information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

information advantage in cournot oligopoly abstract consider an oligopolistic industry where firms have access to the same technology but are asymmetrically informed about the environment even though it is commonplace to think that in this context superior information leads to higher profits we find that under cournot competition this is not generally the case it holds when firms technology exhibits constant returns to scale but it does not necessarily hold otherwise journal of economic literature classification numbers c72 d43 l13

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

estimation of an asymmetric stochastic volatility model for asset returns a stochastic volatility model may be estimated by a quasi maximum likelihood procedure by transforming to a linear state space form the method is extended to handle correlation between the two disturbances in the model and applied to data on stock returns

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production

dynamic conditional score models a review of their applications abstractin this paper applications of dynamic conditional score dcs models are reviewed and those models are discussed in relation to classical time series models from the literature dcs models

aggregate comparative statics abstract in aggregative games each player s payoff depends on her own actions and an aggregate of the actions of all the players many common games in industrial organization political economy public economics and macroeconomics can be cast as aggregative games this paper provides a general and tractable framework for comparative static results in aggregative games we focus on two classes of games 1 aggregative games with strategic substitutes and 2 nice aggregative games where payoff functions are continuous and concave in own strategies we provide simple sufficient conditions under which positive shocks to individual players increase their own actions and have monotone effects on the aggregate the results are illustrated with applications to public good provision contests cournot competition and technology choices in oligopoly

the stochastic volatility in mean model empirical evidence from international stock markets in this paper we present an exact maximum likelihood treatment for the estimation of a stochastic volatility in mean svm model based on monte carlo simulation methods the svm model incorporates the unobserved volatility as an explanatory variable in the mean equation the same extension is developed elsewhere for autoregressive conditional heteroscedastic arch models known as the arch in mean arch m model the estimation of arch models is relatively easy compared with that of the stochastic volatility sv model however efficient monte carlo simulation methods for sv models have been developed to overcome some of these problems the details of modifications required for estimating the volatility in mean effect are presented in this paper together with a monte carlo study to investigate the finite sample properties of the svm estimators taking these developments of estimation methods into account we regard sv and svm models as practical alternatives to their arch counterparts and therefore it is of interest to study and compare the two classes of volatility models we present an empirical study of the intertemporal relationship between stock index returns and their volatility for the united kingdom the united states and japan this phenomenon has been discussed in the financial economic literature but has proved hard to find empirically we provide evidence of a negative but weak relationship between returns and contemporaneous volatility which is indirect evidence of a positive relation between the expected components of the return and the volatility process copyright 2002 john wiley sons ltd

exchange of cost information in oligopoly when do oligopolists gain by sharing their private information about their costs with one another what are the social welfare effects of such information exchange i study these questions by comparing the oligopolists expected profits under a cost sharing agreement with their expected profits in the bayesian equilibrium that would arise without cost sharing i also analyse the firms decisions to form a trade association to share their cost data under conditions of linear demand and cournot behaviour industrywide information exchange is the unique point in the core of the trade association membership game the exchange of cost data increases expected profits and welfare but reduces expected consumer surplus cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output consumer surplus is diminished however because the variance of output is reduced and consumer surplus is a convex function of output

trade association disclosure rules incentives to share information and welfare in this article i propose a monopolistic competition framework to analyze the effects of different disclosure rules used by trade associations on the incentives to share information and on the welfare of consumers firms and society this framework is appropriate whenever a single firm cannot influence aggregate market magnitudes and serves as a benchmark for the analysis of information pooling agreements abstracting from strategic considerations i report two main results first a policy of nonexclusionary disclosure destroys the incentives to share information while exclusionary disclosure preserves them second information sharing increases expected total surplus with cournot competition but decreases it with bertrand competition in the context of a quadratic normal model with demand uncertainty

strategic information manipulation in duopolies abstract this paper studies a duopoly market in which firms can draw inferences concerning uncertain market demand from observations of their outputs and market price firms may adjust their outputs away from myopically optimal levels to affect the informativeness of the market price because firms quantities are observed firms can manipulate the extent to which belief revision occurs rather than the direction in which beliefs are revised as in signal jamming models we develop conditions and present examples under which the value of information is positive and negative and under which firms will increase or decrease quantity to manipulate information journal of economic literature classification numbers d80 l13

