Learning and sophistication in coordination games

This paper studies the role of strategic teaching in coordination games and whether changing the incentives of players to teach leads to more efficient coordination. We ran experiments where subjects played one of four coordination games in constant pairings, where the incentives to teach were varied along two dimensions—the short run cost of teaching and the long run benefit to teaching. We show which aspects of the game lead subjects to adopt long run teaching strategies, and show that subjects try to manipulate their opponent’s actions to pull them out of a situation of coordination failure. We also show that extending a model of decision making by introducing a forward-looking component helps to track teachers’ behaviour more accurately, and describes the way players behave in a more unified way across both teachers and learners.     

The determinants of cleaner energy innovations of the world’s largest firms: the impact of firm learning and knowledge capital*

In this paper, we address the determinants of clean energy inventions by 946 large firms. We use a new set of large firms’ patent portfolios and we broaden and deepen existing literature on this issue in two main ways: first, we conduct our study directly at the firm level and not at the industry or national levels and second, we do not focus on a single industry but encompass all industrial sectors. Drawing on firm (internal and external) knowledge and knowledge accumulation, we show there is a robust positive association between the (past) knowledge accumulated capital related to clean technologies and the number of inventions produced in that field, even after controlling for industry and nation fixed effects and other factors. The same relation works for (past) knowledge-accumulated capital in other (non-clean) technologies. However, the relation’s impact on the number of clean inventions produced is much lower. The magnitudes of our coefficient are in line with that obtained previously on firms in the auto-industry or at the sectoral level.     

Redistribution in the age of austerity: evidence from Europe 2006–2013

We examine the relationship between changes in a country’s public sector fiscal position on inequality at the top and bottom of the income distribution during the age of austerity from 2006 to 2013. We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on Statistics of Income and Living Conditions (EU-SILC) and IMF data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggests a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies and likely produces increased incentives for rent-seeking while reducing incentives for workers to increase productivity.     

Model risk and option hedging

This paper presents a theoretical approach to option hedging and valuation when traders are facing model risk. Model risk is restrictively defined as the financial risk resulting from the choice of an approximating model to proxy for the true but ex-ante unknown state space of the underlying security process. A generalized model is defined for estimating the appropriate volatility markup, which is dependent on the noisiness of the volatility estimate over time. Delta neutral hedge portfolios are created using simulated S&P 500 option prices to demonstrate that using a volatility markup in the traditional binomial model reduces model risk.     

HETEROGENEITY,REDISTRIBUTION, AND THE FRIEDMAN RULE*

We study monetary models with nondegenerate stationary distributions of money holdings. We find that the Friedman rule does not typically maximize ex post social welfare. An increase in the rate of growth of the money supply has two effects: the standard distortionary, or rate‐of‐return, effect makes money a less desirable asset for all moneyholders. A second, redistributive effect, creates a transfer from one type of agent to the other. An increase in the rate of growth of money away from the Friedman rule can produce a rate‐of‐return effect that dominates the standard effect.     

Liquidity Cost Premia

The purpose of the paper is to find out the borrowing cost premia for those individuals who are liquidity-constrained, or who are first-time buyers of real estate. The analysis uses the similarity of a leveraged purchase with the exercise of a call option to defer the purchase of the asset. Sensible parameters are selected for the option, and simulations are run to identify the cost premia. The main conclusion is that these borrowing costs are prohibitive in central tendency and in dispersion. This means that liquidity-constrained individuals may be given borrowing quotations, but these quoted rates are so high and variable that these individuals are unwilling to borrow.     

Tailoring Foresight to field specificities

The paper presents an approach at improving the impact of Foresight by systematically taking into account the characteristics of the targeted research and innovation (R&I) domains when designing a Foresight exercise. The paper addresses recent developments in Foresight theory and practice which allow for deploying a hybrid methodological framework where different approaches serve different purposes in specific phases in order to tailor Foresight to a wide range of different contexts and objectives. The paper can be characterised as empirically based theory building. The theoretical framework is elaborated by applying it in two R&I fields: (i) GM plants and (ii) Nanosciences and Nanotechnologies. Hence, this research is expected to contribute improving the strategic processes of priority setting in techno-institutional arenas both on the national and international level. In particular it is suggested that the capability of Foresight to function as a systemic innovation policy instrument for enhancing innovation and learning capability could be improved substantially by tailoring the Foresight approach to the targeted innovation arena.     

Upstream-Downstream Specialization by Integrated Firms in a Partially Integrated Industry

We propose a simple model of a partially integrated industry which explicitly takes into account persistent production cost differences across upstream firms, such as one might observe in natural resource industries. The model allows us to highlight the respective roles of strategic considerations and of cost considerations in the determination of an integrated firm's interaction with the non-integrated sector of the industry and, in the end, on its relative upstream-downstream specialization. Some crude stylized facts from the world oil industry are used to motivate and illustrate the analysis.     

The log-moment formula for implied volatility

We revisit the foundational Moment Formula proved by Roger Lee fifteen years ago. We show that in the absence of arbitrage, if the underlying stock price at time T admits finite log-moments $\mathbb{E}[|\log S_T{|}^q]$ for some positive q, the arbitrage-free growth in the left wing of the implied volatility smile for T is less constrained than Lee's bound. The result is rationalized by a market trading discretely monitored variance swaps wherein the payoff is a function of squared log-returns, and requires no assumption for the underlying price to admit any negative moment. In this respect, the result can be derived from a model-independent setup. As a byproduct, we relax the moment assumptions on the stock price to provide a new proof of the notorious Gatheral–Fukasawa formula expressing variance swaps in terms of the implied volatility.