name your own price at priceline com strategic bidding and lockout periods a buyer suggests prices to n sellers in a time period and buys from the seller who accepts the bid first the number of bidding rounds is determined by how frequently the buyer can make an offer we show that with no limit on the frequency and without discounting the price path is either kept flat initially with large jumps at the end or increasing steadily over time which class of path occurs in equilibrium depends on the buyer s trade off between committing to a price ceiling versus finely screening the sellers costs with discounting limiting the number of rounds mitigates the delay caused by the reluctance to raise bids in the first class of equilibrium and therefore can benefit the buyer this result suggests why in reality bargaining parties often take measures to make their offers rigid and consequently force themselves to make fewer offers copyright oxford university press

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

time is money time pressure incentives and the quality of decision making many decisions in economics and finance have to be made under severe time pressure furthermore payoffs frequently depend on the speed of decision making as for instance when buying and selling stocks in this paper we examine the influence of time pressure and time dependent incentive schemes on the quality of decision making in an experimental beauty contest game we find that convergence to equilibrium is faster and payoffs are higher under low time pressure than under high time pressure interestingly time dependent payoffs under high time pressure lead to significantly quicker decision making without reducing the quality of decisions

strikes and holdouts in wage bargaining theory and data we develop a private information model of union contract negotiations in which disputes signal a firm s willingness to pay previous models have assumed that all labor disputes take the form of a strike yet a prominent feature of u s collective bargaining is the holdout negotiations often continue without a strike after the contract has expired production continues with workers paid according to the expired contract we analyze the union s decision to strike or hold out and highlight its importance to strike activity strikes are more likely to occur after a drop in the real wage or a decline in unemployment

a liquidity based model of security design we consider the problem of the design and sale of a security backed by specified assets given access to higher return investments the issuer has an incentive to raise capital by securitizing part of these assets at the time the security is issued the issuer s or underwriter s private information regarding the payoff of the security may cause illiquidity in the form of a downward sloping demand curve for the security the severity of this illiquidity depends upon the sensitivity of the value of the issued security to the issuer s private information thus the security design problem involves a tradeoff between the retention cost of holding cash flows not included in the security design and the liquidity cost of including the cash flows and making the security design more sensitive to the issuer s private information we characterize the optimal security design in several cases we also demonstrate circumstances under which standard debt is optimal and show that the riskiness of the debt is increasing in the issuer s retention costs for assets

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

price discovery and learning during the preopening period in the paris bourse before the opening of the paris bourse traders place orders and indicative prices are set this offers a laboratory to study empirically the t tonnement process through which markets discover equilibrium prices since preopening orders can be revised or canceled before the opening indicative prices could be noise we test this against the hypothesis that preopening prices reflect learning early in the preopening the noise hypothesis is not rejected as the opening gets closer the informational content and efficiency of prices increase and the learning hypothesis is not rejected we also propose a gmm based estimate of the speed of learning

bargaining games with a random sequence of who makes the offers abstract this note relaxes the rigid assumption in recent bargaining theory of a strictly alternating sequence of offers and instead considers the opposite extreme at each bargaining round a random event determines who gets to make an offer irrespective of who made the previous offer the equilibrium of this game is practically identical to the equilibrium of the alternating offers game if the horizon is infinite with a finite horizon the properties of the equilibrium are more satisfying than the properties of the equilibrium of the alternating offers game

unions and strikes with asymmetric information strikes seem to be a pareto inefficient outcome of bargaining between a union and a firm however this paper shows that strikes can be the outcome of rational behavior by both agents if the firm has more information than the union concerning the state of nature the union can use strikes as a way of gaining information the paper uses an asymmetric information model where the firm has information about the state i e profitability that the union does not know the schedule of wage offers by the union then depends on the probability that a given state will occur

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

tribunal specialization and institutional targeting in patent enforcement recent scholarship on nonmarket strategies has sought to understand organizational decisions to target specific institutional venues for nonmarket actions we contribute to this emerging literature by studying institutional targeting between specialized and general purpose tribunals which are available to resolve disputes in a number of settings whereas prior work on institutional targeting has primarily focused on the differences in the policy preferences of public actors and the susceptibility of policy positions to influence activities we focus on the differences in expertise and procedural flexibility that typically accompany tribunal specialization we develop a theory about targeting decisions forum shopping in such contexts which suggests two main drivers of tribunal targeting expected settlement and expected returns drawing on these mechanisms we formulate hypotheses linking tribunal targeting decisions to firm level attributes such as market strategic stakes institutional distance from competitors and tribunal specific capabilities our hypotheses are tested using a novel data set of patent enforcement against u s imports which also sheds light on nonmarket strategies in patents

strategic liquidity supply and security design we study how securities and issuance mechanisms can be designed to mitigate the adverse impact of market imperfections on liquidity in our model asset owners seek to obtain liquidity by selling claims contingent on privately observed future cash flows liquidity suppliers can be competitive or strategic in the optimal trading mechanism associated to an arbitrary given security issuers with low cash flows sell their entire holdings of the security while issuers with high cash flows are typically excluded from trade by designing the security optimally issuers can avoid exclusion altogether we show that the optimal security is debt because of its low informational sensitivity debt mitigates the adverse selection problem furthermore by pooling all issuers with high cash flows debt also reduces the ability of a monopolistic liquidity supplier to exclude them from trade in order to better extract rents from issuers with lower cash flows

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

bargaining and strikes strikes are generally regarded as an important economic phenomenon and yet good theoretical explanations of them are hard to come by the difficulty is to understand why rational parties should resort to a wasteful mechanism as a way of distributing the gains from trade why could not both parties be made better off by moving to the final distribution of surplus immediately or if it is uncertain to its certainty equivalent and sharing the benefits from increased production

bargaining over reform abstract this paper models the delay in a macroeconomic stabilization as the outcome of a bargaining game between two parties who must reach an agreement over how the stabilization cost is to be shared the paper modifies alesina and drazen s 1991 american economic review 81 1170 1189 war of attrition model by endogenizing the distribution of the stabilization costs through a bargaining game using this bargaining framework the paper analyzes the role of crises and foreign assistance in bringing about a settlement to the distributional conflict in the bargaining game a crisis that increases the welfare loss from not stabilizing the economy will lower the probability of delay in contrast foreign aid that is used to reduce the stabilization costs will further increase the delay in reaching an agreement between the two parties

strategic delay in bargaining this paper analyses a bargaining model with incomplete information in which the time between offers is an endogenous strategic variable we find equilibria involving a delay to agreement that is due to the use of strategic time delay by bargainers to signal their relative strength under some specifications of the parameters delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction this delay does not vanish as the minimal time between offers becomes small

is strike behavior cyclical we examine cyclicality of strike frequency and incidence using canadian data on strikes and contracts total strike frequency exhibits significant procyclicality to which within contract strikes contribute appreciably evidence is weaker for procyclical behavior of contract expiry strikes both in total and disaggregated by issue strike incidence is also procyclical particularly in manufacturing though the procyclicality here is confined to strikes over nonwage issues these results mirror those obtained by analyzing the frequency of strikes in the contract data industry specific cyclical variables positively affect strike incidence in manufacturing but region specific variables have no effect

wage bargaining with time varying threats we study wage bargaining in which the union is uncertain about the firm s willingness to pay and threat payoffs vary over time strike payoffs change as replacement workers are hired as strikers find temporary jobs and as inventories or strike funds run out we find that bargaining outcomes are substantially altered if threat payoffs vary if dispute costs increase in the long run then dispute durations are longer settlement rates are lower and wages decline more slowly during the short run and may even increase the settlement wage is largely determined from the long run threat rather than the short run threat

misrepresentation of utilities in bargaining pure exchange and public good economies in order to analyze bargaining in pure exchange and public good economics when the agents are not informed about their opponents payoffs we embed each bargaining problem into a noncooperative game of misrepresentation in pure exchange public good economies with an arbitrary number of agents whose true utilities satisfy a mild assumption the set of allocations obtained at the linear strategies nash equilibria of this game is equal to the set of constrained walrasian lindahl allocations with respect to the agents true utilities without this assumption the result holds for two agent pure exchange economies and under alternative assumptions for public good economies c 2002 elsevier science usa

