increasing dominance with no efficiency effect abstract i uncover a new force towards increasing dominance the property whereby in dynamic games the leader tends to increase his or her lead in expected terms the new effect results from the strategic choice of covariance in races i assume that players must choose not the amount of resources to spend but how to allocate those resources i show that in equilibrium the laggard chooses a less promising path in effect trading off lower expected value for lower correlation with respect to the leader this results in increasing dominance and holds true even if no joint payoff or efficiency effect is present journal of economic literature classification numbers c7 l1

investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

assessing the equalizing force of mobility using short panels france 1990 2000 in this paper we document whether and how much the equalizing force of earnings mobility has changed in france in the 1990 s for this purpose we use a representative three year panel the french labour force survey we develop a model of earnings dynamics that combines a flexible specification of marginal earnings distributions to fit the large cross sectional dimension of the data with a tight parametric representation of the dynamics adapted to the short time series dimension log earnings are modelled as the sum of a deterministic component an individual fixed effect and a transitory component which is assumed first order markov the transition probability of the transitory component is modelled as a one parameter plackett copula we estimate this model using a sequential expectation maximization algorithm we exploit the estimated model to study employment earnings inequality in france over the 1990 2002 period we show that in phase with business cycle fluctuations a recession in 1993 and two peaks in 1990 and 2000 earnings mobility decreases when cross section inequality and unemployment risk increase we simulate individual earnings trajectories and compute present values of lifetime earnings for various horizons inequality presents a hump shaped evolution over the period with a 9 increase between 1990 and 1995 and a decrease afterwards accounting for unemployment yields an increase of 11 moreover this increase is persistent as it translates into a 12 increase in the variance of log present values the ratio of inequality in present values to inequality in one year earnings a natural measure of immobility or of the persistence of inequality remains remarkably constant over the business cycle

optimal management of an r d budget abstract this paper characterizes the optimal allocation of a budget between several stages of an r d project when intermediate stages are profitable the optimal allocation involves greater expenditures in early stages increasing the budget does not necessarily increase expenditures in every stage but does increase the budget that remains unspent at each stage a simple necessary and sufficient condition is given for the optimality of bold play the spending of all remaining budget on the current stage if profits are realized only after all stages are successfully completed decreasing returns in the innovation production function implies that the optimal strategy is to spread the budget evenly between the stages of the r d project

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

continuous time repeated games in this paper the authors develop a model of strategic behavior in continuous time games of complete information which includes conventional repeated games in discrete time as a special case the model developed here admits a very large class of strategies that allows one to extend the repeated game model to continuous time the set of equilibria in this game may be large in many cases equal to the feasible individually rational set of payoff s the authors also study the restriction of renegotiation proofness in this framework and apply these results to a cournot duopoly example copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the role of copulas in the housing crisis abstract due to its simplicity and familiarity the gaussian copula is popular in calculating risk in collaterized debt obligations but it imposes asymptotic independence such that extreme events appear to be unrelated this restriction might be innocuous in normal times but during extreme events such as the housing crisis the gaussian copula might be inappropriate this paper explores various copula specifications and finds that the degree to which housing prices are related based on the gaussian copula is too small compared with real housing price data

patentability r d direction and cumulative innovation we present a model of cumulative innovation where firms can conduct r d in both a safe and a risky direction innovations in the risky direction produce quality improvements with higher expected sizes and variances as patentability standards rise an innovation in the risky direction is less likely to receive a patent that replaces the current technology which decreases the static incentive for new entrants to conduct risky r d but increases their dynamic incentive because of the longer duration and hence higher reward for incumbency these together with a strategic substitution and a market structure effect result in an inverted u shape in the risky direction but a u shape in the safe direction for the relationship between r d intensity and patentability standards there exists a patentability standard that induces the efficient innovation direction whereas r d is biased towards against the risky direction under lower higher standards the optimal patentability standard may distort the r d direction to increase the industry innovation rate that is socially deficient

matching to share risk without commitment this paper studies the effect of limited commitment on sorting when two sides of a frictionless market form pairs to share risk on each side agents are identical except for their risk preferences first we provide analytical results when transfers do not condition on the history of shocks more risk averse agents can commit to larger transfers as long as their consumption is less risky than their endowment with sufficiently large idiosyncratic risk and sufficient discounting of the future matching is positive assortative unlike under full commitment second we find positive assortative stable matchings when transfers are history dependent using a numerical algorithm

measuring forecast uncertainty by disagreement the missing link using a standard decomposition of forecast errors into common and idiosyncratic shocks we show that aggregate forecast uncertainty can be expressed as the disagreement among the forecasters plus the perceived variability of future aggregate shocks thus the reliability of disagreement as a proxy for uncertainty will be determined by the stability of the forecasting environment and the length of the forecast horizon using density forecasts from the survey of professional forecasters we find direct evidence in support of our hypothesis our results support the use of garch type models rather than the ex post squared errors in consensus forecasts to estimate the ex ante variability of aggregate shocks as a component of aggregate uncertainty copyright 2010 john wiley sons ltd

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

assortative matching and risk sharing abstract this paper explores the sorting patterns in a two sided matching market where agents facing different risks match to share them when preference belongs to the class of harmonic absolute risk aversion hara the risk premium is perfectly transferable within each partnership thus a stable match minimizes the social cost of risk in the systematic risk model where agents are ranked by their holdings of a common risky asset the convexity of the joint risk premium in joint risk size leads to negative assortative matching nam in the idiosyncratic risk model where agents are ranked by their independent riskiness in the sense of second order stochastic dominance ssd nam arises when preference exhibits decreasing absolute risk aversion dara in the sense of ross and riskier background risk leads to more risk averse behavior however nam may fail to arise when riskier background risk leads to more risk tolerant behavior

a perpetual race to stay ahead this paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity the state of competition measured by the difference between the number of innovations introduced by the firms evolves stochastically according to their effort level the structure of markov perfect equilibria is identified it is generally not true that competition is fiercest when firms are closest rather firms invest under two distinct circumstances while sufficiently ahead to outstrip their rival and secure a durable leadership while behind to regain leadership and prevent the situation from worsening to the point where their rival outstrips them industry such a market structure cannot be adequately modelled by a repeated game since history obviously affects market opportunities more precisely previous outcomes determine the range of available actions and pay offs economists have thus resorted to the study of races to gain insights into the strategic issues raised by such competition with the notable exceptions of aoki 1991 harris 1991 and budd harris and vickers 1993 most of the literature has analysed formal races displaying exogenous finishing lines or deadlines as well as final prizes and rewards and the corresponding results rely on backward induction however such assumptions do not seem to capture accurately the essential features of many markets often the rivalry only ends if at all when one of the competitors withdraws so that the deadline should be endogenized moreover benefits and losses are continuously collected additionally the emerging empirical literature on races stresses the inadequacy of standard models and the need to model r d as a race with multiple prizes in the words of cockburn and henderson 1994 our finding that the modern game theoretic literature is of only limited usefulness as an empirical guide points to the need to model r d as a race with multiple prizes the model analysed in this paper is an attempt to offer an adequate framework for this type of dynamic competition the stochastic evolution of the state of competition between two firms depends on their respective effort levels the state of competition is measured by the

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

assimilation in the risk preferences of spouses we use correlations in the risk preferences of spouses as a testbed of whether preferences are socially transmitted rather than being innate as traditionally assumed in economics we obtain rich measurements of the risk preferences of cohabiting spouses in the rural ethiopian highlands this allows us to use correlation coefficients at the level of the couple in regression analysis we find a strong correlation between the strength of the correlation in risk preferences within a couple and how long a couple has been married this provides direct evidence for assimilation in the risk preference of spouses and thus for social transmission of preferences assortative mating appears to be less important

the relationships among expected inflation disagreement and uncertainty evidence from matched point and density forecasts abstract this paper examines matched point and density forecasts of inflation from the survey of professional forecasters to analyze the relationships among expected inflation disagreement and uncertainty we undertake the empirical analysis within a seemingly unrelated regression framework and derive measures of uncertainty using a decomposition proposed by wallis 2004 2005 and by drawing on the concept of entropy the results offer little evidence that disagreement is a useful proxy for uncertainty and mixed evidence that increases in expected inflation are accompanied by heightened uncertainty conversely we document a quantitatively and statistically significant positive association between disagreement and expected inflation

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

firm asymmetries and sequential r d theory and evidence from the mainframe computer industry we incorporate strategic considerations into the analysis of a problem that has hitherto been treated in a decision theoretic fashion the allocation of scarce r d resources when r d proceeds in stages in doing so we formalize a notion of system complexity and investigate its implications for the allocation of these scarce resources using detailed data from fieldwork at all mainframe manufacturers in the world to investigate our theoretical predictions we provide evidence that larger market share firms set more aggressive stage targets as do more resource rich firms our results can be seen as a verification of the mechanism underlying arrow s replacement effect

negative assortative matching of risk averse agents with transferable expected utility abstract i give necessary and sufficient conditions for expected utility to be transferable among agents with different state independent risk preferences who share a risk they cannot influence in an assignment game where participants choose partners based on risk aversion the conditions permit a simple proof that matching is negative assortative

the dynamics of learning alliances competition cooperation and relative scope we show how the tension between cooperation and competition affects the dynamics of learning alliances private benefits and common benefits differ in the incentives that they create for investment in learning the competitive aspects of alliances are most severe when a firm s ratio of private to common benefits is high we introduce a measure relative scope of a firm in an alliance to show that the opportunity set of each firm outside an alliance crucially impacts its behavior within the alliance finally we suggest why firms might deviate from the theoretically optimal behavior patterns 1998 john wiley sons ltd

go for broke or play it safe dynamic competition with choice of variance we consider a differential game in which the joint choices of the two players influence the variance but not the mean of the one dimensional state variable we show that a pure strategy perfect equilibrium in stationary markov strategies me exists and has the property that patient players choose to play it safe when sufficiently ahead and to take risks when sufficiently behind we also provide a simple condition that implies both players choose risky strategies when neither one is too far ahead a situation that ensures a dominant player emerges quickly

analyzing comovements in housing prices using vine copulas i introduction when housing prices were rapidly appreciating from 1999 to 2006 investment firms created structured securities by combining mortgages from houses located in different parts of the country and then traders bought and sold those securities and also pieces of those securities called tranches in secondary markets the most familiar of those structured securities was the collateralized debt obligation cdo the main appeal of cdos rested in the belief that due to the localized nature of housing markets houses in separate geographic markets would be unlikely to simultaneously experience large decreases in prices credit rating agencies offered support to this thinking by awarding many cdos the highest possible safety rating however it soon became clear that cdos offered less diversified protection than originally thought when starting in 2006 housing prices in different geographic areas even those located far apart simultaneously plummeted in value as a consequence cdos lost much of their value with the global cdo market shrinking from 482 billion globally in 2007 to only 8 billion in 2010 1 in the wake of the housing crisis financial analysts and policy makers have questioned why compared to pre crisis expectations housing prices showed strong correlations across different geographic areas in addition a branch of research has emerged that attempts to identify sources of and quantify magnitudes of housing price comovements apergis and payne 2012 barros gil alana and payne 2012 the popular press quickly assigned blame to the statistical method used to analyze linkages between housing markets the gaussian copula li 2000 notably the march 2009 issue of the technology magazine wired featured an article on the gaussian copula entitled recipe for disaster the formula that killed wall street similar ideas have reached the general public through the works of nassim taleb taleb 2007 the gaussian copula became popular due in part to its link to the familiar multivariate normal distribution but the multivariate normal distribution has asymptotic independence such that events regardless of the strength of their correlation become independent if one pushes far enough into the tails embrechts mcneil and straumann 2002 thus in the midst of the housing crisis which might be thought of as a lower tail event the gaussian copula predicted near independence in price movements across different areas when in fact prices plummeted simultaneously throughout most of the united states but the gaussian copula s link to the normal distribution was not its only appeal perhaps a bigger reason for its popularity was that the gaussian copula much like the related normal distribution readily extends to higher dimensions certainly credit rating agencies were not considering simple bivariate movements between two locations but rather multivariate movements across many locations recent studies argue that alternative specifications especially copulas that depart from normality more accurately reflect correlations in housing price movements during extreme market swings ho huynh and jachochavez 2014 zimmer 2012 however those improved fits have been achieved only in bivariate models that compare housing price movements between two locations it remains an open question whether non gaussian copulas can accurately reflect housing price movements in higher dimensional settings unfortunately copulas other than the gaussian do not readily extend to higher than bivariate dimensions nelsen 2006 105 attempts to develop higher dimensional copulas some of which are discussed below either impose unrealistic restrictions or present difficulties when applied to data as an alternative this article develops multivariate models of housing price comovements based on vine copulas the approach requires marginal distributions which financial analysts should know with some certainty and bivariate copulas which have well understood statistical properties

does cross sectional forecast dispersion proxy for macroeconomic uncertainty new empirical evidence we investigate the link between forecast dispersion and macroeconomic uncertainty resulting from the data revision structure of inflation and real output we find that disagreement is significantly related to data uncertainty however results are considerably more distinctive for inflation uncertainty

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

portfolio choice in research and development we analyze the effects of a winner take all patent mechanism on the riskiness of the research strategies chosen by competingfirms as well as on thefirms incentives to duplicate research projects nash equilibrium choices are compared with the social optimum in a oneshot simultaneous move game in which competitors choose the riskiness or correlation of their research performances we show that neither society nor firms have any preference for correlation per se while the divergence between social and privately optimal levels of risk depends on skewness characteristics of the probability distribution over discovery dates and on levels of risk aversion

interim rank risk taking and performance in dynamic tournaments we empirically study the impact of interim rank on risk taking and performance using data on professionals competing in tournaments for large rewards as we observe both the intended action and the performance of each participant we can measure risk taking and performance separately we present two key findings first risk taking exhibits an inverted u relationship with interim rank revealing information on relative performance induces individuals trailing just behind the interim leaders to take greater risks second competitors systematically underperform when ranked closer to the top despite higher incentives to perform well disclosing information on relative ranking hinders interim leaders

an empirical analysis of risk aversion and income growth risk aversion enters many theoretical models of human capital investment but attitudes toward risk have not been incorporated in empirical models of human capital investment this article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion using data from the survey of consumer finances i find that wage growth is positively correlated with preferences for risk taking more educated individuals are also more likely to be risk takers thus risk taking explains a portion of the returns to education

r d cooperation and product market competition abstract i derive equilibria that is self enforcing agreements for firms that cooperate in improving their product and compete in marketing it i am particularly interested in the interaction between rd ii product improvement is a function of the effort by each firm iii firms cannot observe each other s effort iv firms market the product by simultaneously setting prices the analysis reveals some surprising results i find that in some cases although monopoly prices can be sustained in equilibrium optimal equilibria call for firms to set lower than monopoly prices in the short run thus providing the right incentives for investment in r d under a different set of assumptions i find that it is optimal to reduce r d effort below the efficient level as a means to sustain short run collusion in prices even though efficient r d effort could be achieved in equilibrium

marriage markets and assortative mating with household public goods theoretical results and empirical implications this paper analyzes marriage market equilibria when the gains from marriage result from joint consumption of household public goods assuming transferable utility within marriage the paper proves that marriage markets will be characterized by positive assortative mating on wealth when spouses differ only in endowments and the gains to marriage result only from public goods when spouses differ in wages and household public goods are produced at home the results imply offsetting effects with public good economies creating an incentive for positive assortative mating on wages and gains from specialization creating an incentive for negative assortative mating on wages the results help explain the persistent lack of empirical support for becker s prediction of negative assortative mating on wages and have implications for empirical analysis of all joint living arrangement decisions

what do discounted optima converge to a theory of discount rate asymptotics in economic models abstract this paper considers a sequence of stochastic dynamic problems in which the discount rate goes to zero sufficient conditions are given under which the limit of discounted optimal policies and normalized values are a i long run average optimal and ii catching up optimal policy and value these conditions are shown to be satisfied in many economic models a new decision criterion for the undiscounted problem the strong long run average is introduced this criterion refines the long run average is often equivalent to the catching up and is easier to use than the latter since it has a recursive representation a generalization of fatou s lemma which has wider applicability is also proved

optimal r and d processes and competition the result that competition in innovation can lead to the dissipation of rents and excessive investment in r and d is now well known in the economic literature when the social and private benefits from discovery are equal over investment in r and d is a consequence of rent dissipation because resources are allocated to r and d until the average product of r and d investment rather than the marginal product equals the marginal resource cost in most models the marginal and average products diverge because of statistical duplication when more than one research avenue or experiment can potentially lead to discovery the marginal productivity of additional experiments declines as experimentation increases even though no firm replicates exactly the experiments of other firms hence when experiments are independent and equal in cost and probability of success decreasing returns from investment result to achieve optimality the social planner or monopolist must restrict investment in r and d 2 in this paper we analyse two neglected sources of potentially large gains from socially coordinated r and d relative to the competitive process coordination of research efforts over potential experiments and over time by coordinating the avenues or experiments undertaken by research units resources from an actual replication of experiments can be saved such replication is particularly likely during the development stage of the r and d process at this stage the number of promising research avenues is relatively small and well known in contrast to basic research stage where a great deal of uncertainty prevails thus the probability that competing firms wastefully replicate experiments of their rivals increases in the later development stage coordination of research efforts over time ensures the efficient use of time as factor in the generation of technological information learning takes time and because of the patent race competition prevents researchers from taking the time required to learn these two features of the r and d process generally have been neglected in previous models because in order to focus primarily on the patent race the innovation process is characterized by independent research efforts and memoryless probability distributions 3 we adopt the simplest model that illustrates these aspects of the r and d process while abstracting from those features that have been analysed extensively elsewhere we model the r and d process as a series of experiments or avenues culminating in successful development of an innovation in which the experiments are drawn without replacement from a population of known potential experiments only a subset of the avenues leads to success 4 where sequential research is feasible an optimal research policy is derived in which a subset of avenues is covered during each period of time if discovery is made further experimentation ceases upon failure to discover the unsuccessful avenues are discarded from the future choice set and experiments continue

entry and vertical differentiation this paper analyzes the entry of new products into vertically differentiated markets where an entrant and an incumbent compete in quantities the value of the new product is initially uncertain and new information is generated through purchases in the market we derive the unique markov perfect equilibrium of the infinite horizon game under the strong long run average payoff criterion the qualitative features of the optimal entry strategy are shown to depend exclusively on the relative ranking of established and new products based on current beliefs superior products are launched relatively slowly and at high initial prices whereas substitutes for existing products are launched aggressively at low initial prices the robustness of these results with respect to different model specifications is discussed

a dynamic oligopoly with collusion and price wars we provide a collusive framework with heterogeneity among jirms investment entry and exit it is a symmetric information model in which it is hard to sustain collusion when there is an activejim that is likely to exit in the near future numerical analysis is used to compare a collusive to a noncollusive environment only the collusive industry generates price wars also the collusive industry offers both more and higherquality products to consumers albeit often at a higher price the positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices so that consumer surplus is larger with collusion

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

gambling in contests this paper presents a strategic model of risk taking behavior in contests formally we analyze an n player winner take all contest in which each player decides when to stop a privately observed brownian motion with drift a player whose process reaches zero has to stop the player with the highest stopping point wins unlike the explicit cost for a higher stopping time in a war of attrition here higher stopping times are riskier because players can go bankrupt we derive a closed form solution of a nash equilibrium outcome in equilibrium highest expected losses occur at an intermediate negative value of the drift

is the market biased against risky r d this article analyzes the riskiness of the r d strategies chosen by firms engaged in a winner takes all patent race in contradiction to dasgupta and stiglitz 1980 we show that when the distribution of invention times is symmetric the market equilibrium cannot be safer and may be riskier than is socially optimal we identify the economic reason for the emergence but only if there are few competitors

coupling couples with copulas analysis of assortative matching on risk attitude we investigate patterns of assortative matching on risk attitude using self reported ordinal data on risk attitudes for males and females within married couples from the german socio economic panel over the period 2004 2012 we apply a novel copula based bivariate panel ordinal model estimation is in two steps first a copula based markov model is used to relate the marginal distribution of the response in different time periods separately for males and females second another copula is used to couple the males and females conditional on the past distributions we find positive dependence both in the middle of the distribution and in the joint tails and we interpret this as positive assortative matching pam hence we reject standard assortative matching theories based on risk sharing assumptions and favor models based on alternative assumptions such as the ability of agents to control income risk we also find evidence of assimilation that is pam appearing to increase with years of marriage jel c33 c51 d81

capital rationing and organizational slack in capital budgeting this paper reconciles three stylized facts about capital budgeting in firms and shows that they are tied to the presence of asymmetric information among the several members of the firm each with his or her own objectives and decisions the facts of interest are 1 the existence of organizational slack 2 the rationing of resources within organizations 3 the stated cut off rate for accepting capital projects in firms is often greater than the market rate of interest organizational slack is defined as the excess of resources allocated over the minimum necessary to accomplish the tasks assigned resource rationing is defined as the under allocation of resources i e an increase in the amount allocated would generate revenues in excess of its costs rationing and slack are both manifestations of ex post inefficiencies an lp model is used to show that these inefficiencies can occur in ex ante efficient organizational designs when asymmetric information is present the optimal allocation policy involves a hurdle rate criterion in which the hurdle rate is strictly in excess of the cost of capital thus inducing rationing in some states of the world typically resources are optimally allocated such that slack exists in other states the optimal allocation policy trades off these two inefficiencies