government policy with time inconsistent voters behavioral economics presents a paternalistic rationale for benevolent government intervention this paper presents a model of public debt where voters have self control problems and attempt to commit using illiquid assets in equilibrium government accumulates debt to respond to individuals desire to undo their commitments which leads individuals to rebalance their portfolio in turn feeding into a demand for further debt accumulation as a consequence i large and distortionary government debt accumulation occurs and ii banning illiquid assets could improve individuals welfare these results offer a new rationale for balanced budget rules in constitutions to restrain governments responses to voters self control problems

representative democracy and capital taxation abstract in this paper we study a political model of capital taxation voters who differ in their relative shares of capital and labor income choose tax policy under majority rule we compare two political regimes direct democracy where the voters vote directly on the policy and representative democracy where they elect a representative who then chooses policy in both regimes some form of commitment by the voters is necessary to avoid excessive taxation of capital but the necessary commitment under representative democracy corresponds closely to that provided by the actual institutions of most democracies

optimal nonparametric estimation of first price auctions this paper proposes a general approach and a computationally convenient estimation procedure for the structural analysis of auctioni data considering first price sealed bid auction models within the independent private value paradigm we show that the underlying distribution of bidders private values is identified from observed bids and the number of actual bidders without any parametric assumptions using the theoiy of minimax we establish the best rate of uniform convergence at which the latent density of private values can be estimated nonparametrically from available data we then propose a two step kernel based estimator that converges at the optimal rate

securitization of taxes implicit in payg pensions to preserve solvency a pay as you go payg pension system needs to adjust contribution rates and pension promises over time currently it is not possible to hedge in the financial market against politically determined uncertainty as regards these parameters i consider a policy reform whereby property rights are established on the implicit lifetime tax levied by payg finance and are assigned to the pension institution these property rights are well defined if the reform also features rule based allocation of aggregate risk in the form of defined contribution or defined benefit schemes i show that a payg pension system may indeed be instantly restructured so as to minimize political risk and allow financial market diversification of risk a side benefit is securitization of human capital flows which are not traded in existing financial markets the new securities if traded in appropriately competitive financial markets are complementary to the notional account reforms of the 1990s however fiscal instability can increase if securitization is implemented in the absence of initial solvency and credible adoption of rule based methods to allocate aggregate risk salvador valdes prieto

nationalizing to liberalize credibility in trade liberalization abstract the credibility problem in trade liberalization has been studied in terms of asymmetric information between government and the private sector with resolution through reputational or signaling equilibria this paper in contrast recognizes the genuine time inconsistency problem with trade liberalization in countries where institutional underdevelopment implies tariffs are the major source of revenues the welfare implications of the resulting credibility problem are analyzed it is further shown that government policies can help resolve the problem government investment in the exportables sector is presented as an optimal commitment strategy that can lead to full credibility of the otherwise time inconsistent optimal tariffs

multiple round timber auction design and simulation this paper presents a multiple round timber auction simulation developed in order to study various configurations of auction design in this study simultaneous sequential timber auctions are modelled and analysed using agent based simulation technology as there are many individual items in the auction to be sold the auction designer defines several rounds that are sequential at pre defined intervals at each round the auction designer announces several simultaneous auctions since bidders are offered different items at each round a mathematical linear programing model for selecting the best set of items to bid for is presented different bidding patterns are simulated and compared in various setup configurations the most advanced of these strategies are adaptive and use agent learning capability the comparisons include the success rate of winning the auction and the winning price per m3 this study suggests an efficient bidding pattern for bidders to bid in order to achieve to their goal and increase their profit similarly in order to increase profit the auctioneer i e the government needs to control several auction parameters including the number of auctions per year the lot size the auction periodicity and the number of bidders this study also suggests parameters configurations that to maximise revenue for the auctioneer

does direct democracy reduce public debt evidence from swiss municipalities although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times public debts ofmany oecd countries remain at high levels since structural reforms of public spendinghave only infrequently taken place in mostcountries fiscal pressure will increaseagain in the future due to society s ageingand the accompanying increases in socialtransfer spending constitutionalrestrictions on debt levels and legal rulesof the budgetary process such as a strongrole of the minister of finance aresupposed to be helping against the debtbias inherent in political decision makingprocedures in addition to such top downbudgetary procedures this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest swissmunicipalities in 1990

testing for price anomalies in real estate auctions this paper reports on the results of an auction sale of 83 condominium apartment units in new jersey at the auction every unit was hammered down but unknown to the 2 348 registered bidders 40 of the sales fell through prices in the subsequent sale of condominium units in face to face negotiations resulted in identical units selling for 13 less than they fetched at auction and the discount was largest for those units hammered down early in the auction these results are inconsistent with the usual predictions from the theory of common value auctions and suggest that uninformed bidders in this auction may have been the subject of a winner s curse which generated considerable profit for the seller this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from ano this abstract was borrowed from another version of this item

