efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

do mergers really reduce costs evidence from hospitals in this paper we compare potential and realized cost savings from hospital mergers our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger however we also show that over time cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines

on the estimation of hospital cost functions abstract data from 166 general hospitals in new york state 1981 is used to estimate a quadratic and logarithmic long run cost function both equations fit the data very well but give very different results the quadratic appears to confirm the commonly held view of a shallow u shaped average cost curve whereas the log function indicates significant economies of scale a total and average cost elasticity of 0 9 and 0 10 respectively using beds or patient days to measure output ramsey s reset test is used to discriminate between the two models and the quadratic is clearly rejected as a misspecification scale economies thus exist even where the usual quadratic suggests otherwise

endogenous market segmentation for lemons information asymmetry between sellers and buyers often prevents socially desirable trade this article presents a new mechanism that mitigates the inefficiencies caused by information asymmetry i consider decentralized markets under adverse selection and show that such markets can be endogenously segmented in a way that improves social welfare endogenous segmentation is driven by low quality sellers incentive to attract more buyers by separating from high quality sellers the mechanism helps us understand the roles of several real world institutions such as multiple marketplaces costless advertisements and nonbinding list prices

public offers in the market for lemons with large discounting i show that bargaining impasse in horner and vieille 2009 can be interpreted as the limit of bargaining delay the maximal duration of the game increases unboundedly as the seller s discount factor approaches the threshold level above which bargaining impasse occurs

nuclear brinkmanship with two sided incomplete information a brinkmanship crisis with two sided incomplete information is modeled as a game of sequential bargaining in which each state is uncertain of its adversary s resolve the sequential crisis equilibria are characterized explicitly and used to analyze the influences of resolve misperception and the status quo on escalation and crisis stability the description of brinkmanship as a contest of resolve is found to be misleading the state with the greatest resolve may not prevail in the crisis a state may be less not more likely to prevail the greater its resolve and a states expected payoff may be less not more the greater its resolve moreover reducing misperception may destabilize a crisis surprisingly increasing the stake a potential challenger has in the status quo may not make a challenge less likely finally crises involving severe conflicts of interest are shown to be less likely than crises not entailing a severe conflict of interest

bargaining search and outside options abstract this paper studies a two sided incomplete information bargaining model between a seller and a buyer the buyer has an outside option which is modeled as a sequential search process during which he can choose to return to bargaining at any time two cases are considered in regime i both agents have symmetric information about the search parameters we find that in contrast to bargaining with complete information the option to return to bargaining is not redundant in equilibrium however the no delay result still holds in regime ii where agents have asymmetric information about the outside option delay is possible the solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table

hospital costs and competition for services a multiproduct analysis the authors estimate the effects of market structure on hospital costs using a translog multiproduct cost function recognizing the multiplicity of services provided by hospitals the results show that costs are substantially determined by service configuration and that there are distinct economies of size and sco pe the model also distinguishes market concentration measures by servic e type including obstetrics radiation therapy diagnostic imaging a nd surgery estimates show that after controlling for the other determinants of cost the degree of competition has only modest cost increasing effects copyright 1992 by mit press

is strike behavior cyclical we examine cyclicality of strike frequency and incidence using canadian data on strikes and contracts total strike frequency exhibits significant procyclicality to which within contract strikes contribute appreciably evidence is weaker for procyclical behavior of contract expiry strikes both in total and disaggregated by issue strike incidence is also procyclical particularly in manufacturing though the procyclicality here is confined to strikes over nonwage issues these results mirror those obtained by analyzing the frequency of strikes in the contract data industry specific cyclical variables positively affect strike incidence in manufacturing but region specific variables have no effect

