speculative investor behavior and learning as traders learn about the true distribution of some asset s dividends a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred small differences in prior beliefs lead to large speculative premiums during the learning process this phenomenon helps explain a paradox concerning the pricing of initial public offerings the result casts light on the significance of the common prior assumption in economic models

games with espionage abstract we consider normal form games in which two players decide on their strategies before the start of play and player 1 can purchase noisy information about his opponent s decisions concerning future response policies i e spy on his opponent we give a full characterization of the set of distributions over the players payoffs that can be induced by such equilibria as well as describe their welfare and pareto properties in 2 2 games we find three equilibrium phenomena i when the game is non degenerate the information purchased is independent of its cost the cost determines only whether information is purchased or not ii the player who spies treats his information as if it were deterministic even though it is correct only probabilistically and iii in chain store models espionage is used if and only if the perfect equilibrium payoff differs from the stackelberg equilibrium payoff with player 2 being the stackelberg leader

employer stock and 401 k plans the sharp decline in the stock prices of several firms at which employees held a large fraction of their 401 k plan assets in company stock including enron global crossing lucent and polaroid has sparked a public policy debate about investment options in 401 k plans at many large firms particularly those with retirement saving plans that combine elements of an employee stock ownership plan esop with a traditional 401 k a substantial fraction of defined contribution retirement plan assets are held in company stock such undiversified holdings are a source of concern because they raise the volatility of the retirement wealth for employees and expose some workers to the prospect of very small retirement values holding an undiversified position in employer stock may be particularly costly because of the potential correlation between company stock returns and the value of the worker s human capital which may depend on the company s prospects this paper reviews the extent of undiversified company stock investments in 401 k plans evaluates the cost of such investments from an employee s perspective and discusses a range of policy actions that could address the excessive concentration of retirement plan assets

ambiguous volatility and asset pricing in continuous time we formulate a model of utility for a continuous time framework that captures aversion to ambiguity about both volatility and drift corresponding extensions of some basic results in asset pricing theory are presented first we derive arbitrage free pricing rules based on hedging arguments because ambiguous volatility implies market incompleteness hedging arguments determine prices only up to intervals in order to obtain sharper predictions we apply the model of utility to a representative agent endowment economy and study equilibrium asset returns a version of the consumption capital asset pricing model is derived and the effects of ambiguous volatility are described the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

globalization veto players and welfare spending this article examines the role of globalization and its interaction with domestic political institutions veto players in shaping welfare spending in 18 advanced industrial countries from 1960 to 2000 first the author evaluates how integrated world markets have influenced welfare expenditures results suggest that globalization increased welfare spending in this sample second the author studies how domestic political institutions mediate the impact of globalization on welfare spending with a new data set on veto players for the years 1960 to 2000 the author finds that as the number of and ideological distance among veto players increases the upward pressure of globalization on welfare spending is reduced the results show that globalization has pressured states to expand welfare spending but the extent to which states have responded to pressure critically depends on the number of and ideological distance among veto players whose agreement is required to change welfare policy

utilitarian aggregation of beliefs and tastes harsanyi s utilitarianism is extended here to savage s framework we formulate a pareto condition that implies that both society s utility function and its probability measure are linear combinations of those of the individuals an indiscriminate pareto condition has been shown to contradict linear aggregation of beliefs and tastes we argue that such a condition is not compelling society should not necessarily endorse a unanimous choice when it is based on contradictory beliefs our pareto condition is restricted to choices that involve identical beliefs only

the bear s lair index credit default swaps and the subprime mortgage crisis during the recent financial crisis abx he index credit default swaps cds on baskets of mortgage backed securities were a benchmark widely used by financial institutions to mark their subprime mortgage portfolios to market however we find that prices for the aaa abx he index cds during the crisis were inconsistent with any reasonable assumption for mortgage default rates and that these price changes are only weakly correlated with observed changes in the credit performance of the underlying loans in the index casting serious doubt on the suitability of these cds as valuation benchmarks we also find that the aaa abx he index cds price changes are related to short sale activity for publicly traded investment banks with significant mortgage market exposure this suggests that capital constraints limiting the supply of mortgage bond insurance may be playing a role here similar to that identified by froot 2001 in the market for catastrophe insurance the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

no betting pareto dominance we argue that the notion of pareto dominance is not as compelling in the presence of uncertainty as it is under certainty in particular voluntary trade based on differences in tastes is commonly accepted as desirable because tastes cannot be wrong by contrast voluntary trade based on incompatible beliefs may indicate that at least one agent entertains mistaken beliefs we propose and characterize a weaker no betting notion of pareto domination which requires on top of unanimity of preference the existence of shared beliefs that can rationalize such preference for each agent

endogenous timing with incomplete information and with observable delay abstract this paper analyzes endogenous timing in a duopoly model with incomplete information firms announce the period in which they will move before choosing an action and are then committed to their choices endogenous stackelberg equilibria with either the informed or the uninformed firm as the stackelberg leader may emerge for most parameters the cournot equilibrium in the first production period results endogenously journal of economic literature classification numbers c72 c73 d82 l10

ex ante and ex post welfare optimality under uncertainty it is widely believed by economic theorists that if there were no transactions costs and if all information about the economy were perfectly shared by all then arrow debreu contingent commodity markets should bring about an ideal allocation the basis for this belief seems clear we have the two efficiency theorems of welfare economics which assure us that in the absence of external effects any competitive allocation is pareto efficient and that any pareto efficient allocation is competitive provided that appropriate lump sum transfers are made of course there are some reservations that need to be made local satiation and non convexities are well known to cause problems but these are not the problems i wish to discuss here to return to the usual argument the next step involves noticing how with contingent commodity markets the efficiency theorems of welfare economics carry over to an economy with uncertainty as explained for instance in chapter 7 of debreu s theorpj of value the fundamental value judgment that gives these efficiency theorems their normative interest is what may be called consumer sovereignty it is an assumption that the social welfare ordering should respect the preferences that govern consumers market behaviour it is a serious value judgment more serious than most economists have been prepared to concede but its seriousness increases when there is uncertainty we know full well that individuals misperceive the probabilities of certain events assuming that they even perceive any probabilities at all see for example kahneman and tversky 1979 nor are we always willing to accept as appropriate the attitudes to risk of individuals who seem either extremely reckless or extremely cautious societies are often willing to make some gestures towards property owners who have not insured themselves adequately against damage from fire flood or tempest and not just because of imperfect insurance markets or even misperceptions of probabilities in addition the inequalities of income that arise when some individuals take more risks than others are not necessarily seen to be desirable particularly if an individual has undertaken a useful but risky activity and has a very low income as a result of failure such gestures are examples of contingent lump sum transfers it seems clear that if such transfers occur to a sufficient extent they could supplant completely the securities markets which are usually sufficient to bring about pareto efficiency they may even be able to go further and correct the imperfections of an arrow debreu market allocation when individuals do misperceive probabilities or else have wrong attitudes to risk this is the main question i wish to consider here the idea that consumer sovereignty should not always extend to economies with uncertainty is not new it can be found in work by diamond 1967 dr6ze

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

endogenous r d symmetry in linear duopoly with one way spillovers a duopoly model of cost reducing r d cournot competition is extended to study the endogenous timing of r d strategic investment under the assumption that r d spillovers only flow from the r d leader to the follower sequential and simultaneous play at the r d stage are compared in order to assess the role of technological externalities in stimulating or attenuating endogenous firm asymmetry the only timing structure of the r d stage sustainable as subgame perfect nash equilibrium involves simultaneous play and zero spillovers

effects of financial innovations on market volatility when beliefs are heterogeneous abstract consider a model with two logarithmic utility maximizer agents that observe aggregate consumption but disagree about its expected rate of change markets are incomplete we first show that volatility of the interest rate in an economy with additional information is higher in a complete markets economy with no additional information there are two differences in volatility with the previous the first one due to the increase in volatility of the wealth share of the individuals is always positive the second difference is the change in covariance between the components of the interest rate volatility and can be positive or negative

payoff uncertainty bargaining power and the strategic sequencing of bilateral negotiations this article investigates the sequencing choice of a buyer who negotiates with the sellers of two complementary objects with uncertain payoffs the possibility of inefficient trade may generate strict sequencing preference the buyer begins with the weaker seller if the sellers have diverse bargaining powers and with the stronger one if both sellers are strong bargainers this sequencing is likely to increase the social surplus moreover the buyer may find it optimal to raise her own acquisition cost by committing to a minimum purchase price or outsourcing the first and second mover advantages for the sellers are also identified

stackelberg versus cournot oligopoly equilibrium abstract we compare an m firm cournot model with a hierarchical stackelberg model where m firms choose outputs sequentially the stackelberg equilibrium price is lower so output and total surplus are higher total profits are lower while the first mover in a stackelberg duopoly earns more than a cournot duopolist this is not necessarily true for m 2 we find a surprisingly simple relation which determines whether cournot profit exceeds the stackelberg leader s finally we consider a game with firms choosing whether to reveal their outputs which includes stackelberg and cournot as possible outcomes the equilibrium is stackelberg

belief disagreements and collateral constraints belief disagreements have been suggested as a major contributing factor to the recent subprime mortgage crisis this paper theoretically evaluates this hypothesis i assume that optimists have limited wealth and take on leverage so as to take positions in line with their beliefs to have a significant effect on asset prices they need to borrow from traders with pessimistic beliefs using loans collateralized by the asset itself since pessimists do not value the collateral as much as optimists do they are reluctant to lend which provides an endogenous constraint on optimists ability to borrow and to influence asset prices i demonstrate that the tightness of this constraint depends on the nature of belief disagreements optimism concerning the probability of downside states has no or little effect on asset prices because these types of optimism are disciplined by this constraint instead optimism concerning the relative probability of upside states could have significant effects on asset prices this asymmetric disciplining effect is robust to allowing for short selling because pessimists that borrow the asset face a similar endogenous constraint these results emphasize that what investors disagree about matters for asset prices to a greater extent than the level of disagreements when richer contracts are available relatively complex contracts that resemble some of the recent financial innovations in the mortgage market endogenously emerge to facilitate betting

a search based theory of the on the run phenomenon we propose a model in which assets with identical cash flows can trade at different prices infinitely lived agents can establish long positions in a search spot market or short positions by first borrowing an asset in a search repo market we show that short sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed that asset enjoys greater liquidity a higher lending fee specialness and trades at a premium consistent with no arbitrage we derive closed form solutions for small frictions and provide a calibration generating realistic on the run premia

leverage cycles and the anxious economy ing opportunities for emerging economies their access to international markets has turned out to be very volatile with frequent periods of market closures even worse as we will show emerging economies with sound fundamentals are the ones that issue less debt during these closures the goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets like emerging markets that are not yet mature enough to be attractive to the general public their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy who are also marginal buyers of other risky assets we will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses

a welfare criterion for models with distorted beliefs this paper proposes a welfare criterion for economies in which agents have heterogeneously distorted beliefs instead of taking a stand on whose belief is correct our criterion asserts an allocation to be belief neutral ine cient if it is ine cient under any convex combination of agents beliefs while this criterion gives an incomplete ranking of social allocations it can identify negative sum speculation in a broad range of prominent models with distorted beliefs

the chinese warrants bubble in 2005 2008 over a dozen put warrants traded in china went so deep out of the money that they were almost certain to expire worthless nonetheless each warrant was traded more than three times each day at substantially inflated prices this bubble is unique in that the underlying stock prices make warrant fundamentals publicly observable and that warrants have predetermined finite maturities this sample allows us to examine a set of bubble theories in particular our analysis highlights the joint effects of short sales constraints and heterogeneous beliefs in driving bubbles and confirms several key findings of the experimental bubble literature jel g12 g13 o16 p34

unemployed but optimistic optimal insurance design with biased beliefs biased perceptions of risks change the perceived value of insurance and the per ceived returns to avoiding these risks i show empirically that unemployed workers overestimate how quickly they will nd work but underestimate the return to their search eorts i analyze the consequences for the optimal design of unemployment insurance with biased beliefs contracts equalizing the marginal smoothing ben e t and the moral hazard cost of insurance are suboptimal social and private insurance diverge a paternalistic social planner corrects the moral hazard cost for the distortion in the insured s eort choice while private insurers focus on the perceived rather than the true smoothing bene ts when unemployed workers are optimistic privatizing unemployment insurance may result in ine ciently low or rapidly decreasing unemployment bene ts

first versus second mover advantage with information asymmetry about the profitability of new markets is it better to move first or second to innovate or to imitate we show that if one player s information about the profitability of new markets is only modestly superior the possibility of foreclosing the market can lead to a first mover advantage on the other hand more extreme information superiority can reverse this leading to a second mover advantage knowing more surely what is the best choice the better informed player wants to delay to keep his information private and the less informed player wants to delay to learn because of this more accurate information can actually lead to inefficiency by increasing the incentive to delay and exogenous costs of delay can aid efficiency by neutralizing that strategic incentive in fact in some circumstances a player may purposely coarsen his information to deter imitation

trade with heterogeneous prior beliefs and asymmetric information no trade theorems have shown that new information will not lead to trade when agents share the same prior beliefs this paper explores the structure of no trade theorems with heterogeneous prior beliefs it is shown how different notions of efficiency under asymmetric information ex ante interim ex post are related to agents prior beliefs as well as incentive compatible and public versions of those efficiency concepts these efficiency results are used to characterize necessary and sufficient conditions on agents beliefs for no trade theorems in different trading environments

endogenous stackelberg leadership abstract we consider a linear quantity setting duopoly game and analyze which of the players will commit when both players have the possibility to do so to that end we study a two stage game in which each player can either commit to a quantity in stage 1 or wait till stage 2 we show that committing is more risky for the high cost firm and that consequently risk dominance considerations as in harsanyi and selten 1988 allow the conclusion that only the low cost firm will choose to commit hence the low cost firm will emerge as the endogenous stackelberg leader journal of economic literature classification numbers c72 d43

barometric price leadership abstract barometric price leadership refers to situations in which a price leader acts as a barometer of prevailing market conditions for other firms in the industry in this paper a model of price setting with costly information acquisition is analyzed it is shown that the unique equilibrium outcome is for one firm to acquire information and become a price leader while the other firm does not purchase information and becomes a follower in contrast to most previous work leadership in this model is due to the informational setting not the price setting mechanism as with symmetric information the unique outcome is the symmetric bertrand equilibrium

firms timing of production with heterogeneous consumers i revisit endogenous timing in a quantity setting duopoly game in the basic model i show that given strong heterogeneity in consumers willingness to pay wtp and a moderately small consumer segment with low wtp sequential moving outcomes can appear in equilibrium with the follower enjoying second mover advantage owing to consumer heterogeneity in wtp there is a local property that a firm s aggressive behaviour may lead to a competitor responding more aggressively hence the sequential moves can restrict firms total outputs to avoid a price collapse and result in firms strategic choices that pareto dominate those under the simultaneous move i further generalize my results and show that although firms compete in quantity under some conditions of the demand function features of strategic complements can appear

stackelberg versus cournot a differential game approach abstract we propose an infinite horizon differential oligopoly game where at each point in time m stackelberg leaders and n m stackelberg followers exploit a common pool renewable resource and sell their harvest in the marketplace at a price that depends on total harvest we derive a feedback generalized stackelberg nash cournot equilibrium a generalization of the feedback stackelberg equilibrium nesting feedback stackelberg and feedback cournot as special cases we proceed with a comparison between the feedback stackelberg and the feedback cournot equilibria and find a number of interesting results in contrast with static oligopoly theory as to the relative efficiency of the two equilibria we show that the cournot equilibrium can be more efficient than the stackelberg equilibrium this holds true in the short run at the steady state and in terms of discounted welfare

a global trend toward democratic convergence a lijphartian analysis of advanced democracies the article offers a systematic analysis of the comparative trajectory of international democratic change in particular it focuses on the resulting convergence or divergence of political systems borrowing from the literatures on institutional change and policy convergence to this end political institutional data in line with arend lijphart s 1999 2012 empirical theory of democracy for 24 developed democracies between 1945 and 2010 are analyzed heteroscedastic multilevel models allow for directly modeling the development of the variance of types of democracy over time revealing information about convergence and adding substantial explanations the findings indicate that there has been a trend away from extreme types of democracy in single cases but no unconditional trend of convergence can be observed however there are conditional processes of convergence in particular economic globalization and the domestic veto structure interactively influence democratic convergence

second mover advantage and price leadership in bertrand duopoly we consider the issue of first versus second mover advantage in differentiated product bertrand duopoly with general demand and asymmetric linear costs we generalize existing results for all possible combinations where prices are either strategic substitutes and or complements dispensing with common extraneous and restrictive assumptions we show that a firm with a sufficiently large cost lead over its rival has a first mover advantage for the linear version of the model we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk dominance the analysis yields as the unique equilibrium outcome sequential play with the low cost firm as leader

capacity entry and forward induction when avoidable fixed costs are introduced into the entry model of dixit 1980 and ware 1984 there arises a coordination problem in selecting among postentry nash equilibria elimination of weakly dominated strategies allows the entrant to use a market capturing strategy consisting of a large capacity commitment that selects the entrant s preferred postentry equilibrium and drives the incumbent from the market deterring the entrant s market capturing strategy typically requires the incumbent to reduce its initial capacity choice as avoidable fixed costs rise the incumbent must restrict its capacity by a greater amount and the relative advantage of the entrant rises

stackelberg versus cournot equilibrium we reconsider stackelberg s classical critique of the cournot duopoly in the framework of endogenous timing for two player games for quantity duopoly we provide different sets of minimal conditions directly on the demand and cost functions yielding respectively the simultaneous and the two sequential modes of play while our findings essentially confirm the predominance of the former they also indicate that the latter is natural under some robust but restrictive conditions no extraneous assumptions such as concavity existence or uniqueness of equilibria are needed and the analysis makes crucial use of the basic results from the theory of supermodular games classification numbers b21 c72 d43 l13 c 1999 academic press

endogenous sequencing of firm decisions abstract when firms are symmetrically informed a stackelberg leader prefers to be leader rather than a cournot duopolist however when the leader has superior information about demand the leader may earn lower ex ante profits than it would earn if it was choosing quantities simultaneously with the follower in this paper i give the firm with superior information the option of delaying its quantity decision until the decision period of the less informed firm so that decisions are made simultaneously surprisingly in the unique stable outcome the informed firm moves first regardless of its private information journal of economic literature classification numbers c72 c73 d82 l10

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

information value under demand uncertainty and endogenous market leadership in an oligopoly model with firms choosing to produce in one of two periods we identify the circumstance under which a firm s having early information regarding stochastic demand results in market leadership high demand volatility leads to stackelberg competition with the information advantaged firm leading in the n firm case an equilibrium with multiple leaders and multiple followers emerges endogenously in a duopoly information acquisition game we identify conditions that determine whether neither one or both firms will pay to acquire early information and note that one firm s obtaining early information may generate a positive externality benefitting its competitor both symmetric and asymmetric outcomes are possible and stackelberg market leadership may occur in equilibrium but only when firms have different costs of information our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first mover advantage such as certain public good provision games jel c72 d82 l13

financial innovation and asset price volatility we compare asset prices in an overlapping generations model for incomplete and complete markets individuals within a generational cohort have heterogeneous beliefs about future states of the economy and thus would like to make bets against each other in the incomplete markets economy agents cannot make such bets asset price volatility is very small the situation changes dramatically when markets are completed through financial innovations as the set of available securities now allows agents with different beliefs to place bets against each other wealth shifts across agents and generations such changes in the wealth distribution lead to substantial asset price volatility

speculation and risk sharing with new financial assets while the traditional view of nancial innovation emphasizes the risk sharing role of new nancial assets belief disagreements about these assets naturally lead to speculation which represents a powerful economic force in the opposite direction this paper investigates the eect of nancial innovation on portfolio risks in an economy when both the risk sharing and the speculation forces are present financial assets provide hedging services but they are also subject to speculation because traders do not necessarily agree about their payos i de ne the average variance of traders net worths as a measure of portfolio risks for this economy and i decompose it into two components the uninsurable variance de ned as the average variance that would obtain if there were no belief disagreements and the speculative variance de ned as the residual variance that results from speculative trades based on belief disagreements financial innovation always decreases the uninsurable variance because new assets increase the possibilities for risk sharing my main result shows that nancial innovation also always increases the speculative variance this is true even if traders completely agree about the payos of new assets the intuition behind this result is the hedge more bet more eect traders use new assets to hedge their bets on existing assets which in turn enables them to place larger bets and take on greater risks my second set of results concern endogenous nancial innovation when belief disagreements are su ciently large a pro t seeking market maker introduces assets that maximize the average variance among all possible choices completely disregarding the risk sharing motive for nancial innovation my third set of results concern a calibration of the model in the context of the gdp indexed assets proposed by athanasoulis and shiller 2001 when traders have reasonable amounts of belief disagreements these assets would have the unintended consequence of increasing their consumption risks

intertemporal asset pricing with heterogeneous beliefs abstract we examine the behaviour of the interest rate asset prices and asset holdings in an economy with heterogeneous rationally updated beliefs about the expected rate of production growth the equilibrium interest rate is a weighted average of the interest rates that would prevail in economies populated by homogeneous agents with the beliefs of the respective agents in the heterogeneous model the weights are given by the fractions of total wealth held financial innovation affects the dynamics of allocations and prices but preserves the aggregate output process and the structure of equilibrium asset prices also display the wealth weighted average characterization journal of economic literature classification numbers c60 d52 d91 g12

asymmetric information acquisition and behavior in role choice models an endogenously generated signaling game the authors employ a static homogeneous good duopoly model wherein firms can choose to produce in one of two periods the model allows agents to acquire information and then traces the impact of the information pattern on subsequent production behavior asymmetric information acquisition leads to a unique production role choice pattern the informed uninformed firm chooses to assume the leader s follower s role moreover if information is costly the typical equilibrium involves only one firm acquiring information thus identical firms with identical opportunities choose to become asymmetrically informed and produce sequentially this is the unique refined equilibrium outcome copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

rational asset pricing bubbles this paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework our main results are concerned with nonexistence of asset pricing bubbles in those economies these results imply that the conditions under which bubbles are possible including some well known examples of monetary equilibria are relatively fragile this paper is concerned with the conditions under which asset prices in an intertemporal competitive equilibrium are equal to the present value of the streams of future dividends to which each asset represents a claim according to a central result of the theory of finance this is very generally true in the case of economies with trading at only a finite sequence of dates as long as there are no restrictions upon transactions other than that associated with possible incom pleteness of the set of securities that are traded the result is sometimes called the fundamental theorem of asset pricing here we consider the extent to which such a result continues to be valid in the case of trading over an infinite horizon it has often been observed in the econometric literature on asset pricing bubbles that it is possible in principle for the price of a perpetuity and the dividends on that security to satisfy at all times a present value relation for one period holding returns while the security s price nonetheless does not equal the present value of the stream of dividends expected over the infinite future in such a case the price of the perpetuity is said to involve a bubble component 2 joint stochastic processes for which this component is nonzero are sometimes argued to characterize existing assets for a recent example see froot and obstfeld 1991 but such an inference depends upon aspects of the stochastic

simultaneous vs sequential price competition with incomplete information abstract we compare equilibria with sequential and simultaneous moves under homogeneous good bertrand competition when unit costs are private information under an alternative interpretation we examine the consequences of awarding a right of first refusal in a first price procurement auction with endogenous quantity

the value of commitment with imperfect observability and private information the idea that commitment is valuable plays a key role in many economic models however bagwell 1995 has shown that commitment may have no value if there is even a slight noise in the observation of the leader s action thus casting doubt on the notion that commitment has strategic value here i reconsider the commitment story in a model where the leader s action is imperfectly observed and the leader has private information and i examine how it is affected by uncertainty about the leader s type and by the observation noise

endogenous timing with infinitely many firms abstract a model with constant marginal costs is considered where firms choose first a period for production and then the amount to produce when competing in the market according to the resulting timing decisions multiple equilibria arise allowing for infinitely many industry output configurations encompassing one limit output dominant firm and the cournot equilibrium with free entry as extreme cases at each of these equilibria a firm produces a positive amount only if this firm commits to produce at period one both stackelberg and cournot like outcomes are sustainable as equilibria however when the number of leaders is given production at subsequent periods is always prevented and industry output is sometimes larger than the entry preventing level

quantity setting oligopoly with endogenous sequencing abstract this paper investigates endogenous sequencing in a quantity setting oligopoly i formulate an n firm m period model where each firm chooses both how much to produce and when to produce it i find that at least n 1 firms simultaneously produce in the first period in every pure strategy equilibrium this result shows that the generalized stackelberg type outcome never appears in equilibrium except in a duopoly

overconfidence insurance and paternalism it is well known that when agents are fully rational compulsory public insurance may make all agents better off in the rothschild and stiglitz 1976 model of insurance markets we find that when sufficiently many agents underestimate their personal risks compulsory insurance makes low risk agents worse off hence behavioral biases may weaken some of the well established rationales for government intervention based on asymmetric information

how do we know that real wages are too high it is common belief that the wages that we observe are above the level that would prevail in a competitive labour market and also it is common to believe that wage moderation should be encouraged as a way to keep unemployment down this paper considers whether we can have confidence in these beliefs it presents a number of models designed to cast doubt on the conventional wisdom first we show that in an efficiency wage model in which there is involuntary unemployment a binding minimum wage may increase employment we then present a general equilibrium matching model in which there is involuntary unemployment but wages are below market clearing levels and raising wages can reduce unemployment we then consider the empirical evidence on employment and wage determination to argue that it is just as consistent with this model as with models in which wages are at or above market clearing levels

globalization pressures and the state the worldwide spread of central bank independence the authors examine the impact of globalization on state structures in the specific instance of the central bank following the world system world society and neoinstitutional perspectives in sociology they assume that states are in cultural political and economic competition with each other thereby seeking to maintain their position and status frequently by adopting organizational forms or practices that make them isomorphic with their environment the authors predict that countries boost the independence of their central bank from the political power as their exposure to foreign trade investment and multilateral lending increases they also model the cross national dynamic process of diffusion of central bank independence by examining the impact of cohesive and role equivalent trade relationships between countries they find support for their hypotheses with information on 71 countries between 1990 and 2000

strategic disclosure of meaningful information to rival i study a model of strategic disclosure of a private signal to a rival in the presence of a payoff externality in the model two agents forecast the unknown true state of a future period specifically the quality of the signal is also private information hence which quality of signal is revealed for which incentive is the main question of interest i show that even when disclosure is costly the revealing equilibrium where an agent voluntarily reveals his signal can exist and it should be a monotone equilibrium asymmetry between the penalty for an incorrect forecast and the reward for a correct forecast is a necessary condition for the existence of this revealing equilibrium if the penalty is larger than the reward the unique revealing equilibrium is a separating equilibrium where only the low quality signal is disclosed in order to induce the rival s imitation on the other hand if the reward is much larger than the penalty the unique revealing equilibrium is a pooling equilibrium where the signal is always revealed in order to induce the rival s deviation if the reward is not much larger than the penalty no revealing equilibrium is robust to a costly disclosure jel d81 d82

overcoming adverse selection how public intervention can restore market functioning as illustrated by liquidity support equity injections and asset repurchases in financial crises and by imf credit lines to countries authorities often intervene in orderto revive markets that have dried up or to create newones in suchsituations agents participate only if they receive from the governmental scheme more than in the marketplace while the market outcome depends on who joins the scheme the paper provides a first analysis of market jumpstarting and its two way interaction between mechanism design and participation constraints in the model sellers in need of cash have private information about the value of their legacy asset the absence of buyer confidence forces authorities to intervene to jump start the market we characterize the optimal intervention and draw two main implications first the government should clean up the market through buybacks of the weakest assets and then through some equity injections and leave the agents with the strongest legacy assets to the market in particular authorities should not substitute fully for the market even when they have no comparative disadvantage in acquiring assets or shares thereof second the government creates its own competition by cleaning up the market from its most toxic pieces at the optimal intervention the government always strictly overpays for the legacy asset yet and unlike what would be suggested by coasian profit evasion the existence of a later market imposes no welfare cost while it is cast in a public intervention context the analysis of mechanismdependent reservation utilities also admits important private sector applications

interdependence in comparative politics substance theory empirics substance interdependence is ubiquitous and often central across comparative politics indeed as the authors show first theoretically any situation involving externalities from one unit s actions on others implies interdependence positive or negative externalities induce negative or positive interdependence which spurs competitive races or free riding with corresponding early or late mover advantages and thus strategic rush to act or delay and inaction the authors show next how to model interdependent processes empirically how not doing so risks omitted variable biases favoring domestic and exogenous external accounts over interdependence but how doing so naively risks simultaneity biases with the opposite substantive implications they then discuss how to estimate properly specified interdependence models and finally how to interpret and present estimated spatio temporally dynamic effects response paths and long run steady states with associated standard errors they illustrate by replicating a not

frictional intermediation in over the counter markets we extend duffie et al s 2005 search theoretic model of over the counter otc asset markets allowing for a decentralized inter dealer market with arbitrary heterogeneity in dealers valuations or equivalently inventory costs we develop a solution technique that makes the model fully tractable and allows us to derive in closed form theoretical formulas for key statistics analysed in empirical studies of the intermediation process in otc markets a calibration to the market for municipal bonds allows us to quantify important unobservable characteristics of this market including the severity of search and bargaining frictions and the nature of heterogeneity across dealers we use our calibrated model to study the effect of these market characteristics on total welfare and the distribution of gains from trade across customers and dealers

a deeper look at the proportionality turnout nexus evidence that turnout is higher under proportional representation pr than in majoritarian elections is overwhelming yet previous research has largely failed to explain why one line of argument maintains that higher turnout under pr is a by product of larger party systems however a larger number of parties has been demonstrated to depress turnout alternatively it is argued that majoritarian electoral systems tend to produce safe seats and that voters have little incentive to turn out there thus uneven turnout over electoral districts due to variable intensities of local competition is made responsible for the lower overall turnout empirical evidence on this conjecture is scant this article scrutinizes the relationship between electoral rules competition and turnout with district level data from 31 national elections results from a heteroscedastic model indicate that lower net turnout in majoritarian systems is indeed a consequence of uneven turnout over districts due to variable levels of lo

thar she blows can bubbles be rekindled with experienced subjects we report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and error elimination among participants in a laboratory asset market and its effect on price bubbles our answer to the title question is yes we impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium and this treatment rekindles a bubble however in replications of that same challenging environment across three experience levels we discover that the environment yields a rare residual tendency to bubble even in the third experience session therefore a caveat must be placed on the effect of twice experienced subjects in asset markets in order for price bubbles to be extinguished the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters experience including possible error elimination is not robust to major new environment changes in determining the characteristics of a price bubble jel c91 d83

equilibrium entry patterns under uncertainty abstract in this paper we develop a model in which incumbency patterns are determined endogenously we consider a two period duopoly game under uncertainty and show that the equilibrium entry patterns are determined by the costs and benefits of early entry and the strategic interactions between the firms we also show that under quite plausible cost conditions incumbency may not arise as an equilibrium pattern of the duopoly game

firm scale and the endogenous timing of entry a choice between commitment and flexibility abstract this paper presents a model of stochastic oligopoly with demand uncertainty where firms endogenously choose entry timing we examine two extreme types of market structure and show that the equilibrium correspondence that connects them is continous with two identically sized firms there are symmetric cournot type equilibria where the probability of early entry declines with greater uncertainty and for low uncertainty two asymmetric equilibria with one large firm with a continuum of nonatomic firms there is a unique stackelberg equilibrium we conclude that the behavior of a dominant firm with a finite fringe can be approximated by stackelberg equilibrium journal of economic literatureclassification numbers d21 l11

asset float and speculative bubbles we model the relationship between asset float tradeable shares and speculative bubbles investors with heterogeneous beliefs and short sales constraints trade a stock with limited float because of insider lockups a bubble arises as price overweighs optimists beliefs and investors anticipate the option to resell to those with even higher valuations the bubble s size depends on float as investors anticipate an increase in float with lockup expirations and speculate over the degree of insider selling consistent with the internet experience the bubble turnover and volatility decrease with float and prices drop on the lockup expiration date

on the nash bargaining solution with noise abstract suppose two parties have to share a surplus of random size each of the two can either commit to a demand prior to the realization of the surplus as in the nash demand game or remain silent and wait until the surplus was observed adding the strategy to wait results in two strict equilibria in each of which one player takes almost the whole surplus provided uncertainty is small if commitments concern only who makes the first offer the more balanced nash bargaining solution is approximately restored in all cases commitment occurs in equilibrium despite the risk of breakdown of negotiations

debt financing in asset markets short term debt such as overnight repurchase agreements and commercial paper was heavily used by financial institutions to fund their investment positions during the asset market boom preceding the financial crisis of 2007 2008 and later played a major role in leading to the distress of these institutions during the crisis what explains the popularity of short term debt in financing asset market investments geanakoplos 2010 presents a dynamic model of the joint equilibrium of asset markets and credit markets in which optimistic buyers of a risky asset use the asset as collateral to raise debt financing from less optimistic creditors the asset s collateral value depends on the marginal creditor s asset valuation and determines the buyers purchasing capacity to bid up the asset price geanakoplos posits that short term debt allows the asset buyers to maximize riskless leverage 1 short term debt however exposes the asset buyers to rollover risk e g acharya gale and yorulmaker 2011 and he and xiong 2012 forthcoming which is reflected in the fact that the asset buyers in geanakoplos model may not be able to obtain refinancing after a negative fundamental shock as a result they are forced to transfer their asset holdings to the

on the interplay of informational spillovers and payoff externalities this thesis consists of four independent essays which consider different topics in information economics and political economy the first two papers are variants of the same idea an uninformed principal e g a government will make a decision in order to gain more information it may consult two experts however these experts have a private interest in certain policies being implemented the question is to gain as much information as possible should the principal consult experts who are biased in the same direction or experts who prefer different decisions the main result is that as long as collusion between experts can be prevented homogeneous panels are superior to heterogeneous ones and this advantage increases with the experts informational precision in the third paper two firms consider entry in a new product market and must decide when to enter the market and how to design their product firms do not know for certain what the best design is so both firms want to outwait the other s decision in order to gain more information the focus of the paper is on which firm will make the first decision the main result is that if products are strong strategic substitutes the worst informed firm makes the first decision in equilibrium the analysis should apply to a range of other contexts such as investors trading decisions or the policy choices of political candidates the final paper asks the following question could it be that parties in a two party system may benefit from using several candidates in the same election to promote the use of multiple candidates i assume that a party never runs the risk of having its votes split up among its candidates despite this it turns out that parties have a strong incentive to restrict their number of nominees paradoxically it seems that the more uncertain parties are about voter opinion the fewer candidates they want to use in particular with a uniform voter distribution the optimal number of candidates is one