agenda restrictions in multi issue bargaining abstract we study a bilateral multi issue bargaining procedure with complete information and endogenous agenda in the procedure proposals must be made on only one issue at a time although the proposer can choose which issue to bring to the table when bargaining frictions are small there is a large multiplicity of equilibrium agreements including ones with delay however equilibrium payoffs cannot be made arbitrarily small perpetual disagreement cannot be supported in equilibrium this multiplicity contrasts with the uniqueness found in the literature for a procedure where offers can be made in any subset of remaining issues

equilibrium in the labor market with search frictions christopher a pissarides delivered his prize lecture on 8 december 2010 at aula magna stockholm university this abstract was borrowed from another version of this item

uniqueness of stationary equilibrium payoffs in the baron ferejohn model abstract we consider a multilateral sequential bargaining model in which the players may differ in their probability of being selected as the proposer and the rate at which they discount future payoffs for games in which agreement requires less than unanimous consent we characterize the set of stationary subgame perfect equilibrium payoffs with this characterization we establish the uniqueness of the equilibrium payoffs for the case where the players have the same discount factor we show that the payoff to a player is nondecreasing in his probability of being selected as the proposer for the case where the players have the same probability of being selected as the proposer we show that the payoff to a player is nondecreasing in his discount factor journal of economic literature classification numbers c72 c78 d70

the ins and outs of european unemployment in this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three european countries the united kingdom france and spain all countries are interesting in their own right and in the comparison with each other britain s labour markets were strictly regulated up to the mid 1980s but they have been liberalized since then france is still a regulated economy compared with britain with unemployment averaging about 8 spain has had the biggest rise in unemployment in europe reaching 24 in the mid 1990s but policy reforms and fast growth since then brought it down to a level below france s we compare performance in these three countries making use of both administrative and labor force survey data we find that the impact of the 1980s reforms in britain is evident in the contributions of the inflow and outflow rates the inflow rate became a bigger contributor after the mid 1980s although its significance subsided again in the late 1990s and 2000s in france the dynamics of unemployment are driven by the outflow rate virtually entirely which is consistent with a regime with strict employment protection legislation in spain however both rates contribute significantly to the dynamics perhaps as a consequence of the prominence of fixed term contracts since the late 1980s

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

drexel burnham lambert s bankruptcy and the subsequent decline in underwriter fees abstract in the 1980s drexel burnham lambert dominated the underwriting of junk bonds with close to a 50 market share in 1990 drexel went bankrupt and was liquidated and the percentage underwriting fees for junk bonds subsequently dropped dramatically we present strong evidence that the exit of drexel burnham lambert and the resulting increase in competition for market share were major contributing factors to the decline in junk bond underwriter fees

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

underwriting by commercial banks incentive conflicts scope economies and project quality the authors study the issue of commercial bank underwriting of securities their analysis examines the incentive conflict faced by intermediaries that both lend and underwrite securities thereby imposing a cost on their customers seeking to raise capital despite this cost firms may choose to use such an intermediary if there are sufficiently large scope economies in combined lending and underwriting the authors demonstrate that the regulatory separation of such combined intermediation may be optimal if firms recognize the intermediary s subsequent incentive conflict when choosing projects to be funded and if there is a social cost to bank funding of poor quality projects they also examine the conditions for intermediaries reputation building to mitigate the incentive conflict without the need for regulation

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

bargaining foundations of shapley value1 a transferable utility economy in which each agent holds a resource which can be used in combination with the resources of other agents to generate value according to the characteristic function v is studied using a dynamic model of bargaining the main theorem establishes that the payoffs associated with efficient equilibria converge to the agents shapley values as the time between periods of the dynamic game goes to zero in addition it is demonstrated that an efficient equilibrium exists and is unique when an additivity condition is satisfied to demonstrate the sensitivity of the solution to the institutional detail we modify the model to allow for partnerships and show that the shapley value is no longer achieved

welfare cost of fluctuations when labor market search interacts with financial frictions we provide a quantitative assessment of welfare costs of fluctuations in a search model with financial frictions the matching process in the labor market leads positive shocks to reduce unemployment less than negative shocks increase it we show that the magnitude of this non linearity is magnified frictions this asymmetric effect of the business cycle leads to sizable welfare costs the model also accounts for the responsiveness of the job finding rate to the business cycle as financial frictions endogenously generate counter cyclical opportunity costs of opening a vacancy and wage sluggishness

