investment based financing constraints and debt renegotiation we consider how equity holders bargaining power during financial distress influences the interactions between financing and investment decisions when the firm faces the upper limit of debt issuance we obtain four results first weaker equity holders bargaining power is more likely that the firm is financially constrained second the investment quantity is independent of equity holders bargaining power third the constrained credit spreads are increasing with equity holders bargaining power contrary to the unconstrained ones fourth higher volatility and weaker equity holders bargaining power are likely that the firm prefers to issue debt with renegotiation compared with debt without renegotiation c 2014 elsevier b v all rights reserved

marriage market divorce legislation and household labor supply this paper provides a theoretical framework for analyzing the impact of the marriage market and divorce legislation on household labor supply in our approach the sex ratio in the marriage market and the rules governing divorce are examples of distribution factors these factors are defined as variables that affect the household members bargaining position but not preferences or the joint budget set we extend the collective labor supply model developed by chiappori to allow for distribution factors we show that our model imposes new restrictions on the labor supply functions and eases the identification of individual preferences and the intrahousehold decision process the model is estimated using psid data for the year 1988 our results do not reject the restrictions imposed by the model also the sex ratio and divorce laws deemed favorable to women are found to affect labor supply behavior and the decision process in the directions predicted by the theory and to have sizable effects

out of the wallet and into the purse using micro data to test income pooling this paper uses an exogenous change in the intrahousehold distribution of income provided by a change in united kingdom family allowance policy to test the income pooling hypothesis implied by unitary household models expenditure shares are estimated for a wide range of goods using household level data shifts in expenditure shares suggest that children and mothers benefited at the expense of fathers when this policy change shifted income within households from men to women similar shifts are not found among married couple households with no children this paper refutes income pooling and confirms and extends results in lundberg pollak and wales 1997

a theory of corporate financial decisions with liquidity and solvency concerns this paper studies the impact of both liquidity and solvency concerns on corporate finance i present a tractable model of a firm that optimally chooses capital structure cash holdings dividends and default while facing cash flows with long term uncertainty and short term liquidity shocks the model explains how changes in solvency affect liquidity and also how liquidity concerns affect solvency via capital structure choice these interactions result in a dynamic cash policy in which cash reserves increase in profitability and are positively correlated with cash flows the optimal dividend distributions implied by the model are smoothed relative to cash flows i also find that liquidity concerns lead to a decrease of dispersion of credit spreads

multimarket contact imperfect monitoring and implicit collusion abstract this paper presents a theoretical foundation to the possibility that multimarket contact enhances firms ability to sustain implicit collusion when firms operate in a single market and cannot perfectly monitor their opponents choices it is impossible to achieve efficiency even if these firms have a long term strategic relationship we show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large efficiency can be approximately sustained by a perfect equilibrium this efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring journal of economic literature classification numbers c70 c72 c73 d43 l11 l22 l41

collusion in multiproduct oligopoly games under a finite horizon applying recent results on finitely repeated games to oligopoly theory the author finds that there exists a class of finite horizon output games in which collusion can be achieved as a subgame perfect equilibrium trigger strategies prevent defection from the cooperative outcome by credibly threatening that the defector will be forced to exit the industry for the case of a multiproduct oligopoly it is shown that collusion in one market can be enforced by the threat of punishment in a second market if someone defects even though the two markets are structurally independent the firms make them strategically interdependent through their strategies copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

laboratory evidence on the effectiveness of corporate leniency programs the number of cartels detected in the united states and in europe has increased considerably since the introduction of corporate leniency programs in antitrust legislation it cannot however be ruled out that this apparent success results in part from increased cartel activity we explore the effects of corporate leniency programs on pricing and cartel activity by use of an experiment we find that in the lab i fewer cartels are established when a leniency program is in place and ii cartels that do exist are less successful in charging prices above the static nash equilibrium price and have lower survival rates

a theoretical model for valuing preferred stock this paper develops a model of preferred stock value which includes the possibility of dividends on the preferred stock being omitted the analytical framework used is based on the option hedging methodology of black and scholes precise valuation formulae are obtained for cumulative and noncumulative preferred stock in a variety of contexts the values obtained are quite different from those for either riskless or risky perpetual bonds which have previously been proposed as being similar to preferred stock since 1970 an average of 3 billion dollars worth of capital has been raised annually by corporations in the united states in the form of preferred stock in spite of this impressive figure there has been very little theoretical analysis of preferred stock valuation while previous analysis e g merton 9 and ingersoll 7 has treated preferred stock as a corporate consol bond this view is not taken here for an essential feature of preferred stock is that omission of the dividend is permissible and does not precipitate bankruptcy whereas this would happen if a bond coupon payment were missed corporations can and do fail to pay preferred dividends from time to time particularly in times of severe economic depression herein is developed a theory of preferred stock valuation the return generating process for the firm is assumed to be a continuous time diffusion and the option hedging arguments of black and scholes 2 cox and ross 4 and other authors can be used to derive a functional form of preferred stock value in terms of firm value and dividend arrearage the key to the valuation theory lies in a particular assumption about the conditions under which preferred stock dividends are omitted this assumption is that all dividends are omitted whenever firm value falls below some critical amount all the theory is developed subject to this assumption section i of this paper discusses whether such an assumption is reasonable this section carefully examines conditions under which rational management seeking to maximize common shareholder wealth would pay dividends as suggested in section ii the basic model is described and solved some generalization is obtained in section iii where allowance is made for the possible coexistence of other claims such as bonds illustrative solutions to the model are provided

