Essays on Information Frictions in Economics
2016-07
Loading...
View/Download File
Persistent link to this item
Statistics
View StatisticsJournal Title
Journal ISSN
Volume Title
Title
Essays on Information Frictions in Economics
Authors
Published Date
2016-07
Publisher
Type
Thesis or Dissertation
Abstract
This dissertation consists of three chapters. The unifying topic of this collection is the impact of information frictions and lack of commitment on economic outcomes, in particular on prices. The first two chapters are dedicated to the study of the European sovereign debt crisis of 2008-2014. This episode of global economic importance was marked with a surge in government bond yields on unprecedented scale among developed countries in modern history. The peak of the crisis occurred with a significant lag following the initial shocks to output, even though governments did not undertake the fiscal adjustments necessary to prevent a further increase in default risk. I show that these observations are at odds with the predictions of existing sovereign debt models and propose a new theory that features incomplete, symmetric (in Chapter 1) and asymmetric (in Chapter 2) information about the country's economic outlook. In a calibrated model, the delay arises as a result of the markets' learning process, while the government optimally postpones debt reduction in order not to send a negative signal about the underlying state of the economy. In the third chapter, written jointly with Pei Cheng Yu, we study optimal pricing in markets characterized by long-term relationship and information asymmetries between the firm and its customers. As an example of such a market, we show that life insurance premiums have displayed a significant degree of rigidity over the past two decades. On average, prices took over 3 years to adjust and the magnitude of these one-time jumps exceeded 10%. This stands in sharp contrast with the dynamics of the corresponding marginal cost which exhibited considerable volatility since 1990 due to the movements in the interest and mortality rates. We build a model with consumer hold-up problem that captures these empirical findings. Price rigidity arises as an optimal response to the relationship-specific investment the consumers need to make before buying. The optimal contract takes the form of a simple cutoff rule: premiums are rigid for all cost realizations smaller than the threshold, and adjustments must be large and are only possible when cost realizations exceed it.
Description
University of Minnesota Ph.D. dissertation. July 2016. Major: Economics. Advisors: Manuel Amador, Timothy Kehoe. 1 computer file (PDF); viii, 125 pages.
Related to
Replaces
License
Collections
Series/Report Number
Funding information
Isbn identifier
Doi identifier
Previously Published Citation
Suggested citation
Paluszynski, Radoslaw. (2016). Essays on Information Frictions in Economics. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/182174.
Content distributed via the University Digital Conservancy may be subject to additional license and use restrictions applied by the depositor. By using these files, users agree to the Terms of Use. Materials in the UDC may contain content that is disturbing and/or harmful. For more information, please see our statement on harmful content in digital repositories.