These three elegant essays develop principles central to the
understanding of the diverse ways in which imperfect information
affects the distribution of resources, incentives, and the
evaluation of economic policy. The first concerns the special role
that information plays in the allocation process when it is
possible to improve accuracy through private investment. The common
practice of hiring "experts" whose information is presumably much
better than their clients' is analyzed. Issues of cooperative
behavior when potential group members possess diverse pieces of
information are addressed. Emphasis is placed on the adaptation of
the "core" concept from game theory to the resource allocation
model with differential information. The second essay deals with
the extent to which agents can influence the random events they
face. This is known as moral hazard, and in its presence there is a
potential inefficiency in the economic system. Two special models
are studied: the role of moral hazard in a monetary economy, and
the role of an outside adjudicatory agency that has the power to
enforce fines and compensation. The final essay discusses the
problem of certainty equivalence in economic policy. Conditions
under which a full stochastic optimization can be calculated by
solving a related, much simpler "certainty equivalence" problem are
developed. The reduction in the complexity of calculation involved
is very great compared with the potential loss of efficiency.
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