Multiple Equilibria and Minimum Wages in Labor Markets with Informational Frictions and Heterogeneous Production Technologies*

It is often argued that a mandatory minimum wage is binding only if the wage density displays a spike at it. In this article, we analyze a model with search frictions and heterogeneous production technologies, in which imposition of a minimum wage affects wages even though, after imposition, the lowest wage in the market exceeds the minimum wage. The model has multiple equilibria as a result of the fact that the reservation wage of the unemployed and the lowest production technology in use affect each other. Imposition of a minimum wage may improve social welfare.     

Signalling and entry deterrence: a multidimensional analysis

I consider whether a privately informed incumbent can use limit pricing and upward distortions in advertising to deter profitable entry. Profitable entry is not deterred when the incumbent is privately informed only about its cost type. Profitable entry may be deterred, however, if the incumbent is privately informed about its cost type and its patience level. An equilibrium foundation is thus provided for the traditional hypothesis that limit pricing and aggressive advertising by an incumbent may deter profitable entry. At a methodological level, the article contributes by characterizing the refined equilibria of a signalling model with multiple dimensions of private information and multiple signals.     

Investor relations,reputational bonding,and corporate governance: The case of Royal Ahold

Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures, suffering a complete meltdown, in 2003. We investigate the strategy, investor relations, accounting transparency and corporate governance of Ahold; these elements jointly drive the firm’s performance over the past decade. Investor relations and its implications are an important but under researched aspect of the market’s belief formation process. For Ahold, investor relations is an important component of reputational bonding [Siegel, J., 2005. Can foreign firms bond themselves effectively by renting US securities laws? Journal of Financial Economics 75, 319–359]. Our clinical study documents investor relations’ influence on investor expectations. We then provide an in-depth analysis of the strategy, accounting transparency and corporate governance that lead to Ahold’s downfall. We provide insights and implications into these relationships that present theory and empirical studies have not fully addressed.     

Structural effects and spillovers in HSIF, HSI and S&P500 volatility

We adopt a BEKK-GARCH framework and employ a systematic approach to jointly examine structural breaks in the Hong Kong cash index and index futures volatility and volatility spillovers from the S&P 500 cash and futures. Multiple switching dummy variables are included in the variance equations to test for any structural changes in the autoregressive volatility structure due to the events that have taken place in the Hong Kong market. Abolishment of the up-tick rule, increase of initial margins and electronic trading of the Hang Seng Index Futures (HSIF) are found to have significant impact when US market spillovers are excluded from a restricted model. Volatility spillovers from the US market are found to have a significant impact and account for some mis-specification in the restricted model.     

Bertrand Price Competition in a Social Environment

We analyze the dynamic behaviour of firms that locally interact through price competition in a social environment in an evolutionary game-theoretic model. These firms update their prices according to the behavioural rule Win Cooperate, Lose Defect (WCLD), which is often observed in experimental economics. It can be regarded as a generalized Tit-for-Tat strategy. The model can explain the simultaneous emergence of collusive behaviour, price dispersion and occasional local price wars. Price wars only last for a short period of time after which the firms start to collude again.