Private Information: Market Effects and Responses

Tue 17 July 2018

Programme

8:00 Breakfast
8:45 Director’s Introduction and Academic Briefing
9:00 Market Collapse and Screening (Alex Teytelboym)
10:00 Syndicate Discussion
11:15 Signalling In Theory and Practice (Alex Teytelboym)
12.15 Break, followed by Lunch at 12:30
1:15 Syndicate Discussion
2:15 Corporate Finance: Financial Policy and Firm Behaviour (Alex Teytelboym)
3:15 Syndicate Discussion
4:30Providing Incentives Via Contract Design (Alex Teytelboym
6:00 Dinner
7.00 Depart Egrove for a tour of Oxford with Isabella Underhill

Overview

When a simple market-based transaction takes place, a price determines the allocation of a good or service. Sometimes, however, what economists call “information asymmetries” may be present. This simply means that buyers and sellers may have private, price relevant, information about the product or service at the centre of the transaction. We begin the day exploring the impact of such private information on market outcomes. We demonstrate that such problems can negatively impact markets down leading to, for example, credit rationing and the misallocation of graduates to jobs and industries. This market problem is often addressed by ‘screening’ or by ‘signaling.’  Screening is a practice common in the insurance industry and we explore it in the first lecture. Signaling is the subject of the second lecture and underpins much of the practice of investor relations at major corporations.  In the third lecture, we turn to the problem of contracting. In contracting the private information arises after the contract is signed:  a worker must be incentivised to fully pursue her employer’s objectives. Or a firm must be incentivised to pursue the needs of her client. In the final lecture of the day we further develop the role of information asymmetries by focusing on one of its most important applications – corporate finance.  In this lecture we establish the core principles of corporate finance, namely, how the capital structure of a firm may generate value.

Alex Teytelboym

Alex is an economist who is interested in market design as well as social and economic networks. He looks at how best to run complex auctions and how networks shape the diffusion of innovations. Moreover, he works on climate change policy. Before coming to INET, he was a Postdoctoral Fellow at the Laboratory for Information and Decision System at M.I.T. and a Visiting Business Fellow at the Smith School of Enterprise and the Environment. He received a B.Sc in Economics (2008) from the London School of Economics and M. Phil. (2010) and D. Phil. in Economics (2013) from the University of Oxford.

Isabella Underhill – Guided Tour Oxford

Many visitors arrive in Oxford with a just a vague knowledge of its world famous university; few know anything at all about the city that surrounds it. In her tours Isabella Underhill, long term Oxford resident and established city guide, attempts to knit together the many stories that have contributed to its present incarnation, from the time of the town’s Anglo-Saxon construction, through the struggles of town versus gown and the central role played by the university in almost every major national event. Oxford has been the spawning ground of countless Prime Ministers, philosophers, scientists, writers – notably Tolkein, C.S.Lewis, Lewis Carroll, Oscar Wilde and the poet Shelley – played host to Elizabeth I on state visits and to Charles I during the English Civil War – provided useful shelter for government in World War II (famously Hitler never bombed Oxford), nurtured the talent of Rowan Atkinson and Alan Bennett and, successfully competing with the world’s top universities, fights hard against its reputation as haven to the rich and privileged. All go to make up the astonishing narrative of the English speaking world’s oldest university. Isabella has a BA Hons History of Art and Italian UCL.