the possibility of informationally efficient markets abstract a rational expectations equilibrium with positive demand for financial information does exist under fully revealing asset price contrary to a wide held conjecture whereas a continuum of investors is inconsistent with fully revealing equilibrium finitely many investors with average portfolios demand information in equilibrium if they can adjust portfolio size in an additive signal return model more information diminishes the expected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off under fully revealing price information market equilibria both with and without information acquisition are pareto efficient

the communications and information economy issues tariffs and economics research areas abstract this survey paper analyses some of the fundamental economic issues concerning the communications and information economy the first highlighted major trends are the balkanisation of the communications networks and the advent of competitive tariffs this leads to a move away from time and distance based charges to tariffs covering bandwidth service and contents use it is noted that very few resources have gone into the analysis of that sector and its inter relations with others the paper advocates for more visibility and research into the unique aspects of the communications and information sector it does so by making an inventory of key economics and computational economics research issues in need of contributions selected from the following areas public communications infrastructure and tariffing principles sales of communications services public access and equal access policies competitive access pricing communications industry finance engineering economic studies information contents macroeconomic issues finally the specific aspects of models of the communications and media sector are addressed in view of modelling work this includes variables pricing and production models for both communications and information contents the most unique contribution is here a formal model for quantifying and pricing knowledge both for consumption and for assets building

delegated portfolio management abstract a problem of screening agents with privately known forecasting abilities and reservation utilities and then eliciting truthful information from these agents once they are employed is considered for the case of risk averse agents and large principals an approximately optimal solution is constructively characterized under the assumption that payoffs are normally distributed a significant extension of the definnetti savage probability elicitation result is developed under this extension knowledge of agent preferences is not required when the underlying conditional distributions are symmetric and this fact is exploited to solve the screening problem in a mean variance formulation

time consistency and bureaucratic budget competition high employment protection in the public sector results in strategic over employment if government divisions compete for budgets in a dynamic setting bureaucrats who are interested in maximising their divisions output employ excess labour since this induces the sponsor to provide complementary inputs in the future restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring we also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection the results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation 2008 the author s journal compilation royal economic society 2008

incumbent employees resistance to implementing privatization policy abstract the recent anti privatization trend in latin america france and south africa is a reminder that employees resist privatization because pre privatization firms tend to be over manned and to pay excessive wages we study the effect of employees resistance on the successful implementation of privatization in a stylized model in which the government interacts with employees of an unknown type the analysis clarifies some of the difficulties associated with the implementation process furthermore although common sense dictates that the government negotiates with the employees before finding an outside buyer we show that sometimes it is better off contacting an investor first

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

international income inequality 2005 2011 what a difference 6 years can make while much attention has recently been given to the rising inequality in high income countries particularly the us inequality across countries has received less attention based on reports of the international comparison program which provide the most accurate measures of ppp income at the country level this study computes three highly recommended measures of intercountry income inequality for the years 2005 and 2011 a dramatic and perhaps unprecedented fall in intercountry inequality over the relatively short period of 6 years is noted as a correlate of the fall in intercountry inequality aggregate ppp gdp for six major high income countries is compared with that for three large developing countries and the dramatic increase over the 6 year period in the ratio of the total gdp of the three developing countries to that for the six high income countries is noted thus extending from the most accurate data the theme of the rise of the south articulated in human development report 2013

the value of recommendations abstract many markets without repeated seller buyer relations feature third party monitors that sell recommendations we analyze the profit maximizing recommendation policies of such monitors in an infinitely repeated game with seller moral hazard and short lived consumers a monopolistic monitor with superior information about the seller s past effort decisions sells recommendations about the seller to consumers we show that the monitor has an incentive to make its recommendations hard to predict which in general leads to inefficient effort provision by the seller these results hold under perfect and imperfect monitoring and in a variety of informational setting when there are multiple competing sellers the conflict between the monitor s profit maximization objective and efficient effort provision is mitigated

equilibrium price formation and the value of private information an economy is analyzed in which agents first choose whether to acquire costly information about the return to a risky asset and then choose demand functions that determine the allocation of assets it is a well known paradox that if agents are price takers and prices are fully revealing then an equilibrium with costly information acquisition does not exist it is shown that if the price formation process is modeled explicitly and agnets are not price takers then it is possible to have an equilibrium with fully revealing prices and costly information acquisition article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information revelation through option exercise in many real world situations agents must formulate option exercise strategies with imperfect information in such a setting agents may infer the private signals of other agents through their observed exercise strategies the building of an office building the drilling of an exploratory oil well and the commitment of a pharmaceutical company toward the research of a new drug all convey private information to other market participants this article develops an equilibrium framework for option exercise games with asymmetric private information many interesting aspects of the patterns of equilibrium exercise are analyzed in particular informational cascades where agents ignore their private information and jump on the exercise bandwagon may arise endogenously article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

reservation wage and optimal contract for experts abstract we examine the optimal contract for experts with type dependent reservation wage we show that bhattacharya and pfleiderer 1985 s result the possibility of achieving the truthful revelation of information with full surplus extraction can be achieved with relaxing the restriction on the shape of reservation wage schedules this outcome can be achieved through payoff functions that are affine in a convex transformation of the ex post error our result is applied to the case of multiple experts

marketing information a competitive analysis selling information that is later used in decision making constitutes an increasingly important business in modern economies jensen jensen fred o 1991 information services congram friedman eds the ama handbook of marketing for the service industries chapter 22 ama com new york 423 443 information is sold under a large variety of forms industry reports consulting services database access and or professional opinions given by medical engineering accounting financial and legal professionals among others this paper is the first attempt in marketing to study competition in the rapidly emerging information sector specifically we are interested in answering the following questions 1 is competition fundamentally different when competing firms sell information rather than traditional goods and services and if yes why 2 what are the implications of such differences for decision makers marketers and regulators 3 can we explain some of the observed marketing strategies in the information industry as such the audience of the paper includes academics as well as professionals who are interested in understanding what is specific about competition in information markets familiarity with the practical implications of such differences and understanding of the mechanisms that drive them is essential for those who are faced with the problem of marketing information to answer the above research questions we build a simple game theoretic model that consists of two firms selling information to a population of consumers who are heterogeneous in their willingness to pay for the quality of information the most important features of the model are the following information products sold by the two firms are modeled as random draws from two normal distributions having equal mean the variances of these distributions and their correlatedness constitute the product attribute space which is assumed to be common knowledge consumers are interested in assessing the mean of the distributions and to do so they can buy the sample from any of the firms or they can buy both samples and combine them to obtain a more accurate estimate quality of information is linked to the accuracy of consumers estimate of the mean which in turn is influenced by the accuracy of each sample as well as by their correlatedness consumers utility depends on the quality of information they purchased on their inherent utility for quality taste and on the total price they paid to acquire information knowing consumer preferences firms simultaneously price their information products the main finding of the paper is that information markets face unique competitive structures in particular the qualitative nature of competition changes depending on basic product characteristics while traditional products and services compete either as substitutes or as complements in the relevant product attribute space information may be one or the other depending on its position within the same product attribute space said differently the nature of competition changes qualitatively with a continuous change in basic product attribute levels the intuition behind this finding is the following when purchasing information consumers facing important decisions may find it beneficial to purchase from several information sellers this is more likely to happen when the reliability of information is low and the sources of information are independent under such conditions information products tend to be complements and as a result competition between sellers is relatively mild in the opposite case when information is reliable and or sellers sources are highly correlated consumers are satisfied after consulting a single source in this case information products are substitutes and sellers tend to undercut one another s prices to induce consumers to choose their brand understanding this discontinuity in competitive structures has important implications for decision makers as very different strategies are optimal under different product characteristics under substitution traditional strategies to avoid competition e g differentiation are recommended when the competing products reliability is generally low they are complements firms are better off accommodating competition in fact we find that a firm may benefit from inviting a competitor finally our findings are also important for regulators of information markets as the literature on complementarity suggests price fixing agreements between firms offering complementary products may benefit firms as well as consumers

