which is the outcome of aggravated moral hazard generated by a combination of government involvement in financial intermediation and the presence of institutional rigidities and distortions (like the absence of effective bankruptcy procedures).
A significant source of uncertainty for utilities and regulators, especially in developing countries where they are pervasive in one form or the other, is the level and timing of subsidy transfers, which also act as a wealth constraint on the utility. The paper explores the properties of “menus of incentive contracts” that may be offered by a utilities regulator in the context of the hitherto unexamined interaction between subsidy delivery and regulation.