fiat money as a store of value in an experimental market abstract the time path of the value of fiat money is studied in an experimental market in this market players can achieve pareto superior allocations by trading goods for money at fixed nominal prices however the finite horizon makes the value of money unstable as players learn not to hold money near the horizon we investigate the value of money in stationary replications of the model where subjects trade off the increased value of money as a medium of exchange against the chances of holding worthless money as the role of money as a store of value deteriorates

international antitrust enforcement and multimarket contact this article analyzes cartel formation and international antitrust enforcement when multinational firms operate in several jurisdictions with local antitrust authorities we are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by a negative demand relationship the interdependence of cartel stability across markets leads to potential externalities in antitrust enforcement across jurisdictions local antitrust enforcement equilibrium enforcement may exhibit a nonmonotonicity in the degree of market integration we compare it with globally optimal antitrust enforcement policy and discuss the role of international antitrust coordination

the term structure of credit spreads with jump risk abstract default risk analysis is important for valuing corporate bonds swaps and credit derivatives and plays a critical role in managing the credit risk of bank loan portfolios this paper offers a theory to explain the observed empirical regularities on default probabilities recovery rates and credit spreads it incorporates jump risk into the default process with the jump risk a firm can default instantaneously because of a sudden drop in its value as a result a credit model with the jump risk is able to match the size of credit spreads on corporate bonds and can generate various shapes of yield spread curves and marginal default rate curves including upward sloping downward sloping flat and hump shaped even if the firm is currently in a good financial standing the model also links recovery rates to the firm value at default so that the variation in recovery rates is endogenously generated and the correlation between recovery rates and credit ratings before default reported in altman j finance 44 1989 909 can be justified

market regulation and multimarket rivalry multimarket contact between duopolists in an x and y market is modelled with a trigger strategy we show that mildly restrictive price cap regulation in the x market decreases y market quantities but restrictive caps in the x market have a positive impact on y market outputs behavior in laboratory markets confirms these propositions regulation that lowers x market prices by a small amount results in a statistically significant reduction in y outputs when the regulated x market price is reduced to the cournot nash level y market outputs rise to a point statistically indistinguishable from the unregulated quantities

group dynamics in experimental studies the bertrand paradox revisited abstract different information provision in experimental markets can drastically change subjects behavior considering the repeated bertrand duopoly game of dufwenberg and gneezy dufwenberg m gneezy s u 2000 price competition and market concentration an experimental study international journal of industrial organization 18 7 22 we find that population feedback about the prices in other markets outside a subjects own current market causes group dynamics that prevent prices from convergence to nash equilibrium limited information comprising only the decisions of a subject s own opponent in contrast leads to competitive behavior when we extend the number of periods from 10 to 25 in the full information treatment full we observe a very robust cyclical up and down movement of prices we can explain tacit coordination in our experiment with an extended learning direction model and leadership by example

collusion in finitely repeated oligopolies abstract explaining collusion in infinitely repeated oligopolies is problematic because of the backward induction argument the usual response to this has been to consider infinitely repeated games and treat these as approximations of long finite repetitions or to introduce a modicum of irrationality in firm decision making the present paper explores a third avenue which introduces some extensive form structure to the cournot game itself hence the supergame constructed in this paper is one in which the stage game is itself an extensive form game in particular the stage game is a cournot oligopoly in which firms can observe each others initial production and respond by producing more before the product is sold on the market with this structure it is possible to devise a discriminating trigger strategy which generates collusive behaviour among fully rational firms with finite lives

a dynamic program for valuing corporate securities abstract we design and implement a dynamic program for valuing corporate securities seen as derivatives on a firm s assets and computing the term structure of yield spreads and default probabilities our setting is flexible for it accommodates an extended balance sheet equality arbitrary corporate debts multiple seniority classes and a reorganization process this flexibility comes at the expense of a minor loss of efficiency the analytical approach proposed in the literature is exchanged here for a quasi analytical approach based on dynamic programming coupled with finite elements to assess our construction which shows flexibility and efficiency we carry out a numerical investigation along with a complete sensitivity analysis

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

managing local commons theoretical issues in incentive design local commons encompass a wide range of resources whose shared feature is the need for some form of collective management in what follows we shall be concerned mainly with the problems of implementing a collective management plan whatever the mechanisms invoked many recent contributions to the literature have stressed that relatively informal collective management of common property resources can in the right circumstances avoid the severe resource degradation predicted by the tragedy of the commons nevertheless both empirical and theoretical arguments suggest that cooperative behavior may be only partial and the incentives of short term self interest only partially held in check under what circumstances then can more formal implementation mechanisms make good the deficiency and given that formal incentives are typically stronger than informal ones are there any reasons why informal incentives might nevertheless sometimes be preferred

an overlapping generations model of electoral competition this paper presents a dynamic model of political competition between two parties with different policy preferences a party is explicitly modeled as a sequence of overlapping generations of candidates all of whom face finite decision horizons in general there is a conflict between the interests of the individual policymakers and those of the party which includes subsequent generations of candidates we characterize this conflict and suggest a scheme of intergenerational transfers within the party which can resolve or mitigate this conflict the paper shows how the overlapping generations model can be usefully applied to the political arena this abstract was borrowed from another version of this item

the market for college graduates and the worldwide boom in higher education of women the worldwide boom in higher education since 1970 has been truly remarkable given the great breadth of benefits that college education provides and the fact that these benefits appear to be rising over time a worldwide rise in college education may not be surprising but the different responses of men and women to the rising benefits of college are surprising in the united states and throughout the world the boom in higher education has been primarily a boom in higher education of women so much so that in most countries more women than men now attend college figures 1a and 1b plot the gender difference women minus men in the fraction of 30to 34 year olds with college attainment against per capita gdp for 1970 and 2010 a positive gender difference was a novelty in 1970 essentially reserved for a few of the wealthiest countries today a larger fraction of women than men had completed higher education in 67 of 120 of the countries including countries from every populated continent and 17 with below median per capita gdp in order to illuminate the worldwide boom in higher education and in particular higher education of women we present a model of the optimal investment in college by an individual new directions in the economic analysis of human capital

how long do junk bonds spend in default this paper analyzes junk bond defaults during 1980 to 1991 to determine which factors affect the length of time spent in default bondholder holdouts are not a significant problem as firms with proportionately more bonds have shorter default spells in contrast bank debt is associated with slower restructurings bargaining problems arising from contingent liabilities lawsuits and size delay the process although multiple bond classes do not neither information problems nor firm value appear to matter hlts do not resolve their defaults at a significantly faster pace defaults tend to take less time in the 1990s despite drexel s disappearance from the market

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

the risk of contagion from multimarket contact abstract it is conventional wisdom that the strategic linkage of markets that is enabled by multimarket contact typically increases the profitability of cooperation among rivals we find to the contrary that a strong force against strategic linkage results from imperfect monitoring of adherence to cooperation with such imperfections strategically linking markets can lower payoffs by permitting the impact of adverse shocks in one market to spread to others consequently players of repeated games on more than one front may find it strictly advantageous to avoid linking strategies on a front with clear monitoring to outcomes on a front with error prone monitoring one implication is that antitrust competitive strategy and foreign policy analyses have presumed too broadly that multimarket contact fosters cooperation the game theoretic equilibria characterized here shed light on why players such as firms and nations sometimes strategically link fronts in their rivalry and sometimes take care to articulate that some fronts of particularly volatile conflicting interests will not trigger broader adverse moves against the rival

do meetings in smoke filled rooms facilitate collusion the sherman act prohibits firms from discussing prices in meetings traditional thought suggests that this prohibition makes it harder for firms to collude and economists have concluded that the sherman act operates in the public interest i provide an alternative explanation for the act that also accounts for the small sanctions chosen by the legislature when firms interact in a dynamic environment in which the law helps them to prevent renegotiation the firms may benefit from the law that makes it costly but not very costly to meet to discuss prices the sherman act may help firms to collude

schooling search and spouse selection testing economic theories of marriage and household behavior the implications of the economic theories of marriage and of household fertility behavior are tested in a framework in which educational investment marital search and marital matches are responsive to marriage market conditions and the personal traits of individual agents some of which are unobserved by the econometrician implications are also derived and tested for the effects of longevity attractiveness preferences and labor and marriage market conditions on schooling marriage age and spouse choice the empirical results indicate that inattention to heterogeneity and martial selection leads to a false rejection of the economic theory of marriage but to a false acceptance of the value of time fertility hypothesis

mutual forbearance in experimental conglomerate markets we conduct economic experiments to gauge the level of cooperation between conglomerate rivals first we run control experiments to observe cooperation between subjects acting as duopolists in one of two markets in the control experiments subject pairs choose a quantity xi or yi from a payoff matrix in a repeated game relatively less cooperation is observed in the y market than in the x market a second series of experiments then combines the two payoff matrices to create a conglomerate setting facing each other in two markets opponents now choose an xi yi pair each period we find that conglomeration encourages more coperation in the y market but less cooperation in the x market time series analysis of our conglomerate subjects choices strongly supports the recent game theoretic propositions in bernheim and whinston 1990

perfect nash equilibria in finite repeated game and uniqueness of nash equilibrium in the constituent game abstract it is shown that when the nash equilibrium of a particular game is unique then in a perfect nash equilibrium of the finite repetition of this game the set of actions in each of the successive plays of the game must be a nash equilibrium of the constituent game the uniqueness of the nash equilibrium in the constituent game is crucial for this implication except in the last play of the repetition