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

estimation methods for stochastic volatility models a survey abstract although stochastic volatility sv models have an intuitive appeal their empirical application has been limited mainly due to difficulties involved in their estimation the main problem is that the likelihood function is hard to evaluate however recently several new estimation methods have been introduced and the literature on sv models has grown substantially in this article we review this literature we describe the main estimators of the parameters and the underlying volatilities focusing on their advantages and limitations both from the theoretical and empirical point of view we complete the survey with an application of the most important procedures to the s p 500 stock price index

aids is not a business a study in global corporate responsibility securing access to low cost hiv medications at the end of the 1990s brazil was faced with a potentially explosive hiv aids epidemic through an innovative and multifaceted campaign and despite initial resistance from multinational pharmaceutical companies the government of brazil was able to negotiate price reductions for hiv medications and develop local production capacity thereby averting a public health disaster using interview data and document analysis the authors show that the exercise of corporate social responsibility can be viewed in practice as a dynamic negotiation and an interaction between multiple actors action undertaken in terms of voluntary csr alone may be insufficient this finding highlights the importance of a strong role for national governments and international organizations to pressure companies to perform better

costly information acquisition experimental analysis of a boundedly rational model the directed cognition model assumes that agents use partially myopic option value calculations to select their next cognitive operation the current paper tests this model by studying information acquisition in two experiments in the first experiment information acquisition has an explicit financial cost in the second experiment information acquisition is costly because time is scarce the directed cognition model successfully predicts aggregate information acquisition patterns in these experiments when the directed cognition model and the fully rational model make demonstrably different predictions the directed cognition model better matches the laboratory evidence jel d83

conditionally heteroskedastic factor models with skewness and leverage effects conditional heteroskedasticity skewness and leverage effects are well known features of financial returns the literature on factor models has often made assumptions that preclude the three effects to occur simultaneously in this paper i propose a conditionally heteroskedastic factor model that takes into account the presence of both the conditional skewness and leverage effects this model is specified in terms of conditional moment restrictions and unconditional moment conditions are proposed allowing inference by the generalized method of moments gmm the model is also shown to be closed under temporal aggregation an application to daily excess returns on sectorial indices from the u k stock market provides a strong evidence for dynamic conditional skewness and leverage with a sharp efficiency gain resulting from accounting for both effects the estimated volatility persistence from the proposed model is lower than that estimated from models that rule out such effects i also find that the longer the returns horizon the fewer conditionally heteroskedastic factors may be required for suitable modeling and the less strong is the evidence for dynamic leverage some of these results are in line with the main findings of harvey and siddique 1999 and jondeau and rockinger 2003 namely that accounting for conditional skewness impacts the persistence in the conditional variance of the return process

incentives for information production and disclosure in a duopolistic environment this paper examines the nature of the equilibrium solution to the duopoly problem under various incomplete information structures and the incentives to produce and disclose information attention is focused on the duopolists cost functions the results indicate that disclosure of such information is generally beneficial to the duopolists

benchmarking and transparency incentives for the pharmaceutical industry s corporate social responsibility with over 2 billion people lacking medicines for treatable diseases and 14 million people dying annually from infectious disease there is undeniable need for increased access to medicines there has been an increasing trend to benchmark the pharmaceutical industry on their corporate social responsibility csr performance in access to medicines benchmarking creates a competitive inter business environment and acts as incentive for improving csr this article investigates the corporate feedback discourses pharmaceutical companies make in response to criticisms from benchmarking reports it determines whether these responses are part of a healthy process in increasing access to medicines or a barrier to improvement a qualitative analysis on the feedback the industry provided was performed and the responses seen in these statements were grouped by analysing the language used the ideas portrayed and atti tudes of the companies increasing transparency through benchmarking is a powerful tool which reveals the industry s shortfalls to the public affects the decisions of socially responsible investors and is a risk to their financial bottom line this article demonstrates the importance of benchmarking and transparency in creating inter business competition and the translation of these responses to actual access to medicine practices

corporate responsibilities for access to medicines today there is a growing wave of demands being placed upon the pharmaceutical industry to contribute to improved access to medicines for poor patients in the developing countries 1 this article aims to contribute to the development of a systematic approach and broad consensus about shared benchmarks for good corporate practices in this area a consensus corridor on what constitutes an appropriate portfolio of corporate responsibilities for access to medicines especially under conditions of failing states and market failure 2 is not only in the interest of the world s poor but also of corporations that want to contribute to the solution of one of the most significant social problems of our time

on the use of heuristics to approximate competitors private information abstract firms often lack knowledge of the nature of the uncertainty they or their opponents face and use heuristics or approximations to determine their strategy we define and analyze one type of heuristic strategy in which firms choose strategies based on the expectation of their opponents private information rather than the full information about the distribution of that private information we find that in equilibrium the degree to which the heuristic strategy differs from the bayesian strategy depends on 1 the convexity of a firm s marginal profits with respect to their opponents private information and 2 whether firm strategies are complementary or substitutable under certain conditions firms equilibrium profits are greater when all firms use heuristics than when all firms use the full information our results provide insight into incentives firms may have to either facilitate or impede access to industry information

welfare optimal patent royalties when imitation is costly we identify welfare optimal patent royalties in a model of costly imitation entry and imperfect competition when the social planner may impose a compulsory license optimal royalties either blockade imitation facilitating unregulated monopoly or yield an aggregate zero profit efficient duopoly when duopoly is optimal the optimal per unit royalty pins the equilibrium price at the aggregate average cost and the optimal fixed royalty shifts surplus so the patentee and imitator break even efficient duopoly yields higher welfare than monopoly for sufficiently low invention cost and may also yield higher welfare than a prize system interestingly royalty payments may be negative because of this efficient duopoly may not be feasible if the planner must instead direct the courts to use such royalties

market risk and the concept of fundamental volatility measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets this paper proposes an unobserved fundamental component of volatility as a measure of risk this concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators fundamental volatility can be obtained using a stochastic volatility model which allows us to filter out the signal in the volatility information we decompose four ftse100 stock index related volatilities into transitory noise and unobserved fundamental volatility our analysis is applied to the question as to whether derivative markets destabilise asset markets we find that introducing european options reduces fundamental volatility while transitory noise in the underlying and futures markets does not show significant changes we conclude that for the ftse100 index introducing a new options market has stabilised both the underlying market and existing derivative markets

a stochastic volatility model with markov switching this article presents a new way of modeling time varying volatility we generalize the usual stochastic volatility models to encompass regime switching properties the unobserved state variables are governed by a first order markov process bayesian estimators are constructed by gibbs sampling high medium and low volatility states are identified for the standard and poor s 500 weekly return data persistence in volatility is explained by the persistence in the low and the medium volatility states the high volatility regime is able to capture the 1987 crash and overlap considerably with four u s economic recession periods

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

markov switching and stochastic volatility diffusion models of short term interest rates this article empirically compares the markov switching and stochastic volatility diffusion models of the short rate the evidence supports the markov switching diffusion model estimates of the elasticity of volatility parameter for single regime models unanimously indicate an explosive volatility process whereas the markov switching models estimates are reasonable itis found that either markov switching or stochastic volatility but not both is needed to adequately fit the data a robust conclusion is that volatility depends on the level of the short rate finally the markov switching model is the best for forecasting a technical contribution of this article is a presentation of quasi maximum likelihood estimation techniques for the markov switching stochastic volatility model

cournot and the oligopoly problem cournot s recherches sw les principes mathpmatiques de la thiorie des richesses 1838 contribution to economic theory ranges from the formulation of the concept of demand function to the analysis of price determination in different market structures from monopoly to perfect competition he is credited for being the pioneer in the use of mathematics in economic analysis nevertheless cournot is most known for his theory of oligopoly cournot claimed that prices would also be determined under oligopolistic rivalry he envisioned firms the celebrated mineral water producers competing independently deciding about their production levels and bringing to the market the output where a price emerges from the interaction of supply and demand an equilibrium is reached when the output of any firm is a best response to the other firms outputs that is when each firm chooses an output level that maximizes profits given the outputs chosen by the rivals the equilibrium involves a price above the marginal cost of production cournot thought furthermore that this equilibrium would be stable in the sense that a departure from it would be self correcting through a series of reactions of the firms the disequilibrium dynamics would be governed by the best response functions of the firms that is by the functions that give the optimal output of a firm in terms of the outputs of the rivals cournot also evoked the question of why is it that firms do not come to an understanding and agree on sharing the market at the monopoly price the answer is that from the point of view of a firm if the rivals follow the agreement it is in the interest of the firm to depart from it since this way it can increase its profits in other words there is an incentive to cheat cournot thought that monopoly or cartel type agreements could only be maintained by means of a formal engagement p 83 our author also considered competition of

lechatelier samuelson principle in games and pass through of shocks abstract the lechatelier samuelson principle states that as a reaction to a shock an agent s short run adjustment of an affected action is smaller than its long run adjustment when the agent can also adjust other related actions we extend the principle to strategic environments where the long run adjustment also accounts for other players adjusting their strategies we show that the principle holds for supermodular games strategic complements satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes heterogeneity we discuss the principle s implications for cost pass through of multiproduct firms

price and volatility co jumps abstract the nature of the dependence between discontinuities in prices and contemporaneous discontinuities in volatility co jumps has been reported by many as being elusive in terms of sign magnitude and statistical significance using a novel identification strategy in continuous time relying on trade level information for spot variance estimation as well as infinitesimal cross moments we document that a sizeable proportion of discontinuous changes in prices are associated with strongly anti correlated contemporaneous discontinuous changes in volatility assuming a possibly nonmonotonic pricing kernel we illustrate the equilibrium implications of price and volatility co jumps for return and variance risk premia

elevating the role of divestment in socially responsible investing the divest movement has focused attention on strategic and ethical differences in the practice of socially responsible investing sri and highlighted an unnecessary bifurcation of best of class engagement and divestment although best of class engagement is favored as a contemporary and pragmatic approach this paper calls for a more pronounced recognition of absolute dealbreakers and divestment as an underpinning for best of class engagement after linking divestment and best of class engagement to their foundations of absolutism and relativism respectively i critique best of class engagement and argue that without a distinct and explicit role for divestment best of class strategies are ethically and strategically fraught following a discussion of which types of issues suggest divestment or best of class engagement i identify the norway government pension fund as a noteworthy example and posit that divestment and engagement are best presented and employed in tandem particularly for issues that have yet to be addressed by law and convention

heuristic thinking and limited attention in the car market can heuristic information processing affect important product markets analyzing over 22 million wholesale used car transactions we find evidence of left digit bias in the processing of odometer values whereby individuals focus on the number s leftmost digits the bias leads to discontinuous drops in sale prices at 10 000 mile odometer thresholds along with smaller drops at 1 000 mile thresholds these findings reveal that information processing heuristics matter even in markets with large stakes and easily observed information we model left digit bias in an inattention framework and structurally estimate the inattention parameter empirical patterns suggest the results are driven by final customers rather than professional agents jel d12 d44 d83 l81

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

a non linear filtering approach to stochastic volatility models with an application to daily stock returns this paper develops a new model for the analysis of stochastic volatility sv models since volatility is a latent variable in sv models it is difficult to evaluate the exact likelihood in this paper a non linear filter which yields the exact likelihood of sv models is employed solving a series of integrals in this filter by piecewise linear approximations with randomly chosen nodes produces the likelihood which is maximized to obtain estimates of the sv parameters a smoothing algorithm for volatility estimation is also constructed monte carlo experiments show that the method performs well with respect to both parameter estimates and volatility estimates we illustrate our model by analysing daily stock returns on the tokyo stock exchange since the method can be applied to more general models the sv model is extended so that several characteristics of daily stock returns are allowed and this more general model is also estimated copyright 1999 john wiley sons ltd

the corporate social performance financial performance link strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management rather than traditional arenas of strategic management using a greatly improved source of data on corporate social performance this paper reports the results of a rigorous study of the empirical linkages between financial and social performance corporate social performance csp is found to be positively associated with prior financial performance supporting the theory that slack resource availability and csp are positively related csp is also found to be positively associated with future financial performance supporting the theory that good management and csp are positively related 1997 by john wiley sons ltd