A dual characterization of incentive efficiency

We show that incentive efficient allocations in economies with adverse selection and moral hazard problems can be determined as optimal solutions to a linear programming problem and we use duality theory to obtain a complete characterization of the optima. Our dual analysis identifies welfare effects associated with the incentives of the agents to truthfully reveal their private information. Because these welfare effects may generate non-convexities, incentive efficient allocations may involve randomization. Other properties of incentive efficient allocations are also derived.     

Informed trading and the ‘leakage’ of information

This paper examines the effect of ‘leakage’ of information, private information becoming available to uninformed traders at a later date, on information acquisition and revelation. Using a Shapley-Shubik market game framework it is shown that (a) if information acquisition by the informed traders is costless, this leads to faster revelation of information; (b) if information acquisition is costly, there may be no acquisition of information; (c) information leakage leads to a fall in value of information but does not affect the incentive for informed traders to sell the information.     

Economic Engineering and the Design of Matching Markets: The Contributions of Alvin E. Roth

Alvin Roth's research on, and design of, new economic systems has had a wide and large impact on human welfare, from the matching of residents to medical programs, to the assignment of students to schools, to the manner in which kidneys are allocated to patients needing transplants. This article discusses his important contributions to the understanding and improvement of matching markets, highlighting Roth's key roles in some of the most prominent successes of market design and the ascension of economic engineering.     

Bank competition, financial reform, and institutions: The importance of being developed

In this paper, I estimate the degree of market power at the bank-level for 84 banking systems worldwide. Subsequently, I analyze the sources of bank competition, placing emphasis on the impact of financial reform and the quality of institutions. I find that financial liberalization policies reduce the market power of banks in developed countries with advanced institutions. In contrast, banking competition does not improve at the same pace in countries with weaker institutions and a lower level of institutional development. The results hold across a wide array of identification tests and estimation methods. The main policy implication to be drawn is that a certain level of institutional development is a precondition for the success of reforms aimed at enhancing the competition and efficiency of banking markets.     

Determinants and consequences of soft budget constraintsAn empirical analysis using enterprise‐level data in transition countries1

This paper presents empirical work grounded in the soft budget constraint (SBC) literature. A loan is soft when a bank cannot commit the enterprise to hold to a fixed initial budget and/or the timing of repayment. Using data collected by the European Bank for Reconstruction and Development (EBRD) (Business Environment and Enterprise Performance Survey (BEEPS), 2002) in 26 transition economies, we analyze the determinants of managers’ expectations of having a soft loan. In particular, we find that managers’ expectations are lower when the initial financing requires collateral, and higher for larger firms and when firms had recently experienced financial distress. We also provide evidence that managers’ expectations influence their price responsiveness.     

Deprivation and the Dimensionality of Welfare: A Variable‐Selection Cluster‐Analysis Approach

We approach the problems of measuring the dimensionality of welfare and that of identifying the multidimensionally poor, by first finding the poor using the original space of attributes, and then reducing the welfare space. The starting point is the notion that the “poor” constitutes a group of individuals that are essentially different from the “non‐poor” in a truly multidimensional framework. Once this group has been identified through a clustering procedure, we propose reducing the dimension of the original welfare space using recent blinding methods for variable selection. We implement our approach to the case of Latin America based on the Gallup World Poll, which contains ample information on many dimensions of welfare.     

A comparative analysis of the change in R&D efficiency: a case of R&D leaders in the technology industry

This paper measures the cumulative change in research and development (R&D) efficiency of globally leading R&D companies in the technology industry. We use Data Envelopment Analysis /Malmquist index to analyse 49 such companies. The change in R&D efficiency is analysed by decomposing the Malmquist index into ‘catch-up’ and ‘frontier shift’ indices, and by comparing cumulative indices to those at the starting period. Those cumulative indices are obtained at both a firm and an industry level. Results indicate that the overall R&D efficiency of these globally leading R&D companies declined slightly during the period 2007–2013. At a firm level, this study determines in detail how the trend of each firm in R&D activities differs from other companies.     

The trade-off between innovation and defense industrial policy: A simulation model analysis of the Norwegian defense industry

The paper investigates the trade-off between innovation and defense industrial policy. It presents an agent-based simulation model calibrated for the Norwegian defense industry that compares different policy scenarios and examines the effects of a pending EU market liberalization process. The paper points to two main results. (1) It finds that a pure scenario where national authorities focus on, and provide support exclusively for, either a) international competitiveness or b) national defense and security objectives, is more Pareto efficient than a corresponding mixed strategy where policy makers simultaneously pursue both international competitiveness and defense and security objectives. (2) Under the conditions of the new EU liberalization regime, it finds that a stronger and more visible trade-off will emerge between international competitiveness and national defense and security objectives. Policy makers will have to choose which to prioritize, and set a clear agenda focusing on one of the two objectives.