efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

optimal regulation under fixed rules for income distribution abstract it is by now well known that if arbitrary lump sum transfers are feasible then the optimal regulation of firms involves marginal cost pricing here we consider optimal regulation in an economy in which lump sum taxation is possible but the income distribution is in some sense fixed we show that under certain conditions production efficiency and marginal cost pricing are desirable in general however this need not be the case in an economy with increasing returns it is possible that the second best utility possibility frontier is strictly dominated by the pareto frontier and none of the marginal cost pricing equilibria lie on the second best frontier

endogenous market segmentation for lemons information asymmetry between sellers and buyers often prevents socially desirable trade this article presents a new mechanism that mitigates the inefficiencies caused by information asymmetry i consider decentralized markets under adverse selection and show that such markets can be endogenously segmented in a way that improves social welfare endogenous segmentation is driven by low quality sellers incentive to attract more buyers by separating from high quality sellers the mechanism helps us understand the roles of several real world institutions such as multiple marketplaces costless advertisements and nonbinding list prices

an extension of the second welfare theorem to economies with nonconvexities and public goods in this paper we report a generalization of the results of foley and guesnerie on the second welfare theorem to economies with arbitrary nonconvex production sets the nature of marginal cost prices in such economies is clarified through the use of the clarke tangent cones

public offers in the market for lemons with large discounting i show that bargaining impasse in horner and vieille 2009 can be interpreted as the limit of bargaining delay the maximal duration of the game increases unboundedly as the seller s discount factor approaches the threshold level above which bargaining impasse occurs

bargaining search and outside options abstract this paper studies a two sided incomplete information bargaining model between a seller and a buyer the buyer has an outside option which is modeled as a sequential search process during which he can choose to return to bargaining at any time two cases are considered in regime i both agents have symmetric information about the search parameters we find that in contrast to bargaining with complete information the option to return to bargaining is not redundant in equilibrium however the no delay result still holds in regime ii where agents have asymmetric information about the outside option delay is possible the solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table

financial literacy and participation in the derivatives markets we set out in this study to determine whether individuals with higher levels of financial literacy are more likely to be active participants in the derivatives markets our empirical results based upon an official national survey undertaken by the financial supervisory commission of taiwan reveal that even after controlling for stock market participation rates financial literacy represents a significant benefit to individuals since it helps them to lower the entry barriers to purchasing complex derivatives products we also find that household wealth gender residential location and diverse sources of information have significant effects on participation rates in the derivatives markets furthermore when taking into consideration issues of accessibility or measurement error the positive effects of financial literacy on derivatives market participation are found to remain largely unchanged

the optimal enforcement of insider trading regulations regulating insider trading lessens the adverse selection problem facing market makers enabling them to quote better prices an optimal enforcement policy must balance these benefits against the costs of enforcement such a policy must specify i the conditions under which the regulator conducts an investigation ii the penalty schedule imposed if an insider is caught and iii a transaction tax to fund enforcement we derive the policy that maximizes investors welfare this policy entails investigations following large trading volumes or large price movements or both insiders caught making large trades are assessed the maximum penalty but small trades are not penalized given this policy insiders trade most aggressively on news with an intermediate price impact but refrain from trading on moderate or extreme news

bargaining and waiting until recently the final word on bargaining with full information had been rubinstein s 1982 seminal work which concluded that an agreement will be reached immediately and the first mover will have the advantageous share rubinstein s model was one of alternating offers made at fixed time intervals many variations of the model have emerged and until recently they mainly focus on asymmetric information with some having the uninformed agent making all the offers the conclusion from examining these variations is that the equilibrium is highly sensitive to the exact specification of the institutional structure in more recent work perry and reny 1990 perry and reny 1993 sakavics 1993 and nickerson sadanand and sadanand 1994 endogenize the structure of the bargaining by allowing the order and timing of play to be determined endogenously the first three papers endogenous structure models deal with the full information setting and the last is an asymmetric information model 2 in addition to the exogenously given minimum reaction time for responding to offers made by the other player the endogenous structure models introduce the important innovation of an exogenous waiting time a time between a player s offer and his next offer they also allow players to make simultaneous offers which sakovics later disallows the findings in this recent literature are rather startling i the waiting time has a profound impact the longer the time the greater the share the player can command 3 ii the consequence of simultaneous offers is multiple equilibria when the reaction time is zero a continuum of shares lying between the two unique rubinstein shares can result and additional continua of shares arise with delayed agreement when the reaction times are positive iii equilibrium paths are almost exclusively characterized by simultaneous offers in this paper we examine the question of simultaneous offers and reconcile the conflict between the infrequency of simultaneous offers in real life bargaining and their prevalence in the endogenous structure models we

