analyst reputation communication and information acquisition earlier studies have shown that reputational concerns tend to reduce agents opportunistic behavior however a recent study by morris argued that analysts experts reputational concerns may discourage truthful communication when they try to avoid being perceived as being misaligned with investors in this paper i examine the effect of reputational concerns on communication in a setting where analysts can choose their precision endogenously because both misaligned and aligned analysts want investors to trust their reports in the future both will aim to build a reputation for being aligned in equilibrium aligned analysts will acquire more information than misaligned analysts as a result investors may favorably update their beliefs about the analysts type when the report is proven to be accurate therefore both types of analysts will have reputational incentives to communicate truthfully the paper also derives conditions under which the analysts reputational concerns have a nonmonotonic impact on aligned analysts equilibrium precision choices and investors welfare

women as policy makers evidence from a randomized policy experiment in india this paper uses political reservations for women in india to study the impact of women s leadership on policy decisions since the mid 1990 s one third of village council head positions in india have been randomly reserved for a woman in these councils only women could be elected to the position of head village councils are responsible for the provision of many local public goods in rural areas using a dataset we collected on 265 village councils in west bengal and rajasthan we compare the type of public goods provided in reserved and unreserved village councils we show that the reservation of a council seat affects the types of public goods provided specifically leaders invest more in infrastructure that is directly relevant to the needs of their own genders

the glass ceiling in politics formalization and empirical tests there is a scarcity of women at the apex of political power as well as a lack of methods to disentangle the potential sources of this under representation this article suggests a four step method to test for whether women s under representation can be explained by the existence of a glass ceiling we emphasize that this concept implies discrimination in promotions within the political organization that the discriminatory promotions increase in severity at the top levels of power and that they increase in severity during an individual s career trajectory the proposed method is applied to subnational politics in sweden a long standing world leader in women s descriptive representation the results support the conjecture that a glass ceiling is hindering elected women s rise to political power in this context

incumbents interests and gender quotas the introduction of mandatory gender quotas in party lists is a reform that many countries have recently adopted or have been considering the electoral system affects the incumbents incentives to make such reforms their details and their effectiveness we show that male incumbents can actually expect an increased incumbency advantage when gender quotas are introduced if they are elected through single member district majority rule on the other hand no expectation of male advantage can reduce the incumbents fear of being replaced if they are elected through closed list proportional representation as france has both electoral systems we validate the above argument using a formal model of constitutional design as well as an empirical analysis of the legislative elections in france displaying the existence of male bias in the last three elections we also show that parity may have assembly composition effects and policy effects that vary with the electoral system

the government procurement agreement implications of economic theory this paper analyzes the provisions of the new agreement on government procurement gpa drawing insights from trade theory and recent developments in the economics of information and law a central conclusion is that in a world where imperfectly informed procurers purchase from imperfectly competitive firms on behalf of imperfectly informed tax payers it is not easy to devise rules which would be optimal in all situations nevertheless the non discriminatory provisions of the gpa seem to approximate closely the rules which would maximize global welfare a significant benefit of the gpa is in helping to overcome national agency problems in procurement by creating mechanisms for reciprocal international monitoring supported by multilateral enforcement there is however scope for improvement first the gpa does not equip bidders for government contracts to vault over trade restrictions so the creation of genuine international competition for government procurement remains crucially dependent on the liberalization of trade secondly weaknesses remain in the enforcement mechanism these include the low level of compensation to a successful challenger the absence of restrictions on settlements and the lack of provision for challenge and review of bail outs the paper proposes certain improvements this abstract was borrowed from another version of this item

public expenditure international specialisation and agglomeration abstract it is widely recognised that public sector purchasers tend to favour domestic suppliers we study the consequences of such home biased public procurement on international specialisation using a general equilibrium model with a monopolistically competitive sector we find that a country will specialise in that sector if it has relatively large home biased procurement the pull effect furthermore home biased procurement can counter agglomeration forces in that sector and thereby attenuate the overall degree of international specialisation the spread effect our empirical analysis conducted on input output data for the european union yields supporting evidence for the pull effect and some support for the spread effect

favoring domestic firms in procurement contracts abstract this paper studies the rationale for giving preference to domestic firms in the award of government contracts when the regulator is interested in maximizing domestic welfare it is seen that in the absence of comparative advantages the regulator should discriminate in favor of the domestic firms because foreign firms profits do not enter in domestic welfare furthermore i show that the form of the discrimination function depends on the mechanism being used in order to simplify the implementation of an optimal policy the regulator should choose mechanisms based on second price auctions

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

bayesian persuasion in coordination games regime change games have been studied widely in the economic literature in the contexts of bank runs currency attacks political revolutions and others usually agents need to coordinate an attack against the status quo once sufficiently many agents attack the regime changes and agents who were attacking benefit from their attack otherwise the regime stays and agents who were attacking it have to bear a cost an important angle of coordination games is the transmission of information from the policymaker or the defender of the status quo to the agents who have to make a decision whether to attack the regime the policymaker can attempt to change the information available to agents to increase the likelihood of the survival of the regime in this paper we present a model where the policymaker attempts to transmit information in this spirit specifically we study a model where the policymaker can commit to abandon the regime automatically before agents choose whether to attack or not if the fundamentals determining the strength of the regime are below a certain threshold the benefit of committing to abandon the regime more often is that conditional on the regime not being automatically abandoned agents update their information to account for the fact that the fundamentals are above the threshold and so their inclination to attack decreases the disadvantage is that it directly increases the likelihood that the regime will not survive since it is automatically abandoned analyzing this problem we show that the policymaker finds it optimal to commit to abandon the regime often enough such that when agents see that the policymaker did not abandon it they choose not to attack hence the policymaker chooses to maximize the benefit out of the infor mational transmission channel from the committed policy at the same time the policymaker has no additional benefit in committing to abandon the regime beyond that point as it will cause too frequent abandonment without additional information benefits the commitment ability of the policymaker is key here we show that without commitment ability the policymaker ends up abandoning automatically less often

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

on transparency in organizations when is it best for the principal to commit to not disclosing all that he she knows in moral hazard interactions i show that whenever the agent would choose the same action under complete information at several distinct states then full transparency can generically be improved upon this implies that full transparency is generically suboptimal whenever the dimension of the information held by the principal exceeds the dimension of the agent s action in a simple class of problems i make further progress on the best disclosure policy assuming the principal can either disclose fully the state or remain silent

persuasive communication when the sender s incentives are uncertain abstract we study persuasion in a modified crawford sobel sender receiver game in which the receiver makes a binary decision to accept or reject a good recommended by the sender the good s quality and the sender s type neutral or biased are not observable to the receiver these alterations yield a simple model and a unique truth telling equilibrium in which neutral senders who observe different qualities fully separate but can only communicate low quality levels accurately biased senders adopt a mixed strategy that can successfully persuade the receiver to accept the good most of the time when the sender s degree of bias is continuously distributed a truth telling equilibrium does not exist nonetheless a partition equilibrium exists for any given number of partitions on the message space

gender quotas and the quality of politicians we analyze the effects of the introduction of gender quotas in candidate lists on the quality of elected politicians as measured by the average number of years of education we consider an italian law which introduced gender quotas in local elections in 1993 and was abolished in 1995 as not all municipalities went through elections during this period we identify two groups of municipalities and use a difference in differences estimation we find that gender quotas are associated with an increase in the quality of elected politicians with the effect ranging from 0 12 to 0 24 years of education this effect is due not only to the higher number of elected women who are on average more educated than men but also to the lower number of low educated elected men the positive effect on quality is confirmed when we measure the latter with alternative indicators it persists in the long run and it is robust to controlling for political ideology and political competition

runs versus lemons information disclosure and fiscal capacity we study the optimal use of disclosure and fiscal backstops during financial crises providing information can reduce adverse selection in credit markets but negative disclosures can also trigger inefficient bank runs in our model governments are thus forced to choose between runs and lemons a fiscal backstop mitigates the cost of runs and allows a government to pursue a high disclosure strategy our model explains why governments with strong fiscal positions are more likely to run informative stress tests and paradoxically how they can end up spending less than governments that are more fiscally constrained

