A note on capital markets and bankruptcy constraints in contracting

This note considers the extent to which state-contingent bankruptcy constraints in a standard contracting problem with adverse selection can be mitigated by a risk-neutral third party. It shows that if payoffs of principal and agent are quasi-linear, the third party can only affect the constraints if it has complete information about the agent's type — observing a correlated signal is not enough.     

The effects of rent asymmetries in posted offer markets

We report the results of six posted-offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium. The posted-offer experiments are compared with twelve double-auction experiments reported by Smith and Williams (1982). Results differ markedly across trading institutions. Unlike trading under double-auction rules, we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus. Posted-offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus.     

A note on efficiency of Australian and New Zealand stock markets

Corporate annual financial statements have increased in their extent of disclosure over recent years and this trend likely to continue.The Purpose of the study was to examine whether the amount of disclosure was linked to the assesment of stock market risk. Specially, the level of disclosure was examined to see if it was associated with systematic risk д,unsystematic risk,and variance of return. The results revealed no significant association between the amount of disclosure and the level of stock market risk. Thus, although greater amounts of disclosure may be of use to the users of accounts, it is not because of its ability in assesing current and future levels of systematic risk or others types of security risk.     

Intertemporal pricing in laboratory posted offer markets with differential information

Summary. This paper analyzes intertemporal seller pricing and buyer purchasing behavior in a laboratory retail market with differential information. A seller posts one price each period that a buyer either accepts or rejects. Trade occurs over a sequence of "market periods" with a random termination date. The buyer and seller are differentially informed: The seller's cost of producing a unit of a fictitious good is known and constant in all periods, but the buyer's value for the good (demand) is a random variable governed by a Markov Process whose structure is common knowledge. At the beginning of each period the unit's value is determined by "nature" and is privately revealed only to the buyer. The market termination rule is a binary random variable. We conduct 32 laboratory experiments designed to study intertemporal pricing by human subjects in the Posted Offer Institution when demand follows a stochastic process. There are four series of experiments: 8 with simulated buyers, 8 with inexperienced subjects, 8 with once experienced subjects, and 8 with twice experienced subjects.     

A note on the life-cycle search and matching model with segmented labor markets

Recently, there has been renewed interest in labor search and matching models that incorporate a life-cycle structure by assuming finite horizons. Existing studies provide detailed analyses on the age dynamics of job creation and destruction, assuming that workers of all ages search for jobs in the same market. This paper examines a related environment that has drawn less attention, where the labor market is exogenously segmented by age. The paper finds sufficient conditions for the model to yield unambiguous predictions on the age profiles of key variables, and compares them with the corresponding conditions in models with a single market. The paper further examines the age profiles of these key variables in the efficient allocation. In particular, with no persistence in idiosyncratic match productivity, the efficient allocation is found to exhibit monotonic age profiles for the job finding and separation rates.     

A note on the use of spline functions for seasonal adjustment

The purpose of this note is to present an alternative regression method of seasonal adjustment which uses cubic splines in piecewise regression in order to overcome the difficulties associated with more conventional regression methods of adjustment.     

A note on the econometric use of constant dollar inventory series

One dollar of finished goods inventories does not represent the same amount of physical goods as one dollar of sales, when Department of Commerce constant dollar series are used. This can cause seriously biased regression estimates.     

A note on the use of the LLC panel unit root test

One of the single most cited studies within the field of nonstationary panel data analysis is that of LLC (Levin et al. in J Econom 98:1–24, 2002), in which the authors propose a test for a common unit root in the panel. Using both theoretical arguments and simulation evidence, we show that this test can be misleading unless it is based on the same bandwidth selection rule used by LLC.     

A note on enough money in a strategic market game with complete or fewer markets

Upper and lower bounds for the amount of money required to achieve efficient trade in a strategic market game are considered. The possibility of the efficient use of any commodity as a money is examined.     

Perfectly competitive markets as the limits of cournot markets

A perfectly competitive, partial equilibrium market for a single homogeneous good with a (bounded) continuum of infinitesimal firms is considered. Cost functions are essentially unrestricted and are allowed to vary smoothly across firms. A sequence (net) of Cournot markets (each with a finite number of firms) which converge smoothly to the perfectly competitive limit in terms of both the inverse demand functions and the distributioon of firm technologies is introduced and it is shown that all markets sufficiently far along the sequence have a Cournot equilibrium and all the Cournot equilibria converge to the perfectly competitive equilibrium of the limit market.     

A note on the use of fractional Brownian motion for financial modeling

In the second part of the past decade, the usage of fractional Brownian motion for financial models was stuck. The favorable time-series properties of fractional Brownian motion exhibiting long-range dependence came along with an apparently insuperable shortcoming: the existence of arbitrage. Within the last two years, several new models using fractional Brownian motion have been published. However, still the problem remains unsolved whether such models are reasonable choices from an economic perspective.In this article, we take on a straightforward mathematical argument in order to clarify when and why fractional Brownian motion is suited for economic modeling: We provide a fractional analog to the work of Sethi and Lehoczky (1981) thereby confirming that fractional Brownian motion and continuous tradability are incompatible. In the light of a market microstructure perspective to fractional Brownian motion, it becomes clear that the correct usage of fractional Brownian motion inherently implies dynamic market incompleteness.Building a bridge to application, we show that one peculiar, but nevertheless popular result in the literature of fractional option pricing can be well explained by the fact that authors disobeyed this need for compatibility.     

On the use of labels in credence goods markets

We analyze credence goods markets in the case of two firms. Consumers know that the quality of the good varies but do not know which firm is of high quality. First, we show that the high quality producer may be unable to monopolize the market, or even to survive in some cases, in situations where it is efficient and trusted by all consumers. Second, although a label restoring full information improves welfare, it may also reduce both firms’ profits by intensifying competition. Since even the high quality producer may not wish to label its product, in such cases the label must be mandatory. Third, an imperfect label which moves everybody’s beliefs closer to the truth without restoring full information may produce adverse results on market structure and welfare, either by increasing or by reducing the variance of beliefs.      

Pure numbers effects, market power, and tacit collusion in posted offer markets

This paper studies the effects of seller concentration and static market power on tacit collusion in extensively repeated laboratory posted-offer markets. Contrary to the implications of some earlier research, we find that tacit collusion does not become pervasive with extensive repetition. In a ‘strong no-power’ design persistently competitive outcomes are observed in markets with three or four sellers. Even duopolies are frequently competitive in this design. Unilateral market power raises prices, as predicted. However, static Nash predictions fail to organize outcomes across power treatments, because tacit collusion moves inversely with concentration. Excess capacity appears to explain observed tacit collusion levels.     

A cautious note on the use of panel models to predict financial crises

Panel data framework has often been used to build Early Warning Systems for financial crises. This paper questions the implicit assumption that crises are homogenously caused by identical factors. It suggests a preliminary step aiming at forming optimal country clusters.     

Evolution of markets: a simulation with centralized,decentralized and posted offer formats

We apply standard evolutionary dynamics to study trader participation in three competing market formats —call market (CM), posted offer (PO) and decentralized market (DM). In our framework, heterogeneous buyers and sellers seek to transact a homogeneous good, which can be done by allocating their time among three different market formats. Our results show that (i) the final participation of traders in the CM is much higher, (ii) the PO can coexist with the CM, (iii) the DM unravels when competing against CM and (iv) the DM can coexist with the PO, depending on the initial participation conditions. Thus, we demonstrate that agent-based micro-simulations coupled with replication dynamics can reproduce most of the previously known theoretical results and have the potential to investigate other commonly used hybrid auction protocols.     

“A note on soil depth,failing markets and agricultural pricing”: Comment

Bulte and van Soest [Bulte, E., van Soest, D. 1999. A note on soil depth, failing markets and agricultural pricing. Journal of Development Economics 58, 245-254.] argue that higher agricultural output prices result in greater soil conservation when labor markets function well but have ambiguous effects when labor markets are absent. The latter result is not attributable to labor market failure but rather occurs whenever labor supply is less than perfectly elastic. Consistent with the more general model presented here, empirical evidence from a number of developing countries suggests that well-functioning labor markets are associated with decreases in investment in soils.     

A note on Keynesian unemployment as a worker discipline device

Keynesian sales constraints are introduced into a model with endogeneous wages and involuntary equilibrium umemployment. The result is a lower real wage and a higher unemployment rate.     

Finiteness property in vertically differentiated markets: a note on locally increasing and decreasing returns

Summary. The results previously obtained on the finiteness property in vertically differentiated markets, with cost functions having increasing or decreasing returns, are extended to a much larger class of cost functions with local properties in a vicinity of the zero output. Moreover, existence results are provided to prove that the demonstrated properties have cases of application.Received: 11 June 2001, Revised: 18 February 2003, JEL Classification Numbers: L1, D43.Grateful thanks are due to Jacques-François Thisse, Jean-Jaskold Gabszewicz, an anonymous referee and especially to Jean-Marc Bonnisseau and Xavier Wauthy for very helpful suggestions and discussions. The revision took place partly when the author was visiting CERMSEM, Université de Paris-I, Paris then CORE, Louvain-La-Neuve, Belgium. Hospitality of both institutions is also acknowledged.