long term bilateral monopoly the case of an exhaustible resource we construct a model of long term bilateral competition between the supplier of an exhaustible resource and a consuming country capable of producing a perfect substitute for the resource the technology for producing the substitute is known and the strategy of the consuming country is to choose an investment program for installing the substitute we derive equilibrium configurations of investment and extraction for the case of linear demand under three scenarios 1 the resource supplier is a von stackelberg leader 2 the consuming country is a von stackelberg leader and 3 buyers and sellers of the resource engage each other period by period a comparison of these cases reveals incentives for long term commitment on the part of one or both parties and also suggests that there may be gains from strategic intervention into resource markets by governments of consuming nations

strategic considerations in invention and innovation the case of natural resources revisited if a resource importing country can commit to the future development of a backstop tec hnology such a development program can be used strategically to affe ct the pricing policy of a resource supplier previous studies have r evealed the interesting possibility that by delaying development of t he substitute the importing country could benefit from a favorable p roduction response on the part of the exporting country this paper d emonstrates that this effect can indeed occur but the set of paramet ers for which it does occur is smaller than previously realized the intuition behind this effect is further developed copyright 1988 by the econometric society

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

strategic resource dependence we consider a situation where an exhaustible resource seller faces demand from a buyer who has a substitute but there is a time to build delay for the substitute we find that in this simple framework the basic implications of the hotelling model 1931 are reversed over time the stock declines but supplies increase up to the point where the buyer decides to switch under such a threat of demand change the supply does not reflect the current resource scarcity but it compensates the buyer for delaying the transition to the substitute the analysis suggests a perspective on costs of oil dependence

carbon taxation opec and the end of oil abstract i develop a differential game between an oil cartel and an importer investing in research and development r d to reduce the cost of a green substitute to oil in equilibrium the cartel is forced to deter the substitute which thus imposes a price ceiling falling over time credible carbon taxes are below the pigovian level implying the importer cannot internalise the full pollution externality much less capture resource rents without carbon pricing the importer curtails long run pollution using a costly r d programme normatively climate policy will be more expensive if relying on green r d programmes only

meeting strangers and friends of friends how random are social networks we present a dynamic model of network formation where nodes find other nodes with whom to form links in two ways some are found uniformly at random while others are found by searching locally through the current structure of the network e g meeting friends of friends this combination of meeting processes results in a spectrum of features exhibited by large social networks including the presence of more high and low degree nodes than when links are formed independently at random having low distances between nodes in the network and having high clustering of links on a local level we fit the model to data from six networks and impute the relative ratio of random to network based meetings in link formation which turns out to vary dramatically across applications we show that as the random network based meeting ratio varies the resulting degree distributions can be ordered in the sense of stochastic dominance which allows us to infer how the formation process affects average utility in the network

international fish trade and exchange rates an application to the trade with salmon and fishmeal international fish trade is growing and fish exports represent an important source of foreign currency for many countries for a few countries the exports are also an essential part of the economy we revisit the seminal paper of richardson 1978 that addresses the issue of exchange rate pass through in commodity markets but in a multivariate cointegration framework the multivariate cointegration framework allows us to test common assumptions like exchange rate pass through leading price central markets and exogeneity of exchange rates this approach is particularly suited when studying markets for primary products we provide empirical examples using salmon imports to japan and fish meal exports from peru to germany

perfect equilibrium timing of a backstop technology limit pricing induced by trigger zones this paper considers strategic use of r d in the context of an exhaustible resource market where the consuming countries control r d and a cartel controls the resource it is shown that r d investments to develop a backstop technology can be used as a credible threat to induce a low price profile for the resource the price path associated with the unique perfect equilibrium exhibits limit pricing the backstop is eventually introduced but in a period before this event the cartel keeps the price sufficiently low to make delayed investment the preferred alternative for the consuming nations

events that shook the market tick data on the standard and poor s 500 stock index s p 500 futures contract and newswire searches are used to match events to large 1 to 5 minute stock price changes sixty nine events that led to large stock price changes are identified between 1982 and 1999 53 of which are directly or indirectly related to monetary policy many large stock price changes have no events associated with them

uncertainty in tax reform the case of an extractive firm abstract since as early as adam smith warnings have been issued concerning the possible harmful effects of uncertainty in tax policy this paper attempts to examine the consequences for an extractive monopolist of i perceived future changes in the probability of tax reform and ii perceived future changes in the firm s expected profitability under the new tax structure the results of this analysis suggest that even the threat of future tax changes can have a significant and lasting impact on the present behavior of extractive firms and the markets in which they operate this arises precisely from the firm s attempt to shift the expected burden or gain in an intertemporally optimal manner moreover while the paper focuses on tax policy the model is amenable to interpretation in the case of potential nationalization or in the case of any regulatory scheme that might modify the firm s future profit function as an example of the latter it has recently been suggested that an atmospheric users charge be levied on the carbon content of fuels as they leave the mine or wellhead the potential impact on extractive firms of this proposed tax on coal oil and gas designed to raise revenues to help reduce emissions as well as the u s budget deficit could be examined with the help of a similar model finally the impact on opec of uncertainty surrounding events in the middle east could similarly be modeled

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

imperfect competition among informed traders we analyze competition among informed traders in the continuous time kyle 1985 model as foster and viswanathan 1996 do in discrete time we explicitly describe the unique linear equilibrium when signals are imperfectly correlated and confirm the conjecture of holden and subrahmanyam 1992 that there is no linear equilibrium when signals are perfectly correlated one result is that at some date and at all dates thereafter the market would have been more informationally efficient had there been a monopolist informed trader instead of competing traders the relatively large amount of private information remaining near the end of trading causes the market to approach complete illiquidity copyright the american finance association 2000

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

invention and innovation under alternative market structures the case of natural resources this paper examines the interactions between market structure and resource allocation over time when there is endogenous technical progress the structures considered are a planned economy pure monopoly and competition with patent rights in an efficient allocation the date of invention coincides with the date of innovation the date at which technology is used this is also true with a pure monopoly but monopoly retards technical progress relative to the efficient level competition for patents rights to a new technology results in excessively rapid technical progress if the resource endowment of the economy is sufficiently large also competition may lead to sleeping patents where invention strictly precedes the date of innovation

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

information linkages and correlated trading in a market with informationally connected traders the dynamics of volume price informativeness price volatility and liquidity are severely affected by the information linkages every trader experiences with his peers we show that in the presence of information linkages among traders volume and price informativeness increase moreover we find that information linkages improve or damage market depth and lower or boost the traders profits according to whether these linkages convey positively or negatively correlated signals finally our model predicts patterns of trade correlation consistent with those identified in the empirical literature trades generated by neighbor traders are positively correlated and trades generated by distant traders are negatively correlated

location matters an examination of trading profits the electronic trading system xetra of the german security exchange provides a unique data source on the equity trades of 756 professional traders located in 23 different cities and eight european countries we explore informational asymmetries across the trader population traders located outside germany in non german speaking cities show lower proprietary trading profit their underperformance is not only statistically significant it is also of economically significant magnitude and occurs for the 11 largest german blue chip stocks we also examine whether a trader location in frankfurt as the financial center or local proximity of the trader to the corporate headquarters of the traded stock or affiliation with a large financial institution results in superior trading performance the data provide no evidence for a financial center advantage or of increasing institutional scale economies in proprietary trading however we find evidence for an information advantage due to corporate headquarters proximity for high frequency intraday trading

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

innovation and natural resources a dynamic game with uncertainty we analyze a dynamic game between a resource exporting country and an importing country that is seeking to invent a substitute technology the time of innovation is an uncertain function of the importer s r d efforts which cannot be committed in advance the game has a unique equilibrium in markov strategies the importer s r d efforts grow over time the exporter s output often decreases with time before innovation occurs but strategic factors imply that the opposite can happen the output path is characterized by a simple modification of hotelling s rule to account for uncertainty and strategic behavior

hedging familiarity and portfolio choice we exploit the restrictions of intertemporal portfolio choice in the presence of non nancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor we use a unique dataset of swedish investors with information broken down at the investor level and into various components of wealth investor income tax positions and investor demographic characteristics portfolio holdings are identi ed at the stock level we show that investors do not engage in hedging but invest in stocks closely related to their non nancial income we explain this with familiarity that is the tendency to concentrate holdings in stocks with which the investor is familiar in terms of geographical or professional proximity or that he has held for a long period we show that familiarity is not a behavioral bias but is information driven familiarity based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged

innovation and the dynamics of global warming global warming and the carbon cycle are a dynamic system with positive feedbacks fossil fuels are exhaustible resources these two facts mean that innovation in clean energy technology rather than mitigating global warming can lead to a permanently higher temperature path this paper explores the impact of innovation in the simplest model linking the economic theory of exhaustible resources with positive feedback dynamics in the carbon cycle

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed