Cheap talk
In game theory, cheap talk is communication between players that does not directly affect the payoffs of the game. Providing and receiving information is free. This is in contrast to signaling in whic
Pooling equilibrium
A pooling equilibrium in game theory is an equilibria result of a signaling game. In a signaling game, players send actions called "signals" to other players in the game. Signaling actions are chosen
Agency cost
An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal" (an organization, person or group of persons), and an "agent". The agent is given
Screening (economics)
Screening in economics refers to a strategy of combating adverse selection – one of the potential decision-making complications in cases of asymmetric information – by the agent(s) with less informati
Grossman-Stiglitz Paradox
The Grossman-Stiglitz Paradox is a paradox introduced by Sanford J. Grossman and Joseph Stiglitz in a joint publication in American Economic Review in 1980 that argues perfectly informationally effici
Principal (commercial law)
In commercial law, a principal is a person, legal or natural, who authorizes an agent to act to create one or more legal relationships with a third party. This branch of law is called agency and relie
Costly state verification
Costly State Verification (CSV) is an approach in contract theory that considers a contract design problem in which verification (or disclosure) of enterprise performance is costly and a lender has to
Multiple principal problem
The multiple principal problem, also known as the common agency problem, the multiple accountabilities problem, or the problem of serving two masters, is an extension of the principal-agent problem th
Capital market imperfections
Capital market imperfections are limitations that reduce the range of financial contracts that can be signed or honored. These restrictions are more common in capital markets. There are three basic re
The Case Against Education
The Case Against Education: Why the Education System Is a Waste of Time and Money is a book written by libertarian economist Bryan Caplan and published in 2018 by Princeton University Press. Drawing o
Principal–agent problem
The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the "principal")
Pecking order theory
In corporate finance, the pecking order theory (or pecking order model) postulates that the cost of financing increases with asymmetric information. Financing comes from three sources, internal funds,
Contract theory
From a legal point of view, a contract is an institutional arrangement for the way in which resources flow, which defines the various relationships between the parties to a transaction or limits the r
Signaling game
In game theory, a signaling game is a simple type of a dynamic Bayesian game. The essence of a signalling game is that one player takes an action, the signal, to convey information to another player,
Signalling (economics)
In contract theory, signalling (or signaling; see spelling differences) is the idea that one party (the agent) credibly conveys some information about itself to another party (the principal). Although
The Market for Lemons
The Market for Lemons: Quality Uncertainty and the Market Mechanism is a widely-cited 1970 paper by economist George Akerlof which examines how the quality of goods traded in a market can degrade in t
Moral hazard
In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporat
Lewis signaling game
In game theory, the Lewis signaling game is a type of signaling game that features perfect between players. It is named for the philosopher David Lewis who was the first to discuss this game in his Ph
Single-crossing condition
In monotone comparative statics, the single-crossing condition or single-crossing property refers to a condition where the relationship between two or more functions is such that they will only cross
Information economics
Information economics or the economics of information is the branch of microeconomics that studies how information and information systems affect an economy and economic decisions. One application con
Agent (economics)
In economics, an agent is an actor (more specifically, a decision maker) in a model of some aspect of the economy. Typically, every agent makes decisions by solving a well- or ill-defined optimization
Adverse selection
In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information. The result is that participants with key information might pa
Information asymmetry
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates a