Extracting the information: espionage with double crossing

This paper addresses two very old issues in human society: espionage and double crossing. Our major conclusion points out that there will be a serious over rewarding problem in the direct mechanism due to double crossing in espionage, and a competitive mechanism with a relative performance regime can possibly mitigate the over rewarding problem and still extract the information.      

A generalization of Condorcet’s Jury Theorem to weighted voting games with many small voters

We extend Condorcet’s Jury Theorem (Essai sur l’application de l’analyse à la probabilité des décisions rendues à la pluralité des voix. De l’imprimerie royale, 1785) to weighted voting games with voters of two kinds: a fixed (possibly empty) set of ‘major’ voters with fixed weights, and an ever-increasing number of ‘minor’ voters, whose total weight is also fixed, but where each individual’s weight becomes negligible. As our main result, we obtain the limiting probability that the jury will arrive at the correct decision as a function of the competence of the few major players. As in Condorcet’s result the quota q = 1/2 is found to play a prominent role. I wish to thank Maurice Koster, Moshé Machover, Guillermo Owen and two anonymous referees for helpful comments.     

Background Risk and the Performance of Insurance Markets under Adverse Selection

Background risk can influence the performance of insurance markets that must deal with adverse selection when applicants are risk vulnerable, since they are more averse to bearing the insurable risk as a result of their exposures to background risk. We show that background risk always results in a lower deductible for the incentive constrained contract, and that a broader range of markets attains the stable sequential equilibrium cross-subsidized pair of separating contracts. We conclude that background risk always improves the performance of markets for coverage against (insurable) foreground risks that must deal with adverse selection. We also find, however, that these improvements are never sufficient to offset the cost to insureds of bearing the background risk.     

Natur und mathematisches Erkennen

Ohne Zusammenfassung     

The role of investment banks in acquisitions

We compare acquisitions completed with and without investmentbank advice over the 1981 to 1982 period. We find that the choiceto use an investment bank depends on the complexity of the transaction,the type of transaction (takeovers versus acquisitions of assets),the acquiror's prior acquisition experience, and the degreeof diversification of the target firm. Although acquisitionannouncement returns are lower for firms using investment banks,this difference can be explained by differences in transactioncharacteristics. These results suggest that transaction costsare the main determinant of investment banking choice, followedby contracting costs and asymmetric information costs.