Nobel Prize in Economics and Waste Paper Market

On October 10, 2001, the Nobel Committee announced the award of the 2001 Economics Prize to three American economists: George Akerlof of the Department of Economics at the University of California, Berkeley, and Michael from the Stanford University Business School. Miechael Spence and Joseph Stiglitz of the Department of Economics at Columbia University commended them for their fundamental contribution to modern information economics.

Specifically, the trio’s contribution is to put forward the theory of market operation when the buyer and the seller have asymmetric information. The application of this theory is very extensive, covering both the traditional agricultural market and the modern financial market.

The information asymmetry possessed by buyers and sellers in the market is a common phenomenon in life. For example, a person who sells an old car knows the quality of the car better than the person who bought the car. The manager of the listed company knows the actual performance of the company more than the ordinary investor. Their study found that the asymmetry of this information will have a great impact on the market's operation, and many unobserved phenomena that people usually observe can be explained by asymmetric information.

First of all, the traditional theory of economics believes that the “invisible hand” of the market makes the supply equal to demand through price adjustment, which can usually achieve efficient resource allocation. However, the study of the three winners found that when information between buyers and sellers is asymmetric, it is sometimes impossible to achieve efficient resource allocation through price adjustment alone.

Second, their research further found that under such circumstances, buyers and sellers will make adjustments in various economic decisions to increase market efficiency and benefit both parties. However, these adjustments are costly. A paper published by Akerlof in 1970 entitled "Defective Market" is now recognized as the most important seminal paper in the information economics literature. Akerlof's thesis expressed a general and profound idea by analyzing a simple model. In the old car market, the seller often knows the quality of the car more clearly than the buyer. If the buyer can not check the quality of the used car through other methods, then the market will run into problems. Imagine there are two kinds of cars: good cars and second cars. The seller knows its quality, and the buyer only knows that there is a certain percentage of good cars and sub cars in the market. A good car owner is only willing to trade at a higher price, while the owner of the car is willing to sell at a lower price. The buyer knows that there is a certain probability that the second car will be purchased, so the price will be discounted. If the probability of the next car on the market is large enough, this probability is large enough, so that a good car owner is no longer willing to put a good car into the market. As a result, only the second vehicle left on the market.

This simple model reveals two layers of truth. First, in the case of asymmetric information, the market's operation may be inefficient, because in the above model, there are buyers willing to pay high prices to buy a good car, but the market's "invisible hand" does not make a good car from The seller’s hand was transferred to the buyer’s hands. According to traditional economic theory, supply and demand under market regulation can always meet the wishes of both buyers and sellers at a level of pricing. Second, this "market failure" has the characteristic of "unfavorable choice" or "adverse selection", that is, there are only inferior products on the market. This is what people often say "bad money drives out good money." The root of this result is information asymmetry. This result is very important, because according to our usual thinking, the market's competition mechanism should lead to the opposite result, that is, "good money drives out bad money." It can be seen that the introduction of information asymmetry will profoundly change our perspective of analyzing problems and change many common-sense conclusions.

As information asymmetry prevails in the market, Akerlof's above analysis has universal significance. Although he told the story of the old car market, but it can also be replaced by tobacco and alcohol markets, but also can explain why counterfeit goods will flood the market. Similarly, in the waste paper market, there is information asymmetry. When the seller quotes, the buyer does not know the exact quality of the waste paper provided by the seller. Most buyers choose the lowest price according to the price level. This is often the case. It is the basis of the transaction, so it is not difficult to understand why there are frequent quality problems and the resulting claims continue.

Spence's contribution is mainly based on his doctoral thesis completed at Harvard University in 1972. His innovation is to study that in the case of information asymmetry, the party with information will take some action to overcome the confusion caused by information asymmetry. When looking for a job, candidates are often more aware of their abilities than their employers. Imagine that there are two candidates on the market, the high-energy and the low-energy, and it is assumed that the level of ability is inborn and has nothing to do with the acquired education. For the problem of asymmetric information, a stronger motivation with a higher ability than a low ability conveys information about one's ability to the employer, and this information is valuable to the employer. However, the problem is that people with low abilities can also claim to belong to high-energy groups. Therefore, the actions taken by high-energy groups to convey information must be difficult for low-energy people to imitate.

Spence's model studies the degree of investment in education as a credible tool for the transmission of information. In his model, education itself does not improve a person's ability. He merely "instructs himself" to employers that he is a highly capable person. Spence has established a condition under which low-capacity people do The same degree of investment in education to show that they are highly capable people is a condition where investing in the same degree of education has a higher marginal cost for people with low capacity. For example, people with low skills learn more harder than those with higher skills. Spence proved that in this case, despite the information asymmetry, applicants with market information in the transaction can indicate their ability (such as education certificate) through education investment, and the employer can use this signal to indicate. Differentiate people with different abilities. According to this theory, we can understand why some people are willing to spend heavily on prestigious universities or to pursue higher degrees. Their costs far exceed the increase in productivity brought about by education. The reason is that prestigious universities or high degree are all candidates to employers. The signals sent indicate that they are smart and hard-working. Obviously, this kind of schematic approach can help to overcome the confusion caused by information asymmetry, but this method is costly, and the cost here is "excessive educational investment." Spence's analytical framework has been applied to many fields in the future. It also applies to Spence's analytical framework in our current import waste paper market transactions, in order to show that the supplier provides waste. The paper is in line with the standards. The relevant government departments require suppliers to provide quality certificates issued by the inspection agencies that are dispatched to China by the suppliers. From a large number of facts, it can be seen that the inspection certificates issued by inspection agencies do not represent the quality of waste paper. The truth of the situation is the same as if the academic qualification does not represent ability. Therefore, it is not difficult to understand why there is still a quality accident and claims for waste paper that have been proved by the inspection, and similarly, there is a cost to produce the proof. The cost here is "excessive inspection input."

Stiglitz studied the information asymmetry in the market, the party who does not have information how to adjust the form of the contract in order to "screen" the party with information, he found in research using information asymmetry and people make this The adjustment of the contract form can help to understand many market phenomena that have not been explained for a long time.

His research began with the insurance market and agricultural land lease. In the insurance market, insurance companies are not aware of the risk profile of the policyholders. In this case, the insurance company provides a series of insurance contracts (ie, different insurance rates and deductibles. The combination) allows policyholders to choose, so as to achieve the purpose of differentiating different risk categories of policyholders.

In our waste paper market, the format of the contract between supply and demand in the current transaction is generally relatively simple, some adopt the unified format of the import and export agency company, and use the finished product contract to trade waste paper, especially for quality. Most of the specific descriptions use foreign reference standards, and these standards are generally only described in general terms. Make both supply and demand sides in the information asymmetry state in the transaction. If the composition of waste paper is explicitly stated in the contract, for example, how much office paper is used in mixed waste paper, how much cardboard is used, and how much other paper is used. If the ratio is inconsistent with the contract, how should the supplier be compensated, and the acquirer should provide evidence as a basis for the claim in case of inconsistency with the contract, so that the acquirer can achieve the purpose of differentiating different risk categories in the event of asymmetric information. In actual operation, some buyers pay great attention to the specific description of quality, for example, in the contract for 37# paper (selected office waste paper), the proportion of white paper, the proportion of shredded waste paper, The details of the composition of shredded waste papers were discussed and stipulated, so that the contract execution process was relatively smooth.

The waste paper market in our country has achieved considerable development over the years. After joining the WTO, we have adopted advanced international management methods while drawing on internationally advanced and successful economic theory achievements. We believe that we will surely have an impact on our economic development. Helped.