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Essay on Strategic Information Transmission in Trading Environments

  • Author(s): Ding, Xuan;
  • Advisor(s): Watson, Joel;
  • Galperti, Simone
  • et al.
Abstract

In my dissertation, I explore questions about strategic decision making and interactions between market participants, with an emphasis on information transmission and information design. I apply game-theoretic models to study how strategic information transmission influences economic outcomes in trading environments.

In Chapter 1, I study the information provision role and the incentive provision role of certification in a moral hazard setting in a seller-induced certification model versus a buyer-induced certification model. My results explain empirical observations in the credit rating market and provide policy implications regarding the "issuer-pays" rating mode versus the "investor-pays" rating mode in the financial market.

Chapter 2 examines the incentive of a long-run seller to disclose previous offers in a dynamic market for lemons and identifies the impact of allowing voluntary disclosure on the market information structure. Compared with the models of mandatory disclosure and mandatory non-disclosure, the optional disclosure model generates a novel set of equilibria by allowing flexibility in the disclosure option. My result also proves the efficiency of optional disclosure, which explains a change in eBay's disclosure scheme about previous transactions.

In Chapter 3, I consider a long-term contracting problem between a monopolistic seller and a present-biased buyer with asymmetric information in a Markov environment. The buyer and the seller are fully aware of the degree of inconsistent discounting. I characterize the optimal contract and identify the novel impact of time inconsistency on the optimal allocations.

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