matching with waiting times the german entry level labor market for lawyers abstract we study the allocation of german lawyers to regional courts for legal trainee ships because of excess demand in some regions lawyers often have to wait before being allocated the currently used berlin mechanism is not weakly pareto efficient does not eliminate justified envy and does not respect improvements we introduce a mechanism based on the matching with contracts literature using waiting time as the contractual term the resulting mechanism is strategy proof weakly pareto efficient eliminates justified envy and respects improvements we extend our proposed mechanism to allow for a more flexible allocation of positions over time

simple mechanisms to implement the core of college admissions problems abstract this paper analyzes simple mechanisms implementing subselections of the core correspondence of matching markets we provide a sequential mechanism which mimics a matching procedure for many to one real life matching markets we show that only core allocations should be attained when agents act strategically when faced with this mechanism we also provide a second mechanism to implement the core correspondence in subgame perfect equilibrium journal of economic literature classification numbers c78 d78

matching with contracts comment abstract the matching with contracts model hatfield and milgrom 2005 is widely considered to be one of the most important advances of the last two decades in matching theory one of their main messages is that the set of stable allocations is non empty under a substitutes condition we show that an additional irrelevance of rejected contracts irc condition is implicitly assumed throughout their analysis and in the absence of irc several of their results including the guaranteed existence of a stable allocation fail to hold jel c78 d86

optimal truncation in matching markets abstract although no stable matching mechanism can induce truth telling as a dominant strategy for all participants roth 1982 recent studies have presented conditions under which truthful reporting by all agents is close to optimal immorlica and mahdian 2005 kojima and pathak 2009 lee 2011 our results demonstrate that in large uniform markets using the men proposing deferred acceptance algorithm each woman s best response to truthful behavior by all other agents is to truncate her list substantially in fact the optimal degree of truncation for such a woman goes to 100 of her list as the market size grows large in general one to one markets we provide comparative statics for optimal truncation strategies reduction in risk aversion and reduced correlation across preferences each lead agents to truncate more so while several recent papers focused on the limits of strategic manipulation our results serve as a reminder that without pre conditions ensuring truthful reporting there exists a potential for significant manipulation even in settings where agents have little information

on stable and strategy proof rules in matching markets with contracts abstract this paper studies stable and one sided strategy proof rules in many to one matching markets with contracts not assuming any kind of substitutes condition or the law of aggregate demand we obtain the following results first the number of stable and strategy proof rules is at most one second the doctor optimal stable rule whenever it exists is the unique candidate for a stable and strategy proof rule third a stable and strategy proof rule whenever it exists is second best optimal for doctor welfare in that no individually rational and strategy proof rule can dominate it this last result is further generalized to non wasteful and strategy proof rules due to the weak assumptions our analysis covers a broad range of markets including cases where a unique stable and strategy proof rule is not equal to the one induced by the cumulative offer process or the deferred acceptance algorithm

stable matchings and rematching proof equilibria in a two sided matching market abstract in this paper we introduce the notion of a rematching proof equilibrium for a two sided matching market to resolve roth s open question what kind of equilibria of the game induced by any stable mechanism with respect to misreported profiles produce matchings that are stable with respect to the true profile we show that the outcome of a rematching proof equilibrium is stable with respect to the true profile even though the equilibrium profile may contain misreported preferences we also show that a rematching proof equilibrium exists moreover the nash equilibria in roth j econ theory34 1984 383 387 are shown to be rematching proof equilibria journal of economic literature classification numbers c78 d71

internet advertising and the generalized second price auction selling billions of dollars worth of keywords we investigate the generalized second price gsp auction a new mechanism used by search engines to sell online advertising although gsp looks similar to the vickrey clarke groves vcg mechanism its properties are very different unlike the vcg mechanism gsp generally does not have an equilibrium in dominant strategies and truth telling is not an equilibrium of gsp to analyze the properties of gsp we describe the generalized english auction that corresponds to gsp and show that it has a unique equilibrium this is an ex post equilibrium with the same payoffs to all players as the dominant strategy equilibrium of vcg

substitutes and stability for matching with contracts we consider the matching problem with contracts of hatfield and milgrom 2005 and we introduce new concepts of bilateral and unilateral substitutes we show that bilateral substitutes is a sucient condition for the existence of a stable allocation in this framework however the set of stable allocations does not form a lattice under this condition and there does not necessarily exist a doctor optimal stable allocation under a slightly stronger condition unilateral substitutes the set of stable allocations still does not necessarily form a lattice with respect to doctors preferences but there does exist a doctor optimal stable allocation and other key results such as incentive compatibility and the rural hospitals theorem are recovered

redesigning the israeli psychology master s match we report on the centralization of a two sided matching with contracts market in which pre existing choice functions violate the substitutes condition the ability to accommodate these choice functions was critical for the success of our design the new mechanism is stable and strategy proof for applicants it is well accepted by both sides of the market our study provides a strong empirical validation for the practical relevance of recent theoretical advances on matching without substitutes

on the correspondence of contracts to salaries in many to many matching abstract in this note i extend the work of echenique 2012 to show that a model of many to many matching with contracts may be embedded into a model of many to many matching with wage bargaining whenever 1 all agents preferences are substitutable and 2 the matching with contracts model is unitary in the sense that every contractual relationship between a given firm worker pair is specified in a single contract conversely i show that unitarity is essentially necessary for the embedding result

top incomes and the measurement of inequality in egypt by all accounts income inequality in egypt is low and had been declining during the decade that preceded the 2011 revolution as the egyptian revolution was partly motivated by claims of social injustice and inequalities this seems at odds with a low level of income inequality moreover while income inequality shows a decline between 2000 and 2009 the world values surveys indicate that the aversion to inequality has significantly increased during the same period and for all social groups this paper utilizes a range of recently developed statistical techniques to assess the true value of income inequality in the presence of a range of possible measurement issues related to top incomes including item and unit non response outliers and extreme observations and atypical top income distributions the analysis finds that correcting for unit non response significantly increases the estimate of inequality by just over 1 percentage point that the egyptian distribution of top incomes follows rather closely the pareto distribution and that the inverted pareto coefficient is located around median values when compared with 418 household surveys worldwide hence income inequality in egypt is confirmed to be low while the distribution of top incomes is not atypical compared with what pareto had predicted and compared with other countries in the world this would suggest that the increased frustration with income inequality voiced by egyptians and measured by the world values surveys is driven by factors other than income inequality

misrepresentation and stability in the marriage problem it has been shown previously that for two sided discrete markets of the kind exemplified by the marriage problem no strategy proof procedure for aggregating preferences into stable outcomes exists here it is shown that nash equilibrium misrepresentation of preferences nevertheless results in a stable outcome in terms of the true preferences when the aggregation procedure yields the optimal stable outcome in terms of the stated preferences for one side of the market journal of economic literature classification numbers 022 025 026 0 1984 academic

optimal security design how should new securities be designed traditional theories have little to say on this the literature on capital structure and general equilibrium theories with incomplete markets take the securities firms issue as exogenous this paper explicitly incorporates the transaction costs of issuing securities and develops a model where the instruments that are traded are chosen optimally and the economy s market structure is endogenous among other things it is shown that the firm s income stream should be split so that in every state all payoffs are allocated to the security held by the group that values them most this abstract was borrowed from another version of this item

measuring poverty in a growing world or measuring growth in a poor world the extent to which growth reduces global poverty has been disputed for 30 years although there are better data than ever before controversies are not resolved a major problem is that consumption measured from household surveys which is used to measure poverty grows less rapidly than consumption measured in national accounts in the world as a whole and in large countries particularly india china and the united states in consequence measured poverty has fallen less rapidly than appears warranted by measured growth in poor countries one plausible cause is that richer households are less likely to participate in surveys but growth in the national accounts is also upward biased and consumption in the national accounts contains large and rapidly growing items that are not consumed by the poor and not included in surveys so it is possible for consumption of the poor to grow less rapidly than national consumption without any increase in measured inequality current statistical procedures in poor

matching with couples stability and incentives in large markets accommodating couples has been a longstanding issue in the design of centralized labor market clearinghouses for doctors and psychologists because couples view pairs of jobs as complements a stable matching may not exist when couples are present this paper s main result is that a stable matching exists when there are relatively few couples and preference lists are suciently short relative to market size we also discuss incentives in markets with couples we relate these theoretical results to the job market for psychologists in which stable matchings exist for all years of the data despite the presence of couples

the mechanism is truthful why aren t you abstract honesty is the best policy in the face of a strategy proof mechanism irrespective of others behavior the best course of action is to report one s preferences truthfully we review evide

adverse selection and security design this paper studies the problem of optimal security design by a privately informed entrepreneur in the context of a simple parametric model it is shown that the entrepreneur does not find it profitable to float an asset that affords her an informational advantage the reason is that with rational uninformed outside investors the entrepreneur faces adverse selection in the security market which prevents her from exploiting her position as an insider this is true whether or not she has market power in trading the asset consider a risk averse entrepreneur who is contemplating what security to issue the entrepreneur anticipates that during subsequent trading in the secondary market she will have private information on the payoff of her investment as well as on other risks in the economy the design of the asset is therefore influenced not only by a desire to share risk but also by informational considerations involving the potential for insider trading profits this paper studies the problem of optimal security design in the context of a simple parametric model with gaussian risks and cara utility trading in the secondary market is modelled via the static reduced form concept of rational expectations equilibrium in which uninformed outside investors use market prices to try to infer the private information of the entrepreneur or insider as she will sometimes be called it is shown that the entrepreneur does not find it profitable to float an asset that affords her an informational advantage an optimal asset entails a fully revealing rational expectations equilibrium and is perfectly correlated with the issuer s endowment risk the reason is that with rational outside investors the entrepreneur faces adverse selection in the security market which prevents her from exploiting her position as an insider she is better off foregoing her informational advantage and concentrating on her hedging motive alone in the particular setting described in the paper equity2 is an optimal asset since the entrepreneur has no privileged information regarding its payoff and it allows efficient risk sharing the issue of security design when prices have an informational role to play is just beginning to be researched closely related to this paper is the work of demange and laroque 1995 who use a competitive rational expectations model with noise traders to analyse the problem posed above except for some special cases however they are able to get only numerical results in comparison the present paper obtains partially revealing equilibria in a model in which all agents are rational furthermore demange and laroque

matching with contracts comment the theory of two sided matching markets has interested researchers for its theoretical appeal and its relevance to the design of real world institutions the medical residency matching mecha nism in the united states the national resident matching program nrmp and student assign ment systems in new york city and boston are important mechanisms designed by economists using the theory 1 hatfield and paul r milgrom 2005 present a unified framework of matching with contracts which includes the two sided matching and package auction models as well as a simplified version of a labor market model of alexander kelso and vincent p crawford 1982 as special cases they introduce the substitutes condition of contracts which is an adaptation of the substitutability condition in the matching literature roth and marilda a oliveira sotomayor 1990 to matching with contracts they show that there exists a stable allocation if contracts are substitutes for hospitals and that a number of other results in matching generalize to problems with contracts they further claim that the substitutes condition on individual hospitals prefer ences is necessary to guarantee the existence of a stable allocation for all possible singleton preferences of others that is if contracts are not substitutes for a hospital then there exists a preference profile of other hospitals with single job openings and doctors such that there exists no stable allocation we show that this last claim of hatfield and milgrom 2005 does not hold in general the counterexample we present involves a hospital which has two different kinds of positions and the preferences of the hospital are a combination of preferences of these two positions while the substitutes condition does not hold for that hospital we adopt a technique developed by bettina klaus and flip klijn 2005 and show that there exists a stable allocation we then present the weak substitutes condition which we show is necessary to guarantee existence of stable allocations the modified result we present as well as the original contribu tion of hatfield and milgrom 2005 suggest a connection between the substitutes condition and stability 2

the welfare effects of coordinated assignment evidence from the new york city high school match abstract coordinated single offer school assignment systems are a popular education reform we show that uncoordinated offers in nyc s school assignment mechanism generated mismatches one third of

poverty measurement with contaminated data a robust approach we examine the sensitivity of poverty indices to data contamination using the concept of the influence function and demonstrate that an important commonly used subclass of poverty measures will be robust under data contamination this is illustrated using simulations in this respect poverty and inequality indices have fundamentally different robustness properties we investigate both the case where the poverty line is exogenously fixed and where it must be estimated from the data

assigning refugees to landlords in sweden efficient stable maximum matchings in this paper we investigate the problem of finding housing for refugees once they have been granted asylum in particular we demonstrate that market design can play an important role in a partial solution to the problem more specifically we investigate a specific matching system and we propose an easy to implement mechanism that finds an efficient stable and maximum matching such a matching guarantees that housing is efficiently provided to a maximum number of refugees and that no refugee prefers another specific landlord to their current match when at the same time that specific landlord prefers that refugee to their own current match

dynamic kidney exchange we study how barter exchanges should be conducted through a centralized mechanism in a dynamically evolving agent pool with time and compatibility based preferences we derive the dynamically efficient two way and multi way exchange mechanisms that maximize total discounted exchange surplus recently several live donor kidney exchange programs were established to swap incompatible donors of end stage kidney disease patients since kidney exchange can be modeled as a special instance of our more general model dynamically efficient kidney exchange mechanisms are derived as corollaries we make policy recommendations using simulations

contracts versus salaries in matching workers and firms may bargain over general multidimensional contracts they may negotiate over health benefits housing retirement plans etc substitutes on the other hand is the assumption commonly placed on firms preferences to guarantee the existence of stable matchings of workers and firms in this paper i show that when firms regard contracts as substitutes bargaining over contracts can be embedded into a model of bargaining over wages the economics of the embedding is straightforward except for a small twist when a firm and a worker negotiate over a contract they may bargain over many dimensions however the pareto frontier of contracts is in a sense one dimensional what is better for the worker is worse for the firm so pareto optimal contracts may be viewed as salaries with the better contracts for the firm meaning lower salaries and the better contracts for the worker meaning higher salaries the twist is that a firm s ranking over contracts might be affected by the firm s other hires for example health plan a may be better than b for a firm if it has many employees but b beats a if it has few when contracts are substitutes it turns out that the ranking is not affected in this way hatfield and milgrom 2005 present a model of two sided worker firm matching with contracts a firm will hire a collection of workers and will negotiate a contract with each one of them the model is a generalization of kelso and crawford 1982 where each firm and each worker negotiate a wage 1 kelso and crawford show that when firms demands satisfy gross substitutes the core of the matching market is nonempty hatfield and milgrom show that when the firms preferences over contracts satisfy their notion of substitutes the core of the market is nonempty i show that hatfield and milgrom s model can be embedded into the model of kelso and crawford hatfield and milgrom s assumption of substitutability enables an embedding where firms demands for workers satisfy kelso and crawford s notion of gross substitutes as a result the nonemptiness of the core follows from the argument in kelso and crawford and their salary adjustment algorithm finds a stable matching of workers to firms and a vector of supporting salaries hatfield and milgrom s paper is an elegant analysis of two sided matching it simplifies matching models and makes their relationship to auction models more transpar ent their paper contributes much more than showing the nonemptiness of the core when firms and workers can sign general contracts and my result does not diminish

the english auction with differentiated commodities abstract we study economies with indivisibilities that satisfy the gross substitutes gs condition we define an excess demand set with the property that increasing the prices of all goods in excess demand eventually leads to the smallest walrasian prices this procedure is a generalization of the auction studied by g demange d gale and m j sotomayor polit econ 94 1986 863 872 in our auction truthful revelation of demand is a perfect bayesian equilibrium if the smallest walrasian prices correspond to the vickrey clarke groves payments however no dynamic auction can reveal sufficient information to implement the vickrey mechanism if all gs preferences are allowed journal of economic literature classification numbers d4 d44 d5 d51

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

in search of advice for participants in matching markets which use the deferred acceptance algorithm many centralized entry level labor markets use the firm proposing deferred acceptance da algorithm to compute the matching that is implemented among workers and firms we propose a definition of the strategic options a worker faces in the da algorithm then we develop a theory to advise workers who distinguish between the firms from which they believe not to receive a proposal the firms from which they might receive a proposal and the firms from which they certainly receive a proposal if a worker is not able to deduce which new proposals she receives after having rejected others then it is not profitable for her to submit a list that reverses the true ranking of any two acceptable firms furthermore it is not beneficial for her to include a firm in her submitted list that is unacceptable to her

leveling the playing field sincere and sophisticated players in the boston mechanism empirical and experimental evidence suggests different levels of sophistication among families in the boston public school student assignment plan we analyze the preference revelation game induced by the boston mechanism with sincere players who report their true preferences and sophisticated players who play a best response we characterize the set of nash equilibrium outcomes as the set of stable matchings of a modified economy where sincere students lose priority to sophisticated students any sophisticated student weakly prefers her assignment under the pareto dominant nash equilibrium of the boston mechanism to her assignment under the recently adopted student optimal stable mechanism jel d82 i21

games of manipulation in marriage problems abstract we analyze the equilibrium outcomes of thepreference revelation gamesinduced bypareto efficientandindividually rationalsolutions in the context ofmarriage problems we employ a nash equilibrium refinement which allows deviations by a set of permissible coalitions and show that the set of equilibrium outcomes coincides with a variant of the core that allows blocking by only permissible coalitions journal of economic literatureclassification numbers c71 c78 d71 d78

incentive conflicts bundling claims and the interaction among financial claimants we show that for certain capital structures equity has an incentive to buy out another claim and alter the firm s investment strategy so as to maximize the combined value of equity and the acquired claim this restructuring may reintroduce agency problems into capital structures which appear to avoid agency conflicts by bundling claims it is possible to avoid this agency problem the agency problem is also eliminated by dispersed ownership of the claims in the presence of other claims issued by the firm the projects that maximize the value of equity need not maximize the value of the firm e g myers 1977 an agency problem occurs because the equityholders select projects that are in the interest of equity rather than the firm as a whole for example if the firm comprises equity and bonds then equity would prefer risky projects and may undertake projects that are undesirable from the firm s perspective but desirable from the equity perspective the resulting difference in the claimants preferences among projects could be limited by structuring the financial claims so that the preferences of equityholders among projects are similar to those of the firm as a whole the issuance of separate claims that are individually both more risky and less risky than the equity can control incentive problems for a fixed capitalization without trading see jensen and meckling 1976 and green 1984 green 1984 examines the financing of a new project by a combination of warrants and bonds and shows that if the warrants and bonds correctly balance then the incentives of equity still will be to maximize the value of the firm for this fixed capital structure the incentive conflicts are removed and the optimal strategy for equity coincides with the firm s optimal strategy a time inconsistency problem can arise when an earlier period is added to allow trading among the financial claimants we initially suppose that the capital structure is designed so that without trading equity has an incentive

unilateral substitutability implies substitutable completability in many to one matching with contracts abstract we prove that the unilateral substitutability property introduced in hatfield and kojima 2010 implies the substitutable completability property from hatfield and kominers 2014 this paper provides a novel linkage between these two sufficient conditions for the existence of a stable matching in many to one matching markets with contracts a substitutable completion of a preference is a substitutable preference created by adding some sets of contracts to the original preference order we provide an algorithm which when operated on the unilaterally substitutable preferences produces such a substitutable completion thus it provides a constructive proof of the connection between the two properties

some further properties of the cumulative offer process we investigate extension resource monotonicity and respecting improvements properties of the cumulative offer process cop extension monotonicity says that no doctor is to be better off whenever others start preferring more contracts to being unmatched resource monotonicity on the other hand requires that no doctor becomes worse off whenever hospitals start hiring more doctors the cop becomes extension and resource monotonic whenever contracts are unilateral substitutes us satisfying an irrelevance of rejected contracts condition irc this result implies that the cop is population monotonic under us and the irc we then turn to the respecting improvements property which states that no doctor should be harmed if some of his contracts become more popular with an additional law of aggregate demand condition we show that the cop respects improvements

matching with contracts we develop a model of matching with contracts which incorporates as special cases the college admissions problem the kelso crawford labor market matching model and ascending package auctions we introduce a new law of aggregate demand for the case of discrete heterogeneous workers and show that when workers are substitutes this law is satisfied by profit maximizing firms when workers are substitutes and the law is satisfied truthful reporting is a dominant strategy for workers in a worker offering auction matching algorithm we also parameterize a large class of preferences satisfying the two conditions

the combinatorial assignment problem approximate competitive equilibrium from equal incomes this paper proposes a new mechanism for combinatorial assignment for example assigning schedules of courses to students based on an approximation to competitive equilibrium from equal incomes ceei in which incomes are unequal but arbitrarily close together the main technical result is an existence theorem for approximate ceei the mechanism is approximately efficient satisfies two new criteria of outcome fairness and is strategyproof in large markets its performance is explored on real data and it is compared to alternatives from theory and practice all other known mechanisms are either unfair ex post or manipulable even in large markets and most are both manipulable and unfair

matching with branch of choice contracts at the united states military academy branch selection is a key decision in a cadet s military career cadets at usma can increase their branch priorities at a fraction of slots by extending their service agreement this real life matching problem lls an important gap in market design literature although priorities fail a key substitutes condition the agent optimal stable mechanism is well dened and in contrast to the current usma mechanism it is fair stable and strategy proof adoption of this mechanism benets cadets and the army this new

implementation of stable solutions to marriage problems abstract this note analyzes the possibility of implementing stable outcomes for marriage markets our first result shows a contradiction between the use of stable mechanisms and the hypothesis of agents behavior considered in the nash equilibrium concept we analyze the possibility of implementing two sets of stable allocations by employing two types of mechanisms the first mechanism is a now or never choice process that permits us to implement in undominated nash equilibria the set of all the stable allocations the second choice process is the classic algorithm in matching theory the gale shapley mechanism a reversal property is observed in such a mechanism when agents act strategically the use of a mechanism which selects the best solution for one side of the market in the absence of strategic behavior yields the best stable solution for the agents on the other side under dominance solvability journal of economic literatureclassification numbers c72 d78 j41

recent developments in matching with constraints in an earlier work kamada and kojima 2015 we introduced matching with constraints a two sided matching problem in which the market is subject to feasibility constraints that paper proposed and analyzed a possible solution to this problem and discussed various real market applications of our results the present paper reorganizes some of the findings from our more recent effort based on kamada and kojima 2016a b

investment incentives debt and warrants abstract this paper models and characterizes investment incentive problems associated with debt financing the decision problem of residual claimants is explicity formulated and their investment policies are characterized the paper also analyzes the use of conversion features and warrants to control distortionary incentives these claims reverse the convex shape of levered equity over the upper range of the firm s earnings and this mitigates the incentive to take risk it is shown that under certain conditions such claims can be constructed to restore net present value maximizing incentives and simultaneously meet the financing requirements of the firm

arbitrage short sales and financial innovation the authors describe a model of general equilibrium with incomplete markets in which firms can innovate by issuing arbitrary costly securities when short sales are prohibited firms behave competitively and equilibrium is efficient when short sales are allowed these classical properties may fail if unlimited short sales are allowed imperfect competition may persist even when the number of potential innovators is large if limited short sales are allowed perfect competition may obtain in the limit but equilibrium can be inefficient because of the presence of an externality the private benefits of innovation for firms differ from the social benefits copyright 1991 by the econometric society

financial innovation and delegation of control the literature on security design has traditionally assumed that control of investment and production rests with the entrepreneur even after flotation in this article i relax this assumption which is both unnecessarily strict and unrealistic the contribution is twofold first i show that when control is delegated during flotation financial innovation is a trade off between agency costs arising from principal agent relationships and targeting costs arising from the inability to split the cash flow second i show that unlevered equity or the use of debt which can be issued without defaulting in equilibrium are optimal means of financing the strand of finance which deals with security design seeks to explain theoretically why certain contracts are used as means of corporate financing if there are zero costs of issuing securities we might well expect to find a myriad of contract designs empirically there are however just a few contract designs which seem to dominate namely debt and equity contracts it is the simple designs which appear to survive as understandably simplicity makes it easy to evaluate the risk of the securities within the class of simple contracts there still are unresolved theoretical issues however some of which i address in this paper perhaps the most puzzling aspect of corporate financing is why controlling securities have residual payoffs and non controlling securities have fixed payoffs this is puzzling in two respects first why is control associated with residual payoff and second why is risk not spread onto more than on security in particular it can be harmftlil to give controlling stakeholders too much discretion as it leads to agency costs green 1984 and risk sharing concerns would normally imply that splitting the risk giving a greater span in the market is the optimal route in this paper i investigate financial innovation in a context where both concerns apply and where indeed the optimal security structure has the properties observed the mnain reason for this which is also the point at which the paper distinguishes itself from most of the literature is that here the floatation is associated with delegation of control to the new owners in the market in particular i consider the problem of optimal security design for an entrepreneur who intends to float a firm when she must delegate the control of the firm to the new owners delegation of control implies two major concern for the entrepreneur first she seeks to design securities which take maximally advantage of existing investor clienteles in the economy as an example we can think of firms that increase their value by issuing tax efficient

bidding for army career specialties improving the rotc branching mechanism motivated by the low retention rates of us military academy and reserve officer training corps graduates the army recently introduced incentives programs in which cadets could bid 3 years of additional service obligation to obtain higher priority for their desired branches the full potential of this incentives program is not utilized because of the rotc s deficient matching mechanism i propose a design that eliminates these shortcomings and mitigates several policy problems the army has identified in contrast to the rotc mechanism my design utilizes market principles more extensively and it is a hybrid between a market mechanism and a priority based allocation mechanism