bargaining and waiting until recently the final word on bargaining with full information had been rubinstein s 1982 seminal work which concluded that an agreement will be reached immediately and the first mover will have the advantageous share rubinstein s model was one of alternating offers made at fixed time intervals many variations of the model have emerged and until recently they mainly focus on asymmetric information with some having the uninformed agent making all the offers the conclusion from examining these variations is that the equilibrium is highly sensitive to the exact specification of the institutional structure in more recent work perry and reny 1990 perry and reny 1993 sakavics 1993 and nickerson sadanand and sadanand 1994 endogenize the structure of the bargaining by allowing the order and timing of play to be determined endogenously the first three papers endogenous structure models deal with the full information setting and the last is an asymmetric information model 2 in addition to the exogenously given minimum reaction time for responding to offers made by the other player the endogenous structure models introduce the important innovation of an exogenous waiting time a time between a player s offer and his next offer they also allow players to make simultaneous offers which sakovics later disallows the findings in this recent literature are rather startling i the waiting time has a profound impact the longer the time the greater the share the player can command 3 ii the consequence of simultaneous offers is multiple equilibria when the reaction time is zero a continuum of shares lying between the two unique rubinstein shares can result and additional continua of shares arise with delayed agreement when the reaction times are positive iii equilibrium paths are almost exclusively characterized by simultaneous offers in this paper we examine the question of simultaneous offers and reconcile the conflict between the infrequency of simultaneous offers in real life bargaining and their prevalence in the endogenous structure models we

dynamic adverse selection and the supply size in this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller s private information while the realized distribution of qualities is public information we obtain that full trade occurs in every dynamic competitive equilibrium moreover we show that if prices can be conditioned on the supply size then a dynamic competitive equilibrium always exists while it fails to exist if prices cannot be conditioned on the supply size and the frequency of exchanges is high enough we conclude that the possibility to condition prices on the supply size allows us to reach efficiency in the limit for exchanges becoming more and more frequent while otherwise the welfare loss due to delays of exchanges remains bounded away from zero

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

bargaining with arrival of new traders we study dynamic bargaining with asymmetric information and arrival of exogenous events which represent arrival of traders or information we char acterize the unique limit of stationary equilibria with frequent offers the possi bility of arrivals changes equilibrium dynamics there is delay in equilibrium and the seller slowly screens out buyers with higher valuations the seller pay off equals what he can achieve by simply awaiting an arrival in applications when buyer valuations fall average prices drop and delay increases surplus division depends on relative arrival rates of buyers sellers and expected time to trade is a nonmonotonic function of the arrival rate

bargaining and sharing innovative knowledge we consider the problem of bargaining over the disclosure of interimresearch knowledge between two participants in an r d race for an ultimate patentable invention licence fee schedules that are functions of the amount of knowledge disclosed by the leading to the laggingagent are examined for their abilities to attain efficient outcomes andvarying shares of the surplus arising from disclosure in hersequential offers bargaining games the uninformed buyer is able to elicitfull disclosures without sharing the incremental surplus with any type ofthe licensor and thus do as well as a perfectly informed and discriminatingknowledge licensee

a non cooperative bargaining theory with incomplete information verifiable types abstract we consider a non cooperative sequential bargaining game with incomplete information where two players negotiate for mechanisms with ex post verifiable types at the interim stage we prove the existence of a stationary sequential equilibrium of the bargaining game where the ex post nash bargaining solution with no delay is asymptotically implemented with probability one further the ex post nash bargaining solution is a unique outcome of a stationary equilibrium under the property of independence of irrelevant types iit whereby the response of every type of a player is independent of allocations proposed to his other types and under a self selection property of their belief

are credit unions too small abstract u s credit unions serve 93 million members hold 10 of u s savings deposits and make 13 2 of all nonrevolving consumer loans since 1985 the share of u s depository institution asse

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

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

public vs private offers in the market for lemons we study the role of observability in bargaining with correlated values short run buyers sequentially submit offers to one seller when previous offers are observable bargaining is likely to end up in an impasse in contrast when offers are hidden agreement is always reached although with delay

uncertainty about uncertainty and delay in bargaining we study a one sided offers bargaining game in which the buyer has private information about the value of the object and the seller has private information about his beliefs about the buyer s valuation we show that this uncertainty about uncertainties dramatically changes the set of outcomes in particular second order beliefs can lead to a delay in reaching agreement even when the seller makes frequent offers we show that not all types of second order beliefs lead to a delay when the buyer assigns positive probability to the seller knowing the buyer s value then delay not only can occur but it must occur for a class of equilibria however in all other cases delay will never occur

swap covered interest parity in long date capital markets using the currency swap as the forward exchange risk hedge the covered interest parity condition in the long date capital markets is evaluated of interest is the extent to which deviations from parity can be attributed to transactions costs the empirical conclusions presented in the paper suggest that although on average transactions costs account for deviations from parity net deviations in excess of transactions costs are neither rare nor short lived yet an analysis of the variance structure of covered interest parity reveals that these profit opportunities diminish over time and eventually disappear copyright 1996 by mit press

better later than never an experiment on bargaining under adverse selection a central result in the literature on bargaining with asymmetric information is that the uninformed party buyer can screen the informed party seller over time screening eliminates trade failures that are otherwise common in the presence of adverse selection but the downside of the bargaining institution is the cost associated with repeated offers and time frictions this article reports an experimental test of these predictions we find that rates of trade are substantially higher in the bargaining institution than in control treatments in which we remove the possibility to make repeated offers take it or leave it offer or the time frictions however we also observe a persistent overdelay before agreements are reached that is bargaining takes longer than theoretically predicted this lowers efficiency below its predicted level and below the level observed in the take it or leave it offer institution we identify possible channels for overdelay in the form of fairness preferences and loss aversion concluding that there are important behavioral deviations from the standard model that are detrimental to the efficiency of bargaining under incomplete information

breakdown in multilateral negotiations abstract we analyze a complete information multilateral bargaining model in which a buyer is to purchase two complementary goods from two sellers binding cash offer contracts are used to govern transactions in contrast to preexisting literature we do not normalize the parties reservation utilities to zero we show that this assumption holds critical importance by demonstrating that a complete breakdown of negotiations may occur as the unique equilibrium outcome even if only two sellers are present

dynamic bargaining with transaction costs a buyer and seller alternate making offers until an offer is accepted or someone terminates negotiations the seller s valuation is common knowledge but the buyer s valuation is known only by the buyer impatience to reach an agreement comes from two sources the traders discount future payoffs and there are transaction costs of bargaining equilibrium behavior involves either immediate trade delayed trade or immediate termination depending on the size of the gains from trade and the relative bargaining costs this contrasts with the pure discounting model where termination never occurs and the pure transaction cost model where delayed trade never occurs

exploring hospital production relationships with flexible functional forms this paper estimates a multiproduct variable cost function using data on a sample of california hospitals the results provide useful insights into the advantages and disadvantages of flexible functional forms for cost analysis the translog function appears to provide reasonable estimates of marginal costs when evaluated at or near the approximation point of the function the estimated function performs less satisfactorily however when evaluated outside this range the paper s results do not provide strong evidence of either ray scale economies or of weak cost complementarities there is some evidence however that the degree of scale economies may be underestimated

bargaining with incomplete information an infinite horizon model with two sided uncertainty the resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others preferences this paper explores within the context of an infinite horizon bargaining model with two sided uncertainty how timing and information affect the rational behaviour of agents when commitment is not possible since the bargainers are uncertain about whether trade is desirable they must communicate some of their private information before an agreement can be reached this need for learning due to incomplete information about preferences results in bargaining inefficiencies trade often occurs after costly delay thus the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

bargaining and search with recall a two period model with complete information two standard results of previous bargaining models state that delay is generally not expected to occur under complete information and bargaining outcome depends crucially on the bargainers intrinsic characteristics that determine their reservation prices and in general bargainers with better reservation prices tend to get better outcomes this paper considers a bilateral bargaining problem with complete information in which one of the bargainers the buyer is allowed to search while bargaining more importantly we assume that the buyer is allowed to recall past outside offers we find that quite contrary to the standard results of previous complete information bargaining models complete information renders no guarantee for immediate resolution of bargaining and the effect of changing the buyer s search cost on each player s bargaining outcome is unpredictable the major driving force of these two results is the assumption that the buyer can recall past outside offers

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

do large banks have lower costs new estimates of returns to scale for u s banks this paper presents new fully nonparametric estimates of ray scale and expansion path scale economies for u s banks based on a model of bank costs unlike prior studies that use models with restrictive parametric assumptions or limited samples our methodology uses local polynomial estimators and data on all u s banks over the period 1984 2006 our estimates indicate that as recently as 2006 most u s banks faced increasing returns to scale suggesting that scale economies are a plausible but not necessarily only reason for the growth in average bank size and that the tendency toward increasing scale is likely to continue unless checked by government intervention

incomplete information bargaining with outside opportunities we consider two kinds of outside opportunity that a seller of an indivisible good might have selling to a different buyer and consuming the good herself in both models the seller is uncertain about the buyer s valuation and becomes more pessimistic over time when the seller becomes sufficiently pessimistic she prefers the outside opportunity so she will not bargain indefinitely with the current buyer despite the resulting finite horizon nature of negotiations the link between the buyer s willingness to accept an offer and the seller s eagerness to go outside generates multiple equilibria

dealer price discrimination in new car purchases evidence from the consumer expenditure survey this paper documents the variation in dealer discounts for new cars using transactions price data from the consumer expenditure survey consumer specific characteristics fail to explain dealer discounts whereas model market specific and purchase transaction variables e g first time purchase trade in and financing through dealer do explain them the results contradict earlier findings of race and gender discrimination based on a controlled experiment this contradiction is reconciled by examining the higher moments of the empirical discount distribution while mean and median markups do not vary by race and gender minority purchases are characterized by higher dispersion this may rationalize the disparate treatment of minorities by dealers documented in the controlled experiment

imperfect competition and efficiency in lemons markets this article studies the impact of competition on the degree of inefficiency in lemons markets more precisely we characterise the second best mechanism i e the optimal mechanism with private information in a stylised lemons market with finite numbers of buyers and sellers we then study the relationship between the degree of efficiency of the second best mechanism and market competitiveness a general message of our results is that increasing competition may not help lemons markets in some circumstances moreover increasing competition beyond a certain degree increases the distance between the first best and second best levels of efficiency

procurement and renegotiation parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information the issue of the parties investment in the relationship before renegotiation is analyzed in a simple two period procurement model the firm invests in the first period it then learns its production cost and the sponsor learns its value for the project williamson s underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm s investment is not observable by the sponsor the introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued the role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed last it is shown that if investment is observable by the sponsor andthus may become a joint decision variable the two parties may choose to under or overinvest

contract design and non cooperative renegotiation abstract we study a contract design setting in which the contracting parties cannot commit not to renegotiate previous contract agreements in particular we characterize the outcome functions that are implementable for an uninformed principal and an informed agent if having observed the agent s contract choice the principal can offer a new menu of contracts in its place an outcome function can be implemented in this setting if and only if it is optimal for the principal for some belief over agent types which is more pessimistic in the sense of the likelihood ratio order than the prior furthermore the outcome function cannot be too sensitive to variations in the agent s type we show that the direct revelation mechanism which implements such a function when renegotiation can be prevented will also implement it in any equilibrium when it cannot so the standard contract is robust to renegotiation

a system of demand equations satisfying effectively global regularity conditions a parametric specification of an indirect utility function in terms oaf expenditure and two unit cost functions is proposed specification of these unit cost functions in terms of regular functions leads to the notion of an effectively globally regular system of demand equations that is a system of demand equations that is regular over a cone in expenditure price space and for which the regular region includes all points in any given sample and all values of nominal expenditure and prices generating higher values of real expenditure than the sample minimum this general model nests a number of popular demand systems such as the linear expenditure system as special cases an empirical application illustrates some of these ideas copyright 1996 by mit press

selling a lemon under demand uncertainty we consider a seller who has private information about the quality of her good but is uncertain about buyer arrivals assuming that the high quality seller insists on a price we show that the low quality seller s surplus and pricing strategy crucially depend on buyers knowledge about the demand state if they are also uncertain about demand then demand uncertainty increases the low quality seller s expected payoff and her optimal strategy is to lower the price after some time if buyers know the demand state then demand uncertainty does not affect the low quality seller s payoff but she must employ a sophisticated pricing strategy

early settlement in european merger control we analyse the determinants of early settlement between merging parties and the european commission over remedies that remove concerns of anticompetitive effects this extends the previously narrow range of econometric literature on early settlement consistent with the theory of early settlement our results confirm the importance of delay costs and of uncertainty measured by the complexity of the economic analysis required for each merger we also find a non monotonic effect of agency resourcing which raises questions about the commission s efficiency in times of high case load econometrically we select a sample of merger decisions in which the european commission intervened due to concerns of anticompetitive effects and our selection model provides estimates of the factors determining intervention by the commission conclusions are drawn for public policy

selling procedures with private information and common values the seller posted price procedure is probably the most common method for making transactions in modern economies we analyze the performance of posted pricing for transactions having significant common value elements in a model of two sided private information we characterize the fully revealing perfect equilibrium offer strategy of the seller we also characterize equilibrium behavior under two other pricing procedures a sealed bid procedure and a direct revelation mechanism finally we examine the efficiency of these procedures and show that as the degree of common values increases fewer mutually beneficial agreements are attained

bridging the gap bargaining with interdependent values abstract we study dynamic bargaining with asymmetric information and interdependent values we base our analysis on the equilibria characterized by deneckere and liang 2006 for the gap case we show that as the gap between the cost and value of the weakest type shrinks to zero the continuous time limit of equilibria changes dramatically from rare bursts of trade with long periods of inactivity to smooth screening over time in the double limit prices are independent of the shape of the distribution of values when the uninformed agent s ability to commit to prices disappears so do her rents yet trade still exhibits delay

costly search with adverse selection solicitation curse versus acceleration blessing we analyze a dynamic trading model of adverse selection where a seller can increase the frequency of strategic price quotes a low quality seller benefits more from trade and therefore searches more intensively than a high quality seller this makes a seller s contact carry negative information but a seller s availability become a stronger indicator of high quality in the stationary environment the two effects exactly offset each other and reducing search costs is weakly beneficial to the seller in the nonstationary environment the relative strengths of the two effects vary over time and reducing search costs can be detrimental to the seller

competitive equilibrium convergence in a posted offer market with extreme earnings inequities abstract we present the results of five laboratory posted offer experiments in which the competitive equilibrium model predicts that all exchange profits are received by one side of the market thus defining a boundary condition price converges to the prediction more slowly when buyers rather than sellers receive the exchange surplus apparently due to the increased market power of sellers in this trading mechanism a model of the seller s decision in this market is developed to explain this result we also observe costly signalling and tacit collusion in our experiments

dynamic bargaining with action dependent valuations abstract an infinite horizon dynamic bargaining model is presented in which actions affect the expected future value of the buyer seller match because actions directly affect the future surplus to be bargained over the model is unlike other models that tie the dynamic process to nature alone focusing on a subset of weak markov equilibria several results come about that are not found in static bargaining models using similar bargaining protocols in particular optimal price demands can be lower higher than the buyer s lowest highest possible valuation and several empirical features concerning wage settlements and strike incidence from labor union contract negotiations can be explained

dynamic trading with developing adverse selection abstract we study a dynamic trading game in which the information asymmetry between the agents develops over time a seller and potential buyers start out symmetrically uninformed about the quality of a good but the seller becomes informed after the game begins we show that this developing adverse selection gives rise to novel trading dynamics in particular if the seller s learning speed is high the equilibrium features collapse and recovery behavior both the equilibrium price and the trade probability first drop and then increase over time while the trade surplus monotonically decreases as the learning speed increases the seller s surplus may change non monotonically

uncertain demand the structure of hospital costs and the cost of empty hospital beds abstract in this paper we reformulate the theory of cost and production to take account of uncertain demand facing a firm in the reformulated theory the duality between cost and production no longer obtains and demand distribution parameters enter the cost function as well as the traditional outputs and input prices we then estimate a short run cost function for a hospital facing uncertain demand using data from a national sample of over 5000 hospitals for the years 1983 1987 the traditional cost model is strongly rejected in favor of the reformulated model this model is used to calculate the cost of empty hospital beds controlling for the effect of uncertain demand on the structure of hospital costs the cost of an empty hospital bed is calculated as 36 443 in 1987 dollars we estimate that a one percent decrease in the number of hospital beds would decrease hospital costs by slightly over one third of one percent increasing the occupancy rate from the average 1992 level 65 percent back to the average 1980 level 76 percent is estimated to save the average hospital over 2 million or 9 5 percent of costs

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

sequential bargaining with correlated values the paper analyzes an infinite horizon sequential bargaining game with one sided offers between a buyer and a seller when the buyer s valuation depends on the seller s the seller knows the value of the object and the buyer does not the influence of relative discount factors on the solution is studied it is shown for example that an impasse may result if the buyer offeror is too impatient relative to the seller the buyer makes a single take it or leave it offer

bilateral trading in networks in many markets goods flow from initial producers to final customers travelling through many layers of intermediaries and information is asymmetric we study a dynamic model of bargaining in networks that captures these features we show that the equilibrium price demanded over time is non monotonic but the sequence of transaction prices declines over time with the possible exception of the last period the price dynamic is therefore reminiscent of fire sales and hot potato trading traders who intermediate the object arise endogenously and make a positive profit the profit earning intermediaries are not necessarily traders with many connections for the case of multilayer networks they belong to the path that reaches the maximum number of potential buyers using the minimal number of intermediaries this is not necessarily the path of the network that maximizes the probability of consumption by traders who value the most the object i e welfare

swaps expectations and exchange rates abstract this paper explores the influence of expectations of a significant subset of the foreign exchange market viz the u s commercial banks on foreign exchange rates for this purpose conventional swap transaction was utilized in a refined framework to enable more accurate extraction of the u s commercial banks expectations from their observed behavior statistical results suggest that although riskless arbitrage opportunities were fully exploited in this market the group under observation either influenced the pound sterling exchange rates in a significant manner or had superior market timing skills

a non parametric analysis of covered interest parity in long date capital markets abstract the financially innovative currency swap has elevated the international mobility of long term assets of interest is whether the covered interest parity condition now holds in these markets with the currency swap as the forward exchange risk hedge the empirical conclusions presented in the paper suggest that deviations from covered interest parity in excess of transactions costs are not rare yet while profit opportunities are not always short lived an analysis of the deviations in excess of transactions costs reveals that they diminish over time and eventually disappear jel f32

search with adverse selection this paper analyzes a sequential search model with adverse selection we study information aggregation by the price how close the equilibrium prices are to the full information prices when search frictions are small we identify circumstances under which prices fail to aggregate information well even when search frictions are small we trace this to a strong form of the winner s curse that is present in the sequential search model the failure of information aggregation may result in inefficient allocations

a theory of bargaining deadlock abstract i study a dynamic one sided offer bargaining model between a seller and a buyer under incomplete information the seller knows the quality of his product while the buyer does not during bargaining the seller may receive an outside option the value of which depends on the quality of the product if the outside option is sufficiently important there is an equilibrium in which the buyer s belief about the product s quality stays constant and she continues to make the same randomized offer throughout the bargaining process as a result the equilibrium behavior produces an outcome path that resembles a bargaining deadlock and its resolution the equilibrium outcome exhibits bargaining delay that does not vanish even with frequent offers and the limiting delay may exist even without a static adverse selection problem under stronger parametric assumptions the equilibrium with deadlock is the only one in which behavior is monotonic in the buyer s belief

on durable goods markets with entry and adverse selection we investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time the model is a dynamic version of akerlof 1970 identical cohorts of durable goods whose quality is known only to potential sellers enter the market over time we show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry market failure is reflected in the length of waiting time before trade the model also provides an explanation of market fluctuations jel classification d82 a propos des marches de biens durables quand il y a entree de nouveaux commercants et selection adverse les auteurs analysent la nature du commerce et du triage engendres par le mecanisme dynamique des prix dans un marche concurrentiel de biens durables quand il y a selection adverse et entree exogene de nouveaux commercants dans le temps ce modele est une version dynamique du modele d akerlof 1970 des cohortes identiques de biens durables dont la qualite est connue seulement des vendeurs potentiels arrivent sur le marche dans le temps il semble qu il y ait plus de commerce actif que ce qui est prevu par un modele statique en particulier on montre qu il existe un equilibre cyclique ou tous les biens sont transiges a l interieur d un nombre fini de periodes apres leur arrivage et que a chaque phase du cycle l eventail de qualite des biens transiges s accroit les commercants qui transigent des produits de plus haute qualite attendent plus longtemps et l imperfection du marche se traduit par la longueur de temps d attente avant la transaction le modele fournit aussi une explication des fluctuations du marche

growth of business services a supply side hypothesis this paper aims to explain why and how the service sector may grow faster than manufacturing it develops a two sector closed economy model having a manufacturing sector and a service sector accumulation of human capital serves as the basis of growth the analysis focuses on business services while household services are also considered it is argued that differences in returns to scale between the two sectors and employment frictions in manufacturing explain why the growth rate of the service sector may be higher the model also features that within the service sector the business services sub sector may grow faster than household services resume croissance dans les services aux entreprises une hypothese ancree du cote de l offre ce texte vise a expliquer pourquoi et comment le secteur des services peut croitre plus vite que le secteur manufacturier on developpe un modele d economie fermee a deux secteurs un secteur manufacturier et un secteur des services l accumulation du capital humain est a la base de la croissance l analyse met l accent sur les services aux entreprises mais considere aussi les services domestiques on suggere que les differences entre secteurs dans les rendements a l echelle et les frictions dans l emploi dans le secteur manufacturier expliquent pourquoi le taux de croissance du secteur des services peut etre plus eleve le modele suggere aussi qu a l interieur du secteur des services le sous secteur des services aux entreprises peut croitre plus vite que le sous secteur des services domestiques

bargaining with common values this paper examines a bargaining model with asymmetric information in which the private valuations of the two bargaining agents are correlated it shows that equilibria in such models typically exhibit a significant probability of a significant delay to agreement the paper characterizes the unique perfect bayesian equilibrium to the game in which an uninformed buyer makes offers to a privately informed seller it also shows by example that in this framework bargainers may rationally break off negotiations even in the presence of commonly known gains from trade

nonparametric analysis of returns to scale in the us hospital industry this paper presents new estimates of scale economies for us hospitals we show that the common translog specification of hospital costs is a misspecification and employ nonparametric local linear estimation with both continuous and discrete covariates a bootstrap method is used to provide inferences regarding ray scale economies and expansion path scale economies for a large sample of hospitals covering 1984 1996 we find evidence of changes in the structure of hospital costs over the sample period as well as evidence of locally optimal hospital sizes copyright 2004 john wiley sons ltd

dynamic market for lemons with endogenous quality choice by the seller we analyze a dynamic market for lemons in which the quality of the good is endogenously determined by the seller potential buyers sequentially submit offers to one seller the seller can make an investment that determines the quality of the item at the beginning of the game which is unobservable to buyers at the interim stage of the game the information and payoff structures are the same as in the market for lemons our main result is that the possibility of trade does not create any efficiency gain if i the common discounting is low and ii the static incentive constraints preclude the mutually agreeable ex ante contract under which the trade happens with probability one our result does not depend on whether the offers by buyers are private or public

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a decentralized market with common values uncertainty non steady states we analyse a market where i trade proceeds by random and anonymous pairwise meetings with bargaining ii agents are asymmetrically informed about the value of the traded good and iii no new entrants are allowed once the market is open we show that information revelation and efficiency never obtain in equilibrium even as discounting is removed this holds whether the asymmetry is two sided or one sided in some cases there exist equilibria where a substantial amount goes untraded this contrasts with the earlier literature which was based on the steadystate equilibria of a model where agents enter the market every period

transactions costs and covered interest arbitrage theory and evidence the extent to which deviations from covered interest parity can be attributed to transactions costs has been exaggerated in the economic literature because the swap market in foreign exchange has been ignored it is shown that such deviations should be no greater than the lowest of the transactions costs in one of three markets the swap market or either of the two relevant securities markets this reconciles the theory with the data which show spreads of no more than a few basis points however the empirical results have no direct bearing on the conventional market efficiency hypothesis

international arbitrage pricing theory an empirical investigation in this paper we test the arbitrage pricing theory apt in an international setting inter battery factor analysis is used to estimate the international common factors and the chow test is used in testing the validity of the apt our inter battery factor analysis results show that the number of common factors between a pair of countries ranges from one to five and our cross sectional test results lead us to reject the joint hypothesis that the international capital market is integrated and that the apt is internationally valid our results however do not rule out the possibility that the apt holds locally or regionally in segmented capital markets finally the basic results of both the inter battery factor analysis and the cross sectional tests are largely invariant to the nume raire currency chosen numerous authors notably solnik 21 grauer litzenberger and stehle 11 and stulz 24 have derived various versions of the international asset pricing model iapm under alternative views of the structure of international capital markets however only a few serious attempts have been made to test various versions of the iapm these tests are largely inconclusive see solnik 20 and stehle 23 apart from the problem stressed by roll 16 of identifying the world market portfolio previous tests of the iapms suffer from the technical problem of aggregating assets of national investors using different numeraire currencies differences in the numeraire arise from differences in consumption baskets in an environment characterized by exchange rate uncertainty in a fruitful attempt to extend the arbitrage pricing theory apt of ross 18 to an international setting solnik 22 derives an international arbitrage pricing theory which is largely devoid of the aforementioned difficulties and thus more amenable to empirical testing 1 as shown by solnik testability of the apt in an

strategic voting over strategic proposals prior research on strategic voting has reached the conclusion that unanimity rule is uniquely bad it results in destruction of information and hence makes voters worse off we show that this conclusion depends critically on the assumption that the issue being voted on is exogenous that is independent of the voting rule used we depart from the existing literature by endogenizing the proposal that is put to a vote and establish that under many circumstances unanimity rule makes voters better off moreover in some cases unanimity rule also makes the proposer better off even when he has diametrically opposing preferences in this case unanimity is the pareto dominant voting rule voters prefer unanimity rule because it induces the proposing individual to make a more attractive proposal the proposing individual prefers unanimity rule because the acceptance probabilities for moderate proposals are higher we apply our results to jury trials and debt restructuring

robust nonparametric quantile estimation of efficiency and productivity change in u s commercial banking 1985 2004 this article uses a new nonparametric unconditional hyperbolic order quantile estimator to construct a hyperbolic version of the malmquist index unlike traditional nonparametric efficiency estimators the new estimator is both robust to data outliers and has a root n convergence rate we use this estimator to examine changes in the efficiency and productivity of u s banks between 1985 and 2004 we find that larger banks experienced larger efficiency and productivity gains than small banks consistent with the presumption that recent changes in regulation and information technology have favored larger banks

a two stage translog marginal cost pricing approach for floridian hospital outputs since the passage of the affordable care act aca of 2010 issues still remain regarding the mandated purchase of insurance to ensure more universal coverage one such issue is the pricing of these insurance packages and whether or not the reimbursements will cover necessary services therefore policy concerns exist that increasing the number of insured individuals may not curtail costs conversely providers may not wish to treat patients covered by excessively frugal plans such as medicaid hence the trade offs between access and cost control in this article we present findings from a cost function and a productivity approach to determine the marginal cost of providing inpatient hospital care for hospitals operating in florida during 2005 using these methodological approaches we are able to use the marginal rate of transformation to determine the relative marginal costs while controlling for hospital technical and allocative inefficiency our work differs from earlier articles as we avoid the greene problem for cross sectional models through a two step approach by including both reimbursement rates under conditions of hospital efficiency we can ascertain payment schemes that should at least in theory cover necessary costs for patient care without leading to excessive input usage

bargaining with endogenous information two ex ante identically informed agents play a double auction over the division of a trading surplus with endogenous information and common values this paper shows that if information acquisition is not observable three types of inefficiencies can arise if the information cost is in an intermediate range no pure strategy equilibrium with trade exists although the agents maintain symmetric information if the information cost is low any trading equilibrium exhibits costly information acquisition if the agents face asymmetric information cost the akerlof s lemons problem arises as a self fulfilling equilibrium and only partial trade occurs

hospital mergers who merges with whom merger pairings are categorized based on the ownership status teaching status hospital size caseload severity and geographical distance of merging hospitals to determine the types of hospitals that tend to merge with each other the results show that mergers between two non teaching nonprofit or for profit hospitals occur more often but that only ownership status not teaching status affects the propensity to merge after controlling for other merger pair characteristics this paper also finds that hospitals are more likely to merge with a partner of similar size and close geographical proximity but not necessarily the closest candidate however ownership status not distance between hospitals is the dominant determinant of merger pairs

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

economies of scale in non revenue producing cost centers implications for hospital mergers this paper uses semiparametric methods to estimate the magnitude of economies of scale in 14 non revenue producing cost centers in hospitals there are substantial economies of scale in small hospitals but economies are exhausted in hospitals with over 10 000 discharges annually in recent hospital mergers challenged by federal antitrust agencies one or both hospitals had over 10 000 discharges suggesting that efficiency gains in non revenue producing cost centers will be small and could easily be offset by nominal price increases

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

bargaining and the right to remain silent this paper analyzes a class of alternating offer bargaining games with one sided incomplete information for the case of no gap if sequential equilibria are required to satisfy the additional restrictions of stationarity monotonicity pure strategies and no free screening we establish the silence theorem when the time interval between successive periods is made sufficiently short the informed party never makes any serious offers in the play of alternating offer bargaining games a class of parametric examples suggests that the time interval required to assure silence is not especially brief as a byproduct of the analysis we also prove under the same set of assumptions a uniform version of the coase conjecture when the time interval between successive periods is made sufficiently short the initial serious offer by either party in an alternating offer bargaining game must be less than e times the highest possible buyer valuation for an entire family of distribution functions