structural estimation of the affiliated private value auction model we consider the structural estimation of the affiliated private value apv model in first price sealed bid auctions the model allows for bidders individual efficiencies and opportunity costs while permitting dependence among bidders private values through affiliation we establish the nonparametric identification of the apv model characterize its theoretical restrictions and propose a computationally convenient and consistent two step nonparametric estimation procedure for estimating the joint private value distribution from observed bids using simulated bid data we provide a step by step guide on how to implement our procedure and show the good behavior of our estimator in small samples

quantifying the cost of excess market thickness in timber sale auctions abstract in auctions with endogenous entry theory predicts that too many potential bidders or the excess market thickness may actually decrease the seller s expected revenue and the social welfare generated by the auction this paper proposes a computationally easy method for estimating the optimal number of potential bidders in timber sale auctions with endogenous entry and an uncertain number of active bidders and then quantifies the cost of excess market thickness it is found that the welfare loss due to the excess market thickness is moderate in this market

overdrafts and the demand for money this paper presents a stochastic analysis of the demand for interest bearing money such as now accounts when overdrafting is allowed at some penalty rate it is shown that the short run interest elasticity of money demand is probably large in absolute value and negative but in the long run this elasticity is much smaller or even positive it is also argued that current definitions of the monetary aggregates which exclude unused credit may spuriously generate instability of money demand an alternative definition of money stock is suggested and seems to be conceptually more satisfying copyright 1990 by american economic association

debt maturity without commitment i analyze how lack of commitment afiects the maturity structure of sovereign debt governments balance beneflts of default induced redistribution and costs due to income losses in the wake of a default their choice of short versus longterm debt afiects default and rollover decisions by subsequent policy makers the equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that re ect the price impact of these decisions the model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high output low or a cross default more likely these predictions are consistent with empirical evidence

the future of branch cash holdings management is here new markov chains abstract liquidity management is one of the main concerns of the banking sector since it provides control in key areas such as treasury management working capital financing and business valuation under the assumption that branch efficiency makes a fundamental contribution towards the effective performance of the global banking institution this paper provides a new methodology markov chains by blocks in order to achieve knowledge on the branch cash holdings conditions which ensure optimal cash holdings recurring properties which help to better predict cash holdings shifts and the study of the branch cash holdings steady states using ergodic theory these findings will let bank managers know the time validity of the current cash holdings this is a crucial advantage to ensure efficient cash management while helping keep banking institutions on sound financial footing by guaranteeing the compulsory by law safety cushion it also allows bank managers to make sound decisions upon fund investments this incipient mathematical framework based on the re definition of classical theory on markov chains provides an alternative standpoint which may also apply to those dynamical systems which can be categorized into groups of similar features

an inventory model embedded in designing a supply contract to reduce lead time and its variability modern supply and transportation contracts often specify the frequency of and volume available for future deliveries in advance even when final demand is somewhat uncertain yano and gerchak yano c a y gerchak 1989 transportation contracts and safety stocks for just in time deliveries manufacturing and oper management 2 314 330 we explore the joint optimization of contract parameters and inventory control policy in such environments we first model and derive the optimal periodic review inventory policy corresponding to a given supply contract which generates piecewise linear convex ordering costs the optimal policy has two critical levels and there is a range of stock levels for which the quantity ordered equals the contract volume to numerically compute the critical levels we model consecutive inventory levels as a markov chain whose steady state distribution is used to compute the holding shortage and transportation costs we then use the

auctions with a stochastic number of bidders abstract auction theory is generalized by allowing the number of bidders to be stochastic in a first price sealed bid auction with bidders having constant absolute risk aversion the expected selling price is higher when the bidders do not know how many other bidders there are than when they do know this thus the seller should conceal the number of bidders if he can moreover a bidder s ex ante expected utility is the same whether or not there is a policy of concealing the number of bidders concealment therefore pareto dominates announcement with risk neutral bidders the optimal auction is the same whether or not the bidders know who their competitors are

the political intergenerational welfare state abstract using a three period overlapping generations economy framework we characterize an intergenerational welfare state with endogenous education and pension under voting we show that although politically establishing pay as you go payg social security in isolation in a dynamically efficient economy will always reduce the capital investment and therefore the social welfare as expected in contrast politically implementing education pension policy package instead can improve both human and physical capital accumulation and social welfare over laissez faire however for this the political influence of the old has to be small thus limiting the size of the payg social security program

cash burns an inventory model with a cash credit choice abstract a dynamic cash management model is analysed where agents choose whether to pay with cash or credit at every point in time in the model credit usage depends on the current stock of cash a novel result that matches recent micro evidence on households payment choices the optimality of such a decision rule is novel and cannot be obtained by models where cash credit decisions are made at the beginning of each period we discuss how to use the model to account for cross country evidence on the intensity of credit usage and for several statistics on the size and frequency of cash withdrawals the model is used to assess the household s welfare cost of phasing out cash

the price effects of increased competition in auction markets bidding theory predicts low er selling winning bids higher buying winning bids as numbers of bidders incre ase alternative versions predict that winning bids fall rise with the second order statistic the maximum order statistic or 1 n the authors test these pre dictions using data on underwriters spreads on tax exempt bonds offshore oil t racts and national forest timber they estimate winning bids using general vari ables for the product and dummies for 1 2 11 bidders in all cases mor e bidders meansignificantly lower selling winning bids the expected maximum order statistic fits better than either the second order statistic or1 n in te n out of twelve cases copyright 1987 by mit press

a test that discriminates between two models of the dutch first auction non isomorphism abstract previous experiments reject the hypothesis that the dutch and first auctions are isomorphic two alternatives to the standard normal form analysis of the dutch auction are formalized 1 bidders violate bayes rule 2 bidders experience a utility of suspense that is additive with the utility of monetary reward paired comparisons of bidding behavior between groups in which the treatment is to triple the payoff of the baseline group yields no significant effect of this treatment we therefore reject the utility of suspense model

collusive bidder behavior at single object second price and english auctions models of collusive bidder behavior at single object second price and english auctions are provided the ind ependent private values model is generalized to permit the formulatio n of coalitions and a strategic response by the auctioneer cooperati ve strategies are found to be dominant in these models coalitions of any size are viable and the payoff to each member increases with th e size of the coalition in addition the collusive strategies of the coalition represent a noncooperative equilibrium the optimal respon se of the auctioneer is to establish a reserve price that is a functi on of the coalition s size these and other features of the model are found to be consistent with the essential features of actual behavio r copyright 1987 by university of chicago press

timber sale auctions with random reserve prices this paper analyzes first price sealed bid auctions of standing timber organized by the french forest service office national des forets onf a feature of these auctions is that they are held wi

financial innovation and the transactions demand for cash we document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives we extend the baumol tobin cash inventory model to a dynamic environment that allows for the possibility of withdrawing cash at random times at a low cost this modification introduces a precautionary motive for holding cash and naturally captures developments in withdrawal technology such as the increasing diffusion of bank branches and atm terminals we characterize the solution of the model which qualitatively reproduces several empirical patterns we estimate the structural parameters using micro data and show that quantitatively the model captures important economic patterns the estimates are used to quantify the expenditure and interest rate elasticity of money demand the impact of financial innovation on money demand the welfare cost of inflation and the benefit of atm ownership

introduction to the special issue on the econometrics of auctions 2004 jean jacques la ont s contributions are important in many elds in economics yet he still managed to spare some of his time to help to trigger the scienti c quality uplift inthe empirical analysis of auctions papers in this special issue continue this project and usejean jacques papers in the various dimensions of his work in theory econometric identi cation estimation and empirical results of auctions this is why we wish to dedicate this special issueto the memory of jean jacques la ont and to his so formidable capacity of doing and inspiringexcellent research in applied and theoretical economics in estimating risk aversion from ascending and sealed bid auctions jingfeng lu andisabelle perrigne rely on multiple source of data t o identify the risk aversion of bidders previousresearch using experimental or eld data had proven the importance of risk aversion albeit ina parametric way risk aversion is di cult to identify non parametrically in the private valueparadigm if information consists only in observed bids athey and haile 2007 in particular the in uence of risk aversion on observed bids of di erent organizational forms for the auction is

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

social contracts as assets a possible solution to the time consistency problem this paper presents a new solution to the time consistency problem that appears capable of enforcing ex ante policy in a variety of settings in which other enforcement mechanisms do not work the solution involves formulating a social contract institution or agreement that specifies the optimal ex ante policy the social contract is effectively sold by succesive old generations to successive young generations who pay for the social contract through the payment of taxes both old and young generations have an economic incentive to fulfill the social contract for the old generation breaking the social contract makes the social contract valueless and the generation suffers a capital loss by not being able to sell it for the young generation the economic advantage of purchasing the existing social contract exceeds its price as well as the economic gain from setting up the a new social contract

consequences of debt capitalization property ownership and debt versus tax choice public debts capitalize into property prices thus they are a burden to the present generation who owns the devalued property this largely neglected fact has important consequences for the tax versus debt choice property owners suffer more from the debt burden and thus have a stronger preference for tax financing of government spending than tenants as a consequence of the resulting democratic struggle between property owners and tenants higher property ownership rates in a jurisdiction lead to less debt financing we provide empirical support for this hypothesis by analyzing a cross section of the 171 communities in the swiss canton of zurich in the year 2000

game theory econometric models application to procurements in the space industry abstract this paper presents a structural econometric analysis of procurements in the space industry we analyse bidimensional tenders in price and quality the econometric specification assumes that bidders use nash equilibrium strategies these strategies are derived analytically or computed by monte carlo procedures