on the political economy of uk pension scheme regulation we take the opportunity of the recent consultation exercise on uk defined benefit pension schemes conducted by the pensions regulator to examine the approach to pension scheme portfolio management that it and the related pension protection fund have adopted after summarising the regulatory basis we identify three essential building blocks for further examination the notion of matching liabilities to long term government bonds the use of standard deviation of return as a measure of risk and the idea that strategic asset allocation is the most important decision in portfolio management this last one the brinson axiom we examine these foundations individually and then collectively with the aid of two unobtrusive postulates the first being the efficient markets hypothesis and the second that pension scheme assets should be used to purchase only those securities with minimal default risk from the perspective of what we have elsewhere called the keynes graham schema we conclude that the foundations are unsound and that the conventional approach adopted not only by both the regulator and the protection fund but also by the major actuarial consultancies induces if not actually requires pension schemes to engage in speculation rather than investment

on existence and uniqueness of equilibrium in a class of noisy rational expectations models i study a general class of noisy rational expectations models that nests the standard grossman and stiglitz 1980 and hellwig 1980 models but relaxes the usual assumption of joint normality of asset pay offs and supply and allows for more general signal structures i provide a constructive proof of existence of equilibrium characterize the price function and provide sufficient conditions for uniqueness within the class of equilibria with continuous price functions which are met by both the grossman and stiglitz 1980 models and the hellwig 1980 models with a continuum of investors my solution approach does not rely on the typical conjecture and verify method and i exhibit a number of non normal examples in which asset prices can be characterized explicitly and in a closed form the results presented here open up a broad class of models for applied work to illustrate the usefulness of generalizing the standard model i show that in settings with non normally distributed pay offs shocks to fundamentals may be amplified purely due to learning effects price drifts can arise naturally and the disagreement return relation depends in a novel way on return skewness

strategic choices of quality differentiation and pricing in financial services abstract two financial services firms fsfs produce information on future returns from risky assets incorporate this information in a report and sell the reports to investors the fsfs make strategic choices of the quality differentiation and prices of their reports their optimal strategic choices of quality and differentiation divide the market for the report into three segments each fsf has a monopoly in its own segment and the two compete head to head in a duopoly segment the sizes of the monopoly segments increase with increases in quality and differentiation an increase in differentiation reduces the size of the duopoly market while an increase in quality has an ambiguous effect on the duopoly market for high enough equilibrium differentiation the size of the duopoly market decreases with an increase in quality the non cooperative fsfs pursue niche strategies each focusing on a different related set of risks in order to coordinate the contents of their reports to achieve the equilibrium degree of product differentiation recent years have seen a worldwide wave of financial firm mergers and acquisitions this paper s model suggests that in equilibrium fsfs differentiate their products and develop profitable niches in principle however sufficiently strong economies of scope could lead to a small number of fsfs with little differentiation that dominate all financial services markets

direct sale of information when precision is unobservable this paper studies the incentives of an information seller to produce precise information in a setting where precision is not observable and investors with rational expectations can extract information from the equilibrium asset price i show that the seller can verify her unknown precision by employing a nonlinear contract proposed by bhattacharya and p eiderer 1985 although precision is not observable buyers can perfectly deduce it from the contract apart from incentives to produce precise information and reveal it truthfully the nonlinear contract also insures against the portfolio risk of information buyers and causes them to trade aggressively for a given precision this increases the extent of information that is built into the equilibrium asset price the seller s equilibrium fee depends on i her inferred precision ii the value of portfolio insurance for buyers and iii the extent of information that leaks from the equilibrium asset price

research note cost uncertainty is bliss the effect of competition on the acquisition of cost information for pricing new products we examine the optimal acquisition of information about a common uncertain cost factor by two competing firms seeking to price a new product we show that existing findings regarding the acquisition of demand information or the acquisition of either cost or demand information related to quantity decisions do not extend to this case for cost information with price competition the information acquisition strategies are strategic substitutes even though the price decisions that are based on the information are strategic complements competition decreases the expected value of cost information moreover when competition is intense and the cost of information low identical firms do not acquire the same amount of cost information even when information is free cost uncertainty acts like a fog that lessens the destructive effect of price competition when products are close substitutes and thus increases expected profits buyers on the other hand are better off when competing firms are informed about cost even though the expected value of cost information strictly decreases with competition the optimal price for industry specific cost information set by an information vendor increases with competition when the firms products are sufficiently substitutable

relative performance of incentive mechanisms computational modeling and simulation of delegated investment decisions this paper evaluates the relative performances of several well known and widely used incentive mechanisms under controlled experimental conditions the scenario utilized is a delegated investment setting where effort and risk aversions contribute to moral hazard among fund managers analytical intractability of the problem requires a computational modeling approach to simulate comparative solutions for specific contracts under different parametric settings through a simulation exercise we consider multiple agents who decide their investment strategy over several consecutive periods agents learn about estimation and market uncertainty through repeated realizations of investment returns in each sequence of periods a number of different incentive mechanisms based on the agent s communication and or outcome are considered results of the computational experiments are presented our results overwhelmingly show the efficacy of the incentive contracts in improving the welfare of the investors in the presence of an estimation risk when agents learn from their past performances the market volatility interacts with the estimation risk that makes risk sharing arrangements such as limited liability overly important paying the agent to assume the risk may no longer lead to the best performance incentives

brokerage commission schedules it is generally optimal for risk sharing reasons to base a charge for information on the signal realization when this is not possible a charge based on the amount of trading a brokerage commission may be a good alternative the optimal brokerage commission schedule is derived for a risk neutral information seller faced with risk averse purchasers who may differ in their risk aversion revenues from the brokerage commission are compared with those from a fixed charge for information and the optimal mutual fund management fee the brokerage industry is a significant source of information for investors about prospective security returns one indication of this is that of the 11 817 members of the association for investment management and research who listed their occupations as investment management or research in 1991 21 percent worked for brokers and investment dealers another is that since the abolition of fixed commissions a distinction has arisen between full service brokers who provide investors with investment information and discount brokers who charge lower commissions and provide only transaction services 1 the information produced by broker research is typically provided free of charge to investors in the expectation that it will stimulate trade rewarding the brokerage house with commissions 2 this paper compares the sale of investment information in return for a brokerage commission with direct sale for a fixed payment and indirect sale through the provision of investment management services in return for a

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

measuring investment performance in a rational expectations equilibrium model much research has been concerned with evaluating the performance of managed portfolios e g mutual funds and examining whether portfolio managers display in some sense superior performance superior performance would seemingly turn on the possession of superior information that is utilized in managing portfolios in general a fund s asset holdings or portfolio weights might not be observable to an outsider whether they are or not however they are likely to change over time this happens especially when better performance is a result of superior information since managers will change their portfolio composition on obtaining private information since such changes must be taken into account the problem of measuring performance of managed portfolios is inherently different from that of evaluating the performance of individual assets groups of assets or generally portfolios with constant and known composition

when cheaper is better fee determination in the market for equity mutual funds abstract in this paper we develop a model of the market for equity mutual funds that captures three key characteristics of this market first there is competition among funds second fund managers ability is not observed by investors before making their investment decisions third some investors do not make optimal use of all available information the main results of the paper are that 1 price competition is compatible with positive mark ups in equilibrium and 2 worse performing funds set fees that are greater or equal to those set by better performing funds these predictions are supported by available empirical evidence

markets for information of inefficient firewalls and efficient monopolies in this paper we study market environments where information is costly to acquire and is also useful to potential competitors agents may sell or buy reports over the information acquired and choose their trades in the market on the basis of what they learnt reports are unverifiable cheap talk messages hence the quality of the information transmitted depends on the conflicts of interest faced by the senders we find that when information has a prevalent horizontal differentiation component in equilibrium information is acquired when its costs are not too high and in that case it is also sold though reports are typically noisy the market for information is in most cases a monopoly and there is underinvestment in information acquisition we also show that regulatory interventions in the form of firewalls only make the inefficiency worse efficiency can be attained with a monopolist selling differentiated information provided entry is blocked

international inequalities in human development and real income abstract two well recommended measures are used to compute intercountry inequalities in real gdp per capita ry and the index of human development hdi despite very high positive correlation between ry and hdi the inequality measures reveal dramatically different pictures

how not to pay for advice a framework for consumer financial protection abstract this paper investigates the determinants of the compensation structure for brokers who advise customers regarding the suitability of financial products our model explains why brokers are commonly compensated indirectly through contingent commissions paid by product providers even though this compensation structure could lead to biased advice when customers are wary of the adviser s incentives contingent commissions can be an effective incentive tool to induce the adviser to learn which specialized product is most suitable for the specific needs of customers if instead customers naively believe they receive unbiased advice high product prices and correspondingly high commissions become a tool of exploitation policy intervention that mandates disclosure of commissions can protect naive consumers and increase welfare however prohibiting or capping commissions could have the unintended consequence of stifling the adviser s incentive to acquire information more vigorous competition benefits consumers and reduces exploitation but firms have limited incentives to educate naive customers

price and quality in a new product monopoly in a signal extraction model of consumer behaviour higher prices signal higher quality products for a new product monopoly even without cost asymmetries across different qualities moreover higher quality products earn greater expected profits and the monopolist has an incentive to provide even transient improvements in quality finally the monopolist has a positive incentive to conduct market research about quality and produces more information than is socially optimal

on aggregation of information in competitive markets the dynamic case abstract this article examines in the spirit of hellwig 1980 how a dynamic competitive security market aggregates and communicates information between various market participants at every instant it employs a continuous time economy consisting of a large number of heterogeneous agents who are endowed with noisy private signals about the risky asset payoff of differing precision it yields a stationary rational expectations equilibrium in which at every instant the agents use information contained in the market prices without rendering their private information redundant it shows that the market price reflects only that part of private information which is common to many signals and thus extends hellwig s single period results to a multi period model

the design and price of information abstract a data buyer faces a decision problem under uncertainty he can augment his initial private information with supplemental data from a data seller his willingness to pay for supplemental data is determined by the quality of his initial private information the data seller optimally offers a menu of statistical experiments we establish the properties that any revenue maximizing menu of experiments must satisfy every experiment is a non dispersed stochastic matrix and every menu contains a fully informative experiment in the cases of binary states and actions or binary types we provide an explicit construction of the optimal menu of experiments jel d42 d81 d82 d83

forecasting the forecasts of others implications for asset pricing we develop a dynamic asset pricing model with heterogeneously informed agents unlike previous research we focus on the general case where differential information leads to the problem of forecasting the forecasts of others and to non trivial dynamics of higher order expectations in particular we prove that the model does not admit a finite number of state variables using numerical analysis we compare equilibria characterized by identical fundamentals but different information structure we demonstrate that the distribution of information has substantial impact on equilibrium prices and returns in particular we show that asymmetric information can generate momentum in returns and high trading volume

information sales and insider trading with long lived information fundamental information resembles in many respects a durable good hence the eects of its incorporation into stock prices depend on who is the agent controlling its flow similarly to a durable goods monopolist a monopolistic analyst selling information intertemporally competes against herself this forces her to partially relinquish control over the information flow to traders conversely an insider solves the intertemporal competition problem through vertical integration thus exerting a tighter control over the flow of information comparing market patterns i show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades

privatization labor and social safety nets privatization promotes economic efficiency and growth thereby reinforcing macroeconomic adjustment in the short run however it can lead to job losses and wage cuts for workers this paper discusses these adverse impacts of privatization in terms of various methods of privatization and surveys the existing empirical evidence it finds that public sales and auctions can have stronger negative effects on workers but maximize the government s revenue policymakers options for mitigating the social impact of privatization are surveyed copyright 2001 by blackwell publishers ltd

diversification in parametric rational expectations economies abstract it is shown that in large parametric rational expectations models even when investors receive private signals about different subsets of assets all investors hold diversified portfolios

optimal portfolio choice under incomplete information models of asset pricing generally assume that the variables which characterize the state of the economy are observable however the distributional properties of asset prices that are relevant for portfolio decisions are in general not observable and therefore must be estimated the estimation of expected returns is a particularly difficult problem and estimation errors are likely to be substantial in this light it is reasonable to examine whether the assumption of observability of expected returns and other relevant state variables causes significant mis specification in equilibrium models of asset prices this paper has three main objectives first to derive optimal estimators for the unobservable expected instantaneous returns using observations of past realized returns second to establish that estimation and portfolio choice can be solved in two separate steps third to analyze the impact of estimation error on investment choices the estimators of expected returns are in general not consistent i e the estimation error does not tend to disappear asymptotically the effects of the estimation error therefore cannot be ignored even if realized returns are observed continuously over an infinite time period

stock recommendation of an analyst who trades on own account this paper analyzes how to provide information acquisition and truthful reporting incentives to a financial analyst who privately trades on own account the analysis exploits the observation that for a given report the analyst s reward scheme essentially provides him with a portfolio endowment traded in the market for every signal the analyst makes the report that corresponds to the portfolio endowment with maximum market value given security prices the principal cannot make the analyst strictly prefer to report the true signal the analyst is truthful only when indifferent between the two reports the analyst s information acquisition incentive is driven only by private portfolio considerations he acquires information only if he will be holding a large enough position in the stock he covers the paper also presents a general separation of the optimal report from private information result and illustrates that performance based reward schemes can fail to induce any information revelation when the analyst privately trades

fees versus royalties and the private value of a patent we compare how much profit an owner of a patented cost reducing invention can realize by licensing it to an oligopolistic industry producing a homogeneous product by means of a fixed fee or a per unit royalty our analysis is conducted in terms of a noncooperative game involving n 1 players the inventor and the n firms in this game the inventor acts as a stackelberg leader and it has a unique subgame perfect equilibrium in pure strategies it is shown that licensing by means of a fixed fee is superior to licensing by means of a royalty for both the inventor and consumers only a drastic innovation is licensed to a single producer

herding in delegated portfolio management when is comparative performance information desirable abstract we address the issue of investors asset allocation decisions when portfolio management is delegated to an agent contrary to predictions from traditional financial theory it is shown that investors may not induce their manager to allocate funds to the asset with the highest return instead they may herd in their asset allocation decision and induce trade in a particular asset because another manager is trading in it and despite the presence of a more profitable alternative doing so allows investors to write an efficiency improving relative performance contract on the other hand herding leads investors to design wage contracts strategically resulting in more aggressive and thus less profitable trade in equilibrium we show that herding occurs when the cost of information is high information precision is low and when managers are sufficiently risk averse moreover when investors can decide whether or not to disclose information about their manager s performance they will not do so

using propensity matching estimators to evaluate the impact of privatization on wages whether the transfer of ownership rights to the private sector leads to a decline or increase in wage growth is theoretically ambiguous given that the outcome depends on the uncertain interaction between firms and workers using propensity matching techniques this article investigates the effects of privatization on wages in the portuguese banking industry the empirical results obtained from quadros de pessoal for the period between 1989 and 1997 generally show a negative positive short run long run effect of privatization on relative wage growth for both men and women retained in the privatized firms moreover the results show that the most educated and experienced oldest workers as well as those in the high skill occupational categories were more likely to experience a negative wage effect

viable allocations of information in financial markets abstract we study in the context of a financial market allocations of information that are consistent with endogenous information acquisition we focus on whether information is concentrated within a fraction of the market or is diffuse the aggregation of information in prices tends to make signals more complementary than they would be if considered in isolation favoring concentration of information however the ability to use some signals together with prices to predict other signals may increase the degree of substitutability among signals we present conditions under which each of these effects is particularly strong

a model of the demand for investment banking advising and distribution services for new issues this paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer and the issuer cannot observe the distribution effort expended by the banker the optimal contract under which the offer price decision is delegated to the better informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized the model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues an investment banker performs three functions which may be of value to an issuer of new securities underwriting advising and distribution this paper presents a theory of the demand for investment banking advising and distribution services based on an informational asymmetry between an issuer of new securities and an investment banker ultimately a theory of the organization of the financial intermediary industry is required that would predict which firms would use which types of financial intermediaries for which purposes and which firms would raise capital without engaging the services of a financial intermediary only a limited set of such predictions are developed here in the context of a model of a fixedprice offering under a negotiated contract in which the investment banker is

optimal contracts in a continuous time delegated portfolio management problem this article studies the contracting problem between an individual investor and a professional portfolio manager in a continuous time principal agent framework optimal contracts are obtained in closed form these contracts are of a symmetric form and suggest that a portfolio manager should receive a fixed fee a fraction of the total assets under management plus a bonus or a penalty depending upon the portfolio s excess return relative to a benchmark portfolio the appropriate benchmark portfolio is an active index that contains risky assets where the number of shares invested in each asset can vary over time rather than a passive index in which the number of shares invested in each asset remains constant over time fund managers compensation schemes in a delegated portfolio management setting have been of special interest to both academics and practitioners academic interest stems in part from the rapid growth of managed funds over the last two decades gompers and metrick 1998 report that by december 1996 mutual funds pension funds and other financial intermediaries held discretional control over more than half of the u s equity market it is thus of importance to study the impact of institutional trading on asset prices and to integrate into one model both asset pricing and delegated portfolio management compensation as advocated by brennan 1993 allen and santomero 1997 and allen 2001 it is also important to understand the relationship between a manager s trading strategies and his implicit incentives or career concerns see e g brown harlow and starks 1996 brown goetzmann and park 1997 chevalier and ellison 1999 and chen and pennacchi 2000 these concerns include internal promotion from a small to a large fund higher outside offers and the flow of money through the fund under management 1 the importance of fund manager compensation is also underscored by congressional passage in 1970 of the amendment to

sale of price information by exchanges does it promote price discovery exchanges sell both trading services and price information we study how the joint pricing of these products affects price discovery and the distribution of gains from trade in an asset market a wider dissemination of price information reduces pricing errors and the transfer from liquidity traders to speculators this effect reduces the fee that speculators are willing to pay for trading therefore to raise its revenue from trading a for profit exchange optimally charges a high fee for price information so that only a fraction of speculators buy this information as a result price discovery is not as efficient as it would be with free price information this problem is less severe if the exchange must compensate liquidity traders for a fraction of their losses this paper was accepted by wei xiong finance

the role of information acquisition and financial markets in international macroeconomic adjustment abstract international macroeconomic adjustment to money supply aggregate expenditure and relative demand disturbances is analyzed within a framework which emphasizes the role of information agents are unable to directly observe disturbances and may become fully informed about disturbances only by purchasing information we analyze how relative price and exchange rate adjustment depends on the variances of the underlying disturbances while taking into account the incentive to acquire information we also discuss the conditions which are necessary to preclude a free rider problem whereby uninformed agents are able to extract from observation of financial market conditions the exact information of the information buyers

competition in portfolio management theory and experiment we explore theoretically and experimentally the general equilibrium price and allocation implications of delegated portfolio management when the investor manager relationship is nonexclusive our theory predicts that competition forces managers to promise portfolios that mimic arrow debreu ad securities which investors then combine to fit their preferences a weak version of the capital asset pricing model capm obtains where state prices relative to state probabilities implicit in prices of traded securities will be inversely ranked to aggregate wealth across states our experiment broadly corroborates the price and choice predictions of the theory however price quality deteriorates when only a few managers attract most of the available wealth wealth concentration increases because funds flow toward managers who offer portfolios closer to replicating ad securities as in the theory but also because funds flow to managers who had better performance in the immediate past an observation unrelated to the theory this paper was accepted by jerome detemple finance

multi period information markets abstract this article examines the single shot decision problem of a monopolistic information seller selling a flow of information in a dynamic framework in a generalized version of wang s 1993 economy it shows that the profit maximizing strategy of the seller is to sell his information as is but only to a fraction of traders it argues that this strategy of selling information is different from that in a static model mainly due to the very different nature of constraints faced by the information seller in a dynamic framework

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

market equilibria with endogenous hierarchical information abstract a competitive industry in which there is both stochastic demand and a production lag is examined all agents observe costless endogenous information prices and informed agents also observe costly exogenous information solutions for market equilibria are found under quite general conditions a number of issues are examined including 1 1 the way in which prices transmit information from the informed to the uninformed 2 2 how the specification of the private information set and of the stochastic processes driving demand influence market equilibria 3 3 whether the equilibrium distribution of information may expected to be hierarchical and 4 4 whether the equilibrium distribution of information is socially optimal

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

what do we know about global income inequality in this paper we review the recent literature on global interpersonal income inequality while all estimates agree that the level is very high with a gini of between 0 630 and 0 686 in the 1990s there is no consensus regarding the direction of change we discuss methodological issues including the use of national accounts versus survey based estimates of mean income or consumption and the choice of purchasing power parity exchange rates findings of a rise or fall in global income inequality are not robust across different estimation methods and datasets given the diversity of estimates and various sources of uncertainty including gaps and errors in the underlying data we conclude there is insufficient evidence to determine the direction of change in global interpersonal inequality in recent decades

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed