Going Public and the Sale of Shares with Heterogeneous Investors: Agent‐Based Computational Modelling and Computer Simulations

In this paper we use agent‐based computational modelling and computer simulations to examine the interrelationship between different selling strategies for going public. A great deal of recent empirical evidence suggests that to maximise the revenue raised from the shares sold in the public offering, it is fundamental to choose the appropriate design for the sale which, in turn, reflects the final ownership structure. This literature establishes that the market for shares is segmented and, particularly, that firms manage the sale of shares with the purpose of discriminating between relatively small and passive investors and applicants for large potentially controlling blocks. One of the key questions in this area, then, is: How and to what extent should this heterogeneity among potential investors influence the firm's strategy for selling shares? Here we attempt to address this question from the standpoint of using agent‐based computational modelling and computer simulations. Results show that the design of the sale is an important determinant of the performance of the negotiation process through which the firm is sold. A sequential sale beginning with an initial public offering of dispersed shares, followed by a negotiated sale of a controlling block is, in general, more effective than other alternative selling strategies. Changing the negotiation protocol itself can act as an effective way of impacting upon the revenue raised and the length of the process. The interrelationship between the method of sale and the performance may also depend on the degree of cognitive accuracy that characterises the negotiating agents' mental representations of their physical and social environment.     

The Pricing of Italian Equity Returns

In this paper, we investigate the relationship between common risk factors and average returns for Italian stocks. Our research has identified the Italian stock market's economic variables by using the results from factor analyses and time series regressions. We study several multi‐factor models combining the relevant macroeconomic variables with the mimicking equity portfolios SMB (small minus big) and HML (high minus low) proposed by Fama and French (1993). The key question we want to ask ourselves, is whether the influential role of the size and book‐to‐market equity factors in explaining average stock returns can stand up well when competing with some macroeconomic factors. In other words, do stock returns carry some risk premium that is independent of either the market return or the economic forces that underlie the common variation in returns? Our empirical work estimates risk premiums using both traditional two‐pass procedures and one‐pass (full information) methodologies. We show that only the market index and variables linked to interest rate shifts are consistently priced in the Italian stock returns. The role of other factors, and in particular both the size and the price‐to book ratio, are crucially dependent on the estimation procedure. (J.E.L.: G11, G12).     

Technological Change, Market Rivalry, and the Evolution of the Capitalist Engine of Growth

In the early stages of Western industrialization, innovation was the domain of individuals who devoted their entrepreneurial talents to the development of a new product or process, typically setting up a new firm in order to take the innovation to the market. Today, commercial R&;D is almost exclusively carried out by corporate laboratories affiliated with manufacturing firms. The corporate R&;D lab, however, did not exist in its modern form until the late nineteenth century. The history of Western industrialization, thus, suggests that a fundamental change in the structure of incentives, and consequently in the nature and the organization of the R&;D process, occurred around the turn of the century. Three questions arise. What is the nature of this change? What economic forces caused it? What are its implications? To answer these questions, I construct a model where this change is endogenous to the evolution of the economy toward industrial maturity. The change in the locus of innovation—from R&;D undertaken by intventor-entrepreneurs, to R&;D undertaken within established firms in close proximity to the production line—results from the interaction of market structure and technological change. This interaction captures the essence of the evolution of the capitalist engine of growth and provides an economic explanation of a “stylized fact” that has received no attention in the theoretical literature. The endogenous market structure generates dynamic feedbacks that shape the growth path of the economy and determine the structural change it undergoes, including the endogenous formation of corporate R&;D labs. The evolution of market rivalry explains when and how established firms become the major locus of R&;D activity.     

AN OBTRUSIVE REMARK ON CAPITAL AND COMPARATIVE STATICS

We present a simple comparative statics analysis of steady‐state equilibria in overlapping generations economies with capital accumulation. We regard comparative statics as paradoxical whenever an exogenous increase in saving propensity induces a decrease (an increase) in consumption at the steady state when interest rate is positive (negative). It is shown that there is an exact relation between paradoxical comparative statics and a perverse intersection of properly identified curves of demand for and supply of capital in value. The demand curve for capital in value coincides with that of neo‐Ricardian analysis. We relate our conclusions to some old and recent issues in capital theory.     