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

bond underwriting by banks and conflicts of interest evidence from japan during the pre war period abstract article 65 of the securities and exchange law of japan which was carried into effect in 1948 prohibited banks from underwriting corporate securities partially because of the concern that combining the banking and securities businesses might result in a potential conflict of interest this paper studies the pricing and long term default performance of industrial bonds underwritten by commercial banks the industrial bank of japan ibj and trust firms as compared to those underwritten by investment houses during the pre war period in japan when banks were allowed to underwrite industrial bonds the evidence rejects the concern about the conflicts of interest

coalitional bargaining with consistent counterfactuals abstract we propose a new solution concept for tu cooperative games in characteristic function form the scoop which builds on the symmetric nash bargaining solution nbs by adding a consistency requirement for negotiations inside every coalition the scoop specifies the probability of success and the payoffs to each coalition the players share the surplus of a coalition according to the nbs the disagreement payoffs are computed as the expectation of payoffs in other coalitions using a common probability distribution that is derived from the prior distribution the predicted outcome can be probabilistic or deterministic but only an efficient coalition can succeed with probability one we discuss the necessary and sufficient conditions for an efficient solution in either case the scoop always exists is generically unique for superadditive games and is easy to compute moreover in the spirit of the nash program we propose a non cooperative protocol whose stationary equilibrium identifies the scoop as the limit equilibrium outcome

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

household debt and fiscal multipliers we study the size of government spending multipliers in a general equilibrium model with search and matching frictions in which we allow for different levels of household indebtedness the main results are a the presence of impatient households and private debt helps to generate government spending multipliers greater than 1 b as financial conditions worsen the size of the government spending multiplier falls c conversely employment vacancies and unemployment multipliers are larger in a credit crunch d the model explains the observed pattern of responses of labour market variables housing prices and private debt to a fiscal shock reasonably well

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

estimating the stock flow matching model using micro data we estimate the stock flow matching model using micro level data from a well defined labor market using a dataset of complete labor market histories for both sides of the market we estimate hazard functions for job seekers and vacancies we find that the stock of new vacancies has a significant positive impact on the job seeker hazard over and above that of the total stock of vacancies there is an even stronger robust result for vacancy hazards thus we find evidence in favor of stock flow matching even when controlling for unobserved search heterogeneity and stratifying into submarkets defined by location and occupation

elections coalitions and legislative outcomes predictions of electoral behavior in a multiparty setting should be a function of the voters beliefs about how parties will perform following an election similarly party behavior in a legislature should be a function of electoral promises and rewards we develop a multistage game theoretic model of three party competition under proportional representation the final policy outcome of the game is generated by a noncooperative bargaining game between the parties in the elected legislature this game is essentially defined by the vote shares each party receives in the general election and the parties electoral policy positions at the electoral stage parties and voters are strategic in that they take account of the legislative implications of any electoral outcome we solve for equilibrium electoral positions by the parties and final policy outcomes

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

elections governments and parliaments in proportional representation systems this paper presents a theory of parliamentary systems with a proportional representation electoral system a formateur selected based on party representation in parliament and parties that cannot commit to the policies they will implement once in government government formation involves efficient proto coalition bargaining and elections yield unique strong nash equilibrium outcomes depending on the status quo minimal majority surplus or consensus governments can form if parties and voters are myopic and the status quo is subject to shocks consensus governments and centrist policies occur only in a crisis otherwise governments are minimal winning and policies reflect only the preferences of the government parties

the cyclicality of separation and job finding rates this paper uses cps gross flow data to analyze the business cycle dynamics of separation and job finding rates and to quantify their contributions to overall unemployment variability cyclical changes in the separation rate are negatively correlated with changes in productivity and move contemporaneously with them while the job finding rate is positively correlated with and tends to lag productivity contemporaneous fluctuations in the separation rate explain between 40 and 50 percent of fluctuations in unemployment depending on how the data are detrended this figure becomes larger when dynamic interactions between the separation and job finding rates are considered

search intensity job advertising and efficiency this paper demonstrates that if both firms and workers search the other side of the market for job matches the equilibrium rate of unemployment is likely to be too high both sides ignore a positive externality of their search when they establish a job match they remove from the market a job searcher so they save society his search costs i show that there is no feasible wage rate that can internalize this externality under fairly weak restrictions on the technology of search

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

price stabilization as a bonding mechanism in new equity issues abstract underwriters have an incentive to overstate investor interest in order to persuade some investors to purchase shares at a price in excess of their initial estimate of the fair value we show that this incentive is eliminated when the underwriter commits to secondary market price stabilization destroying the underwriter s incentive to overstate interest reduces the total surplus captured by initial investors in initial public offerings further efficiency gains are associated with penalty bid systems that permit the underwriter to make the stabilization commitment selectively price stabilization can thus be viewed as a bonding mechanism that improves the efficiency of the primary equity market

coalition formation and bargaining protocols a review of the literature this paper offers a review of the vast literature regarding bargaining and coalition formation this topic has been generally described as the attempt to provide strategic foundations to cooperative solution concepts it can therefore be seen as the linking ring between the non cooperative and the cooperative game theoretic approach to coalition formation its central role in economic theory and its relatively long history that goes back to the nash program have fostered a large academic production including surveys nonetheless this paper will focus on an aspect that is often neglected in the dedicated surveys the specificities of the bargaining protocols leading to different outcomes although generally downgraded to the rank of details the differences in bargaining protocols even when minor can cause significant changes in fundamental aspects such as the possibility to reach full cooperation the distribution of final pay offs and the time taken to reach an agreement focused on externalities free games therefore on bargaining protocols sustaining solution concepts for cooperative games in characteristic function form the paper aims at providing a brief but exhaustive review of the topic that could result in a very useful tool for any researcher approaching the subject of coalitional bargaining

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

cyclical delay in bargaining with externalities externalities between buyers are shown to induce delays in negotiations between a seller and several buyers delays arise in a perfect and complete information setting with random matching even when there is no deadline while with a deadline we identify delays both for positive and negative externalities without a deadline we find that 1 when externalities are positive there exists no spne in pure strategies with bounded recall that exhibits delay 2 when externalities are negative it may happen that all spne with bounded recall have the property that long periods of waiting alternate with short periods of activity this is the cyclical delay phenomenon

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

government turnover in parliamentary democracies in this paper we consider a dynamic model of government formation and termination in parliamentary democracies that accounts for the following phenomena 1 cabinet terminations due to replacement or early election 2 cabinet reshuf es 3 minority and surplus governments 4 the relative instability of minority governments

on the coexistence of banks and markets we examine the coexistence of banks and financial markets by studying a credit market where the qualities of investment projects are not observable and the investment decisions of entrepreneurs are not contractible standard banks can alleviate moral hazard problems while financial markets operated by investment banks can alleviate adverse selection problems in competition standard banks are forced to increase repayments since financial markets can attract the highest quality borrowers this in turn increases the share of shirkers and may make lending unprofitable for standard banks the coexistence of financial markets and standard banks is socially inefficient the same inefficiency may occur with the entrance of sophisticated banks operating with a combination of rating and ongoing monitoring technologies

