efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

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

perspectives on mechanism design in economic theory economics began with xenophon s oeconomicus c 360 bce in which socrates interviews a model citizen who has two primary concerns he goes out to his farm in the country to monitor and motivate his workers there then he goes back to the city where his participation in various political institutions is essential for maintaining his rights to own this farm such concerns about agents incentives and political institutions are also central in economic theory today but they were not always two centuries ago economics developed as an analytical social science by focusing on produc tion and allocation of material goods developing methodologies of national income accounting and price theory questions about resource allocation seemed particularly amenable to math ematical analysis because flows of goods and money are measurable and should satisfy flowbalance equations and no arbitrage conditions from this perspective the classical economic problem was that people s ability to satisfy their desires is constrained by limited resources the classical economic result was that unrestricted free trade can achieve allocative efficiency in the sense that reallocating the available resources cannot improve everyone s welfare a shift of focus from allocation of resources back to analysis of incentives began from the time of augustin cournot 1838 when economic theorists began to analyze optimal decisions of rational individuals as a tool for understanding supply and demand in price theory see jurg

speculation and the 2008 oil bubble the dcot report analysis abstract this article analyzes the cftc s disaggregated commitments of traders dcot report to get more insights into the behavior of different traders during the 2008 oil bubble the analysis shows that 1 the money manager category perfectly played the oil bubble got in early and started selling shortly before the bubble peak 2 the producer merchant processor user category and the nonreportable category were covering their short positions into the peak of the bubble 3 the swap dealer category benefited while the price of oil was rising but incurred heavy losses as the price of oil collapsed 4 we find no indications of speculation by any group of traders via the positive feedback trading or rational destabilization and 5 we do however criticize the commercial hedgers for failing to arbitrage the soaring oil prices in 2008

ratifiable mechanisms learning from disagreement in a mechanism design problem participation constraints require that all types prefer the proposed mechanism to some status quo if equilibrium play in the status quo mechanism depends on the players beliefs then the inference drawn if someone objects to the proposed mechanism may alter the participation constraints we investigate this issue by modeling the mechanism design problem as a two stage process consisting of a ratification state followed by the actual play of the chosen game we develop and illustrate a new concept ratifiability that takes account of inferences from a veto in a consistent way

conflict and the social contract we consider social contracts for resolving conflicts between two agents who are uncertain about each other s fighting potential applications include international conflict litigation and elections even though only a peaceful agreement avoids a loss of resources if this loss is small enough then any contract must assign a positive probability of conflict we show how the likelihood of conflict outbreak depends on the distribution of power between the agents and their information about each other

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

the principal agent relationship with an informed principal the case of private values we analyze the principal agent relationship when the principal has private information as a three stage noncooperative game contract proposal acceptance refusal and contract execution we assume that the information does not directly affect the agent s payoff private values equilibrium exists and is generically locally unique moreover it is pareto optimal for the different types of principal the principal generically does strictly better than when the agent knows her information equilibrium allocations are the walrasian equilibria of an economy where the traders are different types of principal and exchange the slack on the agent s individual rationality and incentive compatibility constraints

resilient allocation rules for bilateral trade abstract in decision problems where agents hold private information an uninformed central planner may be unable to identify pareto improvements that each agent himself could identify we examine allocation rules in a simple bilateral bargaining problem which are resilient in the sense that no improvements could be both identified and collectively achieved when the traders themselves can bargain over the mechanism specifically recursively resilient rules are status quo sequential equilibrium outcomes of any finite game of offers and counter offers of alternative mechanisms these rules can survive regardless of the order in which the traders speak the main result gives a simple characterization of recursively resilient rules showing that interim efficient rules are recursively resilient but there is a nonnull set of interim inefficient recursively resilient rules as well since certain allocation rules can only result when one or the other trader speaks first recursively resilient rules are a natural choice for a planner who does not possess the precise details of the negotiation process between the traders journal of economic literature classification numbers c70 c72 c78 d82

speculative bubbles in recent oil price dynamics evidence from a bayesian markov switching state space approach abstract motivated by repeated spikes and crashes during previous decades we investigate whether the heavily financialized market for crude oil has been driven by speculative bubbles in our theoretical modeling we draw on the convenience yield approach in order to approximate the fundamental value of the oil price we separate the oil price fundamental from the bubble component by expressing a standard present value oil price model in state space form we then introduce two markov regimes into the state space representation in order to distinguish between two distinct phases in the bubble process namely one in which the oil price bubble is a stable process and one in which the bubble explodes we estimate the entire markov switching state space specification using an econometrically robust bayesian markov chain monte carlo mcmc methodology based on inferential techniques designed for statistically separating both markov regimes in the bubble process from each other we find robust evidence for the existence of speculative bubbles in recent oil price dynamics