capacity decisions with debt financing the effects of agency problem abstract this paper studies the capacity management problem for a firm that uses debt financing this is done by analyzing the effect of the associated agency problem when making capacity decisions the agency problem arises when there are potential conflicts of interest between the firm owner and the lender we show that this agency problem can constrain the firm s optimal capacity decision because the borrowing rate will increase as the risk of default increases with capacity level chosen the firm will therefore try to optimally choose the level so as to reduce the risk of bankruptcy which the lender will take into account and as a consequence the firm will try to control the risk associated with potentially high borrowing costs however even when the expected bankruptcy cost is carefully controlled the optimal capacity decision is still made at the risk of incurring considerable agency costs in addition the corporate tax level can also play a significant role in capacity choice we show that although a higher tax rate leads to bigger tax benefit of debt and lower agency cost it also gives rise to a higher tax liability after balancing the tax benefit of debt with the agency cost the firm can make an optimal decision on the capacity level required the efficacy of financial hedging for mitigating the agency cost is also analyzed finally we compare and contrast our analysis with existing studies and it appears that we have been able to obtain a deeper insight into the problem

class systems and the enforcement of social norms abstract we analyze a model in which there is socially inefficient competition among people in this model self enforcing social norms can potentially control the inefficient competition however the inefficient behavior often cannot be suppressed in equilibrium among those with the lowest income due to the ineffectiveness of sanctions against those in the society with the least to lose we demonstrate that in such cases it may be possible for society to be divided into distinct classes with inefficient behavior suppressed in the upper classes but not in the lower

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

multi market collusion with demand linkages and antitrust enforcement this paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand related markets we show that cartel prosecution can have a knock on effect bringing down a cartel in one market reduces profits and cartel stability and leads to the break up of the cartel in the adjacent market cartel prosecution can also have a waterbed effect disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets we discuss the impact of dynamic cartel formation on consumer surplus explore antitrust spillovers the optimal scope of antitrust interventions and cartel formation with local firms

intertemporal product choice and its effects on collusive firm behavior this study analyzes the collusive behavior of firms in markets characterized by horizontal product differentiation the special features are that product choice is endogenized and that firms may redesign their products intertemporally at a fixed cost the main objective is to examine the relationships between the extent of product differentiation the product redesigning cost and the degree of collusion supportable the findings indicate that flexible product design makes collusion more difficult to sustain since in the event collusion breaks down firms have an incentive to mitigate the severity of punishment by redesigning their products and thus reducing price competition copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

spillovers from good news and other bankruptcies real effects and price responses abstract we model debt restructurings that could endogenously end in bankruptcy and study spillovers to competitors operating decisions profits restructuring outcomes and security prices we show that while bankruptcy could cause the firm s share price to drop bankruptcy always signals good news about the firm we identify the conditions under which a bankruptcy also signals good news about competitors we demonstrate that when a firm s bankruptcy costs are relatively small bankruptcy raises its share price while lowering the prices of competitors shares and debt as well as boosting the probability that they will enter bankruptcy when there is little information asymmetry about the firm s prospects or the information asymmetry is about industry prospects bankruptcy raises competitors share and debt prices and lowers their probability of bankruptcy

multiproduct activity in an experimental differentiated oligopoly in a symmetric differentiated experimental oligopoly with multiproduct firms we test the predictive power of the corresponding bertrand nash equilibria subjects are not informed on the specification of the underlying demand model in the presence of intense multiproduct activity and provided that a parallel pricing rule is imposed to multiproduct firms strategies tend to confirm the non cooperative multiproduct solution

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature

collusion and predation under almost free entry abstract this study investigates the degree of cooperation that firms can support in the absence of significant barriers to entry a free entry subgame perfect equilibrium is defined by q n where q is the collusive output rate and n is the number of active firms such that there is no incentive for an active firm to deviate output from q and there is no incentive for a potential entrant to enter the industry it is shown that for all n 1 if the discount factor is sufficiently high there exists a free entry equilibrium in which active firms sustain a non trivial degree of cooperation cooperation is supported by active firms credibly threatening to respond to entry with a period of aggressive competition

cooperative equilibria in finite horizon noncooperative supergames abstract it is well known that cooperative outcomes can be supported by noncooperative equilibrium strategy combinations in games that are infinitely repeated however the example of the repeated prisoner s dilemma has led people to conclude that such cooperative outcomes cannot be sustained if the game is repeated finitely often in this paper it is proved that the belief about finitely repeated games is false conditions are given that allow the existence of cooperative outcomes in finitely repeated games that are supported by subgame perfect noncooperative equilibrium strategies

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

who marries whom and why this paper proposes and estimates a static transferable utility model of the marriage market the model generates a nonparametric marriage matching function with spillover effects it rationalizes the standard interpretation of marriage rate regressions and points out its limitations the model was used to estimate u s marital behavior in 1971 72 and 1981 82 the marriage matching function estimates show that the gains to marriage for young adults fell substantially over the decade unlike contradictory marriage rate regression results the marriage matching function estimates showed that the legalization of abortion had a significant quantitative impact on the fall in the gains to marriage for young men and women

