The Good, the Bad and the Complex: Product Design with Imperfect Information

56 Pages Posted: 25 Feb 2021

See all articles by Vladimir Asriyan

Vladimir Asriyan

CREI; Barcelona GSE; Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR)

Dana Foarta

Stanford Graduate School of Business

Victoria Vanasco

CREi ; Barcelona GSE; CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2020

Abstract

We study the joint determination of product quality and complexity in a rational setting. We introduce a novel notion of complexity, which affects how costly it is for an agent to acquire information about product quality. In our model, an agent can accept or reject a product proposed by a designer, who can affect the quality and the complexity of the product. Examples include banks that design financial products that they offer to retail investors, or policymakers who propose policies for approval by voters. We find that complexity is not necessarily a feature of low quality products. While an increase in alignment between the agent and the designer leads to more complex but better quality products, higher product demand or lower competition among designers leads to more complex and lower quality products. Our findings produce novel empirical implications on the relationship between quality and complexity, which we relate to evidence within the context of financial products and regulatory policies.

Keywords: complexity, information acquisition, signaling, regulation, financial products

JEL Classification: D82, D83, G18, P16, D78

Suggested Citation

Asriyan, Vladimir and Foarta, Dana and Vanasco, Victoria, The Good, the Bad and the Complex: Product Design with Imperfect Information (September 8, 2020). BAFFI CAREFIN Centre Research Paper No. 2021-155, Available at SSRN: https://ssrn.com/abstract=3792031 or http://dx.doi.org/10.2139/ssrn.3792031

Vladimir Asriyan

CREI ( email )

Ramon Trias Fargas, 25-27
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Spain

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Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
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HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=510

Universitat Pompeu Fabra ( email )

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Barcelona, E-08005
Spain

HOME PAGE: http://www.econ.upf.edu/en/people/onefaculty.php?id=p7040

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Dana Foarta (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Victoria Vanasco

CREi ( email )

RAMON TRIAS FARGAS 25-27
Barcelona, 08005
Spain
+34935422598 (Phone)

HOME PAGE: http://https://sites.google.com/site/vicovanasco

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

CEPR ( email )

London
United Kingdom

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