tag:blogger.com,1999:blog-22520670.post116457644939101068..comments2023-10-28T15:22:27.765+02:00Comments on kaFE depok: A Question on Perfect InformationBerlyhttp://www.blogger.com/profile/11277891530068241376noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-22520670.post-1164663879951436722006-11-27T22:44:00.000+01:002006-11-27T22:44:00.000+01:00In the first-best world, there is no thieves. So p...In the first-best world, there is no thieves. So perfect information (and no lock) would increase everybody’s welfare. We still observe near perfect world with very (very) few crimes in the traditional society with little contact in the outside world or developed places like Singapore or Geneva.<BR/><BR/>But most of the cities in the world are the intermediate case between the extremes so we must search for the second best solution. The situation resemble an arms race where the police and lock maker trying to create the unbreakable (except with the rightful key) lock, while the thief and lock picker trying to crack it.<BR/><BR/><A HREF="http://www.jstor.org/view/00206598/di008311/00p0033t/0" REL="nofollow">Brito (1972)</A> is a seminar paper on Economics of Arms control that employed dynamic analysis and game theory. He found that with not too struck conditions, there is an optimal level of armament but mutual total disarmaments is unstable. So assuming an increasing cost to build more complex lock and increasing difficulty to crack it with stable value of goods inside, there is an optimal level of lock complexity and informational distribution.<BR/><BR/>If we use Spencer’s signalling model then a very complex lock is a signal for expensive items inside (thus, high expected benefit from cracking it). So the thief should look only for the lock whose complexity sufficiently high to cover his cost of learning to crack it. The lock owner would expect the thief to do so and put the expensive items in cheap lock. We can continue with the iterations but the owner can also introduce some uncertainty and randomize the lock choice.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22520670.post-1164653311964419752006-11-27T19:48:00.000+01:002006-11-27T19:48:00.000+01:00it is because of imperfect information, the possib...it is because of imperfect information, the possibility of moral hazard would be higher. let's interpret the story in different way. suppose that those who open lock business in the internet are good guys. they intend to help people in the case that they lock themselves in car, house etc. those traders also assume that those who buy their stuffs will use it in a positive way.<BR/>but this is not the end of the story, in fact imperfect information do exist. above story shows that since trading occured in the internet, the traders dont know how the buyer is going to use the tools. at the same time, the buyers also dont know who the traders are. they might be groups of terrorist or freaks (who knows anyway). <BR/>i believe on imperfect information and if perfect information do exist it must prevent any harmful behavior. those traders who know that the tools are going to be used for crime, they could stop the transaction. the same with the costumers could stop raising money for the terrorist by not buying things.pelantjong majahttps://www.blogger.com/profile/11642048725998958925noreply@blogger.com