dynamic adverse selection and the supply size in this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller s private information while the realized distribution of qualities is public information we obtain that full trade occurs in every dynamic competitive equilibrium moreover we show that if prices can be conditioned on the supply size then a dynamic competitive equilibrium always exists while it fails to exist if prices cannot be conditioned on the supply size and the frequency of exchanges is high enough we conclude that the possibility to condition prices on the supply size allows us to reach efficiency in the limit for exchanges becoming more and more frequent while otherwise the welfare loss due to delays of exchanges remains bounded away from zero

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

bargaining with arrival of new traders we study dynamic bargaining with asymmetric information and arrival of exogenous events which represent arrival of traders or information we char acterize the unique limit of stationary equilibria with frequent offers the possi bility of arrivals changes equilibrium dynamics there is delay in equilibrium and the seller slowly screens out buyers with higher valuations the seller pay off equals what he can achieve by simply awaiting an arrival in applications when buyer valuations fall average prices drop and delay increases surplus division depends on relative arrival rates of buyers sellers and expected time to trade is a nonmonotonic function of the arrival rate

insider trading outside search and resource allocation why firms and society may disagree on insider trading restrictions we show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal we examine a model in which an insider manager allocates resources on the basis of his private information and outside information conveyed through the secondary market price of the firm s shares if the manager is allowed to trade he will compete with informed outsiders reducing the equilibrium quality of outside information while the benefits to production of outside information are the same for society and entrepreneurs we show that the social and private costs are different thus entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

bargaining and sharing innovative knowledge we consider the problem of bargaining over the disclosure of interimresearch knowledge between two participants in an r d race for an ultimate patentable invention licence fee schedules that are functions of the amount of knowledge disclosed by the leading to the laggingagent are examined for their abilities to attain efficient outcomes andvarying shares of the surplus arising from disclosure in hersequential offers bargaining games the uninformed buyer is able to elicitfull disclosures without sharing the incremental surplus with any type ofthe licensor and thus do as well as a perfectly informed and discriminatingknowledge licensee

a non cooperative bargaining theory with incomplete information verifiable types abstract we consider a non cooperative sequential bargaining game with incomplete information where two players negotiate for mechanisms with ex post verifiable types at the interim stage we prove the existence of a stationary sequential equilibrium of the bargaining game where the ex post nash bargaining solution with no delay is asymptotically implemented with probability one further the ex post nash bargaining solution is a unique outcome of a stationary equilibrium under the property of independence of irrelevant types iit whereby the response of every type of a player is independent of allocations proposed to his other types and under a self selection property of their belief

ioffe s normal cone and the foundations of welfare economics abstract we announce an example of an economy with an infinite dimensional commodity space for which the extension of the second fundamental theorem of welfare economics is valid if marginal rates of substitution are formalized in terms of either the clarke normal cone or the ioffe normal cone but in which the former is strictly contained in the latter this is in direct contradiction to the finite dimensional situation

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

where should the line be drawn on insider trading ethics finance ethics have drawn increasing attention from both government regulators and academic researchers this paper addresses the issue of insider trading ethics previous studies on insider trading ethics have failed to provide convincing arguments and consistent results in particular the arguments against insider trading are based primarily on moral and philosophical grounds and lack empirical rigor this study intends to establish and examine the relationship between the ethical issue and economic issue of insider trading we argue that the ethics of insider trading is in essence an economic rather than a moral issue it is so far not clear to what extent insider trading may increase or decrease shareholders wealth until then we must take care to avoid over regulating insider trading

risk aversion liquidity and endogenous short horizons we analyze a competitive model in which different information signals get reflected in value at different points in time if investors are sufficiently risk averse we obtain an equilibrium in which all investors focus exclusively on the short term in addition we show that increasing the variance of informationless trading increases market depth but causes a greater proportion of investors to focus on the short term signal which decreases the informativeness of prices about the long run finally we also explore parameter spaces under which long term informed agents wish to voluntarily disclose their information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

public vs private offers in the market for lemons we study the role of observability in bargaining with correlated values short run buyers sequentially submit offers to one seller when previous offers are observable bargaining is likely to end up in an impasse in contrast when offers are hidden agreement is always reached although with delay

uncertainty about uncertainty and delay in bargaining we study a one sided offers bargaining game in which the buyer has private information about the value of the object and the seller has private information about his beliefs about the buyer s valuation we show that this uncertainty about uncertainties dramatically changes the set of outcomes in particular second order beliefs can lead to a delay in reaching agreement even when the seller makes frequent offers we show that not all types of second order beliefs lead to a delay when the buyer assigns positive probability to the seller knowing the buyer s value then delay not only can occur but it must occur for a class of equilibria however in all other cases delay will never occur

two part marginal cost pricing equilibria with n firms sufficient conditions for existence and optimality the authors explore the interactions among firms with increasing returns regulated to break even by pricing with two part tariffs they provide conditions for existence and for efficiency of general equilibria with n firms this involves finding hookup fees that are voluntarily paid and cover the firms losses from marginal cost pricing a problem that because of both substitution and income effects is complicated by multiple firms using two part tariffs but that must be solved to ensure the continuity of demands necessary to prove break even equilibria exist copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

better later than never an experiment on bargaining under adverse selection a central result in the literature on bargaining with asymmetric information is that the uninformed party buyer can screen the informed party seller over time screening eliminates trade failures that are otherwise common in the presence of adverse selection but the downside of the bargaining institution is the cost associated with repeated offers and time frictions this article reports an experimental test of these predictions we find that rates of trade are substantially higher in the bargaining institution than in control treatments in which we remove the possibility to make repeated offers take it or leave it offer or the time frictions however we also observe a persistent overdelay before agreements are reached that is bargaining takes longer than theoretically predicted this lowers efficiency below its predicted level and below the level observed in the take it or leave it offer institution we identify possible channels for overdelay in the form of fairness preferences and loss aversion concluding that there are important behavioral deviations from the standard model that are detrimental to the efficiency of bargaining under incomplete information

insider trading legislation and corporate governance this paper analyzes the impact of insider trading legislation on corporate governance in a context where large dominant shareholders can monitor underperforming companies managers have an incentive to give early warnings about adverse developments to dominant shareholders this information is effectively a bribe to induce dominant shareholders to sell their stock and refrain from intervention if insider trading is unregulated dominant shareholders collude with management at the expense of small shareholders the optimal regime forces the company to disclose all material information to the market private contracting between companies and shareholders leads to optimal insider trading regulation only if initial shareholders can enter a binding commitment otherwise large shareholders and managers recontract at the expense of small share holders enforcement also matters european union legislation requires inside information to be precise such a narrow definition creates a grey zone where information is private but cannot be classified as inside information as a result the effectiveness of corporate governance and firm value are reduced regulation in the us that treats shareholders with a stake exceeding 10 as insiders is potentially harmful

learning and complementarities in speculative attacks we study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision we show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non fundamental volatility into exchange rates and policy decisions we show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market and that transparency may either increase or decrease the effectiveness of learning from the market depending on how it is implemented

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

bargaining and search with recall a two period model with complete information two standard results of previous bargaining models state that delay is generally not expected to occur under complete information and bargaining outcome depends crucially on the bargainers intrinsic characteristics that determine their reservation prices and in general bargainers with better reservation prices tend to get better outcomes this paper considers a bilateral bargaining problem with complete information in which one of the bargainers the buyer is allowed to search while bargaining more importantly we assume that the buyer is allowed to recall past outside offers we find that quite contrary to the standard results of previous complete information bargaining models complete information renders no guarantee for immediate resolution of bargaining and the effect of changing the buyer s search cost on each player s bargaining outcome is unpredictable the major driving force of these two results is the assumption that the buyer can recall past outside offers

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

incomplete information bargaining with outside opportunities we consider two kinds of outside opportunity that a seller of an indivisible good might have selling to a different buyer and consuming the good herself in both models the seller is uncertain about the buyer s valuation and becomes more pessimistic over time when the seller becomes sufficiently pessimistic she prefers the outside opportunity so she will not bargain indefinitely with the current buyer despite the resulting finite horizon nature of negotiations the link between the buyer s willingness to accept an offer and the seller s eagerness to go outside generates multiple equilibria

existence of competitive equilibrium under financial constraints and increasing returns abstract this paper studies a factor cost in advance model with increasing returns in production in the model both partial equilibrium and general equilibrium may exist since working capital of firms limit their input demand we provide a sufficient condition for the existence of partial equilibrium of a firm operating on a non convex choice set furthermore we establish the existence and uniqueness of competitive equilibrium in the special case of logarithmic utility

imperfect competition and efficiency in lemons markets this article studies the impact of competition on the degree of inefficiency in lemons markets more precisely we characterise the second best mechanism i e the optimal mechanism with private information in a stylised lemons market with finite numbers of buyers and sellers we then study the relationship between the degree of efficiency of the second best mechanism and market competitiveness a general message of our results is that increasing competition may not help lemons markets in some circumstances moreover increasing competition beyond a certain degree increases the distance between the first best and second best levels of efficiency

selling a lemon under demand uncertainty we consider a seller who has private information about the quality of her good but is uncertain about buyer arrivals assuming that the high quality seller insists on a price we show that the low quality seller s surplus and pricing strategy crucially depend on buyers knowledge about the demand state if they are also uncertain about demand then demand uncertainty increases the low quality seller s expected payoff and her optimal strategy is to lower the price after some time if buyers know the demand state then demand uncertainty does not affect the low quality seller s payoff but she must employ a sophisticated pricing strategy

early settlement in european merger control we analyse the determinants of early settlement between merging parties and the european commission over remedies that remove concerns of anticompetitive effects this extends the previously narrow range of econometric literature on early settlement consistent with the theory of early settlement our results confirm the importance of delay costs and of uncertainty measured by the complexity of the economic analysis required for each merger we also find a non monotonic effect of agency resourcing which raises questions about the commission s efficiency in times of high case load econometrically we select a sample of merger decisions in which the european commission intervened due to concerns of anticompetitive effects and our selection model provides estimates of the factors determining intervention by the commission conclusions are drawn for public policy

selling procedures with private information and common values the seller posted price procedure is probably the most common method for making transactions in modern economies we analyze the performance of posted pricing for transactions having significant common value elements in a model of two sided private information we characterize the fully revealing perfect equilibrium offer strategy of the seller we also characterize equilibrium behavior under two other pricing procedures a sealed bid procedure and a direct revelation mechanism finally we examine the efficiency of these procedures and show that as the degree of common values increases fewer mutually beneficial agreements are attained

earnings and price based compensation contracts in the presence of discretionary trading and incomplete contracting abstract the paper analyzes the use of reported accounting earnings and price as a basis for compensating a manager when he trades on private information and share price is set rationally based on privately held information publicly available and contractible information and publicly available but noncontractible information in addition we analyze the comparative statics of the compensation on reported earnings and price with respect to changes in the economy

bridging the gap bargaining with interdependent values abstract we study dynamic bargaining with asymmetric information and interdependent values we base our analysis on the equilibria characterized by deneckere and liang 2006 for the gap case we show that as the gap between the cost and value of the weakest type shrinks to zero the continuous time limit of equilibria changes dramatically from rare bursts of trade with long periods of inactivity to smooth screening over time in the double limit prices are independent of the shape of the distribution of values when the uninformed agent s ability to commit to prices disappears so do her rents yet trade still exhibits delay

competitive equilibrium convergence in a posted offer market with extreme earnings inequities abstract we present the results of five laboratory posted offer experiments in which the competitive equilibrium model predicts that all exchange profits are received by one side of the market thus defining a boundary condition price converges to the prediction more slowly when buyers rather than sellers receive the exchange surplus apparently due to the increased market power of sellers in this trading mechanism a model of the seller s decision in this market is developed to explain this result we also observe costly signalling and tacit collusion in our experiments

trading frenzies and their impact on real investment we study a model in which a capital provider learns from the price of a firm s security in deciding how much capital to provide for new investment this feedback effect from the financial market to the investment decision gives rise to trading frenzies in which speculators all wish to trade like others generating large pressure on prices coordination among speculators is sometimes desirable for price informativeness and investment efficiency but speculators incentives push in the opposite direction so that they coordinate exactly when it is undesirable we analyze the effect of various market parameters on the likelihood of trading frenzies to arise

costly search with adverse selection solicitation curse versus acceleration blessing we analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes a low quality seller benefits more from trade and therefore searches more intensively than a high quality seller this makes a seller s contact carry negative information but a seller s availability become a stronger indicator of high quality in the stationary environment the two effects exactly offset each other and reducing search costs is weakly beneficial to the seller in the nonstationary environment the relative strengths of the two effects vary over time and reducing search costs can be detrimental to the seller

dynamic trading with developing adverse selection abstract we study a dynamic trading game in which the information asymmetry between the agents develops over time a seller and potential buyers start out symmetrically uninformed about the quality of a good but the seller becomes informed after the game begins we show that this developing adverse selection gives rise to novel trading dynamics in particular if the seller s learning speed is high the equilibrium features collapse and recovery behavior both the equilibrium price and the trade probability first drop and then increase over time while the trade surplus monotonically decreases as the learning speed increases the seller s surplus may change non monotonically

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

sequential bargaining with correlated values the paper analyzes an infinite horizon sequential bargaining game with one sided offers between a buyer and a seller when the buyer s valuation depends on the seller s the seller knows the value of the object and the buyer does not the influence of relative discount factors on the solution is studied it is shown for example that an impasse may result if the buyer offeror is too impatient relative to the seller the buyer makes a single take it or leave it offer

marginal cost pricing under bounded marginal returns most of the available results on the existence of marginal cost pricing equilibrium are unsatisfactory in that they make a survival assumption that is stated as a condition on the production equilibria of the economy the primary objective of this paper is to provide a relatively elementary existence result that replaces such an assumption with one on the primitive data of the economy the author s main assumption is that no firm faces unbounded increasing returns in the sense that if it uses some input then the rate at which this input can be substituted into an output is finite copyright 1992 by the econometric society

a theory of bargaining deadlock abstract i study a dynamic one sided offer bargaining model between a seller and a buyer under incomplete information the seller knows the quality of his product while the buyer does not during bargaining the seller may receive an outside option the value of which depends on the quality of the product if the outside option is sufficiently important there is an equilibrium in which the buyer s belief about the product s quality stays constant and she continues to make the same randomized offer throughout the bargaining process as a result the equilibrium behavior produces an outcome path that resembles a bargaining deadlock and its resolution the equilibrium outcome exhibits bargaining delay that does not vanish even with frequent offers and the limiting delay may exist even without a static adverse selection problem under stronger parametric assumptions the equilibrium with deadlock is the only one in which behavior is monotonic in the buyer s belief

search with adverse selection this paper analyzes a sequential search model with adverse selection we study information aggregation by the price how close the equilibrium prices are to the full information prices when search frictions are small we identify circumstances under which prices fail to aggregate information well even when search frictions are small we trace this to a strong form of the winner s curse that is present in the sequential search model the failure of information aggregation may result in inefficient allocations

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

bargaining with common values this paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated it shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement the paper characterizes the unique perfect bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller it also shows by example that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade

dynamic market for lemons with endogenous quality choice by the seller we analyze a dynamic market for lemons in which the quality of the good is endogenously determined by the seller potential buyers sequentially submit offers to one seller the seller can make an investment that determines the quality of the item at the beginning of the game which is unobservable to buyers at the interim stage of the game the information and payoff structures are the same as in the market for lemons our main result is that the possibility of trade does not create any efficiency gain if i the common discounting is low and ii the static incentive constraints preclude the mutually agreeable ex ante contract under which the trade happens with probability one our result does not depend on whether the offers by buyers are private or public

general equilibrium when some firms follow special pricing rules in this paper we study the existence of a general equilibrium in an economy in which some of the firms behave competitively whereas others follow special pricing rules an even casual observation of economic reality confirms the need for the inclusion of price setting firms in the study of general equilibrium models and in fact this has been emphasized in the economic literature for some time we consider this a sufficient justification to present a general equilibrium model which allows for both types of behavior price setting as well as price taking behavior the model to be presented will account for a wide range of price setting rules we however find it appropriate to point out at the start that not all economically relevant price setting rules are covered although our model permits the drawing of useful conclusions for the general equilibrium theory of oligopolistic competition through prices it is not especially designed for that purpose in particular our results are not applicable to the general equilibrium analysis with price making monopolistic firms a subject on which there exists some literature 2 our motivation as well as our modelling options and assumptions are directed to two fields where an increased interest in the theoretical foundations recently could be noticed

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

the impact of stock market information production on internal resource allocation abstract we analyze the resource allocation decision of a manager inside a multidivision firm whose compensation is based on the firm s stock price we find that internal investments exhibit a positive correlation across the firms divisions namely when two single division firms merge the optimal investment level in one division becomes more positively related to the investment level in the other division in addition following a spinoff divisional investments decline increase whenever the separated division has a project with a low high sharpe ratio finally multidivision firms trade at a discount which is larger the more diverse the investment sets of the divisions

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a decentralized market with common values uncertainty non steady states we analyse a market where i trade proceeds by random and anonymous pairwise meetings with bargaining ii agents are asymmetrically informed about the value of the traded good and iii no new entrants are allowed once the market is open we show that information revelation and efficiency never obtain in equilibrium even as discounting is removed this holds whether the asymmetry is two sided or one sided in some cases there exist equilibria where a substantial amount goes untraded this contrasts with the earlier literature which was based on the steadystate equilibria of a model where agents enter the market every period

market based corrective actions many economic agents take corrective actions based on information inferred from market prices of firms securities examples include directors and activists intervening in the management of firms and bank supervisors taking actions to improve the health of financial institutions we provide an equilibrium analysis of such situations in light of a key problem if agents use market prices when deciding on corrective actions prices adjust to reflect this use and potentially become less revealing we show that market information and agents information are complementary and discuss measures that can increase agents ability to learn from market prices the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

strategic voting over strategic proposals prior research on strategic voting has reached the conclusion that unanimity rule is uniquely bad it results in destruction of information and hence makes voters worse off we show that this conclusion depends critically on the assumption that the issue being voted on is exogenous that is independent of the voting rule used we depart from the existing literature by endogenizing the proposal that is put to a vote and establish that under many circumstances unanimity rule makes voters better off moreover in some cases unanimity rule also makes the proposer better off even when he has diametrically opposing preferences in this case unanimity is the pareto dominant voting rule voters prefer unanimity rule because it induces the proposing individual to make a more attractive proposal the proposing individual prefers unanimity rule because the acceptance probabilities for moderate proposals are higher we apply our results to jury trials and debt restructuring

bargaining with endogenous information two ex ante identically informed agents play a double auction over the division of a trading surplus with endogenous information and common values this paper shows that if information acquisition is not observable three types of inefficiencies can arise if the information cost is in an intermediate range no pure strategy equilibrium with trade exists although the agents maintain symmetric information if the information cost is low any trading equilibrium exhibits costly information acquisition if the agents face asymmetric information cost the akerlof s lemons problem arises as a self fulfilling equilibrium and only partial trade occurs

posturing and holdup in innovation we show that the need to posture can help solve the holdup problem inherent in many multistage relationships including those between entrepreneurs and venture capitalists posturing arises when an informed party needs to send a strong signal to induce skeptical third parties like employees suppliers customers or competitors to develop maintain relationships with the firm or take other actions that increase firm value in the venture capital context this can be credibly achieved if the vc publicly invests at high prices in later rounds this tempers holdup by shifting ex post bargaining power toward the entrepreneur inducing him to exert greater effort

feedback effects and asset prices feedback effects from asset prices to firm cash flows have been empirically documented this finding raises a question for asset pricing how are asset prices determined if price affects fundamental value which in turn affects price in this environment by buying assets that others are buying investors ensure high future cash flows for the firm and subsequent high returns for themselves hence investors have an incentive to coordinate which may generate self fulfilling beliefs and multiple equilibria using insights from global games we pin down investors beliefs analyze equilibrium prices and show that strong feedback leads to higher excess volatility

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

inside trading and incentives the traditional arguments against inside trading insiders take advantage of other investors inside trading profits overcompensate managers see ross 1979 too much information is collected if inside trading is allowed see fama and laffer 1971 hirshleifer 1971 emphasize the social costs of prohibiting such trading without explaining the private incentives shareholders have to sanction this trading the efficiency argument in favor of inside trading inside trading improves the functioning of the stock market because information as a public good will be underproduced unless those who acquire it profit through inside trading demsetz 1969 does not explain shareholders support of inside trading because the owners of a firm do not seek to improve the efficiency of the stock market by sacrificing trading profits to insiders several alternative hypotheses for shareholders failure to impose restrictions on inside trading have been advanced this paper analyzes shareholders incentives to sanction inside trading i show that if a manager of a firm is initially compensated with earnings contingent contracts then the welfare of that manager and all of the firm s shareholders can be improved by allowing the manager to trade on his private information this result is established in the context of a multiple principal the shareholders single agent the manager model with the manager s trades observable ex post and is robust with respect to the specification of investors preferences and the definition of stock market equilibrium the topic of this paper originated in conversations with steve allen his comments as well as those of nicholas dopuch daniel fischel sanford grossman merton miller robert verrecchia and other members of the workshops on the applications of economics and on accounting research both at the university of chicago are gratefully acknowledged 1 for a list of such arguments see references in manne 1966 chap 1

existence of marginal cost pricing equilibria the nonsmooth case in this article we report a general existence theorem of a marginal cost pricing equilibrium for an economy which may exhibit increasing returns to scale or more general types of nonconvexities in the production sector our model considers an arbitrary number of firms and no smoothness assumption is made on their production sets or on the aggregate production set in this article we report a general existence theorem of marginal cost pricing equilibria for an economy which may exhibit increasing returns to scale or more general types of nonconvexities in the production sector in our model which considers a positive finite numbers 1 of commodities m of consumers and n of firms a consumers maximize their preferences subject to their budget constraints b convex producers maximize profits while nonconvex producers are instructed to follow the marginal pricing rule i e they fulfill the first order necessary condition for profit maximization in a precise mathematical sense formalized with clarke s normal cone our treatment of convex and nonconvex producers will in fact be symmetric the technological possibilities of the jth producer j 1 n

the existence of marginal cost pricing equilibria with increasing returns the competitive mechanism fails in economies with nonconvex technologies competitive equilibria do not exist in general and pareto optima are no longer equilibria the search for alternative mechanisms in economies with increasing returns was developed and resulted in the principle of marginal cost pricing modern economic theory has returned to the foundations of marginal cost pricing theory in a general equilibrium framework the existence of equilibria with marginal cost pricing in economies with increasing returns and a more general type of nonconvexities is analyzed in this paper the case of differentiable economies where all production sets are limited by smooth surfaces is developed the principles of the proof are also extended to the nondifferentiable case

on durable goods markets with entry and adverse selection we investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time the model is a dynamic version of akerlof 1970 identical cohorts of durable goods whose quality is known only to potential sellers enter the market over time we show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry market failure is reflected in the length of waiting time before trade the model also provides an explanation of market fluctuations jel classification d82 a propos des marches de biens durables quand il y a entree de nouveaux commercants et selection adverse les auteurs analysent la nature du commerce et du triage engendres par le mecanisme dynamique des prix dans un marche concurrentiel de biens durables quand il y a selection adverse et entree exogene de nouveaux commercants dans le temps ce modele est une version dynamique du modele d akerlof 1970 des cohortes identiques de biens durables dont la qualite est connue seulement des vendeurs potentiels arrivent sur le marche dans le temps il semble qu il y ait plus de commerce actif que ce qui est prevu par un modele statique en particulier on montre qu il existe un equilibre cyclique ou tous les biens sont transiges a l interieur d un nombre fini de periodes apres leur arrivage et que a chaque phase du cycle l eventail de qualite des biens transiges s accroit les commercants qui transigent des produits de plus haute qualite attendent plus longtemps et l imperfection du marche se traduit par la longueur de temps d attente avant la transaction le modele fournit aussi une explication des fluctuations du marche

bargaining and the right to remain silent this paper analyzes a class of alternating offer bargaining games with one sided incomplete information for the case of no gap if sequential equilibria are required to satisfy the additional restrictions of stationarity monotonicity pure strategies and no free screening we establish the silence theorem when the time interval between successive periods is made sufficiently short the informed party never makes any serious offers in the play of alternating offer bargaining games a class of parametric examples suggests that the time interval required to assure silence is not especially brief as a byproduct of the analysis we also prove under the same set of assumptions a uniform version of the coase conjecture when the time interval between successive periods is made sufficiently short the initial serious offer by either party in an alternating offer bargaining game must be less than e times the highest possible buyer valuation for an entire family of distribution functions