Information asymmetry

There is a long-standing habit in the health economics literature of supporting the need to regulate health care services in market failures such as information asymmetries, complexity and uncertainty, indivisibilities and externalities. These imperfections are also present in the market of a resource that is very important in the health service production process pharmaceutical products. However, the pharmaceutical market also presents certain specific characteristics that are of particular importance and have been used as arguments in favour of the need to adopt public policies of price intervention and regulation. 

The information requirements to establish justified costs in certain items such as R D and advertising and promotion are numerous, as a result of which the administrative costs of the regulation system can be high, given the existence of information asymmetry between regulator and regulated. 

The first of these situations consists of what is known as market failures in other words, cases in which the market does not give an efficient response public goods, externalities, information asymmetry and so on. In these cases, there is widespread consensus in the discipline that public intervention is necessary to reach an efficient solution. However, this does not mean that just any sort of intervention is justified, as there may be problems or failures in the public regulation, causing the result to be worse than if there had been no intervention. As the saying goes, in terms that are curiously relevant to the matter in hand, sometimes the remedy is worse than the disease. 

This information asymmetry poses a powerful challenge to sponsors. The problem is particularly severe for end-to-end proposals, which, as previously noted, are automatically limited to pull incentives like prizes or Advanced Purchase Commitments. These incentives share the generic weakness that sponsors must decide how large a reward to offer. If sponsors offer a reward that is lower than expected costs, no R D occurs. But if sponsors offer a reward that is higher than expected costs, they will pay too much for any desired level of R D. Sponsors could avoid both dangers if end-to-end systems were compatible with contract R D, which lets sponsors set rewards based on sealed bids and other forms of competition that encourage researchers to reveal their true costs. Commercial pharmaceutical companies routinely use contract R D to contain preclinical and human testing costs. 

First, let us recall the shortcomings of the sales concept in face of information asymmetries. As stated in section 2, the traditional selling of chemicals, firstly, does not prevent over-consumption. In a competitive market it is rather the aim of the sales concept to sell as much commodities as possible to increase the profits of the sellers. A sales contract consequently provides no incentives to reduce such adverse effects of chemicals on human health and the environment that are related to the quantity of chemicals in use. Secondly, the sales concept provides no incentives for transferring accurate knowledge on the efficient application of the chemical, as this lowers the profits of the sellers. In contrast, Chemical Leasing business models are capable to effectively deal with problems of information asymmetries. Based on the findings of Ohl and Moser (2007), both models introduced above (A and B) show comparative advantages as follows ... 

All in all, both models are able to reduce the over-consumption of chemicals due to information asymmetries between producers and users. If producers of chemical substances have advanced knowledge on the efficient application, disposal and recycling of produced chemicals the dissemination of this knowledge is neither required by REACH nor supported by the traditional sales concept. This poses additional risk to human health and the environment. These risks can be avoided by the introduction of Chemical Leasing business models, an innovative approach that delivers incentives for efficient application, disposal and recycling of chemicals. 

Surplus application costs - due to probably higher chemical consumption because of information asymmetries regarding the proper application of the chemical ... 

There are information asymmetries in certain industries regarding whether the supplier or the customer has a competitive advantage by using models. These information asymmetries will be reflected in the shared spaces, and models will become the media for collaboration. They will become the bridges and the glue between disparate organizations. 

Wholesale Price and Catalog Auctions under Information Asymmetry... 

Workers compensation insurance is the most important public policy influence on workplace safety in the United States. Here we have examined more deeply the quantitative properties of the WC program, specifically the imperfect verification of injuries as work related or their severity. Our numerical simulations provide quantitative insights into an issue currently at the forefront of theoretical microeconomics — information asymmetries (Hirschleifer and Riley, 1992). The practical implication of information asymmetry in the case of workers compensation insurance is that increases in benefit generosity can paint a puzzling picture of labor market outcomes because the number of workers applying for and receiving WC benefits can rise while actual workplace injuries fall. Data on injuries reported under workers compensation can produce a wrong conclusion of the effects of WC on workplace safety. 

Research suggests that incentives to file an accident claim produce serious wrong impressions of how workers compensation insurance influences industrial safety. Insurance providers cannot determine exactly the severity of an injury or whether the injury was work-related. Because of the information asymmetry between workers and insurers some workers who have legitimate WC claims will be denied benefits, and some workers who have nonimpairing injuries or injuries unrelated to work will receive workers compensation benefits. Higher WC benefits give an incentive for workers with spurious claims to report injuries and to file for workers compensation benefits. ... 

Note that the above insights are derived entirely from marginal cost analysis under complete information, and no consideration are given concerning information asymmetry. This is the subject of discussion in the remainder of the chapter. 

Step 2. The intermediary is subject to the same information asymmetry as the players. Based on the players reports, and the probability distributions G and F characterizing the asymmetric information, the intermediary constructs a virtual willingness to pay the buyer a virtual op-... 

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