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

internal cartel stability with time dependent detection probabilities abstract to account for the illegal nature of price fixing agreements per period detection probabilities that can vary over time are introduced in a dynamic oligopoly the resulting iccs for internal cartel stability indicate that for discount factors up to 10 per period detection probabilities of 5 are needed to reduce the number of cartel members by 50 for the special case of stationary supergames with constant per period detection probabilities p elegant rules emerge internal cartel stability requires the discount factor to increase with 100 p 1 p percent while a fixed fine of 100 1 p p percent of incremental cartel profits is required for making the icc always binding

investment in schooling and the marriage market we present a model in which investment in schooling generates two kinds of returns the labor market return resulting from higher wages and a marriagemarket return defined as the impact of schooling on the marital surplus share one can extract men and women may have different incentives to invest in schooling because of different market wages or household roles this asymmetry can yield a mixed equilibrium with some educated individuals marrying uneducated spouses when the labor market returns to schooling rises home production demands less time and the traditional spousal labor division norms weaken more women may invest in schooling than men

price fixing the probability of getting caught the authors estimate the probability that a price fixing conspiracy will be indicated by federal authorities to be at most between 0 13 and 0 17 in a given year the authors estimate is based on conspiracy durations calculated from data reported for a large sample of department of justice cases and a statistical birth and death process model describing the onset and duration of conspiracies copyright 1991 by mit press

equilibrium selection in imperfectly competitive economies with multiple equilibria this paper investigates the selection of an equilibrium in an economy with multiple pareto ranked nash equilibria a history dependent selection criterion is proposed which induces correlated behavior in equilibrium even though agents are playing one shot games and disturbances are not correlated over time the model economy may experience prolonged periods in which a low productivity technology is in use and then as a consequence of a large real disturbance may switch to an alternative equilibrium in which a high productivity technology is utilized thus the model qualitatively matches observations of serially correlated movements in output and employment and generates procyclical productivity though there are no exogenous technology shocks copyright 1994 by royal economic society

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

on the feasibility of maximal collusion abstract this note explores when joint profit maximizing behavior between firms can be supported by arbitrary subgame perfect equilibrium strategies we show that for a large class of games maximal collusion is feasible if and only if a simple discount parameter condition is satisfied

zero leverage and the value in waiting to have debt abstract this paper documents that the real option to have debt motivates some firms to remain debt free even when standard trade off theory predicts that these firms should have leverage the real option has a first order effect similar to the effect of bankruptcy costs in addressing the zero leverage puzzle the observation that many firms seemingly forgo sizable debt benefits by remaining debt free the debt free firms value includes the option whose value is derived from future debt benefits and hedging bankruptcy costs this paper proposes an optimal timing model for having debt and finds support for the model s predictions through calibrations and simulations

optimal priority structure capital structure and investment we study the interaction between financing and investment decisions in a dynamic model where the firm has multiple debt issues and equityholders choose the timing of investment jointly optimal capital and priority structures can virtually eliminate investment distortions because debt priority serves as a dynamically optimal contract examining the relative efficiency of priority rules observed in practice we develop several predictions about how firms adjust their priority structure in response to changes in leverage credit conditions and firm fundamentals notably financially unconstrained firms with few growth opportunities prefer senior debt while financially constrained firms with or without growth opportunities prefer junior debt moreover lower rated firms are predicted to spread priority across debt classes finally our analysis has a number of important implications for empirical capital structure research including the relations between market leverage book leverage and credit spreads and tobin s q the influence of firm fundamentals on the agency cost of debt and the conservative debt policy puzzle the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

games of perfect information predatory pricing and the chain store paradox the thesis of this paper is that finite noncooperative games possessing both complete and perfect information ought to be treated like one player decision problems that is players ought to assign at every move subjective probabilities to every subsequent choice in the game and ought to make decisions via backward induction this view is in contrast with the gametheoretic approach of nash equilibrium after expanding on this view for games in the abstract in sections 2 and 3 attention is turned in section 4 to an example due to reinhard selten called the chain store paradox which possesses the flavor of a situation involving a predatory pricing monopolist it is argued that for the chain store game the decision analytic approach leads under certain assumptions to more realistic outcomes than the standard nash equilibrium approach

the political legislation cycle the economic theory of legislation holds that laws even when they do not involve financial resources redistribute property rights politicians supply legislation to groups with the highest political return by the same logic politicians should supply legislation when doing so has the highest political return the dynamics of the supply of legislation should follow the pattern suggested by the political business cycle theory we develop a model of government s and voters behavior where a legislation cycle is the strategy to hold the government coalition together under certain assumptions the model predicts that the approbation of laws should be concentrated at the end of the legislature and be positively related to the fragmentation of the government coalition we test these restrictions on data about the supply of legislation by the italian parliament during legislatures from i to xiii 1948 to 2001 the empirical analysis provides strong support to the theory a legislation cycle occurs when the conditioning phenomena that the model indicates are satisfied

