price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

the impact of price discrimination on consumer surplus at popular music concerts abstract we estimate consumer surplus gains and losses from concert ticket price discrimination fans purchasing low priced tickets enjoy a surplus gain of about 9 26 per ticket while high priced ticket buyers suffer a loss of about 17 63 per ticket

investment under uncertainty heterogeneous beliefs and agency conflicts we develop a structural model to investigate the effects of asymmetric beliefs and agency conflicts on dynamic principal agent relationships optimism has a first order effect on incentives investments and output which could reconcile the private equity puzzle asymmetric beliefs cause optimal contracts to have features consistent with observed venture capital and research and development rd baker ruback and wurgler 2007 ben david graham and harvey 2008 further long term principal agent relationships feature dynamic actions by both parties for example vc projects have salient features such as dynamic staging of the vc s investments progressive vesting of the entrepreneur s stake and the presence of intertemporal milestones or performance targets that must be met for the project to continue observed contracts also feature complex combinations of different types of financial securities with debt and equity like

relationship banking fragility and the asset liability matching problem we address a fundamental question in relationship banking why do banks that make relationship loans finance themselves primarily with core deposits and when would it be optimal to finance such loans with purchased money we show that not only are relationship loans informationally opaque and illiquid but they also require the relationship between the bank and the borrower to endure in order for the bank to add value however the informational opacity of relationship loans gives rise to endogenous withdrawal risk that makes the bank fragile core deposits are an attractive funding source for such loans because the bank provides liquidity services to core depositors and this diminishes the likelihood of premature deposit withdrawal thereby facilitating the continuity of relationship loans that is we show that banks will wish to match the highest value added liabilities with the highest value added loans and that doing so simultaneously minimizes the bank s fragility owing to withdrawal risk and maximizes the value the bank adds in relationship lending we also examine the impact of interbank competition on the bank s asset liability matching and extract numerous testable predictions

financial intermediation as a beliefs bridge between optimists and pessimists this paper proposes a new framework for understandingnancial intermediation in contrast to previous research we consider a setting in which intermediaries possess no inherent information processing or monitoring advantages instead in an economy with overly optimistic entrepreneurs who require funding from overly skeptical pessimistic investors we show that intermediaries can arise endogenously in such a setting only a rational intermediary will be su ciently optimistic tond it worthwhile to invest in a technology for screening entrepreneurs projects and yet be pessimistic enough to use this technology our framework produces implications consistent with heretofore unexplained stylized facts and a number of others which are as of yet untested

taxes and bank capital structure this paper shows that a reduction in tax discrimination between debt and equity funding leads to better capitalized financial institutions the paper exploits exogenous variation in the tax treatment of debt and equity created by the introduction of a tax shield for equity the results demonstrate that a more equal treatment of debt and equity increases bank capital ratios driven by an increase in common equity the change also leads to a significant reduction in risk taking for ex ante low capitalized banks overall the findings suggest that tax shields could be a valuable and innovative policy tool for bank regulators

financial development economic growth and convergence clubs abstractto study the role of financial development in economic growth we apply an array of convergence tests designed to capture nonlinear transitional dynamics to real outputs per capita strong evidence of multiple convergence clubs is observed implying that the clubs are formed based on the initial level of real output per capita and average growth rate our empirical results show that the stage of economic growth of each country plays an important role for the composition of the convergence clubs furthermore financial development emerges to be a significant determinant albeit plays differently in the economic growth of each convergence club

information reliability and a theory of financial intermediation this paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions the model is cast in a financial market framework thus leading to an identification of conditions sufficient for the existence of financial intermediaries intermediation is shown to improve welfare if informational asymmetries are present and the information generated to rectify these asymmetries is potentially unreliable the usual appeal to transactions costs to explain intermediation is not needed

trade with heterogeneous prior beliefs and asymmetric information no trade theorems have shown that new information will not lead to trade when agents share the same prior beliefs this paper explores the structure of no trade theorems with heterogeneous prior beliefs it is shown how different notions of efficiency under asymmetric information ex ante interim ex post are related to agents prior beliefs as well as incentive compatible and public versions of those efficiency concepts these efficiency results are used to characterize necessary and sufficient conditions on agents beliefs for no trade theorems in different trading environments

how does equity capital cost affect bank performance during a financial crisis this article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager s performance reveals the like of higher equity return and the dislike of higher equity risk we derive two main results first an increase in the bank s equity capital cost from an increase of the interest rate of the federal funds results in a reduced loan risk taking at an increased optimal bank interest margin implying better bank performance second by ignoring the dislike we find that the better performance is reinforced during a financial crisis but is reduced during a normal time financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

on the growth of foreign affiliates multinational plant networks joint ventures and flexibility we take a flexibility perspective to analyse employment growth in a large sample of japanese manufacturing affiliates in nine asian countries during the years leading up to and into the asian financial crisis 1995 1999 we find that joint ventures are less flexible than wholly owned affiliates in responding to changing environmental conditions in the focal country and underperform in high growth environments multinational enterprises mnes use the flexibility created by their multinational plant network to adjust affiliate employment in response to labour cost changes in other countries in which they operate plants however no evidence was found that the presence of joint ventures in multinational plant networks reduces this network flexibility our findings suggest that more research is needed on the heterogeneous responses of mnes and their affiliates to changing economic environments

the production and consumption of the arts a view of cultural economics by most criteria the arts comprise a significant area of economic activity in 1990 american consumers spent 5 billion on admissions to theater opera galleries and other nonprofit arts events more than on admissions to spectator sports 4 1 billion on movie admissions and 17 6 billion on books because of difficulties in defining boundaries around the arts industry statistics on its contribution to gdp are problematical but available data suggest that the arts theater music opera dance visual arts crafts literature community and folk arts account for a little under one percent of the united states gdp and a little over one percent of the civilian labor force if the net is cast somewhat wider defining the cultural industries as including the arts motion pictures radio and television and printing and publishing an aggregate value of output can be measured for 1988 of about 130 billion or 2 5 percent of gdp national endowment for the arts 1992 likewise support for the arts and culture in the u s through government and voluntary contributions amounts to a significant annual commitment of funds combined federal state and local government expenditure on the arts and museums in 1987 amounted to about 0 8 billion and in 1990 6 4 percent of charitable giving was channeled to arts culture and the humanities yielding a total level of voluntary contributions in these areas of 7 9 billion in that year private markets in the arts too are of significant size looking at the international art trade for example we can note that the worldwide net sales of the two major art auction houses christie s and sotheby s amounted to 6 6 billion in 1989 90 1 yet despite the fact that production and consumption of art have been elements of human activity for longer than most of the phenomena that have en

bank capital in the crisis it s not just how much you have but who provides it abstract bank capital is the cornerstone of bank regulation and is considered a key determinant of a bank s ability to withstand economic shocks in the area of bank capital regulation the general view is that more bank capital is better irrespective of who provides it in this paper we investigate whether the investment horizon of bank capital providers matters for bank performance during the recent financial crisis we observe that banks with more short term investor ownership have worse stock returns during the crisis further exploration suggests that this is partially because banks with higher short term investor ownership took more risk prior to the crisis but mainly because they experienced higher selling pressure during the crisis our results confirm the economic benefit of bank capital in helping banks to perform better during crises however when we decompose bank capital by the nature of its providers we show that more capital is associated with worse performance when it is provided by short term institutional investors

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

overconfidence ceo selection and corporate governance we develop a model that shows that an overconfident manager who sometimes makes value destroying investments has a higher likelihood than a rational manager of being deliberately promoted to ceo under value maximizing corporate governance moreover a risk averse ceo s overconfidence enhances firm value up to a point but the effect is nonmonotonic and differs from that of lower risk aversion overconfident ceos also underinvest in information production the board fires both excessively diffident and excessively overconfident ceos finally sarbanes oxley is predicted to improve the precision of information provided to investors but to reduce project investment

bank capital and liquidity creation in asia pacific we calculate liquidity creation for a large sample of commercial banks in 14 asia pacific economies from 2005 to 2012 we find that banks in this region created 7 83 trillion in liquidity in 2012 or approximately 3 24 times the total liquidity created in 2005 large banks and those based in developing asia created the highest liquidity we also investigate the bicausal relationship between liquidity creation and regulatory capital and find that the trade off between the benefits of financial stability induced by enhanced capital requirements and those of higher liquidity creation is applicable to all of the sample banks regardless of bank size and economic region

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

bank capital and lending relationships this paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships bank capital and the provision of credit i find that bank dependent firms borrow from well capitalized banks while firms with access to the bond market borrow from banks with less capital this matching of bank dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy

the effectiveness of non standard monetary policy in addressing liquidity risk during the financial crisis the experiences of the federal reserve and the european central bank abstract a number of studies sought to measure the effects of non standard policy on bank funding markets this paper carries those estimates a step further by looking at the effects of bank funding market stress on the volume of bank lending by separately modeling loan supply and demand we determine how non standard central bank measures affected bank lending by reducing stress in bank funding markets our results suggest that non standard policy measures lowered bank funding volatility in the us and the euro area lower bank funding volatility in turn increased loan supply in both regions contributing to sustained lending activity

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

bank funding modes securitization versus deposits abstract we examine a bank s choice of whether to fund the loans it originates by emitting deposits or to sell the loans to investors with common knowledge of loan quality and laissez faire banking we find that the choice is irrelevant with asymmetric information but without government intervention we find that better quality assets will be sold securitized and poorer quality assets will be funded with deposits public regulation can influence the bank s choice subsidies can cause a bank to favor deposit funding but mutual funds and third party insurers may mitigate the effects of governmental subsidies

self selection and the earnings of immigrants reply my 1987 paper addresses a central question in the economics of immigration who are the immigrants it has been traditionally assumed that immigrants are positively selected that is immigrants are more skilled on average than the typical person in the source country one contribution of my theoretical analysis was to show that this assumption is not necessarily consistent with wealth maximizing behavior in fact under some conditions the immigrant flow may be negatively selected my original study focused only on the selection bias caused by immigrants endogenously sorting themselves out of the source country s population 2 guillermina jasso and mark rosenzweig point out that i ignored other types of selection biases in both my theoretical development and empirical framework these additional biases are due to 1 the selective emigration of the foreign born in the united states and 2 the fact that my empirical work was limited to immigrants originating in 41 source countries regarding the first of these points jasso and rosenzweig restate the well known fact that emigration or return migration is an important characteristic of the immigrant experience robert warren and jennifer marks peck 1980 for instance estimate that perhaps as many as 30 percent of immigrants leave the united states within a decade or two after their arrival jasso and rosenzweig however do not examine systematically how the selective emigration of the foreign born affects either the theory or the empirical analysis in essence their criticism simply asserts that selective emigration is likely to cause problems my 1987 paper however already made note of that fact p 538 moreover the biases caused by emigration were an integral part of my earlier critique of the econometric methodology used by most studies of immigrant earnings determination borjas 1985 pp 466 67 what is obviously needed is the generalization of both my theoretical and empirical frameworks to account for the emigration of the foreign born such a generalization however is not provided by jasso and rosenzweig and does not yet exist 3 the second point made by jasso and rosenzweig deals with the empirical results presented in my paper because i limited my analysis to immigrants originating in 41 countries the sample is not representative and serious selection biases may be at work obviously it is always better to use a more representative sample in the empirical analysis the data were limited to 41 source countries because i was concerned not only with immigrant wage levels but also with immigrant wage growth as recorded by the 2 10

managerial optimism and earnings smoothing abstract this paper empirically examines how ceo optimism affects earnings smoothing and earnings surprises the main finding is that optimistic managers smooth earnings more than rational managers and are associated with smaller in absolute value earnings surprises a possible theoretical explanation is offered for these results based on a combination of the torpedo effect the innate behavior of optimists and the risk of litigation prosecution for over reporting earnings

destructive effects of constructive ambiguity in risky times unclear bailout policy underinvestment and calls for greater responsibility by bankers are some of the observations from the recent financial crisis the paper explains underinvestment as an inefficient equilibrium under ambiguous bailout policy agents suffer from a lack of information about the insolvency resolution methods the beliefs of bankers regarding whether an insolvent bank is liquidated may differ from those of depositors even if bankers and depositors possess absolutely symmetric information about the economy this disrupts the flow of funds through the banking channel if the investment climate is characterized by high aggregate risk the paper suggests policy implications aimed at a reduction of the anxiety of agents and at aligning their beliefs to restore efficiency