interim third party selection in bargaining abstract third party intervention can reduce the risk of conflict in situations where the bargaining failure is due to asymmetric information in this paper i consider the selection of a third party in a two person bargaining problem where each disputant has private information about its relative strength or weakness for a class of problems i find that the disputants choose the third party that is best for the strong type but worst for the weak type due to the incentive of each disputant to avoid seeming weak to their adversary the selected third party s intervention entails a higher ex ante chance of conflict than intervention by any other alternative this paper shows how the process of interim third party selection can have important consequences for the outcome of a third party intervention in bargaining

an undominated mechanism for a class of informed principal problems with common values in a class of informed principal problems with common values we define iteratively a particular allocation which we call the assured allocation it is comparatively easy to calculate and straightforward to interpret it always exists is unique and continuous in the priors it is undominated i e efficient among the different types of the principal subject to the agent s interim participation constraint it is a perfect bayesian equilibrium of the three stage game in myerson 16 and maskin and tirole 14 it dominates the rsw allocation as defined in maskin and tirole 14 and coincides with it when the latter is undominated it is the unique neutral optimum as defined in myerson 16 when there are only two types when the assured allocation is separating then it is a neutral optimum with three or more types it is an equilibrium of a game of competition in a market with adverse selection

the oil price crash in 2014 15 was there a negative financial bubble abstract this paper suggests that there was a negative bubble in oil prices in 2014 15 which decreased them beyond the level justified by economic fundamentals this proposition is corroborated by two sets of bubble detection strategies the first set consists of tests for financial bubbles while the second set consists of the log periodic power law lppl model for negative financial bubbles despite the methodological differences between these detection methods they provided the same outcome the oil price experienced a statistically significant negative financial bubble in the last months of 2014 and at the beginning of 2015 these results also hold after several robustness checks which consider the effect of conditional heteroskedasticity model set ups with additional restrictions longer data samples tests with lower frequency data and with an alternative proxy variable to measure the fundamental value of oil

values for cooperative games with incomplete information an eloquent example myerson s 1984 extension of the lambda transfer value to cooperative games with incomplete information focus among other things on the strength of the incentive constraints at the solution for determining the power of coalitions we construct an intuitive three player game where the player whose only contribution is to partly release the two other players from the incentive constraints they face when they cooperate receives a zero payoff according to myerson s solution on the contrary the random order arrival procedure attributes a strictly positive payoff to him our example is thus an analog of the banker game of owen 1972 that was designed for evaluating the lambda transfer value under complete information asymmetric information now takes up the role that was formerly attributed to the lack of transferability of utilities

rationalist explanations for war realist and other scholars commonly hold that rationally led states can and sometimes do fight when no peaceful bargains exist that both would prefer to war against this view i show that under very broad conditions there will exist negotiated settlements that genuinely rational states would mutually prefer to a risky and costly fight popular rationalist and realist explanations for war fail either to address or to explain adequately what would prevent leaders from locating a less costly bargain essentially just two mechanisms can resolve this puzzle on strictly rationalist terms the first turns on the fact that states have both private information about capabilities and resolve and the incentive to misrepresent it the second turns on the fact that in specific strategic contexts states may be unable credibly to commit to uphold a mutually preferable bargain historical examples suggest that both mechanisms are empirically plausible

rational destabilizing speculation positive feedback trading and the oil bubble of 2008 abstract this article examines how the interaction of different participants in the crude oil futures markets affects the crude oil price efficiency normally the commercial market participants such as oil producers and oil consumers act as arbitrageurs and ensure that the price of crude oil remains within the fundamental value range however institutional investors that invest in crude oil to diversify their portfolios and or hedge inflation can destabilize the interaction among commercial participants and liquidity providing speculators we argue that institutional investors can impose limits to arbitrage particularly during the financial crisis when the investment demand for commodities is particularly strong in support we show that commercials hedgers had significantly reduced their short positions leading to the 2008 oil bubble they were potentially aggressively offsetting their short hedges as a result by essentially engaging in a positive feedback trading commercial hedgers at least contributed to the 2008 oil bubble these findings have been mainly overlooked by the existing research

mediation and peace this article applies mechanism design to the study of international conflict resolution standard mechanisms in which an arbitrator can enforce her decisions are usually not feasible because disputants are sovereign entities nevertheless we find that this limitation is inconsequential despite only being capable of making unenforceable recommendations mediators can be equally effective as arbitrators by using recommendation strategies that do not reveal that one player is weak to a strong opponent a mediator can effectively circumvent the unenforceability constraint this is because these strategies make the strong player agree to recommendations that yield the same payoff as arbitration in expectation this result relies on the capability of mediators to collect confidential information from the disputants before making their recommendations simple protocols of unmediated communication cannot achieve the same level of ex ante welfare as they preclude confidentiality

the 2008 oil bubble causes and consequences abstract we argue that the 2008 oil bubble was directly and indirectly created by the federal reserve in response to deflationary risks that resurfaced after the housing bubble burst and the resulting credit crisis of 2008 deflationary risks first appeared after the dot com bubble burst in 2000 and after the terrorist attacks on september 11 2001 manipulation of the us dollar value has been one of the key emergency tools in the fed s arsenal during the entire period from 2000 to 2008 the us dollar has been falling while the price of crude oil has been rising with the culmination in july 2008 if other global central banks embrace the fed s anti deflationary strategies the consequences could be dire for the global economy potentially resulting in an ultimate gold bubble

the economic and financial dimensions of degrowth abstract we respond to the call for future research on degrowth and specifically analyze the implications of economic degrowth on the monetary and financial system we argue that any early indications of degrowth would cause the stock market to crash which would trigger further deleveraging contagion and a deflation as a result the economy would implode which would eventually allow for a new rapid growth cycle given the likely extraordinary fiscal and monetary policy response during the implosion thus in our view degrowth as an explicit strategy option is economically unsustainable and unfeasible as a limitation our analysis centers on the examples of unplanned crisis leading to an economic implosion which imperfectly represent the idea of planned voluntary degrowth

a general characterization of interim efficient mechanisms for independent linear environments we consider the class of bayesian environments with independent types and utility functions which are both quasi linear in a private good and linear in a one dimensional private value type parameter we call these independent linear environments for these environments we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints we also prove that they correspond to decision rules based on virtual surplus maximization together with the appropriate incentive taxes we illustrate these techniques with applications to auction design and public good provision

the effect of the financial sector on the evolution of oil prices analysis of the contribution of the futures market to the price discovery process in the wti spot market abstract the aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils specifically that for west texas intermediate wti for this purpose we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market we modeled the relation between wti spot and future prices as a cointegration relation by using the kalman filter technique it was possible to obtain a time varying measure of the contribution of future markets to the price discovery mechanism the results show that in the case of wti the contribution of the futures market has been increasing especially between 2003 and 2008 and then again after the start of 2009 evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years during 2009 the spot prices adjusted to agents future expectations rather than to the current supply and demand conditions

the 2014 oil bust causes and consequences abstract this article suggests that the 2014 oil price collapse was possibly triggered by the falling euro versus the us dollar specifically the usd eur exchange rate likely adjusted to the sudden economic growth outlook divergence between the us and the eu as evident by the relative short term interest rate spread measures and triggered a strong dollar trade which is negative for the crude oil prices thus in our view the 2014 oil price bust is another episode of oil price inefficiency similar to the 2008 oil bubble the key argument presented in this article is that as long as there are temporary economic growth divergences between the us and the eu the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil which in fact are mean reverting as the economic growth divergences eventually dissipate

equilibrium rejection of a mechanism we study a mechanism design problem in which players can take part in a mechanism to coordinate their actions in a default game by refusing to participate in the mechanism a player can revert to playing the default game non cooperatively we show with an example that some allocation rules are implementable only with mechanisms which will be rejected on the equilibrium path in our construction a refusal to participate conveys information about the types of the players this information causes the default game to be played under different beliefs and more importantly under different higher order beliefs than the interim ones we find a lower bound on all the implementable payoffs we use this bound to establish a condition on the default game under which all the implementable outcomes are truthfully implementable without the need to induce rejection of the mechanism

does the us dollar confer an exorbitant privilege abstract this paper questions the asserted pecuniary benefits conferred by the dollar s international role if these benefits are smaller than often claimed then the difficult measurement of costs can be finessed the original privilege notion characterised the dollar s systemic role in official foreign exchange reserves before 1973 five subsequently developed notions refer to the broader more evolutionary role of the dollar in the international monetary system 1 as international debtor the us borrows in its own currency but others do too 2 dollar bills held offshore confer a benefit but it is neither large nor exclusive 3 the us treasury may borrow more cheaply owing to official holdings but it shares this advantage through an integrated global bond market 4 the us earns higher yields on its external assets than it pays on its external liabilities but this undoubted advantage arises from direct investment far from the dollar s international role 5 us banks may play on a home court but they have in fact won a modest share of offshore dollar business