Asymmetric Information Costs Research Articles

Store brand entry with asymmetric cost information

This study conducts a research on the dominated-retailer’s establishment strategy of a store brand in a supply chain, in which the retailer possesses private knowledge of the store brand’s product cost, while the manufacturer is only informed about the distribution of this cost information. The store brand entry with asymmetric information initiates a signaling game between the chain members. Through comparing equilibrium outcomes, we find that the pooling equilibrium consistently prevails as the dominant equilibrium, suggesting that the informed retailer is reluctant to reveal the cost information to her national brand cooperative manufacturer. We also explore the influence of a retailer’s store brand entry on the national-brand manufacturer’s performance. The findings reveal that, with asymmetric cost information, mutually beneficial outcomes for all parties involved can be achieved by the establishment of a store brand. Furthermore, we delve into how the asymmetric cost information affects the performance of the chain members. Surprisingly, our findings demonstrate that asymmetric cost information may be desirable not only for retailer, but also for the less informed manufacturer under specific circumstances. This suggests the possibility of supply chain members reaching a mutual agreement on the structure of asymmetric cost information.

A Study of Electronic Product Supply Chain Decisions Considering Extended Warranty Services and Manufacturer Misreporting Behavior

In the supply chain management of electronic products, asymmetric cost information is a prevalent issue that can lead manufacturer to misreport costs, thereby exacerbating supply chain imbalances. This study focuses on the electronic product supply chain with an extended warranty service, where the manufacturer bears the after-sales responsibility during the extended warranty period. It explores the decision-making (DM) issues within the supply chain under different information environments and power structures. The Stackelberg game theory is employed to solve and analyze these models, and the main findings are as follows: (1) When supply chain information is symmetrical, centralized DM is the best choice. However, in cases where the supply chain adopts decentralized DM, it is more beneficial for the retailer and the supply chain if the retailer assumes the role of DM leader. Additionally, when the retail price sensitivity coefficient is low, the manufacturer will compete with the retailer for DM priority. Conversely, when the retail price sensitivity coefficient is higher, the manufacturer is better off as a follower in DM; (2) When the supply chain information is asymmetric, the manufacturer may engage in misreporting, which benefits the manufacturer but is detrimental to both the supply chain and the retailer. Moreover, if the price sensitivity coefficient is low, the manufacturer should lead the supply chain DM. Otherwise, the retailer should take the lead in supply chain DM. Adopting such a flexible strategy will prove advantageous for all parties involved in the supply chain. (3) The strategy of “reducing the retail price and increasing the extended warranty price” is a favorable strategy for the supply chain.

Supply chain contracting with asymmetric cost information and behavioral preferences: Theory and experiment

We investigate a supply chain composed of a retailer who designs a contract with wholesale price and order quantity, and a supplier who has private information of low or high unit production cost. The standard benchmark predicts that in equilibrium, the optimal contract possesses a threshold dividing a cutoff condition and a non-cutoff condition for the retailer. Under the cutoff condition, retailers trade only with low-cost suppliers, while under the non-cutoff condition, retailers trade with both low-cost and high-cost suppliers. Suppliers accept the critical non-negative profit contracts. We incorporate behavioral factors of the retailer’s risk preference and the supplier’s fairness concern in view of the decision-making scenario. The behavioral model shows that the risk preference influences the threshold of the optimal contract design, while the fairness concern only affects the optimal wholesale price. We conduct a laboratory experiment to examine both parties’ decision behaviors and find that human retailers with risk-averse preference make local optimal strategies rather than global optimal strategies, which counter-intuitively improves the channel profit; and human suppliers with fairness concern enables human retailers to provide fair contracts, which increases the channel profit and balances the channel profit distribution. These findings imply that the behavior of retailers and suppliers plays an important role in mechanism design of supply chains.

Regulatory Sandboxes and Fintech Funding: Evidence from the UK

Abstract Over fifty countries have introduced regulatory sandboxes to foster financial innovation. This article conducts the first evaluation of their ability to improve fintechs’ access to capital and attendant real effects. Exploiting the staggered introduction of the UK sandbox, we establish that firms entering the sandbox see an increase of 15% in capital raised post-entry. Their probability of raising capital increases by 50%. Sandbox entry also has a significant positive effect on survival rates and patenting. Investigating the mechanism, we present evidence consistent with lower asymmetric information and regulatory costs.

