A mechanism implementing the proportional solution

We consider the problem of a commonly owned technology which transforms a single input into a single output. We are interested in implementing a social choice rule called theproportional solution. We introduce a mechanism which implements the proportional solution in Nash, strong (Nash) and undominated Nash equilibria. In the mechanism each agent announces only two numbers which can be interpreted as the total output and her share of the total input-output combination. This paper was originally titled "Doubly implementing the proportional solution." I would like to thank my advisor William Thomson for his detailed comments and suggestions. I would also like to thank Jeffrey Banks and Sung-Whee Shin for their comments. Two anonymous referees and an editor’s comments improved this paper substantially.     

Wage determination in late socialism: The case of Poland

Does economic transition necessitate a profound change in the inter-industry wage structure? This paper argues that principles of wage determination in centrally planned economies were not basically different from those prevailing in market economies. Even if the center became involved in wage setting, reward for human capital and the compensating differential had to be taken into consideration. Moreover, market power led to rent-sharing via wage bargaining and efficiency wages. Hence, this paper claims that wages in socialist economies were determined by similar factors to those in market economies. This is supported by comparison of inter-industry wage structures between socialist and capitalist countries and by results of the estimation of the wage equation for Poland. There is a noticeable degree of similarity in wage structures generated by both systems.I started this paper when I was a research visitor at the Centre of Economic Performance, London School of Economics and completed it when I was a visiting fellow at Princeton University. While at Princeton University I was financed as a Fulbright Fellow.I am grateful to David Card, Hartmut Lehmann, Marcus Rubin, Mark Schaffer and an anonymous referee for their helpful comments and suggestions. I also wish to thank the participants of the seminars at the Industrial Relations Section of Princeton University and at the University of Maryland for useful discussion. The usual disclaimer applies.     

Gomulka on the soft budget constraint: A reply

Conclusion The preceding two sections of this note cover the main points at issue. There are some other, lesser matters, but these need not detain us here. To repeat: I have found Dr Gomulka's comments constructive and stimulating. They will, I am sure, be helpful both in my future research and in future expositions of my ideas.     

Investment mobilization and capacity completion in the Chinese and Soviet economies

This paper examines the relationship between the mobilization of resources into capital projects and the completion of new productive capacity in two shortage economies—China and the USSR. Causes of delayed commissioning of new capacity, and the role of unfinished construction in the investment cycle, are analysed. Annual data over a long period are presented for both economies—for the USSR 1928–37 and 1950–83, and for China 1950–82. Changes over time in the relationship between investment mobilization and capacity completion are considered, along with differences and similarities between the records of the two economies under investigation.Department of Economics, University of Warwick. I am grateful for helpful advice and comments received from Julian Cooper and Philip Hanson of the Centre for Russian and East European Studies, University of Birmingham; from Bob Lewis, Department of Economic History, University of Exeter; from Raja Junankar of the Institute of Employment Research, David Rees of the Department of Economics and colleagues of the Development Economics Research Centre seminar, University of Warwick; and from an anonymous referee.     

Risky allocations from a risk-neutral informed principal

We study a model of informed principal with private values where the principal is risk neutral and the agent is risk averse. We show that the principal, regardless of her type, gains by not revealing her type to the agent through the contract offer. The equilibrium allocation transfers some ex-ante risk from one type of agent to the other. Despite the increase in the principal's surplus, allocative efficiency does not necessarily improve. Received: 26 January 2004, Accepted: 5 May 2005 JEL Classification: C72, D23, D82 I would like to thank my supervisor Leonardo Felli for suggestions and Leo Ferraris for helpful discussions. All remainig errors are my own.     

Rejoinders to the comments on my paper “Performance measurement and joint production of intended and unintended outputs”

I will comment on the comments by the groups of three reviewers separately. First of all, I will thank all three groups providing a first round of reports in order for me to get rid of obvious mistakes. In the second round the reviewers were free to comment on the qualities of my revised version. I am not to change my revised paper when giving my comments on what would be honest reports on the quality of my final version. However, the reviewers will not have a go at my rejoinders to comments according to the symposium rules. I keep the section numbering of the authors in order to make it easier to identify the arguments.

     

Stable matchings and the small core in Nash equilibrium in the college admissions problem

Both rematching proof and strong equilibrium outcomes are stable with respect to the true preferences in the marriage problem. We show that not all rematching proof or strong equilibrium outcomes are stable in the college admissions problem. But we show that both rematching proof and strong equilibrium outcomes in truncations at the match point are all stable in the college admissions problem. Further, all true stable matchings can be achieved in both rematching proof and strong equilibrium in truncations at the match point. We show that any Nash equilibrium in truncations admits one and only one matching, stable or not. Therefore, the core at a Nash equilibrium in truncations must be small. But examples exist such that the set of stable matchings with respect to a Nash equilibrium may contain more than one matching. Nevertheless, each Nash equilibrium can only admit at most one true stable matching. If, indeed, there is a true stable matching at a Nash equilibrium, then the only possible equilibrium outcome will be the true stable matching, no matter how different are players' equilibrium strategies from the true preferences and how many other unstable matchings are there at that Nash equilibrium. Thus, we show that a necessary and sufficient condition for the stable matching rule to be implemented in a subset of Nash equilibria by the direct revelation game induced by a stable mechanism is that every Nash equilibrium profile in that subset admits one and only one true stable matching. Received: 30 December 1998 / Accepted: 12 October 2001 This paper is a revision of the paper “Manipulation and Stability in a College Admissions Problem” circulated since 1994. I thank Rich McLean, Abraham Neyman, Mark Satterthwaite, Sang-Chul Suh, and Tetsuji Yamada for helpful discussions. I thank the associate editor and the two anonymous referees for their helpful comments that have greatly improved the paper. I am grateful to the Kellogg G.S.M. at the Northwestern University for the hospitality for my visit. Any errors are mine.     

The Pazner-Schmeidler social ordering: A defense

It is shown that the Pazner-Schmeidler social ordering appears as a very natural solution to the problem of defining social preferences over distributions of divisible goods. The paper analyses various ways of deriving this social ordering from minimally egalitarian conditions and informational parsimony requirements.Received: 10 October 2003, Accepted: 4 April 2005, JEL Classification: D63, D71This paper was written while I was a research fellow at the ZiF (Bielefeld), for the project “Procedural Approaches to Conflict Resolution”, and the last version was prepared during my sabbatical year at Nuffield College, Oxford. I thank my hosts for their hospitality. D. Dimitrov and F. Maniquet have provided valuable comments on an earlier draft. I also thank the audience of a seminar at the U. of Montreal. Finally, the comments of three anonymous referees and the Associate Editor have been very helpful.     

Information Acquisition and the Equilibrium Incentive Problem

I study the optimal incentive provision in a principal–agent relationship with costly information acquisition by the agent. I emphasize that adverse selection or moral hazard is the principal's endogenous choice by inducing or deterring information acquisition. The principal designs the contract not only to address an existing incentive problem but also to implement its presence. Implementation of adverse selection relies on a steeper information rent to the agent than the standard menu, such that the agent is motivated to distinguish the efficient state of nature from the inefficient. Moral hazard is implemented by replacing the benchmark debt contract with a debt‐with‐equity‐share contract, such that the agent does not attempt to acquire information to either avoid debt or to extract rent.     

Dynamic agency with persistent observable shocks

This paper studies a continuous-time hidden-action model with persistent observable shocks. In this model, I develop a method to characterize the optimal contract with history-dependent effort exertion and shirking decisions. Temporal shirking is always optimal after some histories as long as a positive persistent shock is expected. As a result, my model gives rise to a mechanism through which the moral hazard problem amplifies macroeconomic fluctuations. I also show the pattern of the agent’s utility adjustments with respect to persistent shocks and its implications for compensation design.     

Uncertainty, the structure of production and the pattern of trade of centrally planned economies

Conclusions In this paper we have demonstrated that terms of trade uncertainty imposes a welfare loss on a centrally planned economy by reallocating resources toward the production of import substitutes and domestic consumption of exportables and a consequent decrease in the volume of trade. We have also shown that the centrally planned economies have developed a number of institutions, such as trade agreements and pricing rules, designed to minimize the losses caused by terms of trade uncertainty. Finally, we have suggested that the behavior of these economies during the post-Warperiod is consistent with welfare maximization under terms of trade uncertainty.I am indebted to Edward A. Hewett and Paul N. Rappoport for their assistance and comments at various stages of my work on this paper. Any errors and all opinions are entirely my responsibility.     

Capital market equilibrium with moral hazard and flexible technology

(Magill, M., Quinzii, M., 2002. Capital market equilibrium with moral hazard. Journal of Mathematical Economics 38, 149–190) showed that, in a stockmarket economy with private information, the moral hazard problem may be resolved provided that a spanning overlap condition is satisfed. This result depends on the assumption that the technology is given by a stochastic production function with a single scalar input. The object of the present paper is to extend the analysis of Magill and Quinzii to the case of multiple inputs. We show that their main result extends to this general case if and only if, for each firm, the number of linearly independent combinations of securities having payoffs correlated with, but not dependent on, the firms output is equal to the number of degrees of freedom in the firm’s production technology.     

To what extent are public savings offset by private savings in the OECD?

The substitutability of private and public savings has implications for the effectiveness of fiscal policy. Using annual data for the period 1970–2004, this study re-examines long-run relationships between OECD private and public savings rates. However, unlike previous work, panel data unit root and cointegration tests are employed. The results confirm substitutability where strong Ricardian Equivalence is rejected for the entire OECD panel. There is support for weak Ricardian Equivalence with less than perfect substitutability. Indeed, it is argued that existing studies most likely overstate the extent of long-run substitutability particularly with regard to EU countries. I am very grateful for the helpful comments provided by the Editor and an anonymous referee. Any remaining errors are my own.     

Elections and strategic positioning games

We formalize the interplay between expected voting behavior and strategic positioning behavior of candidates as a common agency problem in which the candidates (i.e., the principals) compete for voters (i.e., agents) via the issues they choose and the positions they take. A political situation is defined as a feasible combination of candidate positions and expected political payoffs to the candidates. Taking this approach, we are led naturally to a particular formalization of the candidates' positioning game, called a political situation game. Within the context of this game, we define the notion of farsighted stability (introduced in an abstract setting by Chwe 1994) and apply Chwe's result to obtain existence of farsightedly stable outcomes. We compute the farsightedly stable sets for several examples of political situations games, with outcomes that conform to real-world observations.Received: 18 May 2001, Accepted: 22 January 2002, JEL Classification: C7, D7, D8Myrna H. Wooders: http://www.warwick.ac.uk/fac/soc/Economics/wooders/An earlier version of this paper was completed while the first author was visiting the Department of Economics, University of Exeter. The first author gratefully acknowledges Exeter's support and hospitality. Similarly, the second author gratefully acknowledges the support and hospitality of the Centre for Operations Research and Econometrics (CORE) of the University of Louvain-la-Neuve, Belgium and of the University of Cergy-Pontoise, France. Both authors are indebted to Amrita Dhillon, John Duggan and Gilat Levy for helpful comments about references. Both authors thank an anonymous referee for helpful comments.     

Securitization and optimal retention under moral hazard

Securitization improves liquidity in capital markets by allowing originators to remove issued loans from its balance sheet and use the proceeds for other purposes. Securitization is often suspected of being one of the main reasons for the recent financial crisis. One concern is that securitization leads to moral hazard in lender screening and monitoring. By selling loans to investors and removing them from their books, banks have a lesser incentive to carefully evaluate and monitor borrowers’ credit quality to ensure that they can repay their loans. One problem in the literature is that the analysis of securitization is very general and suffers from a lack of specific security design analysis under asymmetric information. We address the moral hazard problem using a principal–agent model where the investor is the principal and the lender is the agent. We show that the optimal contract must contain a retention clause in the presence of moral hazard. The optimal retention is affected by tranching and credit enhancement.     

On the generalized principal-agent problem: Decomposition and existence results

This paper addresses the class of generalized agency problems: situations in which adverse selection and moral hazard are jointly present. We present a decomposition of the principal's optimization problem under the first-order approach that sheds light on the interactions between the two types of private information, and also significantly improves tractability. We use the decomposition to (1) provide examples of closed form solutions of the optimal contract, and (2) analyze the existence of optimal contracts. We also show that the first-order approach is valid in generalized agency problems if the production technology satisfies the linear distribution function condition (LDFC) in actions and types. For more general production technologies the Mirrlees-Rogerson sufficient conditions need to be extended to include restrictions on the form of the optimal contract. Received: 11 August 1997 / 26 September 1999     

Incentive compatible reward schemes for labour-managed firms

We consider a simple case of team production, where a set of workers have to contribute a single input (say labour) and then share the joint output amongst themselves. Different incentive issues arise when the skills as well as the levels of effort expended by workers are not publicly observable. We study one of these issues in terms of a very simple model in which two types of workers, skilled and unskilled, supply effort inelastically. Thus, we assume away the problem of moral hazard in order to focus on that of adverse selection. We also consider a hierarchical structure of production in which the workers need to be organised in two tiers. We look for reward schemes which specify higher payments to workers who have been assigned to the top-level jobs when the principal detects no lies, distribute the entire output in all circumstances, and induce workers to revel their true abilities. We contemplate two scenarios. In the first one, each individual worker knows only her own type, while in the second scenario each worker also knows the abilities of all other workers. Our general conclusion is that the adverse selection problem can be solved in our context. However, the range of satisfactory reward schemes depends on the informational framework.     

Discussion

I thoroughly enjoyed reading the article by Bhadra et. al. (2020) and convey my congratulations to the authors for providing a comprehensive and coherent review of horseshoe-based regularization approaches for machine learning models. I am thankful to the editors for providing this opportunity to write a discussion on this useful article, which I expect will turn out to be a good guide in the future for statisticians and practitioners alike. It is quite amazing to see the rapid progress and the magnitude of work advancing the horseshoe regularization approach since the seminal paper by Carvalho et al. (2010). The current review article is a testimony for this. While I have been primarily working with continuous spike and slab priors for high-dimensional Bayesian modeling, I have been following the literature on horseshoe regularization with a keen interest. For my comments on this article, I will focus on some comparisons between these two approaches particularly in terms of model building and methodology and some computational considerations. I would like to first provide some comments on performing valid inference based on the horsheshoe prior framework.     

The theory of contests: a survey

This paper presents a survey of the theory of contests. This paper is an outgrowth of lecture notes of Ph.D. courses given in Carlos III University, Universitat Autònoma de Barcelona and Universidad de Málaga. I would especially like to thank to Carmen Beviá for her comments and suggestions and Matthias Dahm for allowing me free access to a joint paper and for correcting many mistakes and very helpful suggestions. I also thank Clara Eugenia García, Cristian Litan, Carlos Pimienta, Santiago Sánchez-Pages, Ramon Torregrosa, Galina Zudenkova and the students of this course for their helpful comments and CAICYT for research grant SEJ2005-06167/ECON.     

The Majoritarian Compromise in large societies

First, we dwell on the definition of the Majoritarian Compromise in the case of an odd number of alternatives. Then, assuming the Impartial Culture hypothesis we calculate the average maximum welfare achievable by the Majoritarian Compromise procedure and show that this social choice rule is asymptotically stable with the proportion of the number of unstable profiles to the total number of profiles being in the order of ,(¹We write in case there is a positive constant C such that for all sufficiently large values of ) where n is the total number of agents. I am grateful to Prof. Semih Koray for his invitation to visit the Center for Economic Design and the Department of Economics of Boğazi?i University in Turkey during the spring semester of 1999. I appreciate the stimulating discussions with Prof. Murat Sertel about the properties of the Majoritarian Compromise which I had during my stay there. I am also grateful to an anonymous referee whose remarks helped to significantly improve the exposition. A partial support from TüBİTAK NATO PC-B Programme is gratefully acknowledged.