Asymmetric cross-price effects and collusion

Asymmetries in cross-price elasticities have been demonstrated by several empirical studies, but received little attention by the theoretical literature. In this paper we study from a theoretical stance how introducing asymmetry in the substitution effects influences the sustainability of collusion. We first characterize the equilibrium of a linear Cournot duopoly with substitute goods, and consider substitution effects which are asymmetric in magnitude. Since the two goods are asymmetric strategic substitutes, the production decisions are driven by the firm which is relatively less influenced by the rival. We then study partial collusion using the folk theorem's solution concept. Our main result shows that the interval of quantities supporting collusion in the asymmetric setting is always smaller than the interval in the symmetric benchmark. The asymmetry in the substitution effects thus hinders collusion.     

MUTUAL AND SOCIAL EFFICIENCY OF ITALIAN CO‐OPERATIVE BANKS: AN EMPIRICAL ANALYSIS

In this study we analyze the concept of efficiency in co‐operative banks (CBs) from the points of view of the mutuality and sustainability of business. According to the extant literature, CBs are often less efficient than traditional banks, but the reason for this apparently higher inefficiency is strictly correlated to their statutory commitments. The purpose of this paper is to verify, through an empirical survey of 33 Tuscan ‘Banche di Credito Cooperativo’ (BCC), if a particular type of Italian CB is less or more competitive compared to non‐co‐operative ones by using and adapting two financial indicators: the financial value added and the cost‐income ratio. Our findings show that by implementing appropriate corrections to the value‐added indicator and to the cost‐income ratio, BCC appear efficient and mission‐oriented, with a significantly reduced performance gap in comparison to non‐co‐operative credit institutions.     

A “Super” Folk Theorem for dynastic repeated games

We analyze dynastic repeated games. These are repeated games in which the stage game is played by successive generations of finitely-lived players with dynastic preferences. Each individual has preferences that replicate those of the infinitely-lived players of a standard discounted infinitely-repeated game. Individuals live one period and do not observe the history of play that takes place before their birth, but instead create social memory through private messages received from their immediate predecessors. Under mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax of the stage game) can be sustained by sequential equilibria of the dynastic repeated game with private communication. In particular, the result applies to any stage game with n  ≥  4 players for which the standard Folk Theorem yields a payoff set with a non-empty interior. We are also able to characterize fully the conditions under which a sequential equilibrium of the dynastic repeated game can yield a payoff vector not sustainable as a subgame perfect equilibrium of the standard repeated game. For this to be the case it must be that the players’ equilibrium beliefs violate a condition that we term “inter-generational agreement.” A previous version of this paper was circulated as Anderlini et al. (2005). We are grateful to Jeff Ely, Leonardo Felli, Navin Kartik, David Levine, Stephen Morris, Michele Piccione, Andrew Postlewaite, Lones Smith and to seminar audiences at Bocconi, Cambridge, CEPR-Guerzensee, Chicago, Columbia, Edinburgh, Essex, Georgetown, Leicester, LSE, Northwestern, Oxford, Rome (La Sapienza), Rutgers, SAET-Vigo, Stanford, SUNY-Albany, UCL, UC-San Diego, Venice and Yale for helpful feedback.     

Substitutability and weighting of ecological and economic indicators: Exploring the importance of various components of a synthetic index

The establishment of an information system is meaningful to develop a dynamic assessment of environmental quality and degradation. In this paper an original, empirical framework called Factor Weighting Model (FWM) is proposed to integrate different indicators into a composite index. The FWM is able to work with variables depicting different themes (e.g. climate, soil, landscape, demography, economy) collected at various geographical and temporal scales. Three case studies carried out at different spatial scales were considered as examples of FWM application to a composite index of Land Degradation. It consists of several variables collected from various data sources and available at different temporal and spatial scales, which are aggregated into some thematic indicators. The FWM approach was applied separately for each case study to the single variables transformed into sensitivity indicators through standard procedures. A multiway factor analysis (MDA) was carried out to explore over time the relationships among indicators. The importance of the environmental indicators was estimated by attributing a percent weight to each of them according to MDA outputs. Climate and soil dimensions account for the highest weights in all the cases considered. These findings are in accordance with the results obtained in previous studies. The implications of FWM in the assessment of environmental quality are finally discussed.     

A theory of firm decline

We study the problem of an investor that buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter's operations. The dynamics implied by the optimal incentive scheme is rich and quite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter continues to grow, invested capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision is costlier the wealthier the entrepreneur (the greater is inside equity). In turn, this leads to a decline in the constrained-efficient level of effort and therefore to a drop in the return to investment.     

Combining random forest and copula functions: A heuristic approach for selecting assets from a financial crisis perspective

In this paper we propose a heuristic strategy aimed at selecting and analysing a set of financial assets, focusing attention on their multivariate tail dependence structure. The selection, obtained through an algorithmic procedure based on data mining tools, assumes the existence of a reference asset we are specifically interested to. The procedure allows one to opt for two alternatives: to prefer those assets exhibiting either a minimum lower tail dependence or a maximum upper tail dependence. The former could be a recommendable opportunity in a financial crisis period. For the selected assets, the tail dependence coefficients are estimated by means of a proper multivariate copula function. Copyright © 2010 John Wiley & Sons, Ltd.     

The dynamic effects of monetary policy: A structural factor model approach

A structural factor model for 112 US monthly macroeconomic series is used to study the effects of monetary policy. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. The main findings are the following. First, the maximal effect on bilateral real exchange rates is observed on impact, so that the “delayed overshooting” puzzle disappears. Second, after a contractionary shock prices fall at all horizons, so that the price puzzle is not there. Finally, monetary policy has a sizable effect on both real and nominal variables.     

Optimal punishments in linear duopoly supergames with product differentiation

We analyze optimal penal codes in both Bertrand and Cournot supergames with product differentiation. We prove that the relationship between optimal punishments and the security level (individually rational discounted profit stream) depends critically on the degree of supermodularity in the stage game, using a linear duopoly supergame with product differentiation. The security level in the punishment phase is reached only under extreme supermodularity, i.e., when products are perfect substitutes and firms are price setters. Finally, we show that Abreu's rule cannot be implemented under Cournot behavior and strong demand complementarity between products.     

Accounting relativism: the unstable relationship between income measurement and theories of the firm

The knowledge structures underlying accounting representations are rarely investigated and usually tend to be taken for granted. As a case of the problematic knowledge foundations of accounting, we concentrate on one of the most relevant conceptual underpinnings informing the construction of the accounts—the relationship between theories of the firm, accounting theories, and income measurement. In particular we analyse and compare the ways in which this relationship has been conceived and developed in two theoretical contexts, the Italian tradition of Economia Aziendale and the US entity vs proprietary debate. Various and contradictory approaches to the concept of the firm and income calculation in these two theoretical traditions emerge. Such a conceptual variety is what we refer to as ‘accounting relativism’. This is defined here as the co-existence of different accounting representations and measurements, both of which are not objectively rankable in any conceptual hierarchy, because of the incommensurability of their basic assumptions, i.e. of their knowledge bases. This intrinsically ‘unstable’ character of accounting at a conceptual level is likely to have relevant implications, representing a major source of theoretical variety, as well as a premise for making sense of power uses of accounting within organisational settings. ©