water markets market reform and the urban poor results from jakarta indonesia abstract roughly 20 of the eight million persons in jakarta receive water from municipal water connections to their homes remaining supplies are essentially private and include street vendors standpipes and wells the last of these an inexpensive but increasingly contaminated source in many areas an expansion of the network of in house connections is in progress but will take several decades to complete in the interim various strategies have been advanced to deal with persistent problems of access to good water by the poor this study examines the impacts of one such plan put to action the april 1990 deregulation measure permitting private homes with water connections to resell municipal water we present preliminary evidence that the primary social benefits of deregulation are the money savings and increased consumption by former vendor and standpipe customers in most respects the aggregate effect is equivalent to a costless expansion in the standpipe system with the difference on the supply side that significant transfers from vendors and standpipe operators to household resellers may occur

why is corruption less harmful to income inequality in latin america summary conventional wisdom says corruption is bad for income inequality but recent research on latin america finds a trade off between corruption and inequality and suggests this is due to the large informal sector in the region using data on a large sample of countries we find that the informal sector impacts the link between corruption and inequality in particular the marginal impact of corruption becomes negative once the informal sector becomes large this is true in latin america and more generally corruption reducing policies should be accompanied by measures that help displaced informal sector workers

price formation and liquidity in the u s treasury market the response to public information the arrival of public information in the u s treasury market sets off a two stage adjustment process for prices trading volume and bid ask spreads in a brief first stage the release of a major macroeconomic announcement induces a sharp and nearly instantaneous price change with a reduction in trading volume demonstrating that price reactions to public information do not require trading the spread widens dramatically at announcement evidently driven by inventory control concerns in a prolonged second stage trading volume surges price volatility persists and spreads remain moderately wide as investors trade to reconcile residual differences in their private views how do financial markets form prices and provide liquidity when information arrives efforts to address this issue have led to an extensive microstructure literature on equity markets and to a lesser extent on the foreign exchange fx market relatively little work has focused on the u s treasury market however in spite of its importance in its own right and the advantages it offers as an alternative testing ground for microstructure hypotheses

income velocity and the variability of money growth evidence from less developed countries this paper examines whether the variability of money growth caused changes in income velocity of money in 30 less developed countries time series data show year to year variations in income velocity of money in these countries for the 1961 1990 period empirical results based on causality but complemented by variance decomposition tests show that money growth is the most important determinant in explaining the variability in income velocity in at least 20 of the 30 developing countries examined in this study in addition the causality results show that inflation rate granger causes income velocity of money in 21 countries but the variance decomposition results show inflation rate to be relatively more important in explaining the variability of velocity in eight countries similarly while real income granger causes velocity of money in 18 countries the results of the variance decomposition tests show real income to be relatively more important as a determinant of income velocity in two countries over

auction form preferences of risk averse bid takers we analyze the preferences of a risk averse seller over the class of standard auctions with symmetric and risk neutral bidders assuming that buyers private signals are independently distributed we find that a sealed bid first price auction with an appropriately set reserve price is preferred by all risk averse sellers to any other standard auction in first and second price auctions the more risk averse a seller the lower the seller s optimal reserve price given two first price auctions with reserve prices and entry fees such that both have the same screening level all risk averse sellers prefer the auction with the lower entry fee

regulating water services for all in developing economies summary economic regulation is being introduced into the water services sector in developing economies where widespread poverty and service inadequacies affect regulatory rationales this paper analyzes the regulatory experience in 11 metropolitan areas with respect to the challenge of reaching all urban consumers particularly the poor case study evidence suggests that pro poor regulatory outcomes have been constrained by inadequate framework conditions and a limited understanding of alternative providers in many cases regulatory governance has been equally vulnerable although some regulators have demonstrated a capacity and willingness to achieve a balance between the social and financial objectives of water service regulation

uniqueness and existence of equilibrium in auctions with a reserve price abstract we prove existence and uniqueness of equilibrium for a general class of two player bidding games we apply our results to the first price auction the combination of first and second price auctions the war of attrition the all pay auction as well as combinations of the latter two auction forms we also treat the first price auction without risk neutrality our results deal with the asymmetric affiliated common values environment in the case where signals are independent our results apply to all equilibria when signals are not independent our uniqueness results hold in the class of nondecreasing strategy equilibria journal of economic literature classification number d44

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

ex post information in auctions assumptions maskin and riley 1984 show that when the amount a buyer is willing to pay for the auctioned object is not independent of his wealth expected revenue tends to be lower under open bidding in contrast milgrom and weber 1982 relax the assumption that valuations are independent and assume instead that buyers private estimates of the item s value are affiliated a buyer with a high estimate then tends to believe that other buyers will have higher estimates as well maintaining the other assumptions milgrom and weber show that expected revenue is higher in the open ascending bid auction the intuition behind this result is that in sealed high bid auctions a buyer s bid is determined not only by his own beliefs but via their bids by the beliefs of those with lower estimates a buyer with a low estimate believes that others are more likely to have low estimates as well he therefore bids less aggressively it follows that a buyer can beat all opponents who have lower estimates with a bid which is lower than it would be if beliefs were independent 2 milgrom and weber also show that if the seller purchases and then publicly reveals information which is positively linked to buyers valuations this also raises expected gross revenue from an auction the intuition here is that this helps to reduce the difference in bidders willingness to pay 3 that such a reduction should raise expected revenue is easily understood for the limiting case in which the seller s information includes all the buyers private information for then all buyer asymmetry is eliminated and so expected buyer profit is bid away to zero the seller therefore reaps the entire surplus in the following pages the implications of correlated signals are further explored while milgrom and weber emphasized the potential gains to a seller who reveals information ex ante the focus here is on ex post information in section 2 it is shown that under weak assumptions the sealed high bid auction is dominated by any auction

equilibrium in sealed high bid auctions there is a voluminous theoretical literature on sealed high bid auctions auctions in which bids are sealed and the high bidder pays his bid see for example vickrey 1961 myerson 1981 riley and samuelson 1981 milgrom and weber 1982 matthews 1983 maskin and riley 1984 holt 1980 cox smith and walker 1988 a critical property on which this literature relies is the existence of equilibrium in which buyers bidding strategies are monotonic in their types this enables the analyst to perform comparative statics as the distribution of types changes and to compare the welfare properties of the high bid auction with those of other auction institutions one case in which the existence of monotonic equilibrium is readily established is that in which buyers types are distributed smoothly independently and symmetrically in this case there exists a symmetric equilibrium one in which all bidders share the same bidding behaviour as a function of their valuations and this bid function is the solution to a first order differential equation

random walks and monetary velocity in the g 7 countries new evidence from a multiple variance ratio test the random walk hypothesis rwh of the velocity of money has often been supported for the developed economies the literature is however far from unanimous this paper employs the most recent methodological advances in testing for random walks the multiple variance ratio test to re examine the behaviour of the velocity of money in the g 7 countries monetary velocity is computed as the ratio of nominal income to contemporaneous money stock under alternative definitions of income and money the empirical results from the present study do not support the rwh in most of the g 7 countries with the us m1 and m2 velocities as exceptions furthermore the results show that the rwh is sensitive to either the definitions of monetary velocity or the sample period of study

privatization and renationalization what went wrong in bolivia s water sector summary this paper investigates the impact of water service privatization in bolivia it compares the performance of cities in which the service was privatized la paz and el alto with a city in which it is managed as a cooperative santa cruz de la sierra and one where the service is publicly provided cochabamba we find that access to water by low income consumers increased under private provision however the concessionaire failed to meet the targets stipulated in the contract the tariff increases required for full cost recovery eventually led to public outrage that forced the government to renationalize the company

risk aversion transparency and market performance using a model of market making with inventories based on biais 1993 we find that investors obtain more favorable execution prices and they hence invest more when markets are fragmented in our model risk averse dealers use less aggressive price strategies in more transparent markets centralized because quote dissemination alleviates uncertainty about the prices quoted by other dealers and hence reduces the need to compete aggressively for order flow further we show that the move toward greater transparency centralization may have detrimental effects on liquidity and welfare

equilibria in open common value auctions abstract a sufficient condition for uniqueness of nash equilibrium in second price common value auctions is identified we establish that there exists a continuum of equilibria in irrevocable exit common value auctions for the case of two bidders we provide plausible sufficient conditions under which the expected seller revenue is maximized at the symmetric equilibrium an example in which the auctioneer s revenue at the symmetric equilibrium in a second price auction is strictly greater than the revenue at many asymmetric equilibria in the corresponding irrevocable exit auction is provided

island goes dark transparency fragmentation and regulation responding to a september 2002 regulatory enforcement the island electronic communications network stopped displaying its limit order book in the three most active exchange traded funds etfs where it was the dominant venue island s share of trading activity and price discovery fell fragmenting the market etf prices adjust more slowly when island goes dark and there is substantial price discovery movement from etfs to the futures market trading costs increase on island and decrease off island with higher trading costs overall when island later redisplays its orders market quality improves with transparency and the reduction in fragmentation both playing important roles copyright 2005 oxford university press

subscribing to transparency abstract the paper empirically explores how more trade transparency affects market liquidity the analysis takes advantage of a unique setting in which the shanghai stock exchange offered more trade transparency to market participants subscribing to a new software package first the results show that the additional data disclosure increased trading activity but also increased transactions costs through wider bid ask spreads thus in contrast to popular policy belief the paper finds that more transparency need not improve market liquidity second the paper finds a particularly strong immediate liquidity impact accompanied by altered trading behavior which suggests a significant impact on institutional traders subscribing relatively early lastly since the effective level of market transparency is bound to depend on how many traders are subscribing to the data the study can empirically establish the functional form between market wide transparency and liquidity the relationship is non monotonic which can explain the lack of consensus in the existing literature where each empirical study is naturally confined to specific parts of the transparency domain

a comparison of centralized and fragmented markets with costly search how does quotation transparency affect financial market performance biais s irrelevance proposition in 1993 shows that centralized markets yield the same expected bid ask spreads as fragmented markets other things equal however de frutos and manzano demonstrated in 2002 that expected spreads in fragmented markets are smaller and market participants prefer to trade in fragmented markets this paper introduces liquidity traders costs of searching for a better quote into the biais model and derives opposite conclusions to these previous studies expected spreads in centralized markets are smaller and liquidity traders prefer centralized markets while market makers prefer fragmented markets

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

bidding behavior in asymmetric auctions an experimental study abstract we review an asymmetric auction experiment based on plum int j game theory 20 1992 393 private valuations of the two bidders are independently drawn from distinct but commonly known distributions one of which first order stochastically dominates the other we test the qualitative properties of that model of asymmetric auctions in particular whether the weak bidder behaves more aggressively than the strong and then test bidders preference for first vs second price auctions

first price auctions in the asymmetric n bidder case i consider the first price auction when the bidders valuations may be differently distributed i show that every bayesian equilibrium is an essentially pure equilibrium formed by bid functions whose inverses are solutions of a system of differential equations with boundary conditions i then prove the existence of an equilibrium i prove its uniqueness when the valuation distributions have a mass point at the lower extremity of the support i give sufficient conditions for uniqueness when every valuation distribution is one of two atomless distributions i establish inequalities between equilibrium strategies when relations of stochastic dominance exist between valuation distributions

transparency and liquidity a study of block trades on the london stock exchange under different publication rules this article examines whether reducing a market s transparency by delaying the publication of prices for block trades has any impact on liquidity the analysis uses a sample of 5987 blocks from the london stock exchange that cover three different publication regimes immediate 1987 88 90 minutes 1991 92 and 24 hours 1989 90 delaying publication does not affect the time taken by prices to reach a new level which is rapid under all regimes spreads differ across years but their size relates more closely to market volatility than to speed of publication there is therefore no gain in liquidity from delayed publication

can informal water vendors deliver on the promise of a human right to water results from cochabamba bolivia we examine the role of informal water vendors in the urban poor s efforts to secure safe and affordable water in the squatter settlements of cochabamba bolivia using an economic justice framework we evaluate 1 how informal water markets operate 2 differences in client and vendor perceptions of distributive procedural and interactional in justice and 3 how cooperation among water vendors impedes or assists in achieving justice in water delivery the research includes a comparative institutional analysis of three key data sets long term participant observation in water scarce squatter settlements interviews with 12 water vendors and interviews with 41 clients from 23 squatter settlements we find that informal water vendors organize themselves to safeguard distributive justice e g fair pricing good water quality but clients are distressed by procedural and interactional injustices e g unreliable and inequitable service our research also shows that unionized vendors are more effective than non unionized vendors in creating and enforcing rules that advance distributive procedural and interactional justice we make concrete recommendations for improving justice in informal water markets including a larger role for unions and community consultation we conclude that despite challenges the informal economy may play an important role in advancing the human right to water

anonymity adverse selection and the sorting of interdealer trades this article asks why london security dealers use more than one trading venue to trade with one another we argue that differences in the exclusivity liquidity anonymity and post trade transparency of each system permit a more efficient sorting of interdealer trades than if there were just one system our evidence comes from detailed data on where london dealers chose to place interdealer trades contrary to intuition we show that uninformed interdealer trades as measured by subsequent price impact tend to migrate to third party brokered systems where trade is anonymous by contrast informed interdealer trades tend to migrate to the direct nonanonymous public market additionally we show that this distribution of trades is supported by differences in the price improvement dealers receive in the direct and brokered markets our findings have implications for three strands of the market microstructure literature first they contribute to our understanding of the importance of anonymity and transparency in securities trading most theoretical models of the effects of anonymity and transparency predict that anonymous trading systems will attract more informed trades