human capital investment and the gender division of labor in a brawn based economy we use a model of human capital investment and activity choice to explain facts describing gender differentials in the levels and returns to human capital investments these include the higher return to and level of schooling the small effect of healthiness on wages and the large effect of healthiness on schooling for females relative to males the model incorporates gender differences in the level and responsiveness of brawn to nutrition in a roy economy setting in which activities reward skill and brawn differentially empirical evidence from rural bangladesh provides support for the model and the importance of the distribution of brawn

level dependent annuities defaults of multiple degrees abstractmotivated by the risk of stopped debt coupon payments from aleveraged company in nancial distress we value a level dependentannuity contract where the annuity rate depends on the value of anunderlying asset process the range of possible values of the asset isdivided into a nite number of regions the annuity rate is constantwithin each region but may di er between the regions we considerboth in nite and nite annuities with or without bankruptcy risk i e bankruptcy occurs if the asset value process hits an absorbing bound ary such annuities are common in models of debt with credit risk in nancial economics suspension of debt service under the us chap ter 11 provisions is one well known real world example we presentclosed form formulas for the market value of such multi level annuitiescontracts when the market value of the underlying asset is assumedto follow a geometric brownian motion the authors thank zheng huang and bernt ksendal for comments and discusssions an earlier version of this paper has been presented at fibe 2008 nhh keywords multi level annuity credit risk nancial distress jel classi cations g33 g13 g32

collusive equilibria in oligopolies with finite lives abstract it is generally accepted that collusive agreements cannot be sustained in oligopolies with finite lives in this paper it is shown that provided the number of competitors is neither too small nor too large the most restrictive output i e the monopoly output can be sustained as a perfect nash equilibrium if the number of firms is too small only sequences of the nash equilibria of the constituent market game can appear as perfect nash equilibria if the number of firms is too large the power of the cartel falls sharply

a repeated game with finitely lived overlapping generations of players abstract this paper analyzes infinitely repeated noncooperative games where the players have finite but overlapping terms thus the nature of the game remains constant but the identity of the players changes over time this type of scenario depicts the situation facing firm managers in regulated or oligopolistic environments despite finite lives which lead players to always choose opportunistic actions at the end of their careers it is shown that there are equilibria where cooperative behavior emerges in this noncooperative setting further a folk theorem result is obtained any individually rational payoffs can be realized as a subgame perfect equilibrium journal of economic literature classification numbers 022 026

alimony rights and intrahousehold allocation of resources evidence from brazil can family policy affect well being of individuals without altering the resources available to their families this article examines the extension of alimony rights and obligations to cohabiting couples in brazil for women in intact relationships alimony rights upon dissolution should improve outside options strengthening their negotiating positions and increasing their influence over intrahousehold allocation of resources robust econometric evidence indicates that more decision power in the hands of women impacts hours worked by female adults and investments in the education of children this suggests that family policy and models of family decision making should take intrahousehold heterogeneity of preferences into account

liquidation fire sales and acquirers private information abstract we develop a dynamic model in which a distressed firm optimizes an exit choice between sell out and default as well as its timing we assume that the distressed firm is not informed about the acquirer s asset valuation we show that the firm delays liquidation to decrease the acquirer s information rent notably the firm can change the exit choice from sell out to default when the screening cost is high in this case shareholders declare default regardless of the acquirer s valuation which provides the acquirer the maximum information rent together with the deadweight costs of bankruptcy the maximal information rent which causes a wealth transfer from debt holders of the bankrupt firm to the acquirer lowers the sales price and debt recovery this mechanism can explain many empirical findings about fire sales and acquirers excess gains higher volatility leverage and asymmetric information increase the likelihood of a fire sale but higher bankruptcy costs could play a positive role in preventing a fire sale with asymmetric information the firm can reduce debt issuance to avoid the risk of a fire sale

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

optimal debt and equity values in the presence of chapter 7 and chapter 11 explicit presence of reorganization in addition to liquidation leads to conflicts of interest between borrowers and lenders in the first best outcome reorganization adds value to both parties via higher debt capacity lower credit spreads and improved overall firm value if control of the ex ante reorganization timing and the ex post decision to liquidate is given to borrowers most of the benefits are appropriated by borrowers ex post lenders can restore the first best outcome by seizing this control or by the ex post transfer of control rights reorganization is more likely and liquidation is less likely relative to the benchmark case with liquidation only the u s bankruptcy code which includes a liquidation process chapter 7 and a reorganization process chapter 11 aims to resolve a number of important issues associated with a distressed firm these issues can be classified into information asymmetry problems e g quality of the firm heinkel and zechner 1993 agency problems e g risk shifting jensen and meckling 1976 or coordination problems e g debt of various maturities berglof and von thadden 1994 in this paper we investigate whether there is a place for a reorganization process in the presence of costly financial distress and liquidation these costs capture in reduced form the aforementioned frictions we wish to characterize the states of a borrowing firm relative to its outstanding contractual debt obligations at different stages of financial distress assuming full information and a single issue of debt we also seek to determine the role played by the bankruptcy code in improving the welfare of borrowers and lenders and how its influence depends on the rights given to borrowers and lenders at various stages of financial distress more precisely we build on structural models of debt merton 1974 black and cox 1976 which allows us to determine overall firm value along with the values of equity and debt in line with this literature we assume that liquidation destroys part of the firm s value we then ask the basic and yet important

