entrepreneurial rents and the theory of the firm abstract the creation of entrepreneurial rents occurs under conditions of uncertainty yet current theories of rent appropriation such as transactions cost theories of the firm focus their efforts primarily on how quasi rents rents that have already been created are appropriated by parties to that exchange entrepreneurs face a dual challenge that of creating entrepreneurial rents and appropriating some of these rents moreover this challenge usually exists at a time when the entrepreneurial rents that might be created are not known or anticipatable indeed entrepreneurs not only concern themselves with ensuring that they are able to appropriate at least some of the rents that might be eventually created but in fact they may not create any rents or potentially lose value understanding the dual nature of the rent creation and the rent appropriation problem has a variety of implications for the study of entrepreneurial organizations and generally for theory of the firm discussions

two remarks on the property rights literature we first point out that the recent property rights literature is based on three assumptions 1 that contracts are always subject to renegotiation 2 that the exercise of a property right confers a private benefit and 3 that parties are risk neutral building on hart moore 1999 we provide conditions under which an optimal contract consists of nothing more than an assignment of property rights we also examine the robustness of some of the literature s standard predictions about asset ownership to the introduction of mechanisms for eliciting parties ex post willingness to pay for the assets such as options or financial markets to illustrate the issue we revisit the hart moore 1990 proposition that joint ownership is suboptimal and argue that ownership by a single party is dominated by joint ownership with put options

consensus consumer and intertemporal asset pricing with heterogeneous beliefs le fichier attache est egalement edite dans les cahier de la chaire les particuliers face aux risques de l institut de finance de dauphine cahier n 7 mars 2007

does market incompleteness matter this paper argues that incompleteness of intertemporal financial markets has little effect on welfare prices or consumption in an economy with a single consumption good provided that traders are long lived and patient a riskless bond is traded shocks are transitory and there is no aggregate risk in an economy with aggregate risk a similar conclusion holds provided traders share the same crra utility function and the right assets are traded examples demonstrate that these conclusions need not hold if the wrong assets are traded or if the economy has multiple consumption goods

unforeseen contingencies and incomplete contracts we scrutinize the conceptual framework commonly used in the incomplete contract literature this literature usually assumes that contractual incompleteness is due to the transaction costs of describing or of even foreseeing the possible states of nature in advance we argue however that such transaction costs need not interfere with optimal contracting i e transaction costs need not be relevant provided that agents can probabilistically forecast their possible future payoffs even if other aspects of the state of the nature cannot be forecast in other words all that is required for optimality is that agents be able to perform dynamic programming an assumption always invoked by the incomplete contract literature the foregoing optimality result holds very generally provided that parties can commit themselves not to renegotiate moreover we point out that renegotiation may be hard to reconcile with a framework that otherwise presumes perfect rationality however even if renegotiation is allowed the result still remains valid provided that parties are risk averse

political economy of public policies insights from distortions to agricultural and food markets the agricultural and food sector is an ideal case for investigating the political economy of public policies many of the policy developments in this sector since the 1950s have been sudden and transformational while others have been gradual but persistent this paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political economy explanations that have been advanced based on a rich global data set covering a half century of evidence on commodities countries and policy instruments the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible

generalizing the permanent income hypothesis revisiting friedman s conjecture on consumption abstract friedman s contribution to the consumption literature goes well beyond the seminal permanent income hypothesis he conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of human wealth the present discounted value of future labor income i present an explicitly solved model to deliver this widely noted consumption property by specifying that the conditional variance of changes in income increases with its level a larger realization of income not only implies a higher level of human wealth but also signals a riskier stream of future labor income inducing a higher precautionary saving and thus giving rise to friedman s conjecture appropriately adjusting human wealth for income risk i show that friedman s conjecture may be formulated as a generalized permanent income hypothesis i further show that friedman s conjecture captures the first order effect of stochastic precautionary savings finally i propose a natural decomposition of the optimal saving rule to formalize various motives for holding wealth as emphasized in friedman m 1957 a theory of the consumption function princeton university press princeton

poverty reduction patronage or vote buying the allocation of public goods and the 2001 election in madagascar abstract this article uses data from madagascar to examine how an upcoming election or political patronage might induce governments to deviate from goals such as poverty reduction using a nationwide commune level data set the article tests three competing explanations of how public goods are allocated across districts projects can be allocated on the basis of local need with the goal of reducing poverty or rewarding one s political base or the desire to win votes for an upcoming election the evidence from an analysis of three projects suggests that two of the three projects responded to local needs and a third seemed to be influenced by both election and patronage concerns an analysis of the 2001 presidential election in madagascar shows that voters do appear to reward the incumbent for projects received in their districts

