Book contents
- Frontmatter
- Contents
- Figures and Tables
- Preface
- GLOBALIZATION, POLITICS, AND FINANCIAL TURMOIL
- 1 Introduction
- 2 Bank Regulation in the Debate over Capital Flow Liberalization
- 3 The Signaling Argument
- 4 Incredible Signaling in Democracies: The Cases of Thailand, South Korea, and the Philippines
- 5 Unorthodox Solutions to the Signaling Problem: The Cases of Malaysia and Indonesia
- 6 Orthodox Solutions to the Signaling Problem: The Cases of Singapore and Hong Kong
- 7 Some Concluding Remarks
- Appendix I The World Bank's Evaluation of Bank Regulatory Environments
- Appendix II Verbal Description of the Equilibrium with Two Signalers
- Appendix III Formal Proof of Equilibrium with Two Signalers
- Bibliography
- Interviews by the Author
- Index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
Appendix II - Verbal Description of the Equilibrium with Two Signalers
Published online by Cambridge University Press: 24 July 2009
- Frontmatter
- Contents
- Figures and Tables
- Preface
- GLOBALIZATION, POLITICS, AND FINANCIAL TURMOIL
- 1 Introduction
- 2 Bank Regulation in the Debate over Capital Flow Liberalization
- 3 The Signaling Argument
- 4 Incredible Signaling in Democracies: The Cases of Thailand, South Korea, and the Philippines
- 5 Unorthodox Solutions to the Signaling Problem: The Cases of Malaysia and Indonesia
- 6 Orthodox Solutions to the Signaling Problem: The Cases of Singapore and Hong Kong
- 7 Some Concluding Remarks
- Appendix I The World Bank's Evaluation of Bank Regulatory Environments
- Appendix II Verbal Description of the Equilibrium with Two Signalers
- Appendix III Formal Proof of Equilibrium with Two Signalers
- Bibliography
- Interviews by the Author
- Index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
Summary
Assume, strictly for the time being, that the chief executive has a posterior belief that the signaled value of z is true only when the messages sent by both signalers agree. Assume, also strictly for the time being, that when the messages disagree he believes that z lies between ϖ − 2xs1 and ϖ + 2xs1. (At the end of this section, I demonstrate that these beliefs are consistent with the senders' strategies.)
Given the above posterior beliefs, the chief executive will find it optimal to choose k = z when the messages agree. This is the case because, given that x = k − z, k = z will yield x = 0, which is his ideal point. Both senders will prefer to signal the true value of z, if the chief executive's choice when the messages do not agree will yield a value of x further from both their ideal points than xc. Because ω is uniformly distributed, and given that when the messages disagree the chief executive believes that it lies between ϖ − 2xs1 and ϖ + 2xs1, the chief executive's choice of k when the messages disagree is ϖ. (This choice maximizes his expected utility when z lies between these values, because it minimizes the expected distance of x from his ideal point.) Given that x = k − z, the chief executive's choice of k = ϖ when the messages disagree yields outcomes that are to the left of −2xs1 when z < ϖ + 2xs1 and to the right of 2xs1 when z < ϖ − 2xs1.
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- Globalization, Politics, and Financial TurmoilAsia's Banking Crisis, pp. 137 - 138Publisher: Cambridge University PressPrint publication year: 2005