Government Intervention and Information Aggregation by Prices

Governments intervene in firms' lives in a variety of ways. To enhance the efficiency of government intervention, many researchers and policy makers call for governments to make use of information contained in stock market prices. However, price informativeness is endogenous to government policy. We analyze government policy in light of this endogeneity. In some cases, it is optimal for a government to commit to limit its reliance on market prices to avoid harming the aggregation of information into market prices. For similar reasons, it is optimal for a government to limit transparency in some dimensions.     

Access Regulation and the Timing of Infrastructure Investment

This paper examines infrastructure investment incentives under a system of 'regulation by negotiation'. We demonstrate that an appropriately specified access pricing rule can induce private firms to choose to invest at a socially optimal time. The optimal regulatory regime allocates investment costs to the access provider and seeker based on their relative use-values of the facility. It is superior to an unregulated environment because it commits firms ex ante to an access charge that allows for sunk cost recovery. In addition, we show that when the time that access is sought is flexible both replacement- and historical-cost asset valuation methodologies can lead to optimal investment incentives. However, when seeker timing is restricted, historical cost can give rise to distorted incentives.     

Testing Market Efficiency: Evidence From The NFL Sports Betting Market

This article examines the efficiency of the National Football League (NFL) betting market. The standard ordinary least squares (OLS) regression methodology is replaced by a probit model. This circumvents potential econometric problems, and allows us to implement more sophisticated betting strategies where bets are placed only when there is a relatively high probability of success. In-sample tests indicate that probit-based betting strategies generate statistically significant profits. Whereas the profitability of a number of these betting strategies is confirmed by out-of-sample testing, there is some inconsistency among the remaining out-of-sample predictions. Our results also suggest that widely documented inefficiencies in this market tend to dissipate over time.     

The Composition of Government Spending and the Real Exchange Rate

We show that the composition of government spending influences the long-run behavior of the real exchange rate. We develop a two-sector small open-economy model in which an increase in government consumption is associated with real appreciation, while an increase in government investment may generate real depreciation. Our empirical work confirms that government consumption and government investment have differential effects on the real exchange rate and the relative price of nontradables.