Information Economics

Information economics can be best described as a shift in the traditional neoclassical assumption of perfect information. Neoclassical economics assumes that all actors have access to perfect information and are rational in their behavior. Over the years, as scholars have realized that the assumptions of neoclassical economics are not an accurate reflection of the real world, other research streams have developed that relax these assumptions. Information economics is one such stream, arguing that actors or parties have differential access to information, which raises the concern of adverse selection and moral hazard when the actors or parties participate in a transaction. Adverse selection occurs when one party has more information about the product or service than the other party and it leads to a less profitable or riskier transaction for the uninformed party. Alternatively, moral hazard occurs after the transaction, where one party has an incentive to engage in risky behavior when the other party bears the cost of failure. Information economics offers insights to both these concerns and offers solutions in the form of signaling and protection mechanisms. Signaling theory, a component of information economics, addresses how one party can credibly convey information to its potential exchange partners to facilitate transactions. The concepts of information asymmetry and signaling have been widely used in economics and business research to understand concepts ranging from game theoretic models of investments to principal–agent relationships to adverse selection problems in transactions. Information economics offers strong foundations for research within management as it helps understand several phenomena related to organizational transactions. For instance, corporate strategy scholars have utilized the predictions stemming from information economics in acquisition research to study target search, selection, signaling behavior, acquisition contracting, premiums, and governance. Information economics also has broad potential to affect firms’ organizational governance and entry mode choices. The following paragraphs will discuss how this theory has been developed and provide a few applications of information economics in strategy and management research.

Why Bitcoin Will Fail to Scale?

Bitcoin falls dramatically short of the scale provided by banks for payments. Currently, its ledger grows by the addition of blocks of ∼2,000 transactions every 10 minutes. Intuitively, one would expect that increasing the block capacity would solve this scaling problem. However, we show that increasing the block capacity would be futile. We analyze strategic interactions of miners, who are heterogeneous in their power over block addition, and users, who are heterogeneous in the value of their transactions, using a game-theoretic model. We show that a capacity increase can facilitate large miners to tacitly collude—artificially reversing back the capacity via strategically adding partially filled blocks in order to extract economic rents. This strategic partial filling crowds out low-value payments. Collusion is sustained if the smallest colluding miner has a share of block addition power above a lower bound. We provide empirical evidence of such strategic partial filling of blocks by large miners of Bitcoin. We show that a protocol design intervention can breach the lower bound and eliminate collusion. However, this also makes the system less secure. On the one hand, collusion crowds out low-value payments; on the other hand, if collusion is suppressed, security threatens high-value payments. As a result, it is untenable to include a range of payments with vastly different outside options, willingness to bear security risk, and delay onto a single chain. Thus, we show economic limits to the scalability of Bitcoin. Under these economic limits, collusive rent extraction acts as an effective mechanism to invest in platform security and build responsiveness to demand shocks. These traits are otherwise hard to attain in a disintermediated setting owing to the high cost of consensus. This paper was accepted by Kartik Hosanagar, information systems.

Coordination mechanisms for digital and sustainable textile supply chain

PurposeSupply chain network is complicated to manage due to the involvement of a number of agents. Formation of virtual organization using Industry 4.0 (I4.0) is an approach to improve the efficiency and effectiveness and to overcome the complexities of the channel. However, the task of managing the channel further becomes complicated after incorporating sustainability into the supply chain. To fill this gap, this paper focuses on designing of mechanism and demonstration of I4.0-based virtual organization to coordinate sustainable supply chain.Design/methodology/approachIn this paper, we model and compare I4.0-based virtual organization models using four other traditional contracts with centralized supply chain. The non-cooperative game theoretic approach has been used for the analysis of models.FindingsOur game-theoretic analysis shows that investment in I4.0 and sustainable innovation are beneficial for the overall supply chain. Our results show that linear two-part tariff contract and I4.0-based virtual organization model can perfectly coordinated with the supply chain.Research limitations/implicationsThis study consider deterministic model settings with full information game. Therefore researchers are encouraged to study I4.0-based coordination models under information asymmetry and uncertain situations.Practical implicationsThe paper includes implications for the development of I4.0-based coordination model to tackle the problems of channel coordination.Originality/valueThis study proposes I4.0-based game-theoretic model for the sustainable supply chain coordination.

Influence of committed volunteers on helping behavior in emergency evacuations

We study how the presence of committed volunteers influences the collective helping behavior in emergency evacuation scenarios. In this study, committed volunteers do not change their decision to help injured persons, implying that other evacuees may adapt their helping behavior through strategic interactions. An evolutionary game theoretic model is developed which is then coupled to a pedestrian movement model to examine the collective helping behavior in evacuations. By systematically controlling the number of committed volunteers and payoff parameters, we have characterized and summarized various collective helping behaviors in phase diagrams. From our numerical simulations, we observe that the existence of committed volunteers can promote cooperation but adding additional committed volunteers is effective only above a minimum number of committed volunteers. This study also highlights that the evolution of collective helping behavior is strongly affected by the evacuation process.

The evolution of partner specificity in mutualisms

Mutualistic species vary in their level of partner specificity, which has important evolutionary, ecological, and management implications. Yet, the evolutionary mechanisms which underpin partner specificity are not fully understood. Most work on specialization focuses on the trade-off between generalism and specialism, where specialists receive more benefits from preferred partners at the expense of benefits from non-preferred partners, while generalists receive similar benefits from all partners. Because all mutualisms involve some degree of both cooperation and conflict between partners, we highlight that specialization to a mutualistic partner can be cooperative, increasing benefit to a focal species and a partner, or antagonistic, increasing resource extraction by a focal species from a partner. We devise an evolutionary game theoretic model to assess the evolutionary dynamics of cooperative specialization, antagonistic specialization, and generalism. Our model shows that cooperative specialization leads to bistability: stable equilibria with a specialist host and its preferred partner excluding all others. We also show that under cooperative specialization with spatial effects, generalists can thrive at the boundaries between differing specialist patches. Under antagonistic specialization, generalism is evolutionarily stable. We provide predictions for how a cooperation-antagonism continuum may determine the patterns of partner specificity that develop within mutualistic relationships.

WHY AND WHEN SOME PEOPLE WOULD THINK A GIRL IS MORE LIKELY TO CHEAT: A GAME-THEORETIC APPROACH

The question, “Who is more likely to cheat in a relationship?” has been discussed a lot recently. This short exercise intends to explain that in a world where people subscribe to certain “Beliefs” and under a certain condition called the “No Love Condition”, a situation can be found such that, in a relationship, the girl is more likely to cheat than the boy. The question of “Why?” is answered by the Beliefs and the No Love Condition. The question of “When?” is answered by the situation to be found.