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A model of asymmetric information and driving schools

Faragó, Balázs LU (2024) NEKN01 20241
Department of Economics
Abstract
This thesis investigates informational asymmetry in an expert market
through developing a base and an extended theoretical model. The example in focus
is the case of driving schools. The asymmetry in information is of the nature that
the seller knows more about how many lessons (quantity of the good) the buyer
needs. A key point of interest is also the repeated nature of the buyer and seller’s
interaction in these markets and the communication which happens from seller to
buyer as well as the driving tests which allow for learning of the buyer’s type and
punishment of the seller for lying. In the extended model, exogenous reputation cost
is also added. I find that without repeated interaction there is no incentive to lie,
but with... (More)
This thesis investigates informational asymmetry in an expert market
through developing a base and an extended theoretical model. The example in focus
is the case of driving schools. The asymmetry in information is of the nature that
the seller knows more about how many lessons (quantity of the good) the buyer
needs. A key point of interest is also the repeated nature of the buyer and seller’s
interaction in these markets and the communication which happens from seller to
buyer as well as the driving tests which allow for learning of the buyer’s type and
punishment of the seller for lying. In the extended model, exogenous reputation cost
is also added. I find that without repeated interaction there is no incentive to lie,
but with repeated interaction and the reputation cost, the seller mixes between lying
and telling the truth conditional on the buyer’s type, where type indicates how many
lessons the buyer needs to pass a driving test. Subsequently, buyers that may need
less lessons to pass a driving test are induced by the seller to take on unnecessary
lessons, while they also compensate by taking tests early (when they should) with
some positive probability, and thereby punishing the seller via reputation costs for
lying. (Less)
Please use this url to cite or link to this publication:
author
Faragó, Balázs LU
supervisor
organization
course
NEKN01 20241
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Information Economics, Experts, Asymmetric Information, Game Theory
language
English
id
9155920
date added to LUP
2024-10-01 13:05:39
date last changed
2024-10-01 13:05:39
@misc{9155920,
  abstract     = {{This thesis investigates informational asymmetry in an expert market
through developing a base and an extended theoretical model. The example in focus
is the case of driving schools. The asymmetry in information is of the nature that
the seller knows more about how many lessons (quantity of the good) the buyer
needs. A key point of interest is also the repeated nature of the buyer and seller’s
interaction in these markets and the communication which happens from seller to
buyer as well as the driving tests which allow for learning of the buyer’s type and
punishment of the seller for lying. In the extended model, exogenous reputation cost
is also added. I find that without repeated interaction there is no incentive to lie,
but with repeated interaction and the reputation cost, the seller mixes between lying
and telling the truth conditional on the buyer’s type, where type indicates how many
lessons the buyer needs to pass a driving test. Subsequently, buyers that may need
less lessons to pass a driving test are induced by the seller to take on unnecessary
lessons, while they also compensate by taking tests early (when they should) with
some positive probability, and thereby punishing the seller via reputation costs for
lying.}},
  author       = {{Faragó, Balázs}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{A model of asymmetric information and driving schools}},
  year         = {{2024}},
}