demons and repentance abstract this paper presents a new explanation for the stability of cartels for a large class of repeated cournot duopoly games with discounting strategies are constructed which have the property that cheating on the cartel is followed by repentance it is shown than these repentance strategies are subgame perfect equilibrium strategies and that in the presence of demons infrequently irrational behavior on the part of both players they lead to pareto superior expected discounted payoffs in comparison with either friedman s trigger strategies or abreu s stick and carrot strategies

cross border marriage costs and marriage behavior theory and evidence this article analyzes cross border marriages between mainland china and hong kong hk we examine the effects of a reduction in cross border marriage costs following an increase in marriage migration quotas and the handover of hk to china we find that cross border marriages mainly involve men from the low tail of the hk attribute distribution we also find that hk women s position in the marriage market and within households deteriorated following the reduction in cross border marriage costs and that their disadvantaged position exerts an incentive effect on their labor market behavior these outcomes are consistent with our matching model

debt valuation renegotiation and optimal dividend policy the valuation of debt and equity reorganization boundaries and firm s optimal dividend policies are studied in a framework where we model strategic interactions between debt holders and equity holders in a game theoretic setting which can accommodate varying bargaining powers to the two claimants two formulations of reorganization are presented debt equity swaps and strategic debt service resulting from negotiated debt service reductions we study the effects of bond covenants on payout policies and distinguish liquidity induced defaults from strategic defaults we derive optimal equity issuance and payout policies the debt capacity of the firm and the optimal capital structure are characterized

renegotiation in the repeated cournot model abstract we explore a new concept of renegotiation proofness in the symmetric repeated cournot model with several players we show that this concept significantly limits the cooperative outcomes that can be sustained in equilibrium in particular the symmetric monopoly outcome cannot be sustained when the number of players is high enough 9 in the case of the linear demand function when the number of players tends to infinity i the collusive benefits that could be sustained are at most four times the cournot benefits and ii the reasonable price that can be sustained in equilibrium tends to the cournot price

a binomial lattice method for pricing corporate debt and modeling chapter 11 proceedings the pricing of corporate debt is still a challenging and active research area in corporate finance starting with merton 1974 many authors proposed a structural approach in which the value of the assets of the firm is modeled by a stochastic process and all other variables are derived from this basic process these structural models have become more complex over time in order to capture more realistic aspects of bankruptcy proceedings the literature in this area emphasizes closed form solutions that are derived by either partial differential equation methods or analytical pricing techniques however it is not always possible to build a comprehensive model with realistic model features and achieve a closed form solution at the same time in this paper we develop a binomial lattice method that can be used to handle complex structural models such as ones that include chapter 11 proceedings of the u s bankruptcy code although lattice methods have been widely used in the option pricing literature they are relatively new in corporate debt pricing in particular the limited liability requirement of the equity holders needs to be handled carefully in this context our method can be used to solve the leland 1994 model and its extension to the finite maturity case the more complex model of broadie chernov and sundaresan 2005 and others

term structures of credit spreads with incomplete accounting information we study the implications of imperfect information for term structures of credit spreads on corporate bonds we suppose that bond investors cannot observe the issuer s assets directly and receive instead only periodic and imperfect accounting reports for a setting in which the assets of the firm are a geometric brownian motion until informed equityholders optimally liquidate we derive the conditional distribution of the assets given accounting data and survivorship contrary to the perfect information case there exists a default arrival intensity process that intensity is calculated in terms of the conditional distribution of assets credit yield spreads are characterized in terms of accounting information generalizations are provided

finite rationalizability and cooperation in the finitely repeated prisoners dilemma abstract using the concept of k point rationalizability it is shown that cooperation in the finitely repeated prisoners dilemma can be explained as the outcome of rational behavior if the beliefs of players are limited in terms of their complexity

on interdependent supergames multimarket contact concavity and collusion abstract following bernheim and whinston 1990 this paper addresses the effects of multimarket contact on firms ability to collude real world imperfections tend to make firms objective function strictly concave and market supergames interdependent firms payoffs in each market depend on how they are doing in others then multimarket contact always facilitates collusion it may even make collusion sustainable in all markets when otherwise it would not be sustainable in any the effects of conglomeration are discussed multigame contact is shown to facilitate cooperation in supergames other than oligopolies as long as agents objective function is submodular in material payoffs journal of economic literature classification numbers c72 d43 l13 l21

endowments and the allocation of schooling in the family and in the marriage market the twins experiment 03 we show how comparisons between the within twin correlations of human capital outcomes across identical and nonidentical twins can be used to identify the variability in the individual specific component of endowments and the responsiveness of schooling to individual specific endowments in the family and in the marriage market even when schooling is measured with error estimates from two twins samples indicate that 27 42 percent of the variance in log earnings obesity is due to variability in individual specific endowments allocations of schooling reinforce specific endowments and individual specific earnings endowments of men and their wives schooling are negatively associated