an empirical investigation of procurement contract structures this article presents a model of procurement contracting with asymmetric cost information and investigates whether two of the model s predictions are consistent with actual contracts between hospitals and california s medicaid program the article first tests for the presence of a fixed price payment region where medicaid s payments are independent of hospitals actual but unobservable production costs and then tests whether the size of the fixed price region depends upon expectations about hospitals costs to conduct these tests the article must first estimate hospitals unobservable costs attributable to medicaid patients the article finds evidence of a fixed price region but cannot confirm that the size of the fixed price region depends upon expectations about hospitals costs

repeated games with long run and short run players this paper studies the set of equilibrium payoffs in repeated games with long and short run players and little discounting because the short run players are unconcerned about the future each equilibrium outcome is constrained to lie on their static reaction best response curves the natural extension of the folk theorem to games of this sort would simply include this constraint in the definitions of the feasible payoffs and minmax values in fact this extension does obtain under the assumption that each player s choice of a mixed strategy for the stage game is publicly observable but in contrast to standard repeated games the set of equilibrium payoffs is different if players can observe only their opponents realized actions

a monopolistic market for information abstract we analyze a model where traders buy information from a monopolistic seller which is subsequently used in a speculative market in order to overcome the dilution in the value of information due to its leakage through informative prices the seller of information may prefer to sell noisier versions of the information he actually has moreover to obtain higher profits it is desirable for the seller to sell different signals to different traders so that the added noise realizations do not affect equilibrium prices one way of doing so which does not require discrimination is to sell identically distributed personalized signals to each of a large number of traders

simple finite horizon bubbles robust to higher order knowledge an asymmetric information model of a finite horizon nth order rational asset price bubble is presented where all agents know that n the asset is worthless also the model has only two agents so the first order version of the bubble is simpler than other first order bubbles in the literature

competence implies credibility the credibility of monetary policy under discretion has been traditionally linked to the central bank s conservatism we show that another trait of the central bank cb her competence at doing her job or reputation thereof can be just as important to make her policy credible and transparent we analyze a static barro and gordon 1983 s game where the effects of monetary policy depend on an unknown state of the economy the cb forms her own private and imprecise view of this state that she may announce to p in a cheap talk game to explain and motivate her policy intentions the precision of the noise in the cb s view measures her competence the more accurate her assessment the clearer an idea she has about what to do the fineness of the equilibrium message space measures monetary policy s transparency in any equilibrium of the cheap talk game the cb credibly announces one of finite inflation targets that differ by at least a multiple of the inflation bias competence ratio if this ratio is too large the cb can credibly communicate only the direction of monetary policy as the cb s competence rises and this ratio falls p knows that the cb puts increasing weight on pursuing her objective targets relative to surprising expectations to stimulate output therefore the equilibrium message space becomes finer a more competent cb is also less likely to erroneously observe extreme realizations of the shocks so she is more able tofine tune expectations at times of business as usual

government procurement and international trade abstract we model the bidding for a government contract in which there is imperfect competition each bidder is better informed about his own costs than either his rival bidders or the government and the distribution of the domestic firms costs differs from the distribution of foreign firms costs because of comparative advantage effects we find that the government minimizes its expected procurement cost by operating a price preference policy not necessarily purchasing from the lowest bidder

gambling reputation repeated bargaining with outside options we study the role of incomplete information and outside options in determining bargaining postures and surplus division in repeated bargaining between a long run player and a sequence of short run players the outside option is not only a disagreement point but reveals information privately held by the long run player in equilibrium the uninformed short run players offers do not always respond to changes in reputation and the informed long run player s payoffs are discontinuous the long run player invokes inefficient random outside options repeatedly to build reputation to a level where the subsequent short run players succumb to his extraction of a larger payoff but he also runs the risk of losing reputation and relinquishing bargaining power we investigate equilibrium properties when the discount factor goes to 1 and when the informativeness of outside options diffuses in both cases bargaining outcomes become more inefficient and the limit reputation building probabilities are interior publication abstract

a natural experiment on discrimination in elections abstract we exploit a natural experiment to study discrimination in elections in illinois republican presidential primaries voters vote for delegates bound to presidential candidates but delegates names convey information about their race and gender we identify discrimination from variation in vote totals among delegates bound to the same presidential candidate and who face the same voters examining delegate vote totals from 2000 to 2016 we estimate nonwhite delegates receive 9 fewer votes we find essentially no gender discrimination negligible incentives for statistical discrimination costs to preferred presidential candidates and heterogeneity are consistent with an interpretation of this behavior as taste based

government control of the media abstract we present a formal model of government control of the media to illuminate variation in media freedom across countries and over time media bias is greater and state ownership of the media more likely when the government has a particular interest in mobilizing citizens to take actions that further some political objective but are not necessarily in citizens individual best interest however the distinction between state and private media is smaller large advertising markets reduce media bias in both state and private media but increase the incentive for the government to nationalize private media media bias in state and private media markets diverge as governments become more democratic whereas media bias in democracies and autocracies converge as positive externalities from mobilization increase

second order beliefs and the individual investor in a panel survey of individual investors we show that investors second order beliefs their beliefs about the return expectations of other investors influence investment decisions investors who believe others hold more optimistic stock market expectations allocate more of their own portfolio to stocks even after controlling for their own risk and return expectations however second order beliefs are inaccurate and exhibit several well known psychological biases we observe both the tendency of investors to believe that their own opinion is relatively more common among the population false consensus and that others who hold divergent beliefs are considered to be biased bias blind spot

why are congressional committees dominated by high demand legislators a comment on niskanen s view of bureaucrats and politicans william niskanen argued that the characteristics of the legislative review process imply that bureaus are allowed to produce an output which is less efficient than the representative legislator would allow 4 5 the main points niskanen raised in this regard centered on the facts that i a committee not the whole legislature conducts the review process for each bureau and ii more important at least in the united states most committees are dominated by legislators who have higher demands for the services reviewed than the median demand in the whole legislature and the committee decisions are very seldom amended or reversed by the whole legislature 5 624 25 niskanen observed that the review committee prefers a greater output than that preferred by a representative legislator 5 625 26 since bureaucratic output is inefficiently large in the niskanen model of bureaucratic production the implication is that high demand committee review allows relatively more inefficiency than the representative legislator would condone niskanen assumed that all legislators wish to maximize their political support votes such legislators would not allow an increase in inefficiency without some offsetting benefit since some voters have a negative reaction to this inefficiency non consuming taxpayers yet in the niskanen model the bureau captures all the consumer surplus associated with the increase in output allowed by high demand committee review consumers of the bureau s output may appear to benefit since they consume more however they gain no additional surplus so there is no increase in consumer voter welfare there appears to be nothing positive to offset the loss in votes resulting from inefficient production under majority rule decision making it is often argued that the desires of the median voter will be met the representative legislator is the median voter in a legislative assembly therefore it seems that this median legislator s perception of marginal political returns and marginal political costs should dictate the allocation of resources in the public sector

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

can gender quotas break down negative stereotypes evidence from changes in electoral rules abstract in this paper we analyze the effect of gender quotas on women s involvement in political activity by using a rich data set providing information on all italian local administrators who were elected from 1985 to 2007 gender quotas were introduced by law in italy in 1993 and were in force until 1995 because of the short period covered by the reform some municipalities never voted under the gender quota regime this allows us to identify a treatment and a control group and to estimate the effects of gender quotas by using a difference in differences estimation strategy our estimates show that women s representation in politics after the reform increased significantly more in municipalities that were affected by the reform than in municipalities that were not affected this result also holds true if we exclude from our analysis elections which took place during the period in which the reform was in force moreover the higher women s representation in gender quota municipalities is not related to the advantages that women who were elected during the reform have obtained from incumbency and does not seem to be driven by differences in temporal trends between southern and northern regions these findings suggest that affirmative actions can be of use in breaking down stereotypes against women

belief dispersion in the stock market we develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs the model is tractable and qualitatively matches many of the empirical regularities in a stock price its mean return volatility and trading volume we find that the stock price is convex in cash flow news and increases in belief dispersion while its mean return decreases when the view on the stock is optimistic and vice versa when pessimistic moreover belief dispersion leads to a higher stock volatility and trading volume we demonstrate that otherwise identical two investor heterogeneous beliefs economies do not necessarily generate our main results

litigation settlement and collusion private enforcement of regulatory policy is a significant feature of many government sponsored contests such as procurements although private enforcement is supposed to promote social welfare we show that competitors can use it to achieve collusive outcomes in a noncooperative duopoly setting we show that the threat of litigation and the possibility of settlement can dramatically affect ex ante competition in the relevant market essentially the settlement process provides a legal mechanism for the exchange of side payments while the possibility of a court decision provides the plaintiff with a credible threat against the defendant so as to avert cheating the result does not require repeated play ex ante contracts or other commitment devices in the federal procurement context we show that our results are robust to alterations in the court remedy bargaining power of the litigants and many other factors

stock price manipulation it is generally agreed that speculators can make profits from insider trading or from the release of false information both forms of stock price manipulation have now been made illegal in this article the authors ask whether it is possible to make profits from a different kind of manipulation in which an uninformed speculator simply buys and sells shares they show that in a rational expectations framework where all agents maximize expected utility it is possible for an uninformed manipulator to make a profit provided investors attach a positive probability to the manipulator being an informed trader article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

bubbles and persuasion with uncertainty over market sentiment abstract recent empirical studies suggest that during times of unexpected innovation agents heterogeneously update their beliefs about an asset fundamental value and are uncertain of other agents beliefs about it in this paper i show that when there is uncertainty over the market sentiment defined as other investors beliefs about an asset fundamental value market manipulation can act through a previously unconsidered channel by misleading agents learning on the market sentiment this novel type of market manipulation could strengthen existing financial bubbles or even give rise to new ones

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

are women pawns in the political game evidence from elections to the spanish senate abstract this paper investigates the reasons behind the low representation of women among legislators using data from spain we find that parties tend to nominate female candidates to poorer positions on the ballot we examine whether this is due to voter bias or party bias and find two pieces of evidence supporting the latter female candidates attract more votes and political competition improves the quality of positions to which female candidates are assigned moreover gender quotas fail to erode the strategic nomination of female candidates the evidence in this paper helps explain why quotas in candidate lists might often lead to disappointing increases in the number of elected female politicians

credit rating industry a helicopter tour of stylized facts and recent theories the recent subprime crisis and the ongoing euro zone crisis have generated an enormous interest in the credit rating industry not only among economists but also among average citizens as a consequence we have seen an explosion of the economic literature on the industry the objective of this survey is to introduce readers to the key stylized facts of the credit rating industry and to the recent theoretical economic literature on this industry

beauty contests and iterated expectations in asset markets in a financial market where traders are risk averse and short lived and prices are noisy asset prices today depend on the average expectation today of tomorrow s price thus iterating this relationship the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price this will not in general equal the date 1 average expectation of the date 3 price we show how this failure of the law of iterated expectations for average belief can help understand the role of higher order beliefs in a fully rational asset pricing model and explain over reaction to noisy public information

do better paid politicians perform better disentangling incentives from selection the wage paid to politicians affects both the choice of citizens to run for office and the performance of those who are appointed first if skilled individuals shy away from politics because of higher opportunities in the private sector an increase in politicians pay may change their mind second if the re election prospects of incumbents depend on their in office deeds a higher wage may foster performance we use data on all italian municipal governments from 1993 to 2001 and test these hypotheses in a quasi experimental setup in italy the wage of mayors depends on population size and sharply rises at different thresholds we apply a regression discontinuity design to the only threshold that uniquely identifies a wage increase 5 000 inhabitants exploiting the existence of a two term limit we further disentangle the composition from the incentive component of the effect of the wage on performance our results show that a higher wage attracts more educated candidates and that better paid politicians size down the government machinery by improving efficiency importantly most of this effect is driven by the selection of competent politicians rather than by the incentive to be re elected

finite bubbles with short sale constraints and asymmetric information abstract we present a finite period general equilibrium model of an exchange economy with asymmetric information we say that a rational expectations equilibrium exhibits a strong bubble if the price is higher than the dividend with probability one we show that necessary conditions for a strong bubble to occur are that 1 each agent must have private information in the period and state in which the bubble occurs 2 each agent must be short sale constrained at some period in the future with positive probability and 3 agents trades are not common knowledge we present examples of bubbles when the necessary conditions are satisfied journal of economic literature classification numbers c72 d52 d82 d84 g12 g14

the good the bad and the different can gender quotas raise the quality of politicians the debate over political gender quotas is unduly confined to a supposed trade off between diversity and competence we characterize the effects of a political gender quota in a citizen candidate model to find that quotas do increase the overall quality of those elected whenever the rewards from public office are high or the skill premium or political gender discrimination are sufficiently low in such cases high skill women candidates run for office in sufficiently high numbers driving off low skill male and female candidates our model compares quotas with other policies in terms of their impact on the number and quality of those elected

on discrimination in auctions with endogenous entry abstract when entry is exogenous strong buyers should be discriminated against weak buyers to maximize revenues myerson 1981 when entry is endogenous so that entrants expected payoffs do not depend on the proposed mechanism optimal discrimination takes a completely different form the revenue maximizing equilibrium requires that there should be no discrimination with respect to entrants irrespective of their ex ante characteristics besides those buyers who always participate should be discriminated against entrants independently of their strength these predictions are independent of the equilibrium selection when the number of potential entrants grows large the optimality of first price auctions is also discussed jel d44 h57

gender gaps in policy making evidence from direct democracy in switzerland this paper uses a unique data set on individual voting decisions to shed new light on gender gaps in policy making our analysis focuses on switzerland the world leader in direct democracy where all citizens directly decide on a broad range of policies at the ballot box analysing all federal votes held between 1981 and 2003 we show that there are large gender gaps in the areas of health environmental protection defence spending and welfare policy the gender gaps typically persist even conditional on socio economic characteristics we also find that female policy makers have a substantial effect on the composition of public spending but a small effect on the overall size of government

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

the limits of price discrimination we analyze the welfare consequences of a monopolist having additional information about consumers tastes beyond the prior distribution the additional information can be used to charge dierent prices to dierent segments of the market i e carry out third degree price discrimination we show that the segmentation and pricing induced by the additional information can achieve every combi nation of consumer and producer surplus such that i consumer surplus is non negative ii producer surplus is at least as high as pro ts under the uniform monopoly price and iii total surplus does not exceed the e cient gains from trade as well as characterizing the welfare impact of price discrimination we examine the limits of how prices and quantities can change under price discrimination we also examine the limits of price discrimination in richer environments with quantity discrimination and limited ability to segment the market

popularity shocks and political selection abstract we observe that popularity shocks are crucial for electoral accountability beyond their effects on voters behaviors by focusing on brazilian politics we show that the disclosure of audit reports on the mis use of federal funds by local administrators affects the type of candidates who stand for election when the audit finds low levels of corruption the parties supporting the incumbent select less educated candidates on the contrary parties pick more educated candidates when the audit reveals a high level of corruption these effects are stronger in municipalities that have easier access to local media

women and power unpopular unwilling or held back we use spain s equality law to test for the existence of agency problems between party leaders and their constituents the law mandates a 40 percent female quota on electoral lists in towns with populations above 5 000 using pre and postquota data by party and municipality we implement a triple difference design we find that female quotas resulted in slightly better electoral results for the parties that were most affected by the quota our evidence shows that party leaders were not maximizing electoral results prior to the quota suggesting the existence of agency problems that hinder female representation in political institutions

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

curbing agency problems in the procurement process by protest oversight we study a model in which a potential bidder in a government procurement may challenge its exclusion from the procurement before a quasi judicial board in the case of a sole source procurement the excluded vendor does not know whether the decision was justified in terms of expected surplus or alternatively was due to an agency problem we explain the occurrence of i equilibrium protests ii deterrence of inefficient sole sourcing iii overdeterrence the choice of a competitive procurement when sole source would be appropriate iv buyoff settlements which preserve inappropriate sole source procurement and v fedmail settlements which accompany appropriate sole source procurements our normative analysis addresses recent legislative initiatives to reform the protest process