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

market response to bank relationships evidence from korean bank reform abstract this paper examines how the forced closure of failing banks and the transfer of their loans to surviving banks affect the market value of firms that borrow from the closed banks pre existing relationships between firms and the banks that acquire their loans are detrimental to the positive valuation effects of the event banks may have an incentive to favor pre existing relationships to increase the value of previously extended loans therefore loan renewals to firms with prior relationships do not signal borrower quality to the market which is aware of the banks conflicts of interest this study highlights the importance of the specific mechanisms employed to replace failed banks without decreasing the value of their client firms

the peaceful conspiracy bond markets and international relations during the pax britannica this article provides foundations to polanyi s famed argument that monopoly power in the global capital market served as an instrument of peace during the pax britannica 1815 1914 our perspective is novel we focus on the role of intermediaries and certification we show that when information and enforcement are imperfect there is scope for the endogenous emergence of prestigious intermediaries who enjoy a monopoly position and as a result control government actions they can implement conditional lending they subject the distribution of credit to the adoption of peaceful policies prestigious intermediaries act that way because of their concern with maintaining an unblemished track record when wars increased risks of default our analysis which brings together insights from different disciplines provides a significant extension to and departure from recent research on how countries accumulate reputational capital

rubinstein auctions on competition for bargaining partners abstract this paper analyzes the effect of competition for bargaining partners on the prices that prevail in thin markets as well as how the matches are simultaneously determined three trading processes or bargaining procedures are described in all the variants that we consider except for one case of public offers either there is no pure strategy subgame perfect equilibrium or such equilibria exhibit delay in reaching agreement journal of economic literature classification numbers c72 d43

signalling and the pricing of new issues this paper develops a signalling model with two signals two attributes and a continuum of signal levels and attribute types to explain new issue underpricing both the fraction of the new issue retained by the issuer and its offering price convey to investors the unobservable intrinsic value of the firm and the variance of its cash flows many of the model s comparative statics results are novel empirically testable and consistent with the existing empirical evidence on new issues in particular the degree of underpricing which can be inferred from observable variables is positively related to the firm s post issue share price

coalitional bargaining with competition to make offers abstract the paper analyzes a simple discrete time noncooperative coalitional bargaining game in which at each stage there is a contest for the right to make a proposal the pure stationary subgame perfect equilibrium payoff set is equal to the core journal of economic literature classification numbers 026

pre electoral commitments and government formation recent studies show that pre electoral commitments and the ideological distance between parties influence government formation but do pre electoral pacts or rejections of party combinations really have an independent impact on the outcome of the government formation game which policy areas matter when parties agree to build a coalition this paper addresses these questions by applying a dataset that includes information on preferred rejected coalition partners and the policy area specific programmatic heterogeneity of all potential coalitions the results show that pre electoral commitments have a significant impact on government formation after controlling for endogeneity problems there is also evidence that not only diversity in economic issues determines the partisan composition of governments

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

stabilization syndication and pricing of ipos we argue that in the after market trading of an ipo the underwriting syndicate by standing ready to buy back shares at the offer price price stabilization compensates uninformed investors ex post for the adverse selection cost they face in bidding for ipos this domi nates ex ante compensation by underpricing the reason is that stabilization exploits ex post information about investor demand whereas underpricing must be based on ex ante infor mation however liquidity and syndication costs constrain the use of stabilization which in equilibrium generates some underpricing as well we develop a model that formalizes this intuition and generates several empirical implications

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

financial crises and the composition of cross border lending abstract we examine the composition and drivers of cross border bank lending between 1995 and 2012 distinguishing between syndicated and non syndicated loans we show that on balance sheet syndicated loan exposures which account for almost one third of total cross border loan exposures increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis our empirical analysis of the drivers of cross border loan exposures in a large bilateral dataset leads to three main results first banks with lower levels of capital favor syndicated over other kinds of cross border loans second borrower country characteristics such as level of development economic size and capital account openness are less important in driving syndicated than non syndicated loan activity suggesting a diversification motive for syndication third information asymmetries between lender and borrower countries became more binding for both types of cross border lending activity during the recent crisis

the effect of lender identity on a borrowing firm s equity return previous research demonstrates that a firm s common stock price tends to fall when it issues new public securities by contrast commercial bank loans elicit significantly positive borrower returns this article investigates whether the lender s identity influences the market s reaction to a loan announcement although we find no significant difference between the market s response to bank and nonbank loans we do find that lenders with a higher credit rating are associated with larger abnormal borrower returns this evidence complements earlier findings that an auditor s or investment banker s perceived quality signals valuable information about firm value to uninformed market investors previous studies show that certain types of loan announcements generate significantly positive abnormal returns to the average borrower s equity 1 this finding contrasts with the negative equity returns generally associated with a corporation s issuance of public securities smith 1986 this difference in market reactions indicates that private and public securities are not perfect substitutes for the average firm in this sense lender identity defined as public versus private lender significantly impacts the borrower s abnormal equity return the standard theoretical explanation for this difference is that private lenders either obtain private information about the firm s value or they have the incentive and ability to monitor firm behavior more effectively than other outside monitors can although the empirical literature on private lending has evaluated primarily commercial bank loans and lines of credit these theoretical arguments apply equally to any type of private

a theory of the syndicate form follows function we relate the organizational form of investment banking syndicates to moral hazard in team production although syndicates are dissolved upon deal completion membership stability across deals represents a barrier to entry that enables the capture of quasi rents this improves incentives for individual bankers to cultivate investor relationships that translate into greater expected proceeds reputational concerns of lead bankers amplify the effect we derive conditions under which restricted entry and designation of a lead banker strictly pareto dominate in which case it is also strictly pareto dominant for the syndicate s fee to be greater than members cost of participation copyright the american finance association 2001

agenda restrictions in multi issue bargaining ii unrestricted agendas we study a bilateral multi issue bargaining procedure with complete information and endogenous unrestricted agenda in which offers can be made in any subset of outstanding issues we find necessary and sufficient conditions for this procedure to have a unique subgame perfect equilibrium agreement

investment banks as corporate monitors in the early twentieth century united states we study the effect of financial relationships on firms investment decisions and access to external finance in the early twentieth century securities underwriters commonly held directorships with american corporations section 10 of the clayton antitrust act prohibited bankers from serving on the boards of railroads for which they underwrote securities we find that following the implementation of section 10 railroads with strong preexisting relationships with underwriters saw declines in their investment rates valuations and leverage and increases in their costs of external funds reassuringly we do not observe similar effects among industrials and utilities which were not subject to section 10 our results are consistent with underwriters on corporate boards acting as delegated monitors and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows

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

financial innovation in microcap public offerings abstract this paper examines external financing of small and growth firms using a regulatory experiment in the us microcap market the paper focuses on a new financing method for entrepreneurial firms small public offerings under regulation a which was significantly expanded by 2015 amendments regulation a offerings serve as a financing alternative for issuers that seek public capital but are unable to conduct a traditional registered public offering compared to small registered public offerings regulation a involves fewer requirements and draws smaller younger companies often raising capital without intermediaries or on a best efforts basis regulation a companies raise less capital on average after accounting for their historical financials the use of regulation a increased significantly following the 2015 shock particularly in market segments that had more private placements and traditional public offerings different types of issuers are pursuing regulation a and registered offerings and regulation a does not appear to draw issuers away from traditional public offerings

bridging the gap the design of bank loan contracts and distance how do the distance constraints faced by lenders in acquiring borrower information affect the design of bank loan contracts theoretical studies posit that greater information asymmetry leads to the allocation of stronger ex ante decision rights to the lender the uninformed party consistent with this hypothesis we find that upon inception contracts tend to be more restrictive when firms seek loans from remote lenders this finding is robust to potential endogeneity bias and simultaneity of various loan terms overall we establish a strong informational link between distance and loan contract design

investment bank reputation information production and financial intermediation we model reputation acquisition by investment banks in the equity market entrepreneurs sell shares in an asymmetrically informed equity market either directly or using an investment bank investment banks who interact repeatedly with the equity market evaluate entrepreneurs projects and report to investors in return for a fee setting strict evaluation standards unobservable to investors is costly for investment banks inducing moral hazard investment banks credibility therefore depends on their equity marketing history investment banks evaluation standards their reputations underwriter compensation the market value of equity sold and entrepreneurs choice between underwritten and nonunderwritten equity issues emerge endogenously

coalition theory and its applications a survey we survey some of the major advances in coalition theory in recent years we then look at the recent applications of the theory in the area of political economy and touch upon some important theoretical and applied open questions in the field

anatomy of initial public offerings of common stock initial public offerings of common stocks ipos are typically underpriced in this paper the author develops and tests the hypothesis that underpricing serves as a form of insurance against legal liability and the associated damages to the reputations of investment bankers the empirical results based on samples of ipos that were brought to the market before and after the securities act of 1933 provide considerable support for the implicit insurance hypothesis specifically gross underpricing and market segmentation between prestigious and fringe investment bankers in originating unseasoned new issues appear to be peculiar to the post 1933 era a number of studies have documented that unseasoned common stocks typically garner large positive abnormal returns during a short period following the initial offering in his recent review of the empirical evidence on the initial returns of common stock offerings smith 36 concluded that the returns from offer price to after market price have exceeded fifteen percent his calculations did not include some of the earlier results obtained by mcdonald and fisher 23 and logue 20 when their samples are combined with those in smith s review the initial returns of unseasoned equity offerings appear even larger over seventeen percent these results imply that underwriters consistently offer the securities at substantial discounts from their values that are set in the after market in other words initial public offerings ipos appear to be underpriced what is even more puzzling is the fact that in some time periods underpricing appears to be systematically larger than in other periods ibbotson and jaffe 15 and ritter 29 have documented that during the postwar era there have been a number of periods in which the initial returns of common stocks have been extremely high ritter for example reported that the average return from the offer price to the first after market price was over forty eight percent for ipos in 1980 and 1981 1 similarly the initial returns of unseasoned issues of common stock brought to the market in 1950 1951 1961 and 1968 were unusually large these periods in which ipos were grossly underpriced are referred to as the hotissue markets why do investment bankers underprice ipos why do issuers

a non cooperative bargaining model with strategically timed offers abstract rubinstein s alternating offers bargaining model is enriched by allowing players to choose when and whether or not to make an offer time is continuous and players make offers whenever they wish it is assumed that upon making an offer players must wait a fixed amount of time before making another it is shown that if players can react arbitrarily quickly to their opponent s offers then all subgame perfect equilibrium outcomes are rubinstein like in particular efficient however if it takes time to react then some delay can be supported this potential delay becomes arbitrarily large as reaction times increase journal of economic literature classification numbers c78 c72

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

who benefits from secondary market price stabilization of iops abstract initial public offerings that receive secondary market price support from their underwriters are characterized by severely attenuated selling by small quantity presumably retail traders and more aggressive selling by large quantity presumably institutional traders the increase in institutional trading is concentrated in the first day of trading while the attenuation of retail trading persists this pattern exists in spite of the likelihood that retail investors receive relatively large initial allocations of fully priced stabilized offers thus the evidence is consistent with institutional investors being the primary beneficiaries of price stabilization efforts and with the use of penalty bids to constrain retail selling activity

signalling by underpricing in the ipo market abstract empirical evidence suggests the existence of hot issue markets for initial public offerings in certain periods and in certain industries new issues are underpriced and rationing occurs this paper develops a model consistent with this observation which assumes the firm itself best knows its prospects in certain circumstances firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares and investors know that only the best can recoup the cost of this signal from subsequent issues

borrowing relationships intermediation and the cost of issuing public securities abstract this paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm s equity in the secondary market if underpricing is related to uncertainty a borrowing relationship can reduce underpricing empirically we find that other things equal ipos of firms with previously established borrowing relationships are underpriced substantially less than other ipos

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

the virtues of hesitation optimal timing in a non stationary world in many economic political and social situations circumstances change at random points in time reacting is costly and reactions appropriate to present circumstances may become inappropriate upon future changes requiring further costly reaction waiting is informative if arrival of the next change has non constant hazard rate we identify two classes of situations in the first delayed reaction is optimal only when the hazard rate of further changes is decreasing in the second it is optimal only when the hazard rate of further changes is increasing these results in semi markovian decision theory provide motivations for building delay into decision systems jel c61 d72 d82 d83 k10 m11

why do firms offer employment protection this paper derives optimal employment contracts when workers are risk averse and there are employment and unemployment risks without income insurance consumption rises during employment and falls during unemployment optimal employment contracts offer severance compensation and sometimes give notice before dismissal severance compensation smooths consumption during employment and dismissal delays insure partially against the unemployment risk because of moral hazard during the delay consumption falls to give incentives to the worker to search for another job no dismissal delays are optimal if exogenous unemployment compensation is sufficiently generous

consistent solutions for cooperative games with externalities in order to calculate the worth of a coalition of players the coalition needs to predict the actions of outsiders we propose that for a given solution concept such predictions should be made by applying the solution concept to the reduced society consisting of the non members we illustrate by computing the r core for the case of bertrand competition with differentiated commodities

legal framework quality and success of different types of venture capital investments abstract drawing on an analysis of 8 270 companies from 41 countries i explore the relationship between success of venture capital investments and legal frameworks in the investment countries legal framework quality is related to success but the effect varies with the deal type first the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals further investigations suggest that international venture capitalists often exit their portfolio companies abroad particularly when these companies are located in countries with inefficient legal frameworks in addition the results lend support to the view that international venture capitalists have a greater experience and reputation second legal framework quality seems to be more important for success in syndicated than in standalone deals this finding supports the view that a sound legal framework may improve the benefit cost balance of syndication while an inefficient legal framework may tend to increase costs in syndicated deals

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

partnership firms reputation and human capital in human capital intensive industries where it is difficult to contract upon the training effort of skilled agents a socially suboptimal level of training may occur we show how partnership organisations can overcome this problem by tying human and financial capital partnerships are opaque so that the willingness of clients to pay depends upon reputation partnerships are illiquid and partners must stay with the firm until clients discover their type and update the firm s reputation this renders unskilled agents who will aversely affect reputation unwilling to accept partnerships skilled agents therefore train the next generation so as to ensure that there is an adequate market for their own shares we comment upon the salient differences between partnerships and joint stock firms

a noncooperative theory of coalitional bargaining the authors explore a sequential offers model of n person coalitional bargaining with transferable utility and with time discounting their focus is on the efficiency properties of stationary equilibria of strictly superadditive games when the discount factor delta is sufficiently large it is shown that delay and the formation of inefficient subcoalitions can occur in equilibrium the latter for some or all orders of proposer however efficient stationary equilibrium payoffs converge to a point in the core as delta approaches one strict convexity is a sufficient condition for there to exist an efficient stationary equilibrium payoff vector for sufficiently high delta

prevention is better than cure the role of ipo syndicates in precluding information acquisition we treat information acquisition by potential investors in initial public offerings as endogenous with endogenous information the critical question is why underwriters would allow investors to spend resources acquiring superior information intended solely to effect a wealth transfer we show that an investment banking syndicate is an institutional arrangement designed to avoid such a transfer by inviting rival banks to share in the offering a managing underwriter ensures they have a strong incentive to remain ignorant we characterize the resulting outcome as one of symmetric ignorance the desire to maintain symmetric ignorance is consistent with the observed passivity of nonmanaging syndicate participants

a noncooperative view of coalition formation and the core a noncooperative implementation of the core is provided for games with transferable utility the implementation obtained here is meant to reflect the standard motivation for the core as closely as possible in the model proposed time is continuous this idealized treatment of time is most amenable for capturing an essential feature of the core there is always time to reject a noncore proposal before it is consumated

unemployment in the great recession this paper studies the responses of unemployment in germany the united states and britain to the great recession of 2008 09 by making use of beveridge curve analysis and in the entire oecd with other techniques it is shown that britain suffered from recession but no structural problems the united states suffered from structural unemployment during the recovery germany exhibited a much better performance both during and after the recession the rise in oecd unemployment is broken down into parts due to aggregate activity the construction sector and a residual attributed to policies and institutions which is used to reach conclusions about policy

a theory of gradual coalition formation we study noncooperative multilateral bargaining games based on underlying tu games in which coalitions can renegotiate their agreements we distinguish between models in which players continue to bargain after implementing agreements reversible actions and models in which players who implement agreements must leave the game irreversible actions we show that renegotiation always results in formation of the grand coalition if actions are reversible but that the process may otherwise end with smaller coalitions on the other hand we show that the grand coalition cannot form in one step if the core of the game is empty irrespective of the reversibility of actions agreements between players form the basis of much that game theory seeks to explain there are obviously many useful ways to categorize such agreements in multilateral negotiations that is with more than two participants it seems natural to distinguish between cases in which the coalition forms in one step and those in which the coalition grows to its eventual size by attracting new members thus recipients of marshall aid collectively agreed to american terms at the ceec in 1947 whereas a strict subset of these countries agreed to the schuman plan in 1950 with the other current members joining the eu over time similarly negotiations on climate change culminated in universal agreement at rio in 1992 whereas india and china only agreed to reduce cfc emissions in london in 1990 after other countries had signed up to the montreal protocol finally un security council resolution 242 urged that a multilateral conference be set up to establish a comprehensive settlement in the middle east whereas the process initiated by the oslo agreements and arguably camp david has consisted of a sequence of agreements between israel and its neighbours we will refer to cases in which the grand coalition forms in one step as involving immediate coalition formation or icf for short and cases in which a coalition grows as involving gradual coalition formation

a noncooperative coalitional bargaining game with random proposers abstract we extend the stahl rubinstein s alternating offer model ton person coalitional bargaining the key feature of the model is the random selection of proposers at every round no delay of agreement occurs in equilibrium for a super additive game in contrast to the fixed order model of chatterjeeet al rev econ stud 60 1993 463 477 when the discount factor of future payoffs is sufficiently high the agreement on the grand coalition is reached if and only if it has the largest value per capita among all coalitions moreover in the limit as the discount factor goes to one all players divide equally the value of the grand coalition regardless of who makes a proposal journal of economic literatureclassification numbers c72 c73 c78

order independent equilibria we study a noncooperative game of coalition formation based on an underlying game in coalitional form we introduce order independent equilibria oie a strategy profile is an oie if for any specification of first movers in the sequential game it remains an equilibrium and leads to the same payoff our results are 1 payoffs in oie that use pure stationary strategies must be in the core of the underlying game in coalitional form 2 if the underlying game has the property that all its subgames have nonempty cores then for each payoff vector there exists an oie with the same payoff journal of economic literature classification numbers c70 c71 c72 c78

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

the pricing of initial public offerings a dynamic model with information production this paper presents an information theoretic model of ipo pricing in which insiders sell stock in both the ipo and the secondary market have private information about their firm s prospects and outsiders may engage in costly information production about the firm high value firms knowing they are going to pool with low value firms induce outsiders to engage in information production by underpricing which compensates outsiders for the cost of producing information the information is reflected in the secondary market price of equity giving a higher expected stock price for high value firms