Is there an optimal microcredit size to maximize the social and financial efficiencies of microfinance institutions?

Financial intermediation theory posits that a smaller loan size triggers a higher cost per dollar lent. This leads to question whether microfinance can become a self-sustainable industry. Hence, in microfinance innovations like loans without collateral, progressive loans, solidarity groups and relational lending are employed to reduce asymmetric information costs, adverse selection, and moral hazard while serving the poorest people. Crucially, we find a non-linear U-shaped effect of loan size on financial and social efficiencies. This reconciles the two opposite strands of the literature, aligning microfinance and banking central principles. The major implication of this study is that, unlike banking, microfinance institutions can grant small size loans while simultaneously obtaining high levels of financial and social efficiency. Indeed, our findings do not support the widely debated mission drift assumption since loan size does not generate a trade-off between financial and social outcomes. Therefore, loan size is a core management variable.

The capital supply channel in peer effects: The case of SEOs

We document a capital supply channel in peer effects, for the case of SEOs. Firms accelerate their SEOs – they have higher SEO hazards – when more of their peers conducted an SEO within the prior six months. The effect is stronger among older yet constrained firms than among younger yet unconstrained firms. It is also stronger after Russell index shocks that likely reduce indexer demand for a firm's equity. We document evidence of a potential underlying mechanism; information conveyed by underwriters that recently marketed SEOs of peers, thus reducing asymmetric information costs.

Contracting with countervailing incentives under asymmetric cost information in a dual-channel supply chain

This study investigates the optimal contract design with countervailing incentives under asymmetric selling cost information in a dual-channel supply chain comprising a manufacturer and retailer. The manufacturer’s selling cost is private and determines their reservation profit, which gives rise to type-dependent participation constraints. This study provides several intriguing results. First, when the external market correctly evaluates the selling cost advantage of the manufacturer, information asymmetry does not necessarily hamper channel efficiency, even in the dual-channel setting. Second, the retailer may distort the manufacturer’s selling quantity either upward or downward, while the retailer may distort their own selling quantity in the opposite direction. Such a synergistic effect unique to the dual channels may help the retailer balance information rent extraction and channel efficiency. Third, the manufacturer may benefit from intensified channel competition as long as the cost differential is not significant, or the cost differential is significant, but the channel substitution rate is relatively low. Finally, further examining the value of information, we demonstrate that the profit differential of the retailer (manufacturer, supply chain) exhibits an inverted U-shaped (U-shaped, hat-shaped) pattern with respect to the low-cost manufacturer’s reservation profit.

An asset-backed decentralised finance instrument for food supply chains – A case study from the livestock export industry

Decentralised finance (DeFi) has emerged as a blockchain-enabled innovation in supply chains that makes use of supporting infrastructure to transform financial services by reducing or removing the need for intermediaries. While an increasing number of pilot projects have been exploring DeFi applications for use by small and medium enterprises (SMEs) in various finance scenarios, there is not yet a real-world adoption of DeFi beyond these projects to unlock their potential for progressing the digitisation of supply chain finance (SCF). This paper reports on a university-industry collaborative study to leverage the use of blockchain-based DeFi technology in two ways: (i) to benefit SMEs by reducing their cost of finance and increasing ease of access to funding, and; (ii) to address the prevalent asymmetric information risks and costs in a supply chain finance context. The research informed the design and development of a DeFi architecture for asset tracking in agricultural supply chains implemented and evaluated in a real-world pilot adoption with a producer in the Australian livestock industry. The use case shows that there are numerous risks pertaining to the adoption of DeFi for SCF. In response, the paper suggests new ways for supply chain SMEs to secure benefits from their investment in DeFi based on the key findings derived from evaluating our use cases.

Multinational Corporations and SEO Discounts

The fact that publicly traded companies incur substantial costs when issuing new equity has been extensively documented in the empirical finance literature. In particular, numerous studies show that seasoned equity offerings (SEOs) tend to be priced significantly below prevailing market prices, thereby causing issuers to leave money on the table. Offer price discounting is an indirect flotation cost borne by pre-SEO shareholders that, according to extant theoretical and empirical research, arises due to asymmetric information. A heretofore unrelated literature argues that corporate multinationalism, i.e., establishing operations in one or more foreign countries, exacerbates the asymmetric information problem via greater costs to shareholders of monitoring the activities and performance of foreign subsidiaries. Motivated by these lines of thought, I investigate the relation between SEO discounting and corporate multinationalism. Using a sample of SEOs completed by U.S. firms between 1998 and 2016, I show that offer price discounting is significantly higher in offerings conducted by multinational firms relative to those conducted by purely domestic firms after controlling for known determinants of SEO discounts. This effect is stronger for multinational firms with foreign subsidiaries spread across a greater number of countries and weaker for multinationals that hire a high-reputation underwriter to lead the underwriting syndicate. These findings suggest that asymmetric information costs borne by seasoned equity issuers are increasing in the geographic scope of a firm’s operations, which can be mitigated by certification from a highly reputed lead underwriter.

Struktur Kapital dan Diskresi Manajerial terhadap Pengungkapan Corporate Social Responsibilty (CSR)

The more companies in one area or region will have an impact and contribution to the community and the surrounding environment. Corporate social responsibility (CSR) is able to bring a better oriented company, and by taking into account the social principles of society, stakeholders, environmental principles, and also no less important, namely the discretionary actions of management. Management discretionary actions such as actions to manage excess costs contained in management. CSR practices reduce the level of asymmetric information and agency costs, such as an irregular CSR-related information, not all of which are available and agency costs are also limited, but the level of systematic risk and the cost of capital, which ultimately increases the possibility of increasing equity while reducing dependence on external financing and debt. CSR is realized by the company's management with the aim, as a strategy to protect itself, which allows personal gain to be obtained by investing shares in the company. This study aims to determine the contribution of a company's capital structure and managerial discretion to the CSR defense strategy of companies in Indonesia. This research is a quantitative research. Sources of research data were obtained from 348 companies listed on the Indonesia Stock Exchange and published financial reports and annual reports from 2017-2021. The Fixed Model Effect research model, the results of this study indicate that there is no significant relationship between capital structure and managerial discretion on CSR.

Sharing Economic Partnership on Online Transportation

The model sharing economy concept in online using transactions through the coordination of applications that are connected to the internet. The aims of this study were to explain the influence factors asymmetric information and transaction costs on the partnership relation in the online mode of transportation in Indonesia. This study applies PLS-SEM analysis to explore the phenomena that occur in online drivers. The results showed is a significant positive effect of the asymmetric information factor on the transaction cost factor. Then the transaction cost variable does not have a significant effect on the partnership relationship factor. While the information asymmetry factor has a significant effect on the partnership relationship. Asymmetric information that occurs related to transaction information, incentive information and sanction information. The implication of the asymmetry that occurs to the driver causes the driver to lose bargaining power as a partner. Although drivers have experienced an increase in income, their job security is very unstable. The role of the government is needed to oversee and provide regulations to reduce asymmetric information, balance the bargaining power of drivers and the sustainability of their jobs.

Modeling the effects of government subsidy and regulation on BOT transport project contract design within contractible service quality

Government subsidy and regulation are frequently employed to encourage the private sector to participate fully in Build-Operate-Transfer (BOT) transport projects. Besides service charge, the service quality of BOT transport project (i.e., maintenance quality, toll service, operational monitoring, emergency management, safety management and so on) is also an important factor affecting the choice of users. This paper studies the optimal service quality decisions in both concession period (CP) and post-CP, in which we assume that the market demand is dependent on both service price and service quality. Firstly, in the absence of subsidy scheme, we derive the related players’ optimal decisions of toll charge, contractible service quality, project capacity and length of CP in the BOT contract design process. Secondly, we investigate how to design an optimal BOT transport project contract when the government subsidizes the private sector. Thirdly, we explore the effects of government regulation policies (i.e., price cap regulation and service quality floor regulation) on the BOT contract design. Finally, we make three extensions to further examine the impacts of the demand uncertainty, the risk-aversion attitude of private sector, the asymmetric cost information and the nonlinear demand function on the BOT contract design. From our model results, some policy implications are derived regarding BOT transport project contract design when the service quality is a fundamental contractible variable.

Asymmetric Information and Agency Cost of Financial Leverage and Corporate Investments: Evidence from Emerging South-East European Countries

In this paper, we investigated the impact of financial leverage on investment decisions on a sample of 811 firms from ten emerging South-Eastern European countries (Bosnia and Herzegovina, Bulgaria, Montenegro, Croatia, Greece, Romania, North Macedonia, Slovenia, Serbia and Turkey). We apply a panel regression model involving investment ratio as a dependent variable, leverage as independent variable, and control for several firm characteristics that closely determines the corporate investments. The results of the analysis show that leverage is negatively related to investment in the companies in SEE. But only long term debt has a stronger negative impact on investment for firms with low growth opportunities than for firms with high growth opportunities. These findings show supportive evidence of agency theories of corporate leverage, especially with the debt overhang theory, but did not give strong validation that leverage has a disciplining role for firms with low growth opportunities in SEE emerging markets. In addition to leverage, we found that corporate investments in the SEE countries decrease significantly with tangibility and the company size. Corporate investments in the SEE countries increase significantly with cash flow, sales, non-debt tax shield and profitability. Overall, the results slightly defer with those from the research on the case of developed markets.

Effects of asymmetric cost information on collection outsourcing of used products for remanufacturing

Due to environmental and economic benefits from remanufacturing as well as an existing or potential take-back regulation, a manufacturer often implements remanufacturing, but it often delegates a third-party (3P) to collect used products. However, the collection efficiency is the 3P’s private information while the prior distribution of the 3P’s collection efficiency is possessed by the manufacturer. To maximize its expected profit, the manufacturer can design nonlinear pricing contracts to stimulate the 3P to select one that corresponds to its true type, where the nonlinear pricing contracts consist of the wholesale price and the collecting quantity. Specifically, our modeling analysis reveals that asymmetric information can result in the downward distortion of quantities collected by the 3P with low collection efficiency, whereas the quantities collected by the 3P with high collection efficiency remain unchanged. Besides, faced with information asymmetry and collection outsourcing, the manufacturer may also bring the new product quantity down if the 3P has low collection efficiency. Moreover, the take-back regulation will indirectly reduce consumer surplus, and this negative effect will be amplified by asymmetric information.

Optimising small-scale electronic commerce supply chain operations: a dynamic cost-sharing contract approach

For small-scale electronic commerce supply chains, designing effective strategies to improve operational effectiveness, market share and long-term survival are essential aspects. However, researchers have given less attention in addressing these issues. This study proposes a dynamic cost-sharing contract for an e-tailer supply chain to address the issues of asymmetric information, long-term integration, and ineffective costs. We include consistency constraints to obtain stable incentives over time and eliminate the need for re-negotiation. The findings emphasise that the dynamic contract significantly reduces the overall supply chain costs. The consistency constraints guarantee high incentives, thus assuring the players remain in the total contract period and enable long-term integration.

Truthful double auction mechanisms for online freight platforms with transaction costs

In recent years, many online freight platforms have appeared to improve transport market efficiency. An important problem faced by such platforms is how to elicit the agents’ information and to match their supplies and demands efficiently. To address the problem, we propose the modified Multi-unit Trading Reduction and Vickery‒Clarke‒Groves (MMTR-MVCG) mechanism for considering heterogeneous transaction costs. Under this mechanism, the shippers and carriers first decide their bids, and then the platform determines the trading agents, sets the transaction prices, and matches the shippers’ demands and the carriers’ supplies. We show that this mechanism is incentive-compatible, individually rational, budget-balanced, and asymptotically efficient. For the special case with homogeneous transaction costs, we first show that the MMTR-MVCG mechanism can be simplified. In addition, we design a new double auction mechanism for the case with asymmetric demand information and homogeneous transaction costs and show that this mechanism also is incentive- compatible, individually rational, budget-balanced, and asymptotically efficient. Moreover, we conduct numerical studies to assess the impacts of transaction costs and information asymmetry on the mechanisms and compare the performance of our mechanisms with those of two commonly used mechanisms. Our mechanisms can yield greater social welfare, more trading agents, and larger trading volumes than the other two mechanisms. We also discuss the impact of the subsidy strategy.

Robust mechanism design and production structure for assembly systems with asymmetric cost information

We consider the design of a robust procurement mechanism for an assembler who must procure multiple complementary components under limited information regarding the unit production costs of the potential suppliers. We abandon the standard assumption that there exists a common prior distribution for the suppliers’ costs and we employ the max-min criterion in which we design a mechanism to maximize the assembler’s worst-case expected profit when only the means of the suppliers’ costs are known. We formulate this problem using a linear semi-infinite programming model and we apply a primal-dual approach to reduce the problem to a single joint optimization model. We characterize the optimal procurement mechanism (payments and ordering quantities) under the assumption of balanced ordering and uncertain end-customer demand. We use these results to compare the performance of component production, under which the components are sourced from separate suppliers, and integrated production, under which the components are sourced from the same supplier. We find that component production is preferred when the production costs of the components are heterogeneous. We also propose two heuristic mechanisms which are easier to compute and implement in practice, particularly when the number of components is large. Finally, we extend our analysis to the case in which the average and variance of the suppliers’ costs are known.

Strategies for poverty alleviation supply chain with government subsidies and misreporting behavior in China.

In the poverty alleviation supply chain, subsidies for enterprises or farmers are widely implemented as part of government policy. However, subsidy fraud often occurs, such as misreporting cost information to secure subsidies. Inspired by this, our study aims to explore the optimal decision-making problem of the three-level (government + enterprises + farmers) poverty alleviation supply chain under asymmetric cost information. Four-stage models are constructed to capture the interactions among these three players. Additionally, numerical examples are used to analyze the implications of key parameters, such as cost coefficient and punitive measures coefficient, on supply chain members’ optimal decision and profit. Our findings demonstrate that both the enterprise and the farmer can obtain maximum profit from the misreporting behavior. Unfortunately, this behavior always damages the profit of other participants and weakens the efficiency of subsidy policy. Moreover, to mitigate the negative implication of misreporting behavior, the government can establish punitive measures to curtail misreporting. Our work provides important policy implications for governments and enterprises. To ensure that more consumers have access to poverty alleviation products, government organizations should prioritize such projects. In addition, the provision of public facilities and technical guidance should be more effective and prompt to share enterprises’ and farmers’ costs. We further recommend that subsidy policies be formulated according to recipients’ performance in poverty alleviation projects, with corresponding supervision and punitive measures. Finally, in cooperating with farmers in poverty alleviation, enterprises should maximize their interests and reduce costs through technological innovation and channel sharing.

Short‐term vs. Long‐term Contracting: Empirical Assessment of the Ratchet Effect in Supply Chain Interaction

In laboratory experiments, we compare the performance of short‐term and long‐term contracts in a two‐period supplier–buyer dyad with asymmetric cost information. We find that buyers tend to reject offers if the payoff inequality increases from one period to the next. We coin this dynamic form of inequity aversion as “ratcheting aversion.” We show that under short‐term contracting, the buyer's ratcheting aversion limits the supplier's leeway to exploit information revelation in earlier periods because suppliers fear contract rejections in later periods. As a result, the suppliers' empirical benefit of offering long‐term contracts over short‐term contracts is significantly larger than theory predicts. Furthermore, long‐term contracts enable supply chain partners to achieve less volatile supply chain performance than short‐term contracts because the buyers' ratcheting aversion leads to more contract rejections under short‐term contracting. While normative theory predicts that suppliers should include all future informational rents of the buyers in the first‐period offer, thereby creating large payoff differences between periods, we show that it can be behaviorally optimal for the supplier to make offers that lead to more equitable payoffs between periods.

Self-regulation under asymmetric cost information

In this paper, we study how a monopolistic firm with unknown costs may behave under the threat of regulation. To this aim, we integrate the self-regulation model of Glazer and McMillan (Q J Econ 107(3):1089–1099, 1992) with the optimal regulatory mechanism devised by Baron and Myerson (Econometrica 50(4):911–930, 1982) for the case of asymmetric information. Simulating the equilibrium outcome of our integrated model for a wide range of parameter values, we show among many results that the firm threatened with regulation always constrains its price; moreover, the price the firm charges under the threat of regulation can be even lower than the price it has to charge when it is regulated.