Testing the Political Replacement Effect: A Panel Data Analysis*

This article tests for the existence of the political replacement effect, as suggested by Acemoglu and Robinson: [American Political Science Review, Vol. 100, pp. 115–131]. They argue that the implementation of market‐oriented reform is crucially driven by the political calculus of incumbent governments: they implement economic policy change if such a choice is not expected to reduce their chances to retain power. This implies a non‐monotonic relationship between the level of political competition and the extent of economic reform. We test this hypothesis using data for 102 countries over the period 1980 to 2005. Our results strongly support the theory.     

Political uncertainty and risk premia

We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more volatile and more correlated, especially when the economy is weak. We find empirical evidence consistent with these predictions.     

Productivity or Discrimination? Beauty and the Exams*

Do good looks make people more productive? An impact of looks on earnings has been found in the empirical literature: plain people earn less than average‐looking people who in turn earn less than good‐looking people. However, an important question remains unanswered: is the impact of beauty due to pure discrimination or productivity? We provide evidence against the hypothesis of Becker‐type discrimination stemming from tastes and in favour of productivity‐related discrimination.     

The Bologna Process and widening participation in university education: new evidence from Italy

This paper extends previous work on the effect of the Bologna reform on university enrolment in Italy. The analysis considers more recent data and also attempts to disentangle the effect of the reform from the influence on enrolment exerted by time-varying confounding factors. The empirical findings consistently show that the “Bologna Process” had a positive impact on university participation, though the magnitude of this impact is smaller than previously concluded. One main reason for our lower estimates lies in the use of a difference-in-differences methodology, which allows us to control for the influence on enrolment exerted by unobserved factors that could have changed coincidentally at the same time as the reform.     

Stochastic dominance and thick-tailed wealth distributions

Right-skewed and thick-tailed wealth distributions have been documented as an empirical regularity across space and time. A key mechanism for explaining these distributional features is proportional random growth. We investigate the comparative statics of a well-defined class of random growth models when allowing for stochastically ordered shifts in the wealth return process. An order-contingent monotone comparative statics property is identified, according to which pure increases in risk (e.g. higher volatility of capital returns) foster top wealth concentration whereas first-order stochastically dominated shifts in the return process (induced by e.g. proportional capital income taxation) rather lower inequality at the upper end of the distribution. Our analysis points to the potentially ambiguous effects on top wealth inequality of introducing or modifying capital income tax treatments in the presence of stochastic returns.     

Evaluation of the Reggio approach to early education

We evaluate the Reggio Approach using non-experimental data on individuals from the cities of Reggio Emilia, Parma and Padova belonging to one of five age cohorts: ages 50, 40, 30, 18, and 6 as of 2012. The treated were exposed to municipally offered infant-toddler (ages 0–3) and preschool (ages 3–6) programs in Reggio Emilia. The control group either did not receive formal childcare or were exposed to programs offered by municipal systems (outside of Reggio Emilia), or by state or religious systems (in all three cities). We exploit the city-cohort structure of the data to estimate treatment effects using three strategies: difference-in-differences, matching, and matched-difference-in-differences. Most positive and significant effects are generated from comparisons of the treated with individuals who did not receive formal childcare. Relative to not receiving formal care, the Reggio Approach significantly boosts outcomes related to employment, socio-emotional skills, high school graduation, participation in elections, and obesity. Comparisons with individuals exposed to alternative forms of childcare do not yield strong patterns of positive and significant effects. This suggests that differences between the Reggio Approach and other alternatives are not sufficiently large to result in significant differences in outcomes. This interpretation is supported by a survey we conduct, which documents increasing similarities in the administrative and pedagogical practices of childcare systems in the three cities over time.