Coordination and delay in global games

What is the effect of offering agents an option to delay their choices in a global coordination game? We address this question by considering a canonical binary action global game, and allowing players to delay their irreversible decisions. Those that delay have access to accurate private information at the second stage, but receive lower payoffs. We show that, as noise vanishes, as long as the benefit to taking the risky action early is greater than the benefit of taking the risky action late, the introduction of the option to delay reduces the incidence of coordination failure in equilibrium relative to the standard case where all agents must choose their actions at the same time. We outline the welfare implications of this finding, and probe the robustness of our results from a variety of angles.     

Regionality revisited: An examination of the direction of spread of currency crises

What determines the direction of spread of currency crises? We examine data on waves of currency crises in 1992, 1994, 1997, and 1998 to evaluate several hypotheses on the determinants of contagion. We simultaneously consider trade competition, financial links, and institutional similarity to the “ground zero” country as potential drivers of contagion. To overcome data limitations and account for model uncertainty, we utilize Bayesian methodologies hitherto unused in the empirical literature on contagion. In particular, we use the Bayesian averaging of binary models that allows us to take into account the uncertainty regarding the appropriate set of regressors.We find that institutional similarity to the ground zero country plays an important role in determining the direction of contagion in all the emerging market currency crises in our dataset. We thus provide persuasive evidence in favour of the “wake-up call” hypothesis for financial contagion. Trade and financial links may also play a role in determining the direction of contagion, but their importance varies amongst the crisis periods.     

Dynamic coordination with individual learning

We study coordination in dynamic global games with private learning. Players choose whether and when to invest irreversibly in a project whose success depends on its quality and the timing of investment. Players gradually learn about project quality. We identify conditions on temporal incentives under which, in sufficiently long games, players coordinate on investing whenever doing so is not dominated. Roughly speaking, this outcome occurs whenever players? payoffs are sufficiently tolerant of non-simultaneous coordination. We also identify conditions under which players coordinate on the risk-dominant action. We provide foundations for these results in terms of higher order beliefs.     

Information aggregation in financial markets with career concerns

What are the equilibrium features of a dynamic financial market in which traders care about their reputation for ability? We modify a standard sequential trading model to include traders with career concerns. We show that this market cannot be informationally efficient: there is no equilibrium in which prices converge to the true value, even after an infinite sequence of trades. We characterize the most revealing equilibrium of this game and show that an increase in the strength of the traders' reputational concerns has a negative effect on the extent of information that can be revealed in equilibrium but a positive effect on market liquidity.     

Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders

Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the large investor does make all other traders more aggressive in their selling. Relative to the case in which there is no large investor, small investors attack the currency when fundamentals are stronger. Yet, the difference can be small, or non-existent, depending on the relative precision of private information of the small and large investors. Adding signalling makes the influence of the large trader on small traders' behaviour much stronger.     

Measuring aggregate productivity growth using plant‐level data

We define aggregate productivity growth (APG) as the change in aggregate final demand minus the change in the aggregate expenditures on labor and capital. We show how to aggregate plant‐level data to this quantity and how to decompose APG into technical efficiency and reallocation components. This requires us to confront the “non‐neoclassical” features that impact plant‐level data, including plant‐level heterogeneity, the entry and exit of goods, adjustment costs, fixed and sunk costs, and market power. The APG decomposition includes one term per plant related to technical efficiency and one term for each input at each plant that is a function of the value of marginal product ‐ input price gap and that relates the reallocation of inputs to growth. We compare APG to several competing variants of productivity growth that are based only on plant‐level technical efficiency. Two simple theoretical examples illustrate that technical‐efficiency reallocation can be negatively correlated with actual APG reallocation because technical efficiency is a production concept and need not have any relation with the APG reallocation gaps. We illustrate this point empirically using panel data from manufacturing industries in Chile, where we show technical‐efficiency reallocation differs substantially from measured reallocation based on our definition of APG.     

Exploring reallocation’s apparent weak contribution to growth

Two recent meta-analyses use variants of the Baily et al. (Brookings Papers Econ Act Microecon 1:187–267, 1992) (BHC) decompositions to ask whether recent robust growth in aggregate labor productivity (ALP) across 25 countries is due to lower barriers to input reallocation. They find weak gains from measured reallocation and strong within-plant productivity gains. We show these findings may be because BHC indices decompose ALP growth using plant-level output-per-labor (OL) as a proxy for the marginal product of labor and changes in OL as a proxy for changes in plant-level productivity. We provide simple examples to show that (1) reallocation growth from labor should track marginal changes in labor weighted by the marginal product of labor, (2) BHC reallocation growth can be positively correlated, negatively correlated, or uncorrelated with actual growth arising from the reallocation of inputs, and that (3) BHC indices can mistake growth from reallocation as growth from productivity, principally because OL is neither a perfect index of marginal products nor plant-level productivity. We then turn to micro-level data from Chile, Colombia, and Slovenia, and we find for the first two that BHC indices report weak or negative growth from labor reallocation. Using the reallocation definition based on marginal products we find a positive and robust role for labor reallocation in all three countries and a reduced role of plant-level technical efficiency in growth. We close by exploring potential corrections to the BHC decompositions but here we have limited success.     

Structural Applications of the Discrete Choice Model

A growing body of empirical literature uses structurally-derived economic models to study the nature of competition and to measure explicitly the economic impact of strategic policies. While several approaches have been proposed, the discrete choice demand system has experienced wide usage. The heterogeneous, or mixed, logit in particular has been widely applied due to its parsimonious structure and its ability to capture flexibly substitution patterns for a large number of differentiated products.We outline the derivation of the heterogeneous logit demand system. We then present a number of applications of such models to various data sources. Finally, we conclude with a discussion of directions for future research in this area.     

Estimating Production Functions Using Inputs to Control for Unobservables

We add to the methods for conditioning out serially correlated unobserved shocks to the production technology. We build on ideas first developed in Olley and Pakes (1996) . They show how to use investment to control for correlation between input levels and the unobserved firm-specific productivity process. We show that intermediate inputs (those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem. We discuss some theoretical benefits of extending the proxy choice set in this direction and our empirical results suggest these benefits can be important.