The effect of regulatory scrutiny: Asymmetric cost pass-through in power wholesale and its end

We find an asymmetric pass-through of European emission allowance (EUA) prices to wholesale electricity prices in Germany and show that this asymmetry disappeared in response to a report on investigations by the competition authority. The asymmetric pricing pattern, however, was not detected at the time of the report, nor had it been part of the investigations. Our results therefore provide evidence for the deterring effect of regulatory monitoring on firms which exhibit non-competitive pricing behavior. We do not find any asymmetric pass-through of EUA prices in recent years. Several robustness checks support our results.     

Mispricing of Risk in Sovereign Bond Markets with Asymmetric Information

The likelihood that a government will repay its sovereign debt depends both on the amount of debt it issues and on the government's future ability to repay. Whilst the former is publicly observable, the government may have more information about the latter than investors. This paper shows that this asymmetric information problem impairs the market's ability to differentiate economies according to their fiscal sustainability, and can lead to a disconnect between bond prices and default risk. The model can help rationalise the behaviour of Eurozone bond prices prior to the recent European sovereign debt crisis.     

Capital asset pricing in an overlapping generations model

This paper attempts to contribute to two rapidly growing branches in economic theory: asset pricing and “overlapping generations” models. The model is formulated and it is shown that equilibrium prices exist, and some of their properties are discussed. Then the model is applied to an asymmetric information environment to see if randomness in the number of informed agents could confuse the uninformed. Surprisingly, it could not.     

Adverse Selection in Health Insurance Markets: A Classroom Experiment

Adverse selection as it relates to health care policy will be a key economic issue in many upcoming elections. In this article, the author lays out a 30-minute classroom experiment designed for students to experience the kind of elevated prices and market collapse that can result from adverse selection in health insurance markets. The students should come away from the experiment understanding why adverse selection leads to high prices on good quality insurance and why it forces healthy individuals into low quality plans. Additionally, the experiment helps students think about the market characteristics that make health insurance particularly vulnerable to problems of asymmetric information. Finally, the experiment connects the adverse selection problem with key features of the 2010 Patient Protection and Affordable Care Act.     

网购市场鱼龙混杂现象的经济学解释：基于二维不对称信息的视角

网络购物市场存在商品鱼龙混杂的典型现象：高价格的商品不一定高质量，低价格的商品也不一定低质量，表现出明显的信息不对称特征。文章基于网络购物市场所存在的两个维度不对称信息的特征事实，即厂商在产品质量与产品生产成本两个方面拥有私有信息，通过构建二维不对称信息的分析框架，从市场均衡的视角首次解释了上述现象的经济机理。分析表明，由于二维不对称信息的存在，消费者和厂商决策的互动过程使得市场上产品价格与质量不再具有单调递增关系，从而网络购物市场可能出现鱼龙混杂的市场均衡，文章证明了这一均衡在合理的条件下是存在的。文章通过比较静态分析考察了市场环境的变化如何影响商品质量的价格信号显示效率以及消费者购买行为，并考察了网络购物行业商家披露信息、消费者对于商家的反馈评分机制和保证退货等手段对于消除商品鱼龙混杂现象的有效性，为进一步规范发展我国网络购物行业提供了参考。     

Market structure in mobile telecoms: qualified indirect access and the receiver pays principle

Scarcity of spectrum limits the number of competing network operators in mobile telecoms. In the United Kingdom a regulatory review is currently enquiring into the effects of limited competition in the mobile market. The European Commission is also reviewing competition in roaming across mobile networks in Europe. In the UK the industry regulator Oftel claims that the prices for calling mobile phones are too high. We show that such relatively high prices stem from asymmetric incentives. The convention in the UK is for the originating party to pay for a telephone call. If instead the receiver were to pay for some or all of a call, we show that prices of calls to mobiles would be lower. We also argue that qualified indirect access could stimulate more effective competition in mobile telecoms.     

Are green products over-priced?

This article investigates conditions under which high prices, in conjunction with low levels of pollution, signal environmentally clean products. It is shown that, when consumers cannot ascertain the environmental performance of products, the price must be distorted upward to signal a clean product. A clean producer saves less from emitting pollution and so raises price and restricts output with less reluctance than does a dirty producer. The theoretical result of over-pricing is consistent with the evidence that “green” products receive higher prices than conventional products. However, optimistic prior beliefs of high-environmental performance may cause signaling to fail.      

The Effect of Bidder Heterogeneity on Combinatorial Conservation Auction Designs

In an iterative combinatorial auction, bidders can submit bids on individual and/or on combinations of projects in a series of intermediate rounds, where bid prices are revised before a final allocation is made. The iterative format is useful for conservation service procurement as landholders can rely on market information revealed through the rounds to evaluate their choices of projects and bid prices. However, there is no single way of providing the market information. Different designs for generating price information have been proposed. Little is known about the performance of iterative combinatorial auction designs when heterogeneous bidders, with different cost structures, participate in an auction. Using an agent based model, we evaluate a selected set of designs under different bidder heterogeneity scenarios. We observe that higher degrees of heterogeneity lead to lower auction efficiency and that auction outcomes are highly sensitive to price feedback design choices.     

Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market

This paper employs threshold cointegration tests that allow for asymmetric adjustment towards a long-run equilibrium relationship to examine the relationship between producer and retail pork prices in Switzerland. The short-run adjustments are also examined with asymmetric error correction models that are compared to the conventional symmetric error correction models. The results indicate that price transmission between the producer and retail levels is asymmetric, in the sense that increases in producer prices that lead to declines in marketing margins are passed on more quickly to retail prices than decreases in producer prices that result in increases in the marketing margins.     

网络产业收入监管激励问题研究

对具有自然垄断特性的网络产业,各国都对其收入实施严格的监管。而如何采取具有激励作用的收入监管,历来是经济学家研究的重点。对该方面进行的综述性研究表明,在不对称信息存在的情况下,采取基于成本的收入监管机制,监管机构不得不对低效率企业的产出进行扭曲,同时高效率企业获得信息租金;而采取基于价格的收入监管机制,在考虑了企业的努力程度时,低效率企业的努力程度将受到向下的扭曲,同时高效率企业获得信息租金。分析还表明,在基于价格的收入监管机制下,价格机制的选取和激励问题可以分开考虑。     

Bond rating changes and stock returns: evidence from the Spanish stock market

This study analyzes the effect of corporate bond rating changes by international agencies on stock prices. This topic has not yet been analyzed for the Spanish stock market, despite the growing importance of ratings in Spanish financial markets. On an efficient market, rating changes will only have an effect if they contain some new information. The results from an event study indicate that rating actions cause significant negative abnormal returns in issuing firms around the date of the announcement. This evidence indicates an informational effect related to downgrades, which supports the hypothesis that credit rating agencies provide information that may reduce the asymmetric information problem between firms and investors. In the case of upgrades, our results are compatible with a redistribution of wealth between bondholders and owners or with the reputation hypothesis.      

Information Markets and the Comovement of Asset Prices

Traditional asset pricing models predict that covariance between prices of different assets should be lower than what we observe in the data. This paper introduces markets for information that generate high price covariance within a rational expectations framework. When information is costly, rational investors only buy information about a subset of the assets. Because information production has high fixed costs, competitive producers charge more for low-demand information than for high-demand information. The low price of high-demand information makes investors want to purchase the same information that others are purchasing. When investors price assets using a common subset of information, news about one asset affects the other assets' prices; asset prices comove. The cross-sectional and time-series properties of comovement are consistent with this explanation.     

卖空机制、股价信息含量与暴跌风险--基于融资融券交易的经验证据

文章利用我国逐步推出融资融券交易的自然实验机会,运用双重差分的研究设计,考察了卖空机制对股价反映负面消息效率的影响。文章以2007-2012年的数据为样本研究发现：相对于非标的股票,融资融券标的股票在成为标的之后,其股价对市场的向下波动及时做出了调整,使得股价对市场正负向波动反应之间的不对称性显著降低,表明标的股票更加及时和充分地吸收了有关公司价值的负面信息;同时,相对于非标的股票,融资融券标的标的股票在成为标的之后,其股价暴跌风险显著降低。文章结果表明,我国股市推出融资融券交易后,卖空机制提高了市场对标的股票负面消息的定价效率。     

Export pricing and exchange rate expectations under uncertainty

This paper contributes to the literature on firms’ export pricing by assessing whether and to what extent firms take into account the expected future evolution of the exchange rates while setting their prices. Using French micro-level trade data, our empirical analysis reveals that by adjusting their export prices, firms partly absorb information about future exchange rate variations. The extent to which individual exporters absorb future exchange rate fluctuations is found to depend on their market power, in accordance with theoretical dynamic demand-side models encompassing mechanisms creating an inter-temporal relationship between current market shares and future profits. The analysis also shows that the strength of such expectation-related mechanism is considerably reduced with greater future exchange rate uncertainty, in line with an interpretation of pricing-to-market as an investment decision under uncertainty. In a comparative perspective our results are shown to drive asymmetric responses across destinations of aggregate bilateral export flows to expected exchange rate movements.     

Are mortgage lenders guilty of the housing bubble? A UK perspective

Existing theoretical models of house prices and credit rely on continuous rationality of consumers, an assumption that has been frequently questioned in recent years. Meanwhile, empirical investigations of the relationship between prices and credit are often based on national-level data, which is then tested for structural breaks and asymmetric responses, usually with subsamples. Earlier author argues that local markets are structurally different from one another and so the coefficients of any estimated housing market model should vary from region to region. We investigate differences in the price–credit relationship for 12 regions of the UK. Markov-switching is introduced to capture asymmetric market behaviours and turning points. Results show that credit abundance had a large impact on house prices in Greater London and nearby regions alongside a strong positive feedback effect from past house price movements. This impact is even larger in Greater London and the South East of England when house prices are falling, which are the only instances where the credit effect is more prominent than the positive feedback effect. A strong positive feedback effect from past lending activity is also present in the loan dynamics. Furthermore, bubble probabilities extracted using a discrete Kalman filter neatly capture market turning points.     

Regulating a multi-product monopolist

The purpose of the present paper is to construct a regulatory scheme that serves to correct suboptimal behavior of a multi-product monopolist in a situation of doubly asymmetric information, where the regulator cannot observe the monopolist's cost structure and consumers' preference while the monopolist cannot identify consumer types. We construct a tax scheme that induces the monopolist to offer socially optimal qualities to all types of consumers and discuss some interesting features of the scheme.The authors gratefully acknowledge the helpful comments of two anonymous referees.     

Dissertation abstract: Essays on pricing in experimental duopoly markets

This dissertation comprises three independent essays that analyze pricing behavior in experimental duopoly markets. The first essay examines whether the content of buyer information and the timing of its dissemination affects seller market power. We construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices. The experiment varies the information on price or product characteristics that buyers learn under different timing assumptions (pre- and post-search), generating four information treatments. Theory predicts that price information lowers the equilibrium price, but information about product characteristics increases the equilibrium price. That is, contrary to simple intuition, presence of informed buyers may impart a negative externality on other uninformed buyers. The data support the model's negative externality result when sellers face a large number of robot buyers that are programmed to search optimally. Observed prices conform to the model's comparative statics and are broadly consistent with predicted levels. With human buyers, however, excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted. The second essay uses experimental methods to demonstrate the anti-competitive potential of price-matching guarantees in both symmetric and asymmetric cost duopolies. When costs are symmetric, price-matching guarantees increase the posted prices to the collusive level. With asymmetric costs, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of guarantees to act as a collusion facilitating device depends on the relative cost difference. Fewer guarantees, combined with lower average prices, suggest that cost asymmetries may discourage collusion. The third essay investigates the effect of firm size asymmetry on the emergence of price leadership in a homogeneous good duopoly. With discounting, the unique subgame-perfect equilibrium predicts that the large firm will emerge as the endogenous price leader. Independent of the level of size asymmetry, the laboratory data indicates that price leadership by the large firm is one of the most frequently observed timings of price announcement. In most cases, however, it comes second to simultaneous price-setting. This tendency to wait for the other firm to announce its price is especially strong when the level of size asymmetry between firms is low. We attribute the lower than expected frequency of price leadership to coordination failure, which is further compounded by elements of inequity aversion. JEL Classification C91, D43, D83, L11 Dissertation Committee: Timothy Cason (Chair), Department of Economics, Purdue University Dan Kovenock, Department of Economics, Purdue University Stephen Martin, Department of Economics, Purdue University Marco Casari, Department of Economics, Purdue University     

ENDANGERED SPECIES CONSERVATION ON PRIVATE LAND

This paper analyzes the effect of alternative institutional arrangements on the conservation of endangered species and economic activity on private land. Because a landowner does not capture the full value of species conservation, her preferences on land use will not coincide with social preferences. Under current law, the landowner has incentives to invest in lowering conservation value and to deny access to regulators in order to prevent collection of information. Paying compensation corrects many of these perverse incentives. An alternative approach is to limit the ability of landowners to affect the regulatory outcome. Whether it is better to entice landowners to make socially efficient decisions by paying compensation or to limit the ability of landowners to affect outcomes through changes in the regulatory regime depends on both practical implementation difficulties and distributive justice considerations.     

抵押贷款证券化中的柠檬市场问题及缓释机制

证券化结构设计中的核心问题是解决信息问题。本文通过模型分析美国抵押贷款证券化中柠檬市场问题产生的原因及后果,从4个方面阐述了其缓释机制:自动承销系统的普及、有效的政府主导型SPV、发达的信用评级机构及银行监管资本套利动机,并逐一分析了它们对解决抵押贷款证券化中信息不对称问题的贡献。     

Trade and revelation of information

We consider an economy with asymmetric information and two types of agents, fully informed and uninformed. Uninformed agents update their information observing equilibrium prices and the equilibrium levels of other agents’ excess demand. We show that, for a generic set of economies, there are rational expectations equilibria which are partially revealing on an open, dense set of signals of positive Lebesgue measure, provided that the dimension of the signal space is sufficiently larger than the dimension of the commodity space.