Presence Of Private Information Research Articles

Decarbonizing a supply chain with an unreliable supplier: Implications for profitability and sustainability

The increasing emphasis on corporate social responsibility has led to a growing trend among firms to initiate decarbonization campaigns, aligning their sustainability efforts with profitability objectives. This paper explores the challenge of decarbonizing a supply chain wherein a buyer cooperates with an unreliable supplier that possesses private absorptive capacity and varying degrees of bargaining power. We develop models based on whether the absorptive capacity remains private information and whether the buyer has more bargaining power in determining the profit-maximizing price. Our findings indicate that the buyer may opt to avoid entering into contracts with the supplier for decarbonization if the absorptive capacity ratio falls below certain values. When contracting occurs, decarbonization has the potential to yield a mutually beneficial outcome for firms, customers, and the environment. Nevertheless, the presence of private information has negative implications for customers and the environment because it results in reduced consumer surplus and increased carbon footprint. As the buyer’s bargaining power strengthens, the likelihood of supply chain decarbonization increases, potentially leading to more consumer surplus and less carbon footprint. Finally, we discuss the effects of key model factors from a triple bottom line perspective (i.e., profit, people, and the planet).

АРХІТЕКТУРА ПРОГРАМНОЇ СИСТЕМИ ДЛЯ ВИРІШЕННЯ ЗАДАЧІ КЛАСИФІКАЦІЇ НА ОСНОВІ ПРИВАТНИХ ДАНИХ

Data analysis and artificial intelligence systems are becoming widely used in various spheres of human life. This is confirmed by more typical cases of their use, in particular, the selection of recommendations for the user in e-commerce, the detection of spam in e-mail services, and the moderation of user comments; as well as cases of personal use of such tools (for example, chatbots ChatGPT, Google Bard, Microsoft Copilot have appeared and gained significant popularity in the last two years). One of the key elements of such systems is data, which is necessary for training and testing software systems of intelligent data analysis. A significant amount of diverse data contributes to the construction of a software system with high accuracy. Considering this, the task of choosing and preparation of datasets that can be used in the construction of such systems is important. One of the difficulties in this task is the presence of private information in the datasets, which limits their use for systems of intelligent data analysis. The paper is devoted to the development of the software system architecture for solving the classification problem based on private data. The existing methods and architectural approaches for privacy-preserving in machine learning were considered. The architecture of the software system was proposed, the characteristic feature of which is the protection of private datasets by using of functional encryption, which allows to increase the number of datasets for training publicly available data analysis and artificial intelligence systems. The proposed architecture of the software system is based on the client-server architecture and functional encryption. The components are a classifier, a generator of encryption keys, and modules of functional encryption and decryption. Prospects for further research were discussed.

Pricing decisions in a two-period closed-loop supply chain game under asymmetric information and uncertainty

AbstractStrategies to increase sustainability are of growing relevance for supply chains and especially for the management of production processes. In this paper, we build on existing literature in closed-loop supply chain management and consider a two-period game-theoretic model in which product returns are reused in the manufacturing process. In all scenarios, we assume that the return rate of used products is random and not known to the players at the beginning of the planning horizon, thus, they have to deal with uncertainty in period 1. In contrast to existing literature, we will also address the circumstance that the players’ level of information in period 2, after the returns have been realized, can be linked to the collection mode in the supply chain. In Scenario A, the retailer is involved in the collection of the used products and transfers them to the manufacturer, so that symmetric information is available. In Scenario B, on the other hand, the used products reach the manufacturer directly from the customer, so that the manufacturer has an information advantage over the retailer. By comparing these scenarios and a vertically integrated supply chain benchmark case, it becomes clear that, depending on the actual return rate, the presence of private information can be either beneficial or detrimental to the manufacturer. The retailer, on the other hand, can compensate for information disadvantages in most cases over the multi-period planning period due to its position as a Stackelberg leader. Regardless of the amount of a transfer payment offered to it by the manufacturer, it prefers the collection of the goods by the manufacturer itself. These findings contribute to literature on symmetric information, where, for example, a retailer-led collection is preferred (Savaskan et al. Manage Sci 50(2):239–252, 2004) or the decision depends on the amount of the transfer payment (Modak et al. J Clean Prod 171:512–528, 2018). However, we show that cooperation between the players leads to the best results not only economically but also from an ecological point of view.

Allocating scarce resources in the presence of private information and heterogeneous favoritism

Motivated by the challenge of allocating scarce resources from the federal government to different states during the COVID‐19 pandemic, this paper studies optimal schemes for allocating scarce resources to agents with private demand information under different favoritism structures. Through an investigation of a mechanism design model that aims to induce agents to report their demands truthfully, we find the following results. First, when the principal purely cares about social welfare and when the principal has sufficient resources to satisfy all agents' demands, we find that the optimal allocation scheme is efficient in the sense that it is identical to the optimal scheme for the “benchmark” case when favoritism differentials and information asymmetry are both absent. Second, when rationing is needed due to resource scarcity, we show that heterogeneity in “event‐independent” favoritism across agents will cause the principal to allocate more resources to agents with larger favoritism and less resources to others, resulting in inefficient allocations. Third, when agents possess heterogeneous “event‐specific” favoritism due to the existence of outside options, the resulting allocation may boost all agents' expected utilities, including those agents who do not have any outside option. Finally, we show that the “allocation distortion” caused by both information asymmetry and heterogeneous favoritism can be reduced when “positive externality” is present (i.e., allocating resources to one agent can benefit other agents).

Simple Uncoupled No-regret Learning Dynamics for Extensive-form Correlated Equilibrium

The existence of simple uncoupled no-regret learning dynamics that converge to correlated equilibria in normal-form games is a celebrated result in the theory of multi-agent systems. Specifically, it has been known for more than 20 years that when all players seek to minimize their internal regret in a repeated normal-form game, the empirical frequency of play converges to a normal-form correlated equilibrium. Extensive-form (that is, tree-form) games generalize normal-form games by modeling both sequential and simultaneous moves, as well as imperfect information. Because of the sequential nature and presence of private information in the game, correlation in extensive-form games possesses significantly different properties than in normal-form games, many of which are still open research directions. Extensive-form correlated equilibrium (EFCE) has been proposed as the natural extensive-form counterpart to the classical notion of correlated equilibrium in normal-form games. Compared to the latter, the constraints that define the set of EFCEs are significantly more complex, as the correlation device (a.k.a. mediator) must take into account the evolution of beliefs of each player as they make observations throughout the game. Due to that significant added complexity, the existence of uncoupled learning dynamics leading to an EFCE has remained a challenging open research question for a long time. In this article, we settle that question by giving the first uncoupled no-regret dynamics that converge to the set of EFCEs in n -player general-sum extensive-form games with perfect recall. We show that each iterate can be computed in time polynomial in the size of the game tree, and that, when all players play repeatedly according to our learning dynamics, the empirical frequency of play after T game repetitions is proven to be a \( O(1/\sqrt {T}) \) -approximate EFCE with high probability, and an EFCE almost surely in the limit.

Allocating Scarce Resources in the Presence of Private Information and Bargaining Power

This paper studies optimal schemes for allocating scarce resources to agents with private demand information and heterogeneous bargaining powers. Through an investigation of a mechanism design model that aims to induce agents to report their demands truthfully, we find the following results. First, when the principal purely cares about social welfare and when the principal has sufficient resources to satisfy all agents’ demands, we find that the optimal allocation scheme is “efficient” because it is identical to the optimal scheme for the benchmark case in which bargaining power differentials and information asymmetry are both absent. Second, when rationing is needed due to resource scarcity, we show that heterogeneity in bargaining power cross agents will cause the principal to allocate more resources to agents with stronger bargaining power even though their true demands are low, resulting in “inefficient” allocations. We show that there are circumstances that can reduce allocation inefficiency caused by bargaining power differentials. These circumstances are: (1) when the principal cares about both the social welfare and its own monetary benefits, and (2) when positive externality is present (i.e., allocating resources to one agent can benefit other agents).

Implications of the overconfidence bias in presence of private information: Evidence from MENA stock markets

AbstractThis paper extends the empirical literature on overconfidence by investigating the implications of this bias on the trading activity and the market volatility for different levels of private information. Using individual data for 10 MENA stock markets, we found a positive unidirectional causal relation from market return to trading volume in most markets, indicating that overconfident investors attribute past market gains to their own talent in selecting securities and trade later as if they had generated these gains. Consistent with the hypothesis of the investors' overreaction to private information, we found that the trading activity becomes more excessive as the level of private information increases. Moreover, the overconfidence helps explain the observed excessive volatility in presence of high level of private information.

Two‐sided service markets: Effects of quality differentiation on market efficiency

Determining the effects of quality differentiation on the efficiency of two‐sided service markets is challenging. The presence of private information on both market sides and the heterogeneity of sellers can lead to substantial economic inefficiencies. Hence, this paper investigates how quality‐differentiated sellers affect market efficiency from the perspective of mechanism design theory. First, we characterize second‐best mechanisms for matching buyers and sellers. We then propose a heuristic algorithm for approximating the welfare‐maximizing match outcomes. Based on empirical data, our simulation study suggests that an increased quality differentiation can reduce market efficiency; however, this inefficiency vanishes as the market size increases.

Volume Dynamics around FOMC Announcements

The stock market volume decreases in anticipation of FOMC announcements and increases afterward. I find, in the cross-section, that stocks with higher market risk exposure experience greater volume changes. I also find that volume dynamics around FOMC announcements are unlikely to be attributable to changes in volatility. Instead, they are linked to discretionary liquidity trading resulting from the presence of private information. I set up a model that guides my investigation of the information environment in the stock market around FOMC announcements. Consistent with the model’s implication, volume dynamics are accompanied by changes in the information environment. I find that information asymmetry increases ahead of FOMC announcements, but only for high-beta stocks.

When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

At many firms, incentivized salespeople with private information about customers are responsible for customer relationship management. Although incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. The authors investigate the sales performance–moral hazard trade-off in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, the authors detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard, leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales-enhancing effects, clarifying the importance of multidimensional incentives for customer relationship management. Reducing private information (through job transfers) hurts customer maintenance but has greater impact on productivity by moderating adverse selection at acquisition. This article also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

Relationship-Specific Investment, Asymmetric Information, and the Role of Knowledge-Based Obligations in Contracts

Relationship-specific investments that increase the contracting surplus can also endow the investing party with private information over efficient terms of trade. Investment by a manufacturer to learn about the idiosyncratic needs of its buyers is one example; another is research and development expenditure in a joint venture. The presence of private information can lead to ex post bargaining failure which, in turn, can dampen the ex ante relationship-specific investment incentive. This paper examines how contract design can mitigate these problems. The paper first demonstrates that these inefficiencies may be exacerbated when the parties enter into a binding agreement before the investment and rely on ex post renegotiation to incorporate the information obtained through the investment. This is because the informed party is protected from bargaining failure at the renegotiation stage by its ability to fall back on the terms of the initial agreement. This finding offers an explanation for why preliminary agreements in commercial transactions are often expressly non-binding, even when they contain all or most of the essential terms of the deal. Conventional scholarship, in contrast, holds that such agreements should be binding in order to protect relationship-specific investments from hold-up. Second, we examine the role of frequently used “knowledge-based” contract provisions, such as representations made to the best of the party’s knowledge or obligations to negotiate in good faith. While litigating over such provisions entail cost and judicial error, we show that, with appropriately calibrated damages, they can improve ex ante and ex post efficiency. This result supports why, in certain circumstances, commercial parties agree to the obligation to negotiate in good faith in an otherwise non-binding initial agreement. Third, the paper identifies conditions under which backing the knowledge-based obligations with expectation damages allows the parties to achieve both the ex ante and ex post efficiencies better than reliance damages.

When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

Incentivized salespeople are often responsible for CRM activities that focus not only on customer acquisition, but also maintenance activities that increase customer lifetime value. While incentives can induce effort on the incentivized tasks, a salesperson’s private information about customers may induce moral hazard by salespeople seeking to gain short-term compensation at the expense of the firm’s long run profitability. We investigate the dynamics in the effort--moral hazard tradeoff in response to multidimensional (acquisition and maintenance) performance incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, the adverse selection effect of acquisition incentives overwhelms the sales enhancing effort effects, clarifying the importance of multidimensional incentives in CRM-type settings. Reducing private information (through job transfers) hurts customer maintenance, but has greater impact on productivity by moderating adverse selection at acquisition. The paper also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time varying effects of salesperson incentives.

Directed Search with Complementarity and Adverse Selection

I study a model in which firms invest in capital and post wages, and heterogeneous workers, who have private information about their skills, choose where to apply. Workers and firms match bilaterally. Each matched agent gets an exogenous payoff from the match before wages are paid. Each of these payoffs displays complementarity in capital and skill. I derive conditions under which the market exhibits PAM, positive assortative matching. Under these conditions, the firms over-invest in capital compared to the first best, because capital is used as a screening device.I show that the fact that firms need to screen workers in the presence of private information changes the predictions of the model compared to that in the presence of complete information. In particular, I show that the market economy exhibiting PAM is not necessary nor sufficient for the complete information allocation to exhibit PAM.

Equilibria in second-price auctions with private participation costs

We study equilibria in second-price auctions where bidders are independently and privately informed about both their values and participation costs, and where the joint distributions of these values and costs across bidders are not necessarily identical. We show that there always exists an equilibrium in this general setting with two-dimensional types of ex ante heterogeneous bidders. When bidders are ex ante homogeneous, there is a unique symmetric equilibrium, but asymmetric equilibria may also exist. We provide conditions under which the equilibrium is unique (not only among symmetric ones). We find that the marginal density of participation costs and the concentration of values matter for the uniqueness. The presence of private information on participation costs tends to reduce multiplicity of participation equilibria, although multiplicity still persists.

Communication privacy management of students in Latvia

The lack of communication privacy boundaries among students and the fault of self-disclosure are two main reasons for unforeseen distress, broken relationships and trust, vulnerability and conflicts in universities. Based on S. Petronio’s theory of communication privacy management this research investigates the interaction of domestic students and foreign students in Latvia with their peers in order to set up privacy and disclosure boundaries that do not violate peer privacy, especially in a sensitive multicultural context. In fact, the presence of private information and the willingness to disclose it is often confronted with numerous privacy dilemmas and issues regarding their secureness, especially in universities where peers are young with different cultural backgrounds. This article analyzes the privacy management skills of locals and foreigners and reveals how security of information is managed between them stemming from social penetration and communication privacy management theory. Privacy management is significant in facing the dilemma of communication privacy and facilitates solving already existing problems of privacy among students

Private Information in the BBV Model of Public Goods

To analyze the private provision of a public good in the presence of private information, we explore the connections between two frameworks: the binary public good model with threshold uncertainty and the standard continuous model a la Bergstrom et al. Linearity of best responses in others' contributions is key to matching the two frameworks. We identify all utility functions that display this linearity, and we provide conditions ensuring that the minimal properties that Bergstrom et al. require for utilities are satisfied. Using techniques developed in the threshold uncertainty framework, we show existence and uniqueness of the Bayes-Nash equilibrium—thus generalizing existing results—and we analyze its comparative statics properties. In particular, under the reasonable assumption that agents' income is stochastic and private information, we complement the full-information crowding-out and redistribution results of Bergstrom et al. If the government taxes agents' income proportionally and redistributes (expected) revenues lump sum, equilibrium public good provision can increase or decrease, even if the set of contributors is unchanged. Similarly, we show that crowding-out can be one-for-one, less than one-for-one, or more than one-for-one. Finally, we extend our results to a multidimensional framework in which agents' unit costs of contributions are also private information.

Learnability of an equilibrium with private information

This paper investigates the learnability of an equilibrium with private information. Agents of each type have their own private information about an exogenous variable and conduct adaptive learning with a heterogeneously misspecified perceived laws of motion (PLM) that includes only this variable. The paper shows that the existence of private information has a nonnegative impact on the learnability of the equilibrium; that is, the condition for learnability is unaffected or relaxed by heterogeneity and/or misspecification in PLMs caused by private information. In a New Keynesian model with private information about fundamental shocks, the learnability of the equilibrium is ensured by the Taylor principle of monetary policy. The paper also confirms that these results hold true not only in the presence of private information, but also in a variety of informational structures.

Trading breaks and asymmetric information: The option markets

Abstract We find that weekend, holiday and overnight trading breaks generate excessive perceived risk in the option markets, presumably due to asymmetric information, which, in turn, encourages uninformed option traders to postpone trading. This perceived risk subsides after two days accompanied by an increase in the option trading volume and the underlying index’s actual price volatility. These results shed light on the informational role of index options and suggest that the theoretical models’ results regarding information processing and price discovery in the presence of private information are not limited to single stocks but also apply to the market as a whole.

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob \(h\)-transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter \(\lambda \) is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.

Do Intraday Volatility Patterns Follow a ‘U’ Curve? Evidence from the Indian Market

This study examines the ‘intraday’ volatility patterns of NSE’s Nifty Index from August 2000 to December 2003. The tick by tick index returns are categorized into three groups – opening price to thirty minutes after opening price (morning sample), thirty minutes after opening price to fifteen minutes before closing price (mid-day sample) and fifteen minutes before closing price to closing price (evening sample). Defining the tick by tick index returns as a measure of deviation between successive prices, new volatility estimates are constructed to compute intraday volatility. The volatility patterns across the samples suggest high volatility during the initial trading period which sustains till 30 opening minutes and further increasing volatility during the last 15 minutes of a trading day. Information bunching and presence of private information are attributed to morning and evening period volatilities respectively. The volatility of intraday index prices of Nifty follows a crude U shaped curve.