Entry in a Dynamic Model with Equilibrium Price Dispersion with an Application to the Market for Long-Distance Telephone Services

Models of entry based on the traditional models of oligopoly do not allow for price dispersions on homogenous products. Yet, such price dispersions do exist for homogenous products, and a firm does not lose its entire market share when it fails to charge the lowest price. Existing models of equilibrium price dispersion are not designed to analyze entry in a dynamic framework. A dynamic model is developed that allows an analysis of the effects of entry into a previously monopolized market. Despite asymmetric initial shares, the market shares of equally efficient firms tend to equalize over time. An application is the market for long‐distance telephone services following the divestiture of the bell operating companies from AT&T.     

A model of benefit and tax share discrimination by a monopoly bureau

This paper integrates the theory of demand for publicly provided goods in a democracy with the theory of bureaucratic supply in order to develop a model of benefit share and tax share discrimination by a monopoly bureau. The demand side of the political market is based on a utility maximizing model of voter behavior with voters' demands aggregated through a majority voting process. The supply side of the political market is based on a budget maximizing model of bureaucratic behavior. The bureau is assumed to possess monopoly power as a result of either its control over benefit shares or tax shares and, hence, implicit tax prices or its control over budget proposals placed on the agenda. Different degrees of discrimination are examined and in each case the equilibrium of the model yields a total budget for the bureau as well as distributions of benefit shares or tax shares across voters.     

Voting under ignorance of job skills of unemployed: the overtaxation bias

Usual models on voting over basic income–flat tax schedules rest on the assumption that voters know the whole distribution of skills even if at equilibrium some individuals do not work. If individuals’ productivity remains unknown until they work, it may be more convincing to assume that voters have only beliefs about the distribution of skills and that a learning process takes place. In this paper, at each period, individuals vote according to their beliefs which are updated when getting new information from the job market. The voting process converges towards some steady-state equilibrium that depends on both the true distribution of skills and the initial beliefs. The equilibrium tax rate is higher than (or equal to) the tax rate achieved in the perfect information framework. An illustration is provided on French data: if voters are over-pessimistic as to the potential productivity of unemployed people, majority voting may lock the economy in an “informational trap” with a high tax rate and a high level of inactivity.     

Dissertation abstract: Essays on veto bargaining games

This dissertation experimentally analyzes the outcomes of multilateral legislative bargaining games in the presence of a veto player. The first essay examines veto power—the right of an agent to unilaterally block decisions but without the ability to unilaterally secure his/her preferred outcome. Using Winter’s (1996) theoretical framework, I consider two cases: urgent committees where the total amount of money to be distributed shrinks by 50% if proposals do not pass and non-urgent committees where the total amount of money shrinks by 5% if proposals do not pass. Committees with a veto player take longer to reach decisions (are less efficient) than without a veto player and veto players proposals generate less consensus then non-veto players proposals, outcomes on which the theory is silent. In addition, veto power in conjunction with proposer power generates excessive power for the veto player. This suggests that limiting veto players’ proposer rights (e.g., limiting their ability to chair committees) would go a long way to curbing their power, a major concern in committees in which one or more players has veto power. Finally, non-veto players show substantially more willingness to compromise than veto players, with players in the control game somewhere in between. I relate the results to the theoretical literature on the impact of veto power as well as concerns about the impact of veto power in real-life committees. The second essay discusses in detail the voting patterns in the veto and control games reported in the first essay. The empirical cumulative density functions of shares veto players accepted first degree stochastically dominates that of shares for the controls and the empirical cdfs of shares the controls accepted first degree stochastically dominate that of shares for non-veto players. Random effect probits support this conclusion as well. In addition, regressions imply favorable treatment of voting and proposing between non-veto players which, however, does not result in larger shares in the end. Coalition partners consistently demand more than the stationary subgame perfect Nash equilibrium share except for veto players in non-urgent committees. JEL Classification C7, D7, C78, D72 Dissertation Committee: John H. Kagel, Advisor Massimo Morelli Alan Wiseman Stephen Cosslett     

PROFITABLE STRATEGIC DELEGATION WITH CONJECTURAL VARIATIONS

Firms delegate strategic decisions to managers because they find it profitable to do so. In the product market, when agents make conjectures about the reaction of their rivals to marginal changes in their own strategies, the set of equilibriums can be enlarged with respect to the case of no conjectures. This paper takes a duopolistic linear market parameterization where firms selling differentiated products can delegate either price or output decisions to managers. We show that it is a dominant strategy for firms to delegate no matter whether firms are Cournot or Bertrand competitors, although the equilibrium is not necessarily efficient. Futhermore, in equilibrium Cournot competition is more profitable for firms than Bertrand competition. Finally, requiring consistency in conjectures yields the same outcome no matter what type of strategic interaction and managerial choice there is on the part of firms.     

Sequential voting with abstention

Dekel and Piccione [2000. Sequential voting procedures in symmetric binary elections. J. Polit. Economy 108, 34–55] have proven that information cascades do not necessarily affect the properties of information aggregation in sequential elections: under standard conditions, any symmetric equilibrium of a simultaneous voting mechanism is also an equilibrium of the correspondent sequential mechanism. We show that when voters can abstain, these results are sensitive to the introduction of an arbitrarily small cost of voting: the set of equilibria in the two mechanisms are generally disjoint; and the informative properties of the equilibrium sets can be ranked. If an appropriate q-rule is chosen, when the cost of voting is small the unique symmetric equilibrium of the simultaneous voting mechanism dominates all equilibria of the sequential mechanism.     

On the importance of public choice in migration models

"Recent general equilibrium Tiebout models that use single-crossing indifference curves to establish a migration equilibrium incorporate both voting and migration decisions. These models have concentrated on the important question of the existence of an equilibrium, but the incorporation of both voting and migration has important efficiency consequences as well. This paper demonstrates the important effect of the interaction of voting and migration on efficiency conditions by showing that head taxes (which are generally considered to provide efficient migration incentives with constant marginal congestion costs) do not provide incentives for efficient migration decisions unless the public choice mechanism results in optimal public service provision within jurisdictions."     

融券约束和市场定价效率*——基于我国股票市场转融通的准自然实验证据

本文从融券约束的视角出发，研究我国股票市场融券机制对标的股票价格发现效率的影响。相比于融券交易量，融券约束可以更好地识别融券机制的作用。因为它可以从交易渠道、信息渠道、外部监管渠道对股价产生影响。笔者利用转融通的实施作为准自然实验，识别出了融券约束放松后标的股票价格发现效率的变化。实证结果显示融券约束放松后：（1）在市场下跌的情况下股价的共同趋势增强，意味着此时股价中包含的个股特质性信息含量降低，而市场上涨时则不存在这种效应；（2）股价对市场信息的反应速度增快；（3）股价更加接近随机游走，即股价的可预测性降低。本文的政策启示是，适当降低融券约束、扩大机构投资者比例、保持较高的融券交易准入门槛以及加强投资者教育可以促进融券机制发挥积极作用。     

Multiplicity in general financial equilibrium with portfolio constraints

This paper explores the role of portfolio constraints in generating multiplicity of equilibrium. We present a simple financial market economy with two goods and two households, households who face constraints on their ability to take unbounded positions in risky stocks. Absent such constraints, equilibrium allocation is unique and is Pareto efficient. With one portfolio constraint in place, the efficient equilibrium is still possible; however, additional inefficient equilibria in which the constraint is binding may emerge. We show further that with portfolio constraints cum incomplete markets, there may be a continuum of equilibria; adding incomplete markets may lead to real indeterminacy.     

Power Structure and Rent Competition

This paper presents a model of rent competition in a mixed economic system in which wealth maximizing interest group coalitions share wealth according to their relative political power. The model solves for optimal lobbying expenditures of a producer group, a consumer group, and individual firms. The existence of monopolistic rent is not presupposed. Instead, the equilibrium market price, output, and market shares of firms are determined endogenously. As a result, the distribution of rent depends upon the relative political power of each interest group coalition and total lobbying expenditure decreases as the asymmetry in marginal political power among interest group coalitions increases.     

Efficiency in large markets with firm heterogeneity

Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.     

Dynamic Equilibrium with Overpriced Put Options

It is a well-known anomaly that prices of put options are too high when options are out-of-the-money. This paper presents a simple general equilibrium model of the market where European put options become substantially overpriced when they are out-of-the-money. Overpricing is due to the presence of short-sale constraints on trading stocks and derivatives, as well as the heterogeneity between investors. We confirm the predicting power of the model by comparing its implications with existing empirical results.     

On non-ergodic asset prices

We investigate the asset prices dynamics and the long-run market shares of two competing financial mediators who are selected by consumers. We demonstrate that the social interaction among consumers constitutes an endogenous path-depending source of risk in a financial market. Depending on consumers’ evaluation of the mediator’s investment, asset prices may behave in a non-ergodic manner: the price process converges in distribution but the limiting distribution is not necessarily uniquely determined, its multiplicity being characterized by the multiplicity of possible long-run market shares. The convergence of the process is sensitive to initial conditions and depends on the history of noise-trader transactions. Long-run portfolio holdings may be in-efficient since investors holding mean-variance efficient portfolios may not be identified.     

Bandwagons and Momentum in Sequential Voting

In this paper I show that an equilibrium exists to the sequential voting game in which a bandwagon begins with probability 1. These bandwagons are driven by a combination of beliefs and the desire of voters to vote for the winning candidate. Significantly, in this equilibrium the pivot probability for each voter is non-zero, even in an infinite population. Consequently, the bandwagons do not always start after one (or at most two) favourable decisions (as do economic cascades) and varying levels of informative voting are observed, consistent with observations from sequential voting in U.S. presidential primaries. Further, voters are exposed to counterintuitive incentives, referred to as "buyers' remorse", that have been attributed to real primary voters.
I also derive equilibrium behaviour in this environment when voting is simultaneous and compare the quality of information aggregation within each mechanism. I relate the conclusions to U.S. presidential primaries and find they are consistent with a common conclusion about the front-loading of the primary process: that in tight elections (with no front-runner) simultaneous voting is preferred, whereas in lopsided elections sequential voting is preferred. The superior performance of sequential voting in lopsided races is precisely because bandwagons occur.     

Equilibrium existence in infinite horizon economies

In sequential economies with finite or infinite-lived real assets in positive net supply, we introduce constraints on the amount of borrowing in terms of the market value of physical endowments. We show that, when utility functions are either unbounded and separable in states of nature or separable in commodities, these borrowing constraints not only preclude Ponzi schemes but also induce endogenous Radner bounds on short-sales. Therefore, we obtain existence of equilibrium. Moreover, equilibrium also exists when both assets are numéraire and utility functions are quasilinear in the commodity used as numéraire.     

Sequential auctions with randomly arriving buyers

We analyze a dynamic market in which buyers compete in a sequence of private-value auctions for differentiated goods. New buyers and new objects may arrive at random times. Since objects are imperfect substitutes, buyers? values are not persistent. Instead, each buyer?s private value for a new object is a new independent draw from the same distribution.We consider the use of second-price auctions for selling these objects, and show that there exists a unique symmetric Markov equilibrium in this market. In equilibrium, buyers shade their bids down by their continuation value, which is the (endogenous) option value of participating in future auctions. We characterize this option value and show that it depends not only on the number of buyers currently present on the market and the distribution of their values, but also on anticipated market dynamics.     

Golden cages for showy birds: Optimal switching costs in labor contracts

Under what circumstances do workers sign contracts with high quitting penalties? Our answer points to market transparency. When the worker's performance is privately observed by the incumbent firm, alternative employers face an adverse selection problem. As a result, efficient separations can only take place through involuntary layoffs and there is no role for quitting fees. In contrast, when performance is public, quitting fees are useful devices to appropriate the surplus from workers’ reallocation. Separations are amicable and take the form of quitting after downwardly renegotiating the fees. Qualitative features of contracts are independent of the distribution of ex-post bargaining power. The impact of switching costs on total welfare and its distribution depends on the degree of market transparency and the ex-ante distribution of market power.     

Optimal monetary and fiscal policies in a search theoretic model of monetary exchange

Search models of monetary exchange commonly assume that terms of trade in anonymous markets are determined via Nash bargaining, which generally causes monetary equilibrium to be inefficient. Bargaining frictions add to the classical intertemporal distortion present in most monetary models, whereby agents work today to obtain cash that can be used only in future transactions. In this paper, we study the properties of optimal fiscal and monetary policy within the framework of Lagos and Wright (2005). We show that fiscal policy can be implemented to alleviate underproduction while money is still essential. If lump sum monetary transfers are available, a production subsidy can restore the efficiency of monetary equilibria. The Friedman rule belongs to the optimal policy set, but higher inflation rates are also possible. When lump-sum monetary transfers are not available, equilibrium allocations are generally not first-best. Nevertheless, fiscal policy still results in substantial welfare gains. Money can be extracted from circulation via a sales tax on decentralized market activities, and the Friedman rule is only optimal if the buyer has relatively low bargaining power.     

CONSTRAINED EFFICIENT MARKETS FOR MANIPULATION ECONOMIES

We design a competitive market for exclusive contracts in large economies with observable types where trades are subject to postcontractual manipulations. We do not impose quantity restrictions at the trading stage—for example, incentive constraints on the consumption or production sets. We establish existence and constrained optimality of equilibrium. Our design can accommodate manipulations stemming from private information as well as from behavioral biases—for example, time inconsistency and false beliefs. We discuss the needed size and complexity of the commodity set.     

Optimal mechanism design with resale via bargaining

In this paper, we examine the optimal mechanism design of selling an indivisible object to one regular buyer and one publicly known buyer, where inter-buyer resale cannot be prohibited. The resale market is modeled as a stochastic ultimatum bargaining game between the two buyers. We fully characterize an optimal mechanism under general conditions. Surprisingly, in this optimal mechanism, the seller never allocates the object to the regular buyer regardless of his bargaining power in the resale market. The seller sells only to the publicly known buyer, and reveals no additional information to the resale market. The possibility of resale causes the seller to sometimes hold back the object, which under our setup is never optimal if resale is prohibited. We find that the seller?s revenue is increasing in the publicly known buyer?s bargaining power in the resale market. When the publicly known buyer has full bargaining power, Myerson?s optimal revenue is achieved; when the publicly known buyer has no bargaining power, a conditionally efficient mechanism prevails.