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The revenue‐equivalence theorm for auctions predicts that expected seller revenue is independent of the bidding rules, as long as equilibrium has the properties that the buyer with the highest reservation price wins and any buyer with the lowest possible reservation price has zero expected surplus. Thus, in particular, the two most common auction institutions—the open ‘English’ and the sealed high‐bid auction—are equivalent despite their rather different strategic properties.

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The theory of market signaling and screening is a cornerstone of the new economics of information. The last two and a half decades have not only witnessed a series of remarkable theoretical developments but also a wide range of applications. This essay examines the key theoretical issues and explores their use in three major fields: industrial organization, labor, and finance. Considerable emphasis is placed on attempts to test the theory in each of these fields.

Economists have always recognised that human endeavours are constrained by our limited and uncertain knowledge, but only recently has an accepted theory of uncertainty and information evolved. This theory has turned out to have surprisingly practical applications: for example in analysing stock market returns, in evaluating accident prevention measures, and in assessing patent and copyright laws. This book presents these intellectual advances in readable form for the first time. It unifies many important but partial results into a satisfying single picture, making it clear how the economics of uncertainty and information generalises and extends standard economic analysis. Part One of the volume covers the economics of uncertainty: how each person adapts to a given fixed state of knowledge by making an optimal choice among the immediate 'terminal' actions available. These choices in turn determine the overall market equilibrium reflecting the social distribution of risk bearing. In Part Two, covering the economics of information, the state of knowledge is no longer held fixed. Instead, individuals can to a greater or lesser extent overcome their ignorance by 'informational' actions. The text also addresses at appropriate points many specific topics such as insurance, the Capital Asset Pricing model, auctions, deterrence of entry, and research and invention.

A rent or transfer is politically contestable when policy decisions are subject to influence by potential beneficiaries and losers. This paper studies contestablility of rents and transfers when contenders place different valuations on the politically allocated prize. Asymmetric valuation inhibits participation by low-valuation contenders. The model explains the phenomena of small numbers of active participants in contests to exercise political influence and low lobbying and other influence-seeking outlays relative to the value of politically allocated prizes. INTRODUCTIONMARKET MECHANISMS allocate resources and, via relative scarcity and associated factor claims, determine individuals' incomes. Political mechanisms likewise give rise to allocative outcomes which affect incomes. In particular, a substantial and historically increasing pan of the activity of government has involved the transfer of income from one group in society to another.' Government policies can also be the source of rents, secured for example by the industry-specific factors who are the beneficiaries of protection, or by the residual claimants in firms which are the beneficiaries of protectionist policies and of regulation.2 The income transfers and the rents which result from policy decisions are often contestable via influence over political allocation mechanisms rather than preassigned to designated beneficiaries. The cost of interventionist policies then includes, in addition to whatever associated allocative inefficiency, the resources used in seeking to influence political allocation.Measurement of the standard allocative inefficiency costs of intervention can proceed in a well-known manner by appropriate evaluation of the Harberger triangle^.^ The informational requirements for computing the triangles are stringent, but not overly so given the requirements of applied economic research. One needs to know market demand and supply elasticities (preferably compensated), and the values of market transactions.Measurement of the additional value of resources used in contesting politically allocated transfers and rents tends to be hindered by lack of direct observations on values of outlays and prize^.^ * The comments and suggestions of John McMillan, Steve Salop, Gordon Tullock and especially Joel Sobel are gratefully acknowledged.

A rent or transfer is politically contestable when policy decisions are subject to influence by potential beneficiaries and losers. This paper studies contestablility of rents and transfers when contenders place different valuations on the politically allocated prize. Asymmetric valuation inhibits participation by low-valuation contenders. The model explains the phenomena of small numbers of active participants in contests to exercise political influence and low lobbying and other influence-seeking outlays relative to the value of politically allocated prizes. Copyright 1989 Blackwell Publishers Ltd..