an empirical study of an auction with asymmetric information this paper examines federal auctions for drain age leases on the outer continental shelf from 1959 to 1969 these are leases that are adjacent to tracts on which a deposit has been discovered the authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms that neighbor firms coordinate their bidding decisions and that both types of firms bid strategically in accordance with the bayesian nash equilibrium model for first price sealed bid auctions with asymmetric information

the demand for money financial innovation and the welfare cost of inflation an analysis with household data we use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized baumol tobin model our data set contains information on average currency deposits and other interest bearing assets the number of trips to the bank the size of withdrawals and ownership and use of atm cards we model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest bearing assets the interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models however we find significant differences between individuals with an atm card and those without the estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to bailey s triangle but based on a rigorous microeconometric framework the welfare cost of inflation varies considerably within the population but never turns out to be very lar

the demand of liquid assets with uncertain lumpy expenditures abstract we consider an inventory model for a liquid asset where the per period net expenditures have two components one that is frequent and small and another that is infrequent and large we give a theoretical characterization of the optimal management of liquid asset as well as of the implied observable statistics we use our characterization to interpret some aspects of households currency management in austria as well as the management of demand deposits by a large sample of italian investors

empirical testing of auction theory given the state of affairs in auction theory there is at least one model for instance to support any position one would care to take concerning the revenue of sealed bid vs open auctions it should not come as a surprise that a fair amount of empirical work in auctions is underway this paper reports the results of some recently completed research i first discuss papers in which the predictions being tested derive directly from the pure theory of auctions and then papers in which the predictions arise out of an application of auction theory to a related institution

bribery and public debt repudiation in cases where policy makers accept bribes offered by organised lobbies or interestedparties government decisions can be modelled as a first price menu auction in this paper we adaptthis structure to model debt repudiation we considera one period model in which two generations parents and children are present and debt titles are unevenlydistributed among parents the government can repaythe debt by a combination of taxes on the children sincome and on the outstanding debt we excludeintergenerational conflicts assuming that the parents and children s objective is to maximise the utility ofthe family in this perspective families make offersthat relate monetary contributions to the taxstructures chosen by the government on the hypothesisthat all interests are represented we obtain theresult that the government is indifferent to the taxstructure

the politics of intergenerational redistribution this paper studies the political economic equilibrium of a two period model with overlapping generations in each period the policy is chosen under majority rule by the generations currently alive the paper identifies a politically viable set of values for public debt any amount of debt within this set is fully repaid in equilibrium even without commitments by issuing debt within this set the first generation redistributes revenue in its favor and away from the second generation the paper characterizes the determinants of the equilibrium intergenerational redistribution and identifies a difference between debt and social security as instruments of redistribution

optimal inattention to the stock market inattentive agents update their information sporadically and thus respond belatedly to news we generate optimally inattentive behavior by assuming that to observe the value of his investment portfolio the consumer must pay a cost that is proportional to the portfolio s contempo raneous value it is optimal for the consumer to check his investment portfolio at equally spaced points in time consuming from a riskless trans actions account in the interim the riskless transactions account that finances consump tion guarantees that funds are never unwittingly exhausted we show that the optimal interval of time between consecutive observations of the value of the portfolio is the unique positive solution to a nonlinear equation quantitatively even a small observation cost one basis point of wealth implies a substantial eight month decision interval under conventional parameter values

bayesian inference in structural second price common value auctions structural econometric auction models with explicit game theoretic modeling of bidding strategies have been quite a challenge from a methodological perspective especially within the common value framework we develop a bayesian analysis of the hierarchical gaussian common value model with stochastic entry introduced by bajari and hortacsu a key component of our approach is an accurate and easily interpretable analytical approximation of the equilibrium bid function resulting in a fast and numerically stable evaluation of the likelihood function we extend the analysis to situations with positive valuations using a hierarchical gamma model we use a bayesian variable selection algorithm that simultaneously samples the posterior distribution of the model parameters and does inference on the choice of covariates the methodology is applied to simulated data and to a newly collected dataset from ebay with bids and covariates from 1000 coin auctions we demonstrate that the bayesian algorithm is very effici

distributional incentives in an equilibrium model of domestic sovereign default the european debt crisis shares features of historical episodes of outright default on domestic public debt about which little research has been done this paper proposes a theory of domestic sovereign default in which a government chooses debt and default optimally responding to distributional incentives affecting the welfare of risk averse agents who are split into debt holders and non holders equilibria with debt do not exist if the government is utilitarian and default is costless adding exogenous default costs the model supports equilibria with debt exposed to default risk in which debt falls as the fraction of agents who own the debt falls debt can also be sustained if the government s welfare weights are biased in favor of bond holders resulting in equilibria in which debt rises as debt ownership is more concentrated these results are robust to adding a second asset opening the economy to foreign investors or introducing taxes as an alternative redistributive policy instrument

technological change and the households demand for currency abstract it is shown that accounting for technology variations across households and periods is important to obtain theoretically consistent estimates of the demand for currency an inventory model is presented where the withdrawal technology is explicitly modeled both the level and the interest rate elasticity of cash holdings depend on the withdrawal technology available to households empirical proxies for the household withdrawal technology based on the diffusion of cash withdrawal points measured at city level are used to test the model predictions on a panel of italian household data over the 1993 2004 period

inventory control in a fluctuating demand environment we present an inventory model where the demand rate varies with an underlying state of the world variable this variable can represent economic fluctuations or stages in the product life cycle for example we derive some basic characteristics of optimal policies and develop algorithms for computing them in addition we show that certain monotonicity patterns in the problem data are reflected in the optimal policies

budget deficits and redistributive politics this paper proposes a new view of the forces in the political process that cause governments to accumulate debt the analysis builds on a model of redistributive politics that contrary to median voter models does not restrict the set of policies that politicians can propose i show that deficits occur even in an environment where voters and periods are homogeneous this is an environment where previous political theories of debt would predict budget balance in the model deficits are a way for candidates to better target promises to voters and are therefore used as tools of redistributive politics the main contribution of the analysis is to show that the same forces that push candidates to redistribute resources across voters to pursue political advantage are forces that generate budget deficits most countries have sizeable national debts indeed thinking of governments as debtors seems so customary that it feels awkward to talk about a national credit this suggests that there are systematic forces pushing governments to regularly borrow to cover the excess of spending over receipts at the same time a significant amount of government spending consists of transfers to special interest groups that are hard to justify on efficiency or equity grounds this paper presents a political economic model that suggests that these two phenomena are connected debt is at least in part caused by the fact that in order to get elected candidates need to appeal to groups of voters with promises of transfers debt allows candidates a finer control over the promises they make to these groups

transactions costs and portfolio choice in a discrete continuous time setting abstract this paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of merton 1971 with transaction costs suppose an investor observes his or her current wealth only when making a transaction that transactions are costly and that decisions to transact can be made at any time based on all current information if at each transaction the agent is charged a fixed fraction of current portfolio value an optimal policy exists and the optimal interval of time between transactions is fixed independent of time and current wealth

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

default risk and optimal debt management the role of movements in real rates in explaining the relationship between long and short term interest rates is explored within a model of optimal government debt management the government s incentives to resort in the future to inflation and ex post debt taxation in order to reduce the real value of its nominal liabilities have an impact on term premia and hence on the short long spread in particular default risk and consequently long term interest rates increase with the size of outstanding debt and the level of real rates in the presence of short maturities indexed debt and anti inflationary governments optimal maturity either lengthens or shortens with inflation risk depending on the time profile of government expenditure while it always lengthens with default risk however when the stock of debt is extremely large the compensation for default risk required by the agents on long term bonds may be so high that only shortterm debt can be issued the implications of this model are consistent with the observed behavior of risk premia in some highly indebted countries 2000 elsevier science b v all rights reserved jel classification h63 h43

adverse selection and renegotiation in procurement as was shown by dewatripont optimal long term contracts are generally not sequentially optimal the parties ex post renegotiate them to their mutual advantage this paper fully characterizes the equilibrium of a simple two period procurement situation and studies the extent to which renegotiation reduces ex ante welfare i a central result is that like in the non commitment case the second period allocation is optimal for the principal conditionally on his posterior beliefs about the agent ii the first period allocation exhibits an increasing amount of pooling when the discount factor grows iii with a continuum of types it is never optimal to induce full separation the paper also analyzes whether renegotiated long term contracts yield outcomes resembling those under either unnegotiated long term contracts or a sequence of short term contracts and it links the analysis with the multiple unit durable good monopoly problem

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

the effectiveness of english auctions abstract we study the performance of the english auction under different assumptions about the seller s degree of bayesian sophistication we define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation total surplus we identify tight lower bounds on the effectiveness of the english auction for general private values environments and for private values environments where bidders valuations are non negatively correlated for example when the seller faces 12 bidders who the seller believes have non negatively correlated valuations whose expectations are at least as high as 60 of the maximal possible valuation an english auction with no reserve price generates an expected price that is more than 80 of the value of the object to the bidder with the highest valuation

fiscal shocks and fiscal risk management abstract we use the returns on a set of international financial securities to identify exogenous shocks to the canadian federal surplus we find that a large portion of the variation in the surplus can be replicated by a linear combination of these returns and that the recent rise in debt resulted from adverse shocks and a delayed response by the government we develop a framework to evaluate the gains from a risk management strategy using these securities to hedge against shocks we find that hedging generates significant welfare gains by enhancing the sustainability of fiscal policy and diversifying the risk associated with tax changes

auctions with endogenous quantity this article studies auctions in which several sellers compete for the right to sell to a market characterized by a negatively sloped demand curve in this environment the quantity traded becomes endogenous this effect leads to three results concerning the outcomes of open versus first price sealed bid auctions first an open auction yields a higher expected price than does sealed bidding second and more important the open auction captures less of the potential gains from trade than does the sealed bid auction third for broad classes of demand curves the efficiency gains from switching to sealed bids from an open auction accrue to both sellers and the buyer so that all concerned parties would agree to the change a direct application of the theory is to procurement the heavy use of sealed bidding in procurement is seen as rational in light of these results auction models with endogenous quantity could be an alternative to price setting oligopoly models for the study of price formation in general for the latter impose strong information requirements on agents and yield only equilibrium price vectors not equilibrium processes for determining prices

modeling and analysis of an auction based logistics market we consider a logistics spot market where the transportation orders from a number of firms are matched with two types of carriers through a reverse auction in the spot market local carriers compete with in transit carriers that have lower costs in order to analyze the effects of implementing a logistics spot market on these three parties firms local carriers and in transit carriers and also the effects of various system parameters we develop a two stage stochastic model we first model the auction in a static setting and determine the expected auction price based on the number of carriers engaging in the auction and their cost distributions we then develop a continuous time markov chain model to evaluate the performance of the system in a dynamic setting with random arrivals and possible abandonment of orders and carriers by combining these two models we evaluate the performance measures such as the expected auction price price paid to the carriers distribution of orders between local and in transit carriers and expected number of carriers and orders waiting at the logistics center in the long run we present analytical and computational results related to the performance of the system and discuss operation of such a logistics spot market in turkey

the political economy of sovereign defaults abstract how do income distribution and the tax system affect sovereign borrowing and default decisions are these effects shaped by the political constraints that governments face when raising revenues to repay the debt to address these questions we incorporate agent heterogeneity in terms of income distribution and tax burden and a political support constraint into a standard dsge model of sovereign default the results show that income inequality and regressive taxes make defaults more likely for a given level of debt while they reduce sovereign borrowing in equilibrium tighter political support requirements reinforce these effects

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

econometrics of first price auctions in this paper we propose an estimation method for the empirical study of theoretical auction models we focus on first price sealed bid and descending auctions and we adopt the private value paradigm where each bidder is assumed to have a different private value only known to him for the object that is auctioned following mcfadden 1989 and pakes and pollard 1989 our proposed method is based on simulations specifically the method relies on a simulated nonlinear least squares objective function appropriately adjusted so as to obtain consistent estimates of the parameters of interest we illustrate the proposed method by studying a market of agricultural products where descending auctions are used our analysis takes into account heterogeneity of the auctioned objects and the fact that only the winning bid is observed we estimate the parameters that characterize the distribution of the unobserved private values for each auctioned object

durable consumption and asset management with transaction and observation costs this paper provides a contribution to the recent growing literature on rational inattention we start by testing the implications of recent rational inattention models of asset management liquidity holdings and savings using two novel datasets some predictions of these models are at odds with the data which motivates us to introduce a new model that shifts the focus from non durable to durable consumption and features both information and adjustment costs the focus on non durable consumption which departs from the previous literature is key to improve the fit of the model the investor s behavior in our setup combines elements of what the literature refers to as state dependent and time dependent adjustments the model allows us to quantify the information and transactions costs that are consistent with observed patterns of information review and asset trades a calibration of the model shows that very small information costs are sufficient to reproduce the relatively high frequency of observation that is found in the data we test a novel prediction of the model on the relationship between assets trades and durable goods trades and find it aligned with the data

on the time consistency of the government s social security benefit policy abstract it is shown that the government s social security benefit policy may be time inconsistent when a worker s future benefit depends on his labor earnings history when the future benefit is tied to current labor supply the benefit will distort the worker s labor supply decision ex ante of retirement but not ex post any excess burden associated with the government s benefit policy is taken into account in the open loop policy game but is ignored in the closed loop game this will generally imply that the benefit will be larger under the closed loop rule ceteris paribus

asymmetry in first price auctions with affiliated private values collusion and heterogeneity across firms may introduce asymmetry in bidding games a major difficulty in asymmetric auctions is that the bayesian nash equilibrium strategies are solutions of an intractable system of differential equations we propose a simple method for estimating asymmetric first price auctions with affiliated private values considering two types of bidders we show that these differential equations can be rewritten using the observed bid distribution we establish the identification of the model characterize its theoretical restrictions and propose a two step non parametric estimation procedure for estimating the private value distributions an empirical analysis of joint bidding in ocs auctions is provided copyright 2003 john wiley sons ltd

collaboration among small shippers in a transportation market abstract intense competition in markets is pushing companies to increase their operational efficiency one possible way to achieve increased efficiency is through cooperation with other companies we study the coalition formation among small shippers in a transportation market characterized by uncertain demand we analyze the decisions taken by the coalition and study the effect of shipper characteristics on the benefit of collaboration analysis shows that the shippers always benefit from the coalition but when the benefits are to be allocated the coalition may not always guarantee the budget balance which is elementary for sustainability of any coalition using a game theoretical approach this study proposes saving allocation mechanisms and discusses the conditions that lead to a balanced budget

auctioning and bargaining an econometric study of timber auctions with secret reservation prices this article considers a first price sealed bid auction at which the seller s reservation price is not announced in advance we allow for a second round of bargaining and consider the nash bargaining outcome when the object is unsold after the auctioning round we characterize the bidders and seller s bayesian nash equilibrium strategies the distributions of the buyers and seller s private values are estimated by nonlinear least squares from auction data on standing timber while solving numerically the differential equations characterizing the seller s and buyers equilibrium strategies the performance of the estimated model is then compared to a model in which the players behave myopically

revenue equivalence in asymmetric auctions abstract the revenue equivalence theorem is generalized to the case of asymmetric auctions in which each player s valuation is drawn independently from a common support according to his her distribution function

auctions and bidding a primer maybe the contractor was right to think bid jobs are different but it is more likely that he suffered from too simple a view of what is involved in preparing a competitive bid our analysis will show that even an experienced estimator working in familiar terrain can lose money if he doesn t understand the subtleties of competitive bidding the phenomenon experienced by the painting contractor known as the winner s curse is just one of the surprising and puzzling conclusions that have been turned up by modern research into auctions another is the theoretical proposition supported also by some experimental evidence that for example a sealed bid treasury bill auction in which each buyer pays a price equal to the highest rejected bid would yield more revenue to the treasury than the current procedure in which the winning bidder pays the seemingly higher amount equal to his own bid there are also subtle results that demonstrate the equivalence of such apparently different institutions as the standard sealed bid auction in which the auctioneer seller sells the goods to the highest bidder for a price equal to his bid and the dutch auction in which the auctioneer seller begins by asking a high price and gradually lowers the price until

identification and estimation of auction models with unobserved heterogeneity in many procurement auctions the bidders unobserved costs depend both on a common shock and on idiosyncratic private information assuming a multiplicative structure i derive sufficient conditions under which the model is identified and propose a non parametric estimation procedure that results in uniformly consistent estimators of the cost components distributions the estimation procedure is applied to data from michigan highway procurement auctions private information is estimated to account for 34 of the variation in bidders costs it is shown that accounting for unobserved auction heterogeneity has important implications for the evaluation of the distribution of rents efficiency and optimal auction design

defense spending in a neo ricardian world this paper shows that ricardian equivalence no longer holds once we recognize that govern ment acts as an intermediary between generations in the provision of national defence conse quently the level of public debt is positively related to defence spending since this component of government expenditures insures the transferability of bequests as well as protecting savings it is shown that defence spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature more gener ally the paper emphasizes that in developing a positive theory of taxation the composition of government spending plays an integral role the separation of government expenditures from the methods used to finance them has been an extremely useful assumption employed in economics it has allowed economists to analyse a series of problems which would be much more difficult to study if individual taxpayers were assumed to perceive a link between the tax structure and the expenditure structure of an economy hettich and winer 1988 for example following this tradition develop a positive theory of a tax system this separation has been used most frequently and fruitfully to address the important question do fiscal deficits matter more specifically does the way that government finances its expenditures between taxing and issuing public debt matter in terms of their impact on the real economy barro 1974 employed an overlapping generations model with altruism to show that if individuals are not bequest constrained then government bonds are not perceived as net wealth the recipients of government transfers financed by bonds realize that their descendants will have to finance the debt through higher taxes and so they offset the increase in public debt by increas ing the size of the bequest to their children by the same amount the effect is that interest rates wages and the level of output of the economy are unaltered this result usually referred to as the ricardian equivalence theorem presented a challenge to the profession to find circumstances under which it would not hold and when therefore financing government spending with debt would

multi round procurement auctions with secret reserve prices theory and evidence when a secret reserve price is used in an auction the auctioneer cannot guarantee that the good can be sold out at the auction and can reauction the unsold objects in the next round motivated by this interesting feature observed in the procurement auctions organized by the indiana department of transportation we construct a dynamic bidding model in multi round procurement auctions with secret reserve prices and evaluate how the release of the auctioneer s reserve price affects bidders bidding behavior and the auctioneer s expected payment our theoretical model predicts that the equilibrium bids uniformly decline over stages and the numerical analysis of our model indicates that hiding the reserve price may be better than announcing it for the auctioneer under some specifications of underlying distributions we develop an empirical model with bidders discount factor equal to zero to recover the unknown structural parameters and to conduct counterfactual analyses copyright 2008 john wiley sons ltd

democratic public good provision this paper analyzes an overlapping generation model of redistribution and public good provision under repeated voting expenditures are financed through age dependent taxation that distorts human capital investment taxes redistribute income both across skill groups and across generations we focus on politico economic markov equilibria and contrast these with the ramsey allocation under commitment the model features indeterminate equilibria with a key role of forward looking strategic voting due to the lack of commitment to future policies the tax burden may be on the wrong side of the dynamic laffer curve moreover restrictions on government policies can in some cases be welfare improving

the effect of distributive goals on the time inconsistency of optimal taxes abstract in the context of a two period n consumer model of optimal wage and interest taxation this paper asks whether the government s distributive goals can inhibit its incentives to renege on its announced policies inconsistent interest tax increases may be moderated by distributed goals if they create an unacceptable utility distribution in the economy this result is developed for a general case its implications for welfare and savings are illustrated with numerical examples

the impact of reserve prices on the perceived bias of expert appraisals of fine art we examine whether the expert appraisals provided to bidders before major art auctions are unbiased indicators of market value despite a strong grounding in theory this aspect of optimal auction design has been frequently challenged in previous empirical research particularly in the market for fine art we adopt a valuation benchmark that incorporates sellers reservation prices as well as high bids and recognize latent censoring due to works that fail to make reserve although the auction houses never divulge sellers reserve prices which are therefore unobservable we exploit the fact that they can be observed indirectly via their impact on buy in rates using the set of french impressionist paintings brought to auction from 1985 to 2001 we estimate the distribution of seller reserve prices establish their link to a proper valuation benchmark and isolate the selection bias due to bought in works on the perceived market value of fine art works brought to auction after controlling for the impact of reservation prices and considering all works brought to auction and therefore all works appraised we find no evidence of bias in the experts pre sale estimates

modeling competitive bidding a critical essay in analyzing bidding modeling matters this paper is a critical analysis of the models available to aid competitive bidding decision making bidding strategy and auction design in real transactions after an introductory overview this paper describes the contexts in which auctions arise reviews the mainstream theory of single isolated auctions and discusses the important work involved in enrichment of this theory in doing so it indicates results that have been obtained and the sort of changes in analytical approach that are needed to tackle other critical enrichments the paper summarizes briefly what is known about the direct use of models by bidders and auction designers a general theme of this paper is that enriched models are needed to bring bidding theory closer to direct applicability in decision making

the costs and benefits of balanced budget rules lessons from a political economy model of fiscal policy this paper analyzes the impact of a balanced budget rule that requires that legislators do not run deficits in the political economy model of battaglini and coate 2008 the main finding is that the rule leads to a gradual reduction in the level of public debt legislators reduce debt in periods when the demand for public goods is relatively low they do so because the rule by restricting future fiscal policies raises the expected costs of carrying debt whether the rule increases citizen welfare depends on a comparison of the benefits of a lower debt burden with the costs of greater volatility in taxes and less responsive public good provision a quantitative version of the model is developed in which costs and benefits can be evaluated a welfare loss results if the debt level when the rule is imposed lies in the support of the long run distribution associated with the unconstrained equilibrium

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

sealed bid versus open auctions the evidence data from u s forest service timber auctions are used to test vickrey s original proposition that sealed bid and open auctions yield equal revenue models for the high bid in an auction are specified and estimated using three different procedures ordinary least squares two stage least squares and maximum likelihood the second two procedures include a second equation which accounts for the forest service s auction choice and therefore control for selection bias these two procedures which unlike ordinary least squares yield consistent estimators imply a statistically and economically insignificant difference in high bids between sealed bid and open auctions

does international coordination of pension policies boost capital accumulation within an olg framework we study a perfectly balanced pay as you go payg pension scheme in spite of its depressive impact on national saving payg is implemented for operating intergenerational transfers with international capital mobility the national adoption of payg determines a spill over effect through the world capital stock this creates a situation of interdependence among national pension policies that we model as a n countries dynamic game in contrast with previous literature it is shown that in general the international coordination of pension policies does not boost world savings and capital accumulation

liquidity provision interest rates and unemployment abstract the effective liquidity supply of the economy the weighted sum of all assets that serve as media of exchange matters for interest rates and unemployment we formalize this idea by adding an over the counter market with collateralized trades to the mortensen pissarides model an increase in public liquidity through a higher supply of real government bonds raises the real interest rate crowding out private liquidity and increasing unemployment if unemployment is inefficiently high keeping liquidity scarce can be socially optimal a liquidity crisis affecting the acceptability of private assets as collateral widens the rate of return difference between private and public liquidity also increasing unemployment

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

information returns and bidding behavior in ocs auctions 1954 1969 this paper examines federal auctions for leases on the outer continental shelf in the light of the predictions of the first price sealed bid common values model of auctions the authors find that the data strongly support the model for auctions in which one bidder is better informed than the other bidders the evidence for auctions in which bidders have noisy but qualitatively similar information is less conclusive but is consistent with a model in which each bidder does not know either the actual or potential number of bidders on a lease copyright 1987 by blackwell publishing ltd

asymptotic revenue equivalence of asymmetric auctions with interdependent values we prove an asymptotic revenue equivalence among weakly asymmetric auctions with interdependent values in which bidders have either asymmetric utility functions or asymmetric distributions of signals