Working Paper: CEPR ID: DP15514
Authors: Patrick W. Schmitz
Abstract: The analysis of adverse selection problems in seller-buyer relationships has typically been based on the assumption that private information is uncertifiable, while in practice it may well be certifiable. If a buyer has certifiable private information, he can conceal evidence, but he cannot claim to have information for which he has no evidence, so he has fewer possibilities to misrepresent his information. Nevertheless, we find that the expected total surplus can be strictly smaller in the case of certifiable information than in the case of uncertifiable information. This finding holds when the buyer may have private information with some exogenous probability as well as in the case of opportunistic information gathering, where the buyer can privately decide whether or not to acquire information for strategic reasons.
Keywords: contracting; asymmetric information; adverse selection; screening; information gathering
JEL Codes: D86; D82; D23; C73; L24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| certifiable information (Y50) | expected total surplus (D46) |
| uncertifiable information (D89) | expected total surplus (D46) |
| seller's ability to demand evidence (E41) | exclusion of uninformed buyers (D82) |
| exclusion of uninformed buyers (D82) | expected total surplus (D46) |
| opportunistic information gathering (D82) | expected total surplus (D46) |
| buyer's decision to acquire information (D80) | expected total surplus (D46) |