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.     

Predation,reputation, and entry deterrence

Economists often argue that predatory practices are irrational, since there exist cheaper or more certain means to gain or maintain a monopoly. Our gametheoretic, equilibrium analysis suggests that if a firm is threatened by several potential entrants, then predation may be rational against early entrants, even if it is costly when viewed in isolation, because it yields a reputation which deters other entrants. Asymmetric information plays a crucial role in our analysis, since it provides the rationale for entrants to base their expectations of the firm's future behavior on its past actions. The analysis also suggests methods to treat general reputational phenomena.     

COLLECTIVE REPUTATION AND THE DYNAMICS OF STATISTICAL DISCRIMINATION

Economists have developed theoretical models identifying self‐fulfilling expectations as an important source of statistical discrimination practices. The static models dominating the literature, however, may leave the false impression that a bad equilibrium is as fragile as a “bubble” and can burst at any moment when expectations flip. By developing a dynamic version of the model, we clarify the limits of expectations‐related fragility. Even if group members can coordinate their expectations about future employer behavior, a group with a poor initial collective reputation may still be unable to recover its reputation, implying that the once‐developed discriminatory outcomes can be long‐standing.     

The Effects of Subject Pool and Design Experience on Rationality in Experimental Asset Markets

Empirical evidence suggests that prices do not always reflect fundamental values and individual behavior is often inconsistent with rational expectations theory. We report the results of fourteen experimental asset markets designed to examine whether the interactive effect of subject pool and design experience (i.e., previous experience in a market under identical conditions) tempers price bubbles and improves forecasting ability. Our main findings are: 1) price run-ups are modest and dissipate quickly when traders are knowledgeable about financial markets and have participated in a previous market under identical conditions; 2) price bubbles moderate quickly when only a subset of traders are knowledgeable and experienced; 3) the heterogeneity of expectations about price changes is smaller in markets with knowledgeable and experienced traders, even if such traders only represent a subset of the market; and 4) individual forecasts of prices are not consistent with the predictions of the rational expectations model in any market, although absolute forecast errors are smaller for subjects who are knowledgeable of financial markets and for those subjects who have participated in a previous market. In sum, our findings suggest that markets populated by at least a subset of knowledgeable and experienced traders behave rationally, even though average individual behavior can be characterized as irrational.     

THE POWER OF WHISPERS: A THEORY OF RUMOR,COMMUNICATION, AND REVOLUTION*

We study how rumors mobilize individuals who take collective action. Rumors may or may not be informative, but they create public topics on which people can exchange their views. Individuals with diverse private information rationally evaluate the informativeness of rumors about regime strength. A rumor against the regime can coordinate a larger mass of attackers if individuals can discuss its veracity than if they cannot. Communication can be so effective that a rumor can have an even greater impact on mobilization than when the same story is fully believed by everybody. However, an extreme rumor can backfire and discourage mobilization.     

Information,trade and common knowledge

In any voluntary trading process, if agents have rational expectations, then it is common knowledge among them that the equilibrium trade is feasible and individually rational. This condition is used to show that when risk-averse traders begin at a Pareto optimal allocation (relative to their prior beliefs) and then receive private information (which disturbs the marginal conditions), they can still never agree to any non-null trade. On markets, information is revealed by price changes. An equilibrium with fully revealing price changes always exists, and even at other equilibria the information revealed by price changes “swamps” each trader's private information.     

THE DYNAMICS OF NAMES: A MODEL OF REPUTATION*

The article studies reputation of names and its dynamics. First, the article shows that names backed by nothing intrinsic can bear reputation. Although the context is purely of adverse selection, a mechanism in the spirit of Kreps (1990) helps to sustain reputation. Second, it examines how the dynamics of the reputation affects the extent of sorting and the level of social efficiency and derives the dynamics in the equilibria with the highest efficiency. Finally, it empirically predicts that brand names can be fully established sooner in an industry where high‐end products have larger profit margins.     

Optimal collective contract without peer information or peer monitoring

If entrepreneurs have private information about factors influencing the outcome of an investment, individual lending is inefficient. The literature typically offers solutions based on the assumption of full peer information to solve adverse selection problems and peer monitoring to solve moral hazard problems. In contrast, I show that it is possible to construct a simple budget-balanced mechanism that implements the efficient outcome even if each borrower knows only own type and effort, and has neither privileged knowledge about others nor monitoring ability. The mechanism satisfies participation incentives for all types, and is immune to the Rothschild–Stiglitz cream skimming problem despite using transfers from better types to worse types. The presence of some local information implies that the mechanism cannot be successfully used by formal lenders. Thus a local credit institution can emerge as an optimal response to the informational environment even without peer information or monitoring. Finally, I investigate the role of monitoring in this setting and show how costly monitoring can increase the scope of the mechanism.     

Experimental asset markets with endogenous choice of costly asymmetric information

Asymmetric distribution of information, while omnipresent in real markets, is rarely considered in experimental financial markets. We present results from experiments where subjects endogenously choose between five information levels (four of them costly). We find that (i) uninformed traders earn the highest net returns, while average informed traders always perform worst even when information costs are not considered; (ii) over time traders learn to pick the most advantageous information levels (full information or no information); and (iii) market efficiency decreases with higher information costs. These results are mostly in line with the theoretical predictions of Grossman and Stiglitz (Am. Econ. Rev. 70:393–408, 1980) and provide additional insights that studies with only two information levels cannot deliver.     

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.     

Price efficiency and trading behavior in limit order markets with competing insiders

We study price efficiency and trading behavior in laboratory limit order markets with asymmetrically informed traders. Markets differ in the number of insiders present and in the subset of traders who receive information about the number of insiders present. We observe that price efficiency (i) is the higher the higher the number of insiders in the market but (ii) is unaffected by changes in the subset of traders who know about the number of insiders present. (iii) Independent of the number of insiders, price efficiency increases gradually over time. (iv) The insiders’ information is reflected in prices via limit (market) orders if the asset’s value is inside (outside) the bid-ask spread. (v) In situations where limit and market orders yield positive profits, insiders clearly prefer market orders, indicating a strong desire for immediate transactions.     

Strategic Information Acquisition in Capital Markets*

A simple model of an asset market is presented, where agents are asymmetrically informed and hence information is transmitted through the price system. Prior to the trading period, a group of traders is given the opportunity to decide in a collusive arrangement whether they want to undertake a (costless) analysis which yields information about the future dividends of a risky asset. It will be shown that the fully rational and risk-averse insiders can do better without the information, if the dividend volatility of the risky asset is sufficiently low.
JEL Classification Numbers: D82, G14.     

创新的合约选择与企业家精神

该文探讨熊彼特意义上的企业家在科斯一张五常企业理论中存在的合理性.经验上,相对于有形产品,就无形的产品创意进行交易和定价的费用显然要高很多.据此,该文的逻辑大致是:当产品创意的交易费用过高,以至于通过合约出让产品创意的选择受到了限制时,放弃对它进行直接交易和定价,转而对经由产品创意生产出来的有形产品进行交易和定价,就是节省交易费用的一种选择.不过,一旦创新者通过这种间接定价方式实现来自产品创意的收入,那么,理论上它也就成为现代企业理论中熊彼特意义上的创新企业家了.     

Optimal management of an ecosystem with an unknown threshold

We consider an ecosystem with two distinct equations of motion that are separated by a threshold value of the state variable. We find that increasing uncertainty (both uncertainty embedded in the natural system and uncertainty of the decisionmaker about the location of the threshold) can lead to nonmonotonic changes in precaution: a reduction in uncertainty can first increase and then decrease optimal precautionary activity. This nonmonotonicity can help to explain why regulators often give conflicting arguments about optimal abatement policies in the face of uncertainty. For example, some regulators argue for an immediate reduction in pollutant loading until uncertainty about the underlying process is reduced while others call for no costly reductions in pollutant loading until the same uncertainty is reduced. These statements can be consistent even if both sides agree on both economic objectives and the system dynamics, but have different priors on the uncertainty involved.     

Audit Misperception, Tax Compliance, and Optimal Uncertainty

The purpose of this paper is to shed light on the role of taxpayers’ misperceptions in determining compliance behavior. This paper also analyzes the effect of increased randomness on evasion, revenue, and welfare. Whether or not individuals choose to evade taxes depends on the perceived audit probability and on the fraction of honest taxpayers in the population. When individuals know the precise probability of audit, the model becomes in effect a game of coordination, a situation that gives rise to multiple equilibria. This paper incorporates audit misperception by introducing a small amount of uncertainty about the true audit probability. With the introduction of this uncertainty, we verify that there is a unique equilibrium cutoff point, such that each taxpayer evades if and only if his perceived signal falls below this cutoff. It is argued that this unique equilibrium outcome fares better than others in explaining empirical and experimental observations. We also find that, when reducing uncertainty has no cost, the optimal uncertainty is generally indeterminate, even when including zero uncertainty. Finally, we show that, when reducing uncertainty is costly, eliminating all uncertainty can never be optimal. In the limit as this cost vanishes, the optimal uncertainty is unique, meaning that introducing a small amount of enforcement cost resolves the indeterminacy problem.     

民族旅游开发的影响因素分析

我国是一个多民族国家，有少数民族55个，而每个少数民族都有着自己独特的民族文化，如何开发利用好这些民族文化资源来发展旅游活动，是关系是我国（特别是西部地区）旅游业有地吸引力、有无地方特色和民族特色的重要问题。本文对影响民族旅游开发的主要因素进行了系统分析，这些因素是民族特色与民族知名度、交通条件、区域经济发展水平、客源市场、旅游地民族感知形象、有无著名风景点或风景区、空间集聚与竞争、决策者行为、当地居民态度。     

Do reputation feedback systems really improve trust among anonymous traders? An experimental study

Feedback systems are claimed to be a crucial component of the success of electronic marketplaces like eBay or Amazon Marketplace. This article aims to compare the effects of various feedback systems on trust between anonymous traders, through a set of experiments based on the trust game. Our results indicate that trust is significantly improved by the introduction of a reputation feedback system. However, such mechanisms are far from being perfect and are vulnerable to strategic ratings and reciprocation. Our findings indicate that some changes in rating rules may significantly improve the efficiency of feedback systems, by avoiding strategic rating or reciprocation, and hence stimulate trust and trustworthiness among traders. In particular, a system in which individuals are not informed of their partner's rating decision before making their own decision provides better results, both in terms of trust and earnings.     

On insider trading and belief evolution

In a market with stochastic demand with seller competition at most one seller can acquire costly information about demand. Other sellers entertain idiosyncratic beliefs about the market demand and the probability that an informed seller is trading in the market. These idiosyncratic beliefs co-evolve with the potential insider’s inclination to acquire information.True demand expectations (in the Bayesian sense) are not evolutionarily stable when beliefs, via revelation, can be used to commit to more aggressive behavior. The commitment effect fades away in large markets and has the same direction for both strategic substitutes and complements. Whether one observes an insider, in the long run, depends on information costs. For strategic substitutes insider activity benefits the whole population whereas the uninformed sellers could gain even more than the insider.     

Approximate equilibria in microeconomic rational expectations models

For general equilibrium models in which prices transmit information among asymmetrically informed traders, strict rational expectations approximate equilibria are defined. A state-dependent price function is an ε-equilibrium if, when agents use their own information and that conveyed by prices, aggregate excess demand (in each state of the world) does not exceed ε. For any positive ε, existence requires only very mild assumptions—continuity and compact support. Moreover, there are revealing ε-equilibria for all smooth economies satisfying a dimensionality condition. In an open neighborhood of this case, existence of maximally revealing ε-equilibria holds.     

Entry cost, the Tobin tax, and noise trading in the foreign exchange market

Abstract .  Two types of policy have been proposed to eliminate noise trading in the foreign exchange market: increasing the entry cost or imposing a 'Tobin tax' type of transaction tax. In this paper, we endogenize entry decisions of both informed traders and noise traders and show that these policies may be ineffective in reducing exchange rate volatility. This is because these policies will discourage the entry of all traders, so they may not change the relative ratio of traders, or they may affect informed traders disproportionately more, which increases the relative ratio of noise traders and exchange rate volatility.