equilibrium in securities markets with heterogeneous investors and unspanned income risk abstract in a finite time horizon incomplete market continuous time setting with dividends and investor incomes governed by arithmetic brownian motions we derive closed form solutions for the equilibrium risk free rate and stock price for an economy with finitely many heterogeneous cara investors and unspanned income risk in equilibrium the sharpe ratio is the same as in an otherwise identical complete market economy whereas the risk free rate is lower and consequently the stock price is higher the reduction in the risk free rate is highest when the more risk averse investors face the largest unspanned income risk

media proliferation and democratic transition in africa the case of madagascar summary state controlled media have historically dominated press outlets across much of africa yet recently economic and political liberalization together with new communication technologies have triggered rapid growth and increasing private sector involvement changes which hold potentially important implications for development and governance this paper explores the origins and impact of recent private sector media growth in madagascar where over 90 private radio stations and 15 private television stations have begun operation over the past decade the resulting profusion of private media has played a key role in improving governance most recently in the hotly contested presidential election of 2001

toward a theory of regulation for developing countries following jean jacques laffont s lead the efficient operation and expansion of infrastructures in developing countries is crucial for growth and poverty reduction however recent reforms aimed at improving the performance of these sectors have had limited success evidence suggests that in many instances this was because the traditional regulatory theory relied on by policymakers was not suitable for the institutional context in developing countries this article surveys more recent theoretical work focusing on problems with regulation in these countries at the heart of the survey is the work of jean jacques laffont who in the last decade of his life set about developing a theoretical framework for regulation in developing countries we consider the implications of his work which focused on the key institutional limitations faced in developing countries we then discuss where experience suggests that there are important omissions from this modeling bringing in extensions and alternative approaches pursued by other authors we conclude by summarizing the key ways in which regulatory policy will be different when institutions are weak overall we find that an understanding of the institutional context and its implications are crucial when designing a regulatory framework for developing countries

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

political agency government responsiveness and the role of the media abstract the role of mass media in making governments responsive to the needs of citizens is a relatively neglected area in economics we sketch a theoretical example with a role for media in enhancing government responsiveness based on asymmetric information between citizens and government we then use data for the period 1958 1992 on the extent to which indian state governments responded to food shortages via the public distribution of food correlating these with proxies of media political and economic development we find that states that are more responsive tend to also be those with high levels of newspaper circulation electoral turnout and literacy in contrast richer states do not tend to be more responsive than poorer states

the reference point approach to the theory of the firm an introduction there is a small but growing literature on the reference point approach to incomplete contracts as formulated by hart and moore the reference point approach has begun to be applied to the theory of the firm in 3 recent papers this introduction reviews the main theoretical aspects of each of these papers it then discusses the relationship between the reference point approach to the firm the transaction cost approach and the property rights approach here it is argued that the reference point approach is a step back towards ex post inefficiencies away from reliance on ex ante inefficiencies

the tax revolt and electoral competition this paper explores the effect of electoral competition onstate and local expenditures in the us during the politicalenvironment following the tax revolt of the late 1970s itutilizes a theoretical model in which both electoralcompetition and tax and expenditure limits impact spending empirical results indicate the tax revolt s primary impact wastransmitted through political candidate competition notthrough the adoption of tax or expenditure limitations as iscommonly believed however tax and expenditure limits doaffect public education expenditures

food aid and malnutrition in developing countries evidence from global food aid allocation abstract this study investigates the allocation of dietary energy iron vitamin a and zinc within global food aid the response of us and non us donors to nutritional needs and donor interests is estimated with a dynamic correlated random effects tobit model aid flows of the period 1993 2007 are analysed the empirical results show that nutrient shipments in emergency food aid have been allocated towards poorer countries but also face inertia and media bias project food aid from the us is found to be targeted towards politically stable and rural regions while non us project aid focuses on populations with high nutritional requirements

renegotiation design with unverifiable information this paper considers a buyer seller relationship with observable but unverifiable investments and or random utility parameters in such situations it is known that contract renegotiation may prevent the implementation of first best outcomes in this paper we show however that efficient investments and optimal risk sharing can typically be achieved provided the initial contract is able to monitor the ex post renegotiation process specifically we focus on the following two features of renegotiation design first default options in case renegotiation breaks down second the allocation of all bargaining power to either contracting party moreover we show that these two features can be obtained in standard rubinstein bargaining games through contractual provisions such as specific performance clauses and penalties for delay or equivalently financial hostages refundable without interest

optimal portfolio choice for long horizon investors with nontradable labor income this paper examines how risky labor income and retirement affect optimal portfolio choice with idiosyncratic labor income risk the optimal allocation to stocks is unambiguously larger for employed investors than for retired investors consistent with the typical recommendations of investment advisors increasing idiosyncratic labor income risk raises investors willingness to save and reduces their stock portfolio allocation towards the level of retired investors positive correlation between labor income and stock returns has a further negative effect and can actually reduce stockholdings below the level of retired investors financial advisors typically recommend that their customers invest more in stocks than in safe assets when they are working and to shift their investments towards safe assets when they retire jagannathan and kocherlakota 1996 malkiel 1996 by contrast the standard academic models of portfolio choice merton 1969 1971 samuelson 1969 show that retirement is irrelevant for portfolio decisions if investment opportunities are constant and human capital is tradable in this case the fraction of wealth optimally invested in risky assets should be constant over the lifetime of an individual recent research building on the pioneering work by merton 1971 shows that time varying investment opportunities result in portfolio rules with an intertemporal hedging component whose magnitude depends on the investment horizon of the investor kim and omberg 1996 balduzzi and lynch 1997 brennan schwartz and lagnado 1997 brandt 1999 campbell and viceira 1999 2001 barberis 2000 with time variation in investment opportunities retirement and death play an instrumental role as events that exogenously fix the individual s investment horizon more importantly retirement also marks the time at which individuals stop working and thereafter must live off their lifetime savings and possibly transfers from this perspective retirement matters for portfolio choice

food safety the media and the information market availability of information has increased rapidly over the past decades yet information on food safety is still considered problematic economists have extensively researched the effects of imperfect information however little attention has been paid to the institutional organization of the supply of information and the incentive schemes in the information market this paper analyzes how and when information is supplied by media organizations and what the implications are we first develop a theoretical framework and afterwards provide empirical evidence from media coverage of two recent food safety crises in europe

seniority and maturity of debt contracts abstract this paper provides a model of how borrowers with private information about their credit prospects choose seniority and maturity of debt increased short term debt leads lenders to liquidate too often it also increases the sensitivity of financing costs to new information although better than average borrowers desire information sensitivity the model implies that short term debt will be senior to long term debt and that long term debt will allow the issue of additional future senior debt the model also has implications on the structure of leveraged buyouts and on how various types of lenders respond to potential defaults

does electoral accountability affect economic policy choices evidence from gubernatorial term limits this paper analyzes the behavior of u s governors from 1950 to 1986 to investigate a reputation building model of political behavior we argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model we find evidence that taxes spending and other policy instruments respond to a binding term limit if a democrat is in office the result is a fiscal cycle in term limit states which lowers state income when the term limit binds

heterogeneous expectations and bond markets this paper presents a dynamic equilibrium model of bond markets in which two groups of agents hold heterogeneous expectations about future economic conditions the heterogeneous expectations cause agents to take on speculative positions against each other and therefore generate endogenous relative wealth fluctuation the relative wealth fluctuation amplifies asset price volatility and contributes to the time variation in bond premia our model shows that a modest amount of heterogeneous expectations can help explain several puzzling phenomena including the excessive volatility of bond yields the failure of the expectations hypothesis and the ability of a tent shaped linear combination of forward rates to predict bond returns the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

aggregation of heterogeneous time preferences we examine an economy whose consumers have different discount factors for utility possibly not exponential we characterize the properties of efficient allocations of resources and of the shadow prices that would decentralize such allocations we show in particular that the representative agent has a decreasing discount rate when as is usually posited all of a group s members have a constant discount rate and decreasing absolute risk aversion preferences we also identify conditions that lead the representative agent to have a rate of impatience that decreases with gross domestic product per capita

managerial compensation contract and bank bailout policy abstract under the incomplete contract framework we consider an optimal regulatory policy for motivating bank equity owners and bank managers to restructure the bad loans of their banks in the presence of managerial compensation contracts with stock options the regulatory policy studied in this paper is mainly concerned with the design of repayment schedules in the scheme of injection of cash funds into insolvent banks by the regulator we show that the regulator cannot necessarily attain the social optimal allocation by injecting cash funds into insolvent banks through the purchase of subordinated bonds with the risk free interest rate however even in that case we also suggest that if the regulator injects cash funds into active restructuring banks through the purchase of subordinated bonds or preferred stocks with less stringent repayment conditions and nationalizes passive restructuring banks the regulator can attain the social optimal allocation by performing such a non linear injection scheme under certain conditions

environmental protection a theory of direct and indirect competition for political influence how is it that environmental groups can have a strong impact on environmental policy but without much lobbying this paper develops a model of direct lobbying the government and indirect persuading the public competition for political influence and finds that they are complementary however an increase in the effectiveness of public persuasion or a rise of public environmental awareness induces substitution between the two the findings establish that the empirical phenomenon of lack of political contribution from environmental groups may not be related to financial constraints but to their greater effectiveness in public persuasion and growing public environmental awareness the size of its economic stake and hence the associated lobbying effort and the efficiency of its organization in exerting political influence how then can we explain why some environmental groups have been very successful against polluting industries when the latter s economic stakes seem very high and they lobby more and their interests are more efficiently organized some might suggest that the reason for the success of the environmental movement is that environmental groups have large memberships and can provide block votes 2 however according to olson 1965 a large membership of an interest group is not necessarily an advantage and it is still uncertain whether environmental groups are able to mobilize their members to cast votes based on such affiliations this paper suggests an alternative explanation by developing a theory of direct and indirect competition between special interests for political influence rather than marshalling block votes a primary feature of our framework is that two opposing interest groups an environmentalist group and an industrialist group compete directly and indirectly for political influence in a three stage game the indirect competition takes place in the first stage in which interest groups exert effort in persuading the public to indirectly influence government policy the direct competition takes place in the second stage in which interest groups exert effort in

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

a monte carlo method for optimal portfolios this paper proposes a new simulation based approach for optimal portfolio allocation in realistic environments with complex dynamics for the state variables and large numbers of factors and assets a first illustration involves a choice between equity and cash with nonlinear interest rate and market price of risk dynamics intertemporal hedging demands significantly increase the demand for stocks and exhibit low volatility we then analyze settings where stock returns are also predicted by dividend yields and where investors have wealth dependent relative risk aversion large scale problems with many assets including the nasdaq sp500 bonds and cash are also examined the question of optimal portfolio allocation has been of long standing interest for academics and practitioners in finance while the mean variance analysis of markowitz 1952 is still commonly used among portfolio managers it has been well understood since merton 1971 that long term investors would prefer portfolios that include hedging components to protect against fluctuations in their investment opportunities prompted by the seminal papers of merton 1969 1971 and samuelson 1969 studies have explored various aspects of the dynamic portfolio problem when asset prices follow diffusion processes e g richard 1975 this literature has relied for the most part on a dynamic programming approach to the problem more recent contributions by pliska 1986 karatzas lehoczky and shreve 1987 and cox and huang 1989 have proposed an alternative resolution method based on martingale techniques in the context of this approach an optimal portfolio formula was derived by ocone and karatzas 1991 this expression involves expectations of random variables depending on j6erme b detemple is at boston university school of management and cirano rene

efficient investments in the implementation problem abstract this paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency to do so we extend the standard implementation problem to include endogenous ex ante and ex post investments in our problem the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism our main theorem shows that a novel condition commitment proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame perfect equilibria the availability of ex post investments is crucial in our model there is no social choice rule that is efficient and implementable in subgame perfect equilibria without ex post investments we also show that our positive result continues to hold in the incomplete information setting

corruption via media capture the effect of competition in this article we compare a government s optimal choice of whether to engage in corruption by capturing the media outlets through bribery in two alternative media market structures monopoly versus duopoly while there is an extra bribe claimant in a media duopoly relative to monopoly it may also be harder for each firm to individually expose corruption when the rival co opts with the government we find that when the latter effect is stronger than the former media is captured at lower bribes under duopoly relative to monopoly and in such instances media competition facilitates rather than hindering corruption

mass media and special interest groups abstract media revenues are an important determinant of media behavior it is generally accepted that news coverage depends not only on the preferences of media consumers but also on the preferences of advertisers or subsidizing groups however existing models reach the opposite conclusions about the relationship between the profitability of advertising and media bias we present a theoretical model that reconciles these results the model shows that the sign of the effect of marginal costs of production or marginal advertising revenues on the level of distortion in news coverage depends on complementarity or substitutability between media bias and audience size for an interest group the existence of a budget constraint for an interest group and media outlets reliance on subscription in addition to advertising revenues

media monitoring and capture of public funds evidence from madagascar summary this paper investigates the role of media and monitoring in reducing capture we analyze data on capture of public expenditures by local officials in madagascar our findings indicate important constraints on decentralization of public service delivery in particular in remote areas capture could be successfully constrained through a combination of media programs and monitoring intensive monitoring and access to media reduce capture however the impact of media is conditional on characteristics of the population with high illiteracy in poor regions the effectiveness of newspaper and poster campaigns is limited and radio and television programs are more important to reduce capture

summits riots and media attention the political economy of information on trade and globalisation supply of information has increased rapidly through the growth of commercial media and technological innovations yet economists still blame anti globalists demonstrations and public opposition to trade liberalisation on poor information this paper analyses how the structure of the media industry affects the distribution of information on trade policy and globalisation we present an empirical analysis of belgian media reporting on trade policy and globalisation over the 1999 2002 period supports these hypotheses and finds strong negative bias in media coverage moreover we find that media coverage of trade policy and globalisation is highly concentrated around summit meetings of political leaders media attention in the popular press is heavily influenced by riots and demonstrations at summits the paper points at important implications for public information on trade policy and globalisation and for economists

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

borrowing costs and the demand for equity over the life cycle abstract we construct a life cycle model that delivers realistic behavior for both equity holdings and borrowing the key model ingredient is a wedge between the cost of borrowing and the risk free investment return borrowing can either raise or lower equity demand depending on the cost of borrowing a borrowing rate equal to the expected return on equity which we show roughly matches the data minimizes the demand for equity alternative models with no borrowing or limited borrowing at the risk free rate cannot simultaneously fit empirical evidence on borrowing and equity holdings

incomplete markets and volatility abstract this paper shows that the precautionary motive combined with asset incompleteness is a major source of volatility and indeterminacy in financial markets price fluctuations originate from agents efforts to insure themselves through time by borrowing and lending instead of shifting income across states of nature by trading risky assets a high interest rate at a future date reduces the potential for future consumption smoothing via borrowing which leads to a strong precautionary motive and a low interest rate in the current period the negative feedback between future and current rates generates fluctuations this logic is developed in spec a cara normal exchange economy with many periods and endogenous interest rates when there is an intermediate level of market incompleteness and sufficient investor impatience fluctuations in the real interest rate can be large even though the aggregate endowment is constant spec has a unique equilibrium under a finite horizon on the other hand with a finite number of infinitely lived agents there exists a robust continuum of equilibria that are neither bubbles nor sunspots journal of economic literature classification numbers c61 d52 d58 g11 g12

complexity and renegotiation a foundation for incomplete contracts the paper considers a hold up model where only one of n future trading opportunities will prove to be efficient and where ex post renegotiation of the ex ante contract cannot be prevented as the environment becomes more complex n the outcome under any message contingent long term contract converges to that of the incomplete contracting model where trade is contractible ex post but not ex ante when trades are costly to describe both ex ante and ex post the incomplete contracting result is extended to a broader class of environments

contract renegotiation and coasian dynamics consider a long term relationship between a seller and a buyer whose valuation for a per period service or a durable good is private as trade progresses the valuation will be partially revealed and it may be impossible for the parties to commit ex ante not to take advantage of this we analyse this situation first by supposing that the parties can sign a sequence of short term contracts and secondly by supposing that they can sign a long term contract but cannot commit not to renegotiate it later we find a close relationship in the second case between the optimal long term contract and the non commitment outcome in the standard coasian durable good model our results also have implications for hidden information principal agent models

mass media and public policy global evidence from agricultural policies mass media play a crucial role in information distribution and in the political market and public policy making theory predicts that information provided by the mass media reflects the media s incentives to provide news to different groups in society and affects these groups influence in policy making the paper use data on agricultural policy from 69 countries spanning a wide range of development stages and media markets to test these predictions the empirical results are consistent with theoretical hypotheses that public support for agriculture is affected by the mass media in particular an increase in media television diffusion is associated with policies that benefit the majority to a greater extent and is correlated with a reduction in agriculture taxation in poor countries and a reduction in the subsidization of agriculture in rich countries ceteris paribus the empirical results are consistent with the hypothesis that increased competition in commercial media reduces transfers to special interest groups and contributes to more efficient public policies

asset pricing puzzles and incomplete markets the representative agent theory of asset pricing is modified to incorporate heterogeneous agents and incomplete markets the model features two types of agents who differ up to a nontradable idiosyncratic component in their endowment processes numerical solutions indicate that individuals are able to diversify a substantial portion of their idiosyncratic income risk through riskless borrowing and lending alone restrictions on the variability of intertemporal marginal rates of substitution hansen and jagannathan 1991 are used to argue that incomplete markets as modeled here cannot account for the properties of asset returns that are anomalous from the perspective of representative agent theory a large literature in financial economics has investigated the extent to which variants of the lucas 1978 general equilibrium theory of asset pricing can account for the joint behavior of aggregate u s consumption and asset returns by and large this literature has concluded that a theory based upon frictionless arrow debreu markets and or a representative agent makes strongly counterfactual predictions regarding even the simple unconditional properties of this relationship mehra and prescott 1985 for instance show that the theory drastically underpredicts the average excess rate of return on u s stocks the so called equity premium puzzle weil 1989 points out as did mehra and prescott that the magnitude of the average risk free rate is far below that predicted by the theory this has been dubbed the risk free rate puzzle numerous authors including grossman melino and shiller 1987 and backus gregory and zin 1989 show that the theory cannot account for term premia inherent in the yield curve hodrick 1987 surveys a large literature which documents the theory s shortcomings in accounting for excess expected returns in foreign exchange markets the notion that the representative agent model cannot account for excess returns across a wide array of asset markets can be made more precise by using tools developed by hansen and jagannathan 1991 and shiller 1982

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

the political economy of the media coverage of the lumber tariff dispute the political economy of groups suggest that policies are more likely to be implemented if the benefits are concentrated and the costs are dispersed the importance of the role of media in society changes the classic models media can awaken the sleeping masses to the dispersed costs of a policy and raise resentment towards the group who benefits thus the content of media coverage can affect policy stromberg s 2001 model shows that the amount of newspaper space devoted to an issue should rise as the square of the number of people affected this paper finds empirical support for stromberg s theoretical findings with content analysis of newspaper coverage of the lumber tariff dispute

nontraded assets in incomplete markets pricing and portfolio choice this paper examines portfolio choice and asset pricing when some assets are nontraded for instance when a country cannot trade claims to its output on world capital markets when a government cann

media freedom and gender equality a cross national instrumental variable quantile analysis we investigate the impact of media freedom on gender equality in education for a sample of 63 countries taken over the period 1995 2004 our analysis is motivated by the idea that the impact of media freedom on gender equality may differ over the conditional distribution of the response variable using instrumental variable quantile regression to control for endogeneity in per capita income we find that greater freedom of the media improves gender equality only in the 0 25 and 0 50 quantiles of the conditional distribution countries with the greatest disparities in gender outcomes experience no significant impact of media freedom

the comparative advantages of firms markets and contracts a unified theory the most efficient labour market mechanism depends on the advantages of specialization workers costs of switching between entrepreneurs and the frequency with which needs change multilateral mechanisms are more efficient when specialization is more advantageous when it is cheap for workers to switch between entrepreneurs and when individual entrepreneurs cannot occupy a worker on a full time basis given a bilateral mechanism employment a firm is more efficient than contracts when in process adjustments arise more frequently there exist three regions in which firms markets and sequences of bilateral contracts are weakly more efficient than all other mechanisms in a big class

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

explicit solutions to an optimal portfolio choice problem with stochastic income abstract this paper solves in closed form the optimal portfolio choice problem for an investor with negative exponential utility over terminal wealth facing imperfectly hedgeable stochastic income the returns on income and the stock are imperfectly correlated so the market is incomplete we identify how an investor adjusts their merton rev econ statist 51 1969 247 portfolio of the stock and riskless asset via an intertemporal hedging demand in reaction to the stochastic income under general assumptions on the process governing the income the sign of the hedging demand is the opposite of the sign of the correlation between the income and stock the optimal portfolio in the stock is long stock if the risk premium is positive and correlation negative and short if these signs are reversed specializing in turn to normally distributed income and lognormally distributed income with or without mean reversion the effect of a number of parameters on the optimal portfolio in the stock can be studied when the risk premium on the stock and correlation have opposite signs the optimal portfolio decreases in magnitude with risk aversion unhedgeable variance of income and time and increases in magnitude with the magnitude of correlation under both the lognormal without mean reversion and normal models for income these relationships do not necessarily hold if the signs on the risk premium and correlation are the same in particular the optimal portfolio is not necessarily monotone in risk aversion violating well known static results in models without income when income follows a lognormal model with mean reversion more complicated behavior can occur for instance the optimal portfolio does not have to be monotonic in time regardless of the signs of correlation and the risk premium

informational lobbying and political contributions abstract interest groups can potentially influence political decision makers by offering contributions and by providing relevant information that sways the decision in the group s favor what mix of these two instruments should an interest group choose and how does the use of one instrument affect the effectiveness of the other in this paper we identify an information externality that raises the cost of offering contributions and show that this indirect search cost reduces the group s incentive to gather information when contributions are allowed furthermore we analyze how competition among lobby groups as providers of information and contributions affect the choice and effectiveness of the instruments we show that the information externality rewards the group that can abstain from information search and focus its influence on contributions

inequality and media capture abstract popular support of redistributive policies depends on information they have about the tax system and efficiency of public projects mass media provides a convenient means for manipulating public opinion even when voters understand that the media can be biased i develop a theory of media capture in which the rich can influence information published in a media outlet at a cost the model shows that higher inequality is associated with lower media freedom this effect is stronger in democratic regimes i find empirical support for the model in both panel data and cross country analysis

when can life cycle investors benefit from time varying bond risk premia we study the importance of time varying bond risk premia in a consumption and portfolio choice problem for a life cycle investor facing short sales and borrowing constraints tilts in the optimal asset allocation in response to changes in bond risk premia exhibit pronounced life cycle patterns we find that the investor is willing to pay an annual fee up to 1 to implement a strategy that optimally conditions on prevailing bond risk premia in addition to her age and wealth to solve our model we extend recently developed simulation based techniques to life cycle problems featuring multiple state variables and multiple risky assets

investments in physical capital relationship specificity and the property rights approach abstract we reconsider the property rights approach to the theory of the firm based on incomplete contracts we explore the implications of different degrees of relationship specificity when there are two parties a and b who can make investments in physical capital instead of human capital if relationship specificity is exogenously given it turns out that joint asset ownership can be optimal only if the degree of relationship specificity is sufficiently small if relationship specificity can be freely chosen and if party a s investments are more productive then the parties deliberately choose a strictly positive level of relationship specificity and they always agree on sole ownership by party a

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

the importance of the number of different agents in a heterogeneous asset pricing model abstract models with heterogeneous agents and incomplete markets often only have two types of agents to limit the computational complexity the question arises whether equilibrium models with a realistic number of types have the same implications as models with a small number of types in the asset pricing model considered in this paper several properties depend crucially on the number of types for example in the economy with only two types interest rates respond to idiosyncratic income shocks which makes it easier to smooth consumption moreover these effects can be so strong that it is possible that a relaxation of the borrowing constraint reduces an agent s utility average interest rates on the other hand are not very sensitive to the number of types

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

political economy of the media and consumer perceptions of biotechnology although households are flooded with information through dozens of tv channels plenty of newspapers journals and radio the public is said to be poorly informed on many important issues for example european consumers oppose genetically modified gm foods despite scientists and official institutions claiming those products are safe these reactions are blamed on consumers being poorly informed there is an extensive literature on imperfect information see akerlof stiglitz an important implicit assumption in this literature is that such information problems may be solved by providing more information the problem is that information provision is assumed to be neutral however in reality most information is not provided by institutions whose objective is to foster the public good but by organizations who have an internal incentive to select certain information and certain forms of information over other information it is either provided by private sources with their own profitmaximizing objectives or by public sources that may have the formal goal of providing objective information but administrators and governments may have incentives to bias the information this issue is particularly relevant for consumers risk perceptions about gm foods over 90 of consumers receive information about food and biotechnology primarily through the popular press and television hoban and kendall extensive media coverage of possible risks can lead to decreased demand for example johnson shows how media coverage of product contamination by