differntial fecundity markets and gender roles women are fecund for a shorter period of their lives than men this paper investigates how differential fecundity interacts with marriage labor and financial markets to affect gender roles the main findings of the paper are as follows i fecund women are relatively scarce men will behave differently than women in response to this scarcity in the most fundamental way demand and supply conditions in the marriage market affect gender roles ii differential fecundity does not have any market invariant gender effect gender roles depend on the way in which marriage labor and financial markets interact iii gender differences in the labor market can occur without corresponding differences in labor market opportunities productivities in child rearing or social norms iv with uncertainty in human capital accumulation and no insurance against this uncertainty the model s predictions are consistent with observed gender roles

resolution of financial distress under chapter 11 abstract we develop a contingent claims model for a firm in financial distress with a formal account for renegotiations under the u s bankruptcy procedure known as chapter 11 shareholders and two classes of creditors senior and junior alternatively propose a reorganization plan subject to a vote the bankruptcy judge can intervene in any renegotiation round to impose a plan the multiple stage bargaining process is solved in a non cooperative game theory setting the calibrated model yields the liquidation rate the duration of chapter 11 and the frequency of deviations from the absolute priority rule which are consistent with empirical evidence

marriage as a rat race noisy premarital investments with assortative matching we study the efficiency of premarital investments when parents care about their child s marriage prospects in a large frictionless marriage market with nontransferable utility stochastic returns to investment ensure that equilibrium is unique we find that generically investments exceed the pareto efficient level unless the sexes are symmetric in all respects girls will invest more than boys if their quality shocks are less variable than shocks for boys or if they are the abundant sex the unique equilibrium in our continuum agent model is the limit of the equilibria of finite models as the number of agents tends to infinity

dynamic marriage matching an empirical framework the paper proposes a dynamic version of the frictionless becker shapley shubik marriage matching model with transferable utility its primary objective is to develop a tractable model that rationalizes the marriage distribution of who marries whom by age this behavioral dynamic model rationalizes a new marriage matching function an empirical methodology that relies on the equilibrium outcomes of the model identies the marital preferences over spouses this framework also allows the inverse problem of computing the vector of aggregate marriages given a new distribution of available single individuals and estimated preferences to be solved the solution to this inverse problem has been shown to exist under mild conditions this paper also develops a simple test of the model s empirical validity using aggregate data of new marriages and available single men and women in the us in 1970 1980 and 1990 i investigate the changes in the gains to marriage over this period

price discrimination or uniform pricing which colludes more abstract conventional wisdom attributes different economic outcomes of uniform pricing and price discrimination to the heterogeneity in market conditions or market participants such as differences in demand elasticity or production costs we offer a new explanation for the observed differences that relates to behavioral aspects rather than demand or supply side effects in particular in a symmetric bertrand duopoly laboratory experiment for which theory predicts no differences between the two pricing regimes we find that tacit price collusion is systematically higher under price discrimination than under uniform pricing

evaluating corporate bonds and analyzing claim holders decisions with complex debt structure abstract although many different aspects of debt structures such as bond covenants and repayment schedules are empirically found to significantly influence values of bonds and equity many theoretical structural models still oversimplify debt structures and fail to capture phenomena found in financial markets this paper proposes a carefully designed structural model that faithfully models typical complex debt structures containing multiple bonds with various covenants for example the ability for an issuing firm to meet an obligation is modeled to rely on its ability to meet previous repayments and the default trigger is shaped according to the characteristics of its debt structure such as the amount and schedule of bond repayments thus our framework reliably provides theoretical insight and concrete quantitative measurements consistent with extant empirical research such as the shapes of yield spread curves under various firm s financial statuses and the impact of payment blockage covenants on newly issued and other outstanding bonds we also develop the forest a novel quantitative method to handle contingent changes in the debt structure due to premature bond redemptions a forest consists of several trees that capture different debt structures for instance those before or after a bond redemption this method can be used to analyze how poison put covenants in the target firm s bonds influence the bidder s costs of debt financing for a leveraged buyout or investigate how the presence of wealth transfer among the remaining claim holders due to a bond redemption influences the firm s call policy or further reconcile conflicts among previous empirical studies on call delay phenomena

wage determination in rural labour markets the theory of implicit co operation abstract this paper argues that the process of determination of daily wage rate in rural labour markets is best seen as an act of implicit co operation among workers using the framework of repeated non cooperative game it is argued that this hypothesis can explain better than existing theories several known features of a typical south asian rural labour market e g the co existence of involuntary unemployment with responsiveness to supply and demand plasticity of wage rate in some cases co existing with rigidity in others etc

coalition proof nash equilibria ii applications abstract in bernheim peleg and whinston coalition proof equilibria i concepts j econ theory 42 1987 1 12 we proposed the notion of coalition proof nash equilibrium and perfectly coalition proof nash equilibrium as solution concepts for strategic environments in which players can freely discuss their strategies but cannot make binding commitments this paper undertakes applications to several economic problems including the behavior of cournot oligopolists oligopolistic entry deterrence cooperation in finite horizon games and social choice rule implementation

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony