Experiment No. 3: The markets with asymmetric information Plan section
Objectives of this experiment
Materials Needed
procedure experience
1. Team Development and Reading instructions
2. The game
3. Possible variants
Results, interpretation and discussion
Appendices
Objectives of this experiment
This is an educational experience on information asymmetries. It is part of the program first ES (September 2011) (Part 3.2 "What are the main market failure?").
Une condition pour qu’une coordination marchande soit efficace est que la qualité du produit vendu soit parfaitement observable par l’acheteur avant la transaction.
Dans le cas contraire, la tentation est forte, pour les vendeurs, d’offrir un produit de qualité basse au prix d’un produit de qualité haute, prix qui est nécessairement élevé puisque le produit de qualité haute est coûteux à produire. Si on suppose que les acheteurs sont conscients de ce phénomène, peu d’entre eux seront prêts à prendre le risque de payer le prix (élevé) d’un produit de qualité haute et d’obtenir, en fait, un produit de qualité basse. Dès then, sellers who do not yield to temptation and offer high quality products can not find buyers and withdraw from the market. The only transactions that eventually take place therefore focus on quality products so low that some buyers would have liked to get high quality products and that some sellers have withdrawn a profit from the sale of such products. Coordination is not effective: the market failed to seize all opportunities to improve well-being.
educational experience offered here aims to illustrate this lack of coordination resulting from an asymmetry of information on the quality of property. Some students are
sellers. Other buyers are. The game takes place over several periods. In each period, sellers choose the level of quality of goods they produce and the selling price they display. The sellers know the production costs for each quality level and for each unit of good product. Production costs are also known vendors of buyers. Buyers can purchase a maximum of one unit of good. They know the value to them of each type of property according to its quality: a good quality High has a high value for the buyer, a good quality bass at a low value. The values of the buyers are also known vendors. During the early periods, the information is perfect, the buyers know the quality of the goods sold by sellers. Information asymmetry is introduced in the following periods, in which case the seller is known only to the quality of the property he is selling and the buyers discover after the transaction it is the quality of goods purchased .
values for buyers and production costs for vendeurs sont fixés de telle manière que le gain collectif maximal tiré des relations marchandes est obtenu lorsque les échanges ne portent pas sur les biens de qualité basse. Si, au cours des différentes périodes, les vendeurs ont tendance à offrir des biens de qualité basse et si les acheteurs ont tendance à ne pas acheter les biens proposés à des prix élevés, alors la coordination marchande est inefficace.
Cette expérience permet d’une part d’amener les élèves simplement à découvrir l’une des conditions de la concurrence parfaite et de montrer que la transparence est une condition d’efficacité des marchés. D’autre part, without requiring a work of abstraction that some students are struggling to provide this experience can give students a first contact with the problems of information asymmetry. We therefore easily introduced an analytical framework with which students will be comfortable later, eg Terminale when they have to deal with asymmetric information on the labor market. Finally, the widespread presence of asymmetric information in the concrete relations between sellers and buyers as a limitation of the market, this experience is also the starting point for reflection on ways of coordinating complementary or alternative market. It may therefore, in particular, contribute to exploring the rules that a market economy can not happen to be effective. Materials needed
instructions and the results sheet given in Annex 1. Must reproduce the instructions and score sheets in as many copies as there are students.
A box with 6 pieces of paper numbered 1 to 6.
procedure experience
1. Constitution des équipes et Lecture des instructions
L’enseignant sépare les élèves en 2 groupes : les élèves à gauche de l’enseignant seront les vendeurs, et les élèves à droite de l’enseignant seront les acheteurs. Puis, il constitue 5 équipes de vendeurs et 6 équipes d’acheteurs (il n’est pas nécessaire que les équipes soient de tailles strictement égales).
Il met 6 morceaux de papier numérotés de 1 à 6 dans une boite (ces papiers serviront à déterminer l’ordre d’intervention des acheteurs sur le marché).
Distribution des instructions result sheets to each student's score sheets for vendors should be numbered from 1 to 5 (one number per team), those buyers 1 through 6.
The teacher reads the instructions of the game market with asymmetric information. He then answered questions and ensures that each student has understood the rules of the game
2. The game
The teacher asks the sales teams to choose the quality level (1, 2 or 3) and the price they wish to offer. He leaves 2 minutes to sellers for their decisions and record the level of quality and price on their chosen results sheets (lines 1 and 2).
The teacher collects the score sheets of the sellers. He enrolled at the table selling prices and quality levels offered by sellers (see model in Annex 2).
He pulls one of six pieces of paper from the box and shows the team of buyers who will be the first to make a decision. He asked members of the team designated to determine whether they wish to buy a property and, if so, specify the number of the sales team and acceptance of the proposal. 1 minute is left buyers.
If the team of buyers will not accept any proposals made by vendors, the teacher randomly draws the following team of buyers. Otherwise, it confirms the transaction, the records in the table and asked the vendors who come to conclude this transaction if they wish to sell their second unit well under the same conditions. Depending on the response of vendors, it adds or does not add a new proposal for the sales team on the board. Then the team of buyers following its decision in the same manner. So on until the 6 e team of buyers.
When decisions of the 6 teams of buyers have been recorded, the first period ends. The score sheets are returned to their sellers. Buyers and sellers calculate their earnings.
The following two periods occur in the same way.
From the 4 th period, we introduce the following change. After collecting the score sheets of the sellers, the teacher will only set the table that the proposed selling prices. It informs not, first time buyers on the level quality of goods sold. He mentioned this information to the table only when all decisions of the 6 teams of buyers have been registered.
3. Possible variants
It is possible to introduce some additional periods during which the seller must decide on the quality of goods produced, the proposed selling price (as in previous periods) and, furthermore, the level of they produce quality reporting. Buyers will be information at the time of making the proposed selling price and the level of quality reporting by sellers. They discover that after having taken their decision, the actual quality (possibly different from the declared quality) of the property offered.
This variant allows us to see how sellers can send credible signals to buyers, in other words, how they can acquire a reputation among buyers. A minimum of 3 additional periods will be necessary to show such phenomena.
Results, interpretation and discussion
The results are generally observed (see illustration in Appendix 2). When information on the quality of the property is perfect, transactions focus on the quality level that maximizes the social surplus (the market is efficient). When information asymmetry is introduced unfavorable to buyers, transactions focus on the good whose quality is low. The collective surplus is not maximized when: market coordination is not effective.
discussion with students can start by explaining the deterioration in the quality of the property exchanged when passing from a situation of information parfaite à une situation d’asymétrie d'information. Une fois que les élèves sont parvenus à exprimer l’asymétrie d’information défavorable qui caractérise les dernières périodes du jeu, il s’agira pour eux de comprendre les raisons qui poussent à une telle dégradation. L’enseignant peut par exemple partir du cas concret d’une équipe de vendeurs ayant proposé, en situation d’asymétrie d’information, de vendre un bien de qualité basse à un prix correspondant à un bien de qualité haute. Il demande à l’équipe d’expliquer leur décision, observe la réaction des acheteurs et, éventuellement, ask them if they have considered such an attitude of sellers when they themselves have made their decision.
It is also necessary that students understand why the market is inefficient when the transactions involve goods of low quality. One approach may be given by comparing the total earnings (sellers and buyers) between periods with perfect information and time periods with asymmetric information. If students can read the curves of supply and demand and know the concepts of surplus (the seller, buyer and collective), the teacher can address the issue the inefficiency of the market with asymmetric information from these concepts (see Appendix 2).
The discussion can then be extended, for example, with the following questions.
1) Give examples of goods or services for which the buyer usually discovers that after purchasing the product quality.
2) In your opinion, what would have happened in the experiment, if the sellers did not have a choice of quality of manufactured product, some vendors can not only produce poor quality products , other than products good quality? Sellers of good quality products would they find buyers?
We can get the students here be noted that the tendency to see the transactions relate to products of low quality is not related to the strategies of vendors in the selection of good quality product. When sellers of good quality products are present in a market with such information asymmetry, they tend to be eliminated. This remark will eventually introduce the concept of adverse selection (or anti-selection).
3) Why products of good quality they are buyers in real life?
This question may lead to the particular importance of trust, reputation or rules (prepared by the sellers and buyers or imposed by the state) to reduce information asymmetry and provide buyers with guarantees against exploitation by sellers of their advantage in information.
Appendices
Appendix 1: Instructions and Score Sheet:
. Doc or . pdf
Appendix 2: Illustration of the results of the experiment. Doc or . pdf
Tuesday 
remember when starting the project to modernize the site, the desire was to recover rainwater falling on an acre of roof. 
The photovoltaic panels will be of two kinds of membranes amorphous rock dust (picture above) on the greater part of the roof and polycrystalline panels on the roof park that buyers of 1100 m² is completely new (technical explanation will be given in the next few posts on this blog). 
Explanations to the park buyers 
