Health plans for the poor increasingly limit access to specialty hospitals. We investigate the role of adverse selection in generating this equilibrium among private plans in Medicaid. Studying a ...network change, we find that covering a top cancer hospital causes severe adverse selection, increasing demand for a plan by 50% among enrollees with cancer versus no impact for others. Medicaid’s fixed insurer payments make offsetting this selection, and the contract distortions it induces, challenging, requiring either infeasibly high payment rates or near-perfect risk adjustment. By contrast, a small explicit bonus for covering the hospital is sufficient to make coverage profitable.
•There are significant concerns about access to specialty care in Medicaid.•We find that adverse selection hinders Medicaid coverage of a top cancer hospital.•Selection disincentives persist despite 100% premium subsidies (all plans are free).•Offsetting these incentives within Medicaid’s plan payment structure is challenging.•A small, explicit plan bonus is sufficient to incentivize cancer hospital coverage.
•Study the manufacturer’s optimal incentive provision for retailer’s costly information acquisition.•Solve endogenous adverse selection model in a dual-channel supply chain.•Derive the optimal ...contracts inducing acquisition and non-acquisition.•Examine the impact of retailer’s information acquisition cost on firms’ profitability.
This paper studies an endogenous adverse selection model in a dual-channel supply chain setting, in which the manufacturer can offer a menu of contracts to induce the retailer to costly acquire private demand information. We derive the manufacturer’s optimal incentive provision decision and show that although the increase of acquisition cost results in higher distortion effect on the retailer’s selling quantity, such a distortion effect can be alleviated in a dual-channel setting. The manufacturer’s incentive provision exhibits a threshold policy. When demand variation is high and information acquisition cost is low, acquiring demand information does not necessarily benefit the retailer.
This study examines the capital-market effects of tipper-tippee insider trading laws. To do so, I exploit the unexpected decision issued by the Court of Appeals for the Second Circuit in U.S. v. ...Newman 773 F.3d 438, which reduced legal jeopardy for Second Circuit-based market participants prior to being overturned. Consistent with Newman constraining insider trading enforcement, I find strong evidence of plausible insider trading in the Second Circuit following the ruling. I also document a substantial reduction in general trading activity in Second Circuit stocks, as well as an increase in daily quoted spreads and the price impact of trading. These findings are consistent with unchecked insider trading increasing transaction costs and crowding-out investors. In total, my results show that tipper-tippee insider trading restrictions play an important role in bolstering market integrity, and that market participants can to some degree counteract insider trading when public regulation is constrained.
Marketplace Lending Vallée, Boris; Zeng, Yao
The Review of financial studies,
05/2019, Volume:
32, Issue:
5
Journal Article
Peer reviewed
Marketplace lending relies on screening and information production by investors, a major deviation from the traditional banking paradigm. Theoretically, the participation of sophisticated investors ...improves screening outcomes and also creates adverse selection among investors. In maximizing loan volume, the platform trades off these two forces. As the platform develops, it optimally increases platform prescreening intensity but decreases information provision to investors. Using novel investor-level data, we find that sophisticated investors systematically outperform, and this outperformance shrinks when the platform reduces information provision to investors. Our findings shed light on the optimal distribution of information production in this new lending model.
Carbon offsets are widely used by individuals, corporations, and governments to mitigate their greenhouse gas emissions on the assumption that offsets reflect equivalent climate benefits achieved ...elsewhere. These climate‐equivalence claims depend on offsets providing real and additional climate benefits beyond what would have happened, counterfactually, without the offsets project. Here, we evaluate the design of California's prominent forest carbon offsets program and demonstrate that its climate‐equivalence claims fall far short on the basis of directly observable evidence. By design, California's program awards large volumes of offset credits to forest projects with carbon stocks that exceed regional averages. This paradigm allows for adverse selection, which could occur if project developers preferentially select forests that are ecologically distinct from unrepresentative regional averages. By digitizing and analyzing comprehensive offset project records alongside detailed forest inventory data, we provide direct evidence that comparing projects against coarse regional carbon averages has led to systematic over‐crediting of 30.0 million tCO2e (90% CI: 20.5–38.6 million tCO2e) or 29.4% of the credits we analyzed (90% CI: 20.1%–37.8%). These excess credits are worth an estimated $410 million (90% CI: $280–$528 million) at recent market prices. Rather than improve forest management to store additional carbon, California's forest offsets program creates incentives to generate offset credits that do not reflect real climate benefits.
Forest carbon offsets are increasingly prominent in corporate and government “net zero” emission strategies, but face growing criticism about their efficacy. California's forest offsets program is frequently promoted as a high‐quality approach that improves on the failures of earlier efforts. Our analysis demonstrates, however, that substantial ecological and statistical shortcomings in the design of California's forest offset protocol generate offset credits that do not reflect real climate benefits.
In the producer–seller relationship, the seller, besides his role of selling, is often in an ideal position to gather useful market information for the producer’s operations planning. Incentive ...alignment is critical to motivate both information-acquisition and sales efforts. Two popular contract forms are investigated. One is the forecast-based contract (FC) that requires the seller to submit a demand forecast: the seller obtains commissions from the realized sales but is also obliged to pay a penalty for any deviation of the sales from the forecast. The other is the classical menu of linear contracts (MLC), from which the seller can choose a contract that specifies a unique commission rate and a fixed payment. The conventional understanding suggests that the MLC is superior, but it is often assumed that information is exogenously endowed. In contrast, we find that, with an endogenous information-acquisition effort, the MLC may suffer from a conflicted moral hazard effect that creates friction between motivations for the two efforts. The FC can, however, decouple these two tasks and thus dominate the MLC. We further find that when ensuring interim participation is necessary (e.g., renegotiation cannot be prevented after information acquisition), the performance of the FC might be affected by the adverse selection effect because it is unable to effectively separate different types, at which the MLC excels. We show that when the demand and supply mismatch cost is substantial, the conflicted moral hazard effect dominates the adverse selection effect, and the FC is more efficient, and it is the converse otherwise. These findings can enrich the understanding of these two contract forms and are useful for sales and operations planning.
This paper was accepted by Yossi Aviv, operations management
.
In this article, we examine the contingent effects of signals generated by different types of networks on new ventures' formation of future strategic alliances. We argue that the signaling value of a ...given tie in reducing adverse selection is more pronounced when another type of tie is lacking. In particular, we suggest that signals associated with (i) a new venture's affiliations with venture capitalists (VCs) that have prominent positions in syndicate networks and (ii) a new venture's prominent position in alliance networks resulting from previous alliances offer redundant benefits. As a result, the positive effect of VC prominence in determining a new venture's future alliance formation diminishes as the new venture's prominence in alliance networks increases. Evidence from biotech alliances between new ventures and established companies provides support for our theory.
Equilibrium fast trading Biais, Bruno; Foucault, Thierry; Moinas, Sophie
Journal of financial economics,
05/2015, Volume:
116, Issue:
2
Journal Article
Peer reviewed
Open access
High speed market connections improve investors׳ ability to search for attractive quotes in fragmented markets, raising gains from trade. They also enable fast traders to obtain information before ...slow traders, generating adverse selection, and thus negative externalities. When investing in fast trading technologies, institutions do not internalize these externalities. Accordingly, they overinvest in equilibrium. Completely banning fast trading is dominated by offering two types of markets: one accepting fast traders, the other banning them. Utilitarian welfare is maximized with (i) a single market type on which fast and slow traders coexist and (ii) Pigovian taxes on investment in the fast trading technology.
Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists ...accumulate shares, measures of adverse selection and of stock illiquidity are lower, even though prices are positively impacted. Two channels help explain this phenomenon: (1) activists select times of higher liquidity when they trade, and (2) activists use limit orders. We conclude that, when informed traders can select when and how to trade, standard measures of adverse selection may fail to capture the presence of informed trading.
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