Kyle equilibrium under random price pressure

Decisions in Economics and Finance - We study the equilibrium in the model proposed by Kyle (Econometrica 53(6):1315–1335, 1985) and extended to the continuous-time setting by Back (Rev...     

An evening at the theatre: using choice experiments to model preferences for theatres and theatrical productions

This article examines people's preferences and demand for live theatre. It investigates the preferences for people attending a regional theatre, Northern Stage in Newcastle, in relation to other live theatres they could attend, and in relation to the attributes of theatrical productions and ticket price. It uses a Stated Preference (SP), discrete choice experiment, to assess people's utility and Willingness To Pay (WTP) for the different attributes of theatrical productions. The model assesses the effect of the attributes of plays on choice; and the impact of Socio-Economic (SE) and demographic variables on choice and demand. Results reveal the heterogeneity of theatregoers’ tastes for different types of plays and ticket prices. The models reveal the significance of ‘reviews’ and ‘Word Of Mouth’ (WOM) opinions on plays, as the most important variables determining choice.     

Risk control measures in payment systems

The purpose of this paper is to make a comparative analysis of modern gross and net payment systems, emphasizing on the implications of the availability of intraday liquidity in the former and of credit limits in the latter. This allows for the comparison of both the effects on social welfare of each of the two systems and the different risk control instruments analyzed. In a numerical exercise, it is shown first, how it would be legitimate for a benevolent authority a preference for a gross system, like Fedwire, over a net system, like EURO1, for relatively high values, although plausible, of risk aversion. Second, as financial development improves, the preference for a net system shifts either to gross systems or, for some countries, to a cohabitation of both settlement modes.     

Small firm births and macroeconomic fluctuations

Using different definitions of what constitutes a small firm, this paper analyses the effect of business conditions on the start-up of small firms. It is found that small firm births exhibit a pro-cyclical behaviour, irrespective of the threshold used to define a small firm. The smallest new firms, however, seem to be less responsive to the opportunity cost of capital. Finally, no relationship was found between entry of small firms and industry growth and profiability.     

Price Controls and Market Structure: Evidence from Gasoline Retail Markets

In this paper we study the effect of price floor regulations on the organization and performance of markets. The standard interpretation of the effects of these policies is concerned with short‐run market distortions associated with excess supply. Since price controls prevent markets from clearing, they lead to higher prices. While this analysis may be correct in the short‐run, it does not consider the dynamic equilibrium consequences of price controls. We demonstrate that price floor regulations can have important long‐run effects on the the structure of markets by crowding them and creating endogenous barriers to entry for low‐cost retailers. Moreover, we show that these factors can indirectly lower productivity and possibly even prices. We test this in the context of an actual regulation imposed in the retail gasoline market in the Canadian province of Québec and show that the policy led to more competition between smaller/less efficient stations. This resulted in lowered sales, and, despite the reduction in efficiency, did not increase prices.     

Two-Sided Bounds for Tails of Compound Negative Binomial Distributions in the Exponential and Heavy-Tailed Cases

This paper derives two-sided bounds for tails of compound negative binomial distributions, both in the exponential and heavy-tailed cases. Two approaches are employed to derive the two-sided bounds in the case of exponential tails. One is the convolution technique, as in Willmot & Lin (1997). The other is based on an identity of compound negative binomial distributions; they can be represented as a compound Poisson distribution with a compound logarithmic distribution as the underlying claims distribution. This connection between the compound negative binomial, Poisson and logarithmic distributions results in two-sided bounds for the tails of the compound negative binomial distribution, which also generalize and improve a result of Willmot & Lin (1997). For the heavy-tailed case, we use the method developed by Cai & Garrido (1999b). In addition, we give two-sided bounds for stop-loss premiums of compound negative binomial distributions. Furthermore, we derive bounds for the stop-loss premiums of general compound distributions among the classes of HNBUE and HNWUE.     

The timing and probability of FDI: an application to US multinational enterprises

An ‘option-pricing’ model is employed to analyse the timing of FDI. Assuming that the firm's profits are determined by the attractiveness of both the home and foreign countries, and that attractiveness follows a Brownian motion, an optimal trigger value of FDI is derived. The model shows that, contrary to the NPV rule, FDI entry should be delayed the greater the uncertainty of attractiveness in both locations. Another important result is that MNEs do not regard FDI as a risk-diversification tool. The results of the model were then tested empirically with US FDI data, using labour costs as a proxy for (the reciprocal of) attractiveness. The results support the findings of the analytical model.     

FIRM FRAGMENTATION AND URBAN PATTERNS*

We document several empirical regularities regarding the evolution of urban structure in the largest U.S. metropolitan areas over the period 1980–90. These regularities relate to changes in resident population, employment, occupations, as well as the number and size of establishments in different sections of the metropolitan area. We then propose a theory of urban structure that emphasizes the location and internal structure decisions of firms. In particular, firms can decide to locate their headquarters and operation plants in different regions of the city. Given that cities experienced positive population growth throughout the 1980s, we show that firm fragmentation produces the diverse set of facts documented in the article.