Characterising equilibrium selection in global games with strategic complementarities

Global games are widely used to predict behaviour in games with strategic complementarities and multiple equilibria. We establish two results on the global game selection. First, we show that, for any supermodular complete information game, the global game selection is independent of the payoff functions chosen for the game?s global game embedding. Second, we give a simple sufficient criterion to derive the selection and establish noise independence in many-action games by decomposing them into games with smaller action sets, to which we may often apply simple criteria. We also report in which small games noise independence may be established by counting the number of players or actions.     

When Does Convergence of Asset Price Processes Imply Convergence of Option Prices?

We consider weak convergence of a sequence of asset price models (Sⁿ) to a limiting asset price model S . A typical case for this situation is the convergence of a sequence of binomial models to the Black–Scholes model, as studied by Cox, Ross, and Rubinstein. We put emphasis on two different aspects of this convergence: first we consider convergence with respect to the given "physical" probability measures (P^n) and second with respect to the "risk‐neutral" measures (Q^n) for the asset price processes (Sⁿ) . (In the case of nonuniqueness of the risk-neutral measures the question of the "good choice" of (Qⁿ) also arises.) In particular we investigate under which conditions the weak convergence of (Pⁿ) to P implies the weak convergence of (Qⁿ) to Q and thus the convergence of prices of derivative securities.
The main theorem of the present paper exhibits an intimate relation of this question with contiguity properties of the sequences of measures (Pⁿ) with respect to (Qⁿ) , which in turn is closely connected to asymptotic arbitrage properties of the sequence (Sⁿ) of security price processes. We illustrate these results with general homogeneous binomial and some special trinomial models.     

Joint analysis and estimation of stock prices and trading volume in Barndorff-Nielsen and Shephard stochastic volatility models

We introduce a variant of the Barndorff-Nielsen and Shephard stochastic volatility model where the non-Gaussian Ornstein–Uhlenbeck process describes some measure of trading intensity like trading volume or number of trades instead of unobservable instantaneous variance. We develop an explicit estimator based on martingale estimating functions in a bivariate model that is not a diffusion, but admits jumps. It is assumed that both the quantities are observed on a discrete grid of fixed width, and the observation horizon tends to infinity. We show that the estimator is consistent and asymptotically normal and give explicit expressions of the asymptotic covariance matrix. Our method is illustrated by a finite sample experiment and a statistical analysis of IBM? stock from the New York Stock Exchange and Microsoft Corporation? stock from Nasdaq during a history of five years.     

On the Fairness of Early-Retirement Provisions

Abstract. A crucial parameter for increasing the retirement age is the early-retirement discount of the public pension system. Critics of the present German system argue that the downward adjustment of the pension for early retirees is too small compared with a 'fair' system and thus encourages early retirement. We discuss several notions of 'fairness' of early-retirement provisions and propose a concept called 'distributive neutrality', which states that the ratio between total benefits and total contributions should not depend systematically on the individual's ability. By applying this concept to the German retirement benefit formula and taking empirically estimated relationships between annual income (as a proxy for ability), life expectancy and retirement age into account, we show that at the present discount rate of 3.6% per year there is redistribution from low to high earners, which, surprisingly, could be attenuated by raising the discount rate.     

Hiring an innovative workforce: A necessary yet uniquely challenging endeavor

To increase innovative performance in work settings, most scholars agree that organizations need both an environment that is supportive of creativity as well as employees with high levels of creative potential. Substantial research effort has been aimed at understanding work contexts that facilitate creative thinking, yet less is known regarding how to most effectively recruit and hire creative talent. To fill this knowledge gap and guide future research efforts, we discuss the KSAOs most predictive of creative potential as well as the means and methods for assessing this potential. In addition, we explore the challenges to quantifying successful innovation, proposing that creative achievement represents a unique and specialized form of organizational performance. Supplementing this discussion we provide recommendations for obtaining high-quality, substantive criterion data. We conclude with a brief discussion on recruitment and long-term selection strategies for innovation.     

A measure of mutual complete dependence

Two random variables X and Y on a common probability space are mutually completely dependent (m.c.d.) if each one is a function of the other with probability one. For continuous X and Y, a natural approach to constructing a measure of dependence is via the distance between the copula of X and Y and the independence copula. We show that this approach depends crucially on the choice of the distance function. For example, the L ^p -distances, suggested by Schweizer and Wolff, cannot generate a measure of (mutual complete) dependence, since every copula is the uniform limit of copulas linking m.c.d. variables. Instead, we propose to use a modified Sobolev norm, with respect to which mutual complete dependence cannot approximate any other kind of dependence. This Sobolev norm yields the first nonparametric measure of dependence which, among other things, captures precisely the two extremes of dependence, i.e., it equals 0 if and only if X and Y are independent, and 1 if and only if X and Y are m.c.d. Examples are given to illustrate the difference to the Schweizer–Wolff measure.     

Sustainability and innovation in staple crop production in the US Midwest

An agroecosystem is constrained by environmental possibility and social choices, mainly in the form of government policies. To be sustainable, an agroecosystem requires production systems that are resilient to natural stressors such as disease, pests, drought, wind and salinity, and to human constructed stressors such as economic cycles and trade barriers. The world is becoming increasingly reliant on concentrated exporting agroecosystems for staple crops, and vulnerable to national and local decisions that affect resilience of these production systems. We chronicle the history of the United States staple crop agroecosystem of the Midwest region to determine whether sustainability is part of its design, or could be a likely outcome of existing policies particularly on innovation and intellectual property. Relative to other food secure and exporting countries (e.g. Western Europe), the US agroecosystem is not exceptional in yields or conservative on environmental impact. This has not been a trade-off for sustainability, as annual fluctuations in maize yield alone dwarf the loss of caloric energy from extreme historic blights. We suggest strategies for innovation that are responsive to more stakeholders and build resilience into industrialized staple crop production.     

Das Bedingungslose Grundeinkommen — ein tragfähiges Konzept?

The introduction of an unconditional basic income has been discussed in Switzerland for many years. Germany, however, takes a sceptical view of this idea. The authors of this ?Zeitgespräch“ express disparate opinions on how broadly the concept should be defined, but they agree on the motive behind the concept: respect for human dignity. Moreover, it may make many social policy rules obsolete. There are conflicting opinions concerning the reaction of labour supply to the unconditional basic income. Some authors fear that it will shrink substantially. But its financing will be the main problem. There are proposals to increase the value added tax rate. The economic impacts of funding it by income tax revenues are analysed using a macroeconomic model. Ultimately, the implementation of the concept will have distributional effects which are very difficult to predict.     

Factor mobility, government debt and the decline in public investment

This paper aims at explaining the declining level of public investment in OECD countries. The theoretical framework hints to the relevance of a number of demand and supply factors—ranging from the yield of public investment to institutions like the EU deficit limits. The econometric results indicate that the decline is due to three developments: first to the increase in the public capital stock; second to the pile-up of public debt which has restricted the ability to finance new investment; and third to the increasing mobility of factors adding to the financing difficulties. In contrast to that neither the privatisation process nor EU deficit restrictions of the Maastricht Treaty have a robustly significant impact.