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

union contracts and money wage changes in u s manufacturing industries this paper analyzes the relationship between wage changes negotiated in selected large collective bargaining agreements and industry wide changes in average hourly earnings multiple regressions are used to examine the relationship in two digit manufacturing industries for the period 1958ii to 1978il negotiated wage changes are found to have a major impact on overall movements in hourly earnings the estimated equations have potential applications for short run wage forecasting and for policy analyses

uniqueness of equilibrium payoffs in the stochastic model of bargaining abstract i provide a sufficient condition for the uniqueness of equilibrium payoffs in a model of stochastic bargaining with unanimity rule and risk averse players my condition s implies condition c of merlo and wilson 1995 and is easy to verify in applications

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

staying in business abstract the paper analyses factors which help a small entrepreneurial firm to stay in business the time scale for the analysis is three years 1985 1988 the main issue that the paper is concerned with is the role of market and financial variables primary source data are used an estimated probit model indicates that for this sample product range and gearing are the key maket and financial variables respectively the greater the product range and the lower the gearing ceteris paribus the better the chances of staying in business

bargaining with deadlines and imperfect player control anecdotal and experimental evidence suggests that bargaining sessions subject to deadlines often begin with cheap talk and rejected proposals agreements if they are reached at all tend to be concluded near the deadline we attempt to capture and explain these phenomena in a strategic bargaining model that incorporates a bargaining deadline the possibility of strategic delay and a lack of perfect player control over the timing of offers imperfect player control is generated by an exogenous uniformly distributed random delay in offer transmission our model has a symmetric markov perfect equilibrium unique at almost all nodes in which players adopt strategic delay early in the game make and reject offers later on and reach agreements late in the game if at all in equilibrium players miss the deadline with positive probability the expected division of the surplus is unique and close to an even split

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

bargaining with endogenous deadlines we develop a two person negotiation model with complete information that makes endogenous both the deadline and the level of surplus destruction after the deadline we show that the undominated nash equilibrium outcome is always unique but might be inefficient moreover as the bargaining period becomes short or as the players become very patient the unique undominated nash equilibrium outcome is always inefficient

dynamic bargaining with transaction costs a buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations the seller s valuation is common knowledge but the buyer s valuation is known only by the buyer impatience to reach an agreement comes from two sources the traders discount future payoffs and there are transaction costs of bargaining equilibrium behavior involves either immediate trade delayed trade or immediate termination depending on the size of the gains from trade and the relative bargaining costs this contrasts with the pure discounting model where termination never occurs and the pure transaction cost model where delayed trade never occurs

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

tough negotiations bilateral bargaining with durable commitments abstract we offer a tractable model of tough negotiations and delayed agreement the setting is an infinite horizon bilateral bargaining game in which negotiators can make strategic commitments to durable offers commitments decay stochastically but uncommitted negotiators can make new commitments the game s unique markov perfect equilibrium outcome takes the form of a war of attrition negotiators initially commit to incompatible offers but agreement occurs once a negotiator s commitment decays if commitments decay more quickly the terms of the agreement become more equal in expectation more patient committed and less risk averse negotiators obtain a larger fraction of the surplus

irresponsible lending with a better informed lender we present a simple model of personal finance in which an incumbent lender has an information advantage vis a vis both potential competitors and households in order to extract more consumer surplus a lender with sufficient market power may engage in irresponsible lending approving credit even if this is knowingly against a household s best interest unless rival lenders are equally well informed competition may reduce welfare this holds in particular if less informed rivals can free ride on the incumbent s superior screening ability this article proposes a new framework for analysing household or consumer lending using its past experience with borrowers in the same local area or borrowers facing similar economic conditions a sophisticated lender may often have a better estimate of a household s default probability than the household itself i derive the conditions where such information asymmetry can lead to irresponsible or too aggressive lending in which case credit is approved even though this is knowingly against a household s best interest admittedly the more standard approach is to assume that borrowers represent the better informed party while we do not want to dismiss the importance of borrower adverse selection the presumption that sophisticated and experienced lenders can estimate the default probability better than individual borrowers may be particularly suitable if borrowers are households individual households may not have statistically accurate information about the likelihood of say losing their job in an economic downturn or of incurring large medical bills in the future both of which may cause them to default on a loan on the other hand we do not presume that households own estimates are biased on average i borrow the assumption of informed lending from inderst and m ller 2006 where a lender is better informed about the expected cash flow from a newly financed project my current analysis is tailored instead towards household finance and my focus is on whether too aggressive lending can occur in equilibrium this focus is motivated by the particular attention that policy makers have given to this issue for instance in the uk various reports and taskforces on consumer lending practices and more generally on the surge of household debt have brought up

a non cooperative bargaining game with risk averse players and an uncertain finite horizon abstract for an alternating offer bargaining game with an uncertain horizon the equilibrium payoff to a player is greater the less risk averse is he relative to his opponent as the horizon becomes infinite in length the equilibrium partition converges to the nash bargaining solution

informed lending and security design we examine the role of security design when lenders make inefficient accept or reject decisions after screening projects lenders may be either too conservative in which case they reject positive npv projects or too aggressive in which case they accept negative npv projects in the first case the uniquely optimal security is debt in the second case it is levered equity in equilibrium profitable projects that are relatively likely to break even are financed with debt while less profitable projects are financed with equity highly profitable projects are financed by uninformed arm slength lenders professional lenders have specialized expertise in screening projects unlike the typical entrepreneur to whom they lend they have been exposed to a wide variety of projects in the past professional lenders have experienced loan officers and analysts who know precisely what information is relevant how to treat soft information such as management quality and how to weigh the various pieces of information in making a forecast of the project s cash flows and default risk this paper examines how securities should be optimally designed when lenders make inefficient accept or reject decisions after screening projects in our model screening generates an informative albeit private signal about the project s profitability high signals indicate a positive net present value npv and low signals indicate a negative npv where the project s npv is increasing

dynamic bargaining with action dependent valuations abstract an infinite horizon dynamic bargaining model is presented in which actions affect the expected future value of the buyer seller match because actions directly affect the future surplus to be bargained over the model is unlike other models that tie the dynamic process to nature alone focusing on a subset of weak markov equilibria several results come about that are not found in static bargaining models using similar bargaining protocols in particular optimal price demands can be lower higher than the buyer s lowest highest possible valuation and several empirical features concerning wage settlements and strike incidence from labor union contract negotiations can be explained

extreme screening policies abstract we show that a lender often experiences increasing marginal returns to screening in a standard setting where the lender decides how intensively to screen the projects of prospective borrowers the increasing marginal returns imply that even small changes in industry parameters can produce large changes in equilibrium screening intensity in particular a small reduction in the expected return from borrowers projects can produce a pronounced increase in the screening of prospective borrowers with substantial corresponding welfare effects

multilateral bargaining with concession costs this paper presents a new non cooperative approach to multilateral bargaining we consider a demand game with the following additional ingredients i there is an exogenous deadline by which bargaining has to end ii prior to the deadline players may sequentially change their demands as often as they like iii changing one s demand is costly and this cost increases as the deadline gets closer the game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided moreover this equilibrium is invariant to the particular order and timing in which players make demands this is important as multilateral bargaining models are sometimes too sensitive to these particular details in our context players with higher concession costs obtain higher shares of the pie their increased bargaining power stems from their ability to credibly commit to a demand earlier we discuss how the setup and assumptions are a reasonable description for certain real bargaining situations

the advantageous nature of risk aversion in a three player bargaining game where acceptance of a proposal requires a simple majority abstract in a three player bargaining game in which acceptance of a proposed allocation requires only the approval of a simple majority it is shown that the most least risk averse player receives the highest lowest expected share when the preferences of the players are not too diverse

inventories and public information in private negotiation a laboratory market study using laboratory markets this research investigates the impacts of reporting different kinds of aggregated trade information to buyers and sellers who conduct transactions through bilateral private negotiation there are a limited number of bargaining rounds or matches between buyer and seller pairs sellers hold a perishable inventory before negotiations begin we find that knowledge of trades along with price improves the coordination and bargaining position of buyers trade prices are lower and buyer earnings are higher relative to the no information treatment or when just past quantities or just past prices are reported market efficiency declines as public information is reported copyright 2007 oxford university press

inventory accumulation wages and employment this paper analyzes the effect of inventory accumulation on the outcome of wage and employment agreements between a union and a firm a two period model is set up with bargaining in each period and the paper analyzes under what circumstances inventories will be held even if demand and production conditions are constant it is found that inventories have an important strategic role they bring forward employment and strengthen the bargaining position of the firm in the later period however the firm s strategic use of inventories will generally be to the detriment of both parties copyright 1991 by royal economic society

private information in executive stock option trades evidence of insider trading in the uk uk executives stock option exercises and associated sell decisions are motivated by private inside information executives use their inside information to lock in short term gains and to sell stock acquired prior to negative abnormal stock returns this informed trading is robust to the alternative factors that might motivate the exercise of executive stock options including option moneyness and value of exercise we suggest that the disparity in informed trading between us and uk executives option trades is related to important differences in the proportion of executive remuneration linked to options the regulation of options and the taxation of option gains

an empirical test of an asymmetric information model of strikes recent developments in the theory of strategic bargaining demonstrate how informational asymmetries can lead to prolonged and costly bargaining these models can be applied to contract negotiations yielding an economic theory of strikes to date however few empirical tests of these models have been carried out in this paper a set of predictions concerning the incidence and unconditional duration of strikes is derived from a simple bargaining model in which the union is uncertain about the firm s future profitability these predictions are then tested on a micro data set of major u s contract negotiations that took place from 1973 to 1977

us money supply announcements and pacific rim stock markets evidence and implications this paper documents variation across pacific rim countries in the response of equity values to us m1 announcement suprises we relate the difference across countries to measures of capital mobility export trade with the usa foreign exchange and money market arrangements and correlation with the us stock market we find that the response to us m1 suprises is best explained by the country s degree of integration with international capital markets the flexibility of the exchange rate and interest rates may also be significant while the evidence is supportive of the anticipated fed reaction theory of the effect of money announcement suprises the differing response ro m1 shocks across fed policy regimes remains unexplained

negative externalities may cause delay in negotiation we study the strategic equilibria of a negotiation game where potential buyers are affected by identity dependent negative externalities the unique equilibrium of long finitely repeated generic games can either display delay where a transaction can take place only in several stages before the deadline or in spite of the random element in the game a well defined buyer exists that obtains the object with probability close to one

optimal long term financial contracting we develop an agency model of financial contracting we derive long term debt a line of credit and equity as optimal securities capturing the debt coupon and maturity the interest rate and limits on the credit line inside versus outside equity dividend policy and capital structure dynamics the optimal debt equity ratio is history dependent but debt and credit line terms are independent of the amount financed and in some cases the severity of the agency problem in our model the agent can divert cash flows we also consider settings in which the agent undertakes hidden effort or can control cash flow risk

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

bargaining with history dependent preferences abstract two impatient players bargain over a pie of size one according to the infinite alternating offers procedure players payoffs depend not only on the outcome but also on the process of the bargaining specifically they prefer impasse to any agreement that gives them lower discounted utility than would have been derived from accepting earlier offers we characterize the essentially unique subgame perfect equilibrium path which consists of gradual concessions the more patient players are the longer it takes them to reach an agreement when players become infinitely patient the efficiency loss is substantial yet the equilibrium division converges to the nash solution

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

us money supply and global business cycles 1979 2009 this article investigates the effects of the us money supply shock on global business cycles by employing a global vector autoregressive model containing 26 economies over the period from 1979q2 to 2009q4 the us money supply is incorporated as an endogenous variable for the us and a global factor for other economies when a positive us money supply shock hits the global economy developed economies such as the us euro area and the uk will have neither real output decline nor inflation pressure while china and some other developing countries are going to have a significant decline of real gdp the international spillover of the liquidity effect exists the global effects of quantitative easing are discussed as well

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

durable goods coasian dynamics and uncertainty theory and experiments this paper presents a model in which a durable goods monopolist sells a product to two buyers each buyer is privately informed about his own valuation thus all players are imperfectly informed about market demand we study the monopolist s pricing behavior as players uncertainty regarding demand vanishes in the limit in the limit players are perfectly informed about the downward sloping demand we show that in all games belonging to a fixed and open neighborhood of the limit game there exists a generically unique equilibrium outcome that exhibits coasian dynamics and in which play lasts for at most two periods a laboratory experiment shows that consistent with our theory outcomes in the certain and uncertain demand treatments are the same median opening prices in both treatments are roughly at the level predicted and considerably below the monopoly price consistent with coasian dynamics these prices are lower for higher discount factors demand withholding however leads to more trading period

reputational bargaining and deadlines i highlight how reputational concerns provide a natural explanation for deadline effects the high frequency of deals prior to a deadline in bargaining rational agents imitate the demands of obstinate behavioral types and engage in brinkmanship in the face of uncertainty about the deadline s arrival i also identify how surplus is divided when the prior probability of behavioral types is vanishingly small if behavioral types are committed to fixed demands outcomes converge to the nash bargaining solution regardless of agents respective impatience if behavioral types can adopt more complex demand strategies outcomes converge to the solution of an alternating offers game without behavioral types for the deadline environment

the effect of u s money supply announcements on canadian stock bond and currency prices this paper documents associations between weekly u s money supply releases and four price series from canada s financial markets two significant results emerge first the toronto stock index government of canada bond prices and canadian short term interest rates change with surprises in the announced level of u s m1 since the u s began targeting money growth in october 1979 these effects do not appear to be transmitted through canadian monetary variables second the canada u s exchange rate is uncorrelated with u s m1 surprises this suggests that the bank of canada prefers to stabilize the exchange rate rather than the interest rate

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

information production dilution costs and optimal security design abstract we investigate the problem of a firm wishing to finance a project by issuing securities under asymmetric information we find that when outside investors can produce noisy information on the firm s quality the degree of information asymmetry resulting in equilibrium is endogenous and depends on the information sensitivity of the security issued thus in contrast to the prediction of the pecking order theory see e g myers and majluf j financial econom 13 1984 187 a security with low sensitivity to private information such as debt does not always dominate one with high information sensitivity such as equity a firm s preference for equity rather than debt depends on the costs of information production the precision of the information production technology and the extent of the information asymmetry we also study the optimal security design problem and find that depending on the cost and precision of the information production technology risky debt or a composite security with a convex payoff emerges as optimal securities

does local financial development matter we study the effects of differences in local financial development within an integrated financial market we construct a new indicator of financial development by estimating a regional effect on the probability that ceteris paribus a household is shut off from the credit market by using this indicator we find that financial development enhances the probability an individual starts his own business favors entry of new firms increases competition and promotes growth as predicted by theory these effects are weaker for larger firms which can more easily raise funds outside of the local area these effects are present even when we instrument our indicator with the structure of the local banking markets in 1936 which because of regulatory reasons affected the supply of credit in the following 50 years overall the results suggest local financial development is an important determinant of the economic success of an area even in an environment where there are no frictions to capital movements

optimality of debt under flexible information acquisition we study the optimality of debt through the interaction between se curity design and information acquisition an impatient seller designs an asset backed security and a buyer decides whether to buy it to provide liquidity facing dierent securities the buyer has incentives to acquire in formation from dierent aspects of the fundamental which in turn aects security design speci cally the buyer bene ts from information acqui sition at the expense of the seller through adverse selection the seller hence deliberately designs the security to induce the buyer to acquire the information least harmful to the seller s interest since securities can be designed in arbitrary ways the resulting incentive to acquire information is very exible thus we introduce exible information acquisition to capture this interaction we show that debt is uniquely optimal com pared with the security design literature we neither assume monotonicity of the feasible securities nor impose various distributional assumptions on the fundamental or information structures fixed aggregate cash ow and homogeneous information cost are two key factors driving the results jel d86 d82 g32

damaged durable goods i analyze a durable goods monopolist s incentives to introduce a damaged good a stripped down version of the original good in an infinite horizon framework the damaged good helps the monopolist to mitigate the coasian time inconsistency problem however it may lead to a welfare reduction low valuation buyers are induced to purchase the low quality damaged good early rather than buy the high quality original good later and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions this welfare result contrasts with the previous literature based on a static framework

on delay in bargaining with one sided uncertainty recently attention has been given to a model of two person bargaining in which the parties alternate making offers and there is uncertainty about the valuation of one party the purpose of the analysis has been to identify delay to agreement with a screening process where agents with relatively lower valuations distinguish themselves by waiting longer to settle we point out a fundamental difficulty with this program by demonstrating that the assumptions used in the literature allow for delay only in so far as the time between offers is significant

optimal design of securities under asymmetric information a firm must decide what security to sell to raise external capital to finance a profitable investment opportunity there is ex ante asymmetry of information regarding the probability distribution of cash flow generated by the investment in this setting we derive necessary and sufficient conditions for a security to be optimal uniquely optimal that is for pooling at this security to be an the unique equilibrium outcome using these conditions we show that the debt contract is uniquely optimal if and only if cash flows are ordered by strict conditional stochastic dominance finally we derive an equivalence relationship between optimal security designs and designs that minimize mispricing