First-price auction symmetric equilibria with a general distribution

In this paper I obtain the mixed strategy symmetric equilibria of the independent private values, first-price auction for any distribution of valuations. The equilibrium strategy is a pure strategy at the continuity points of the distribution and bids a mixed strategy at the discontinuity points of the distribution.     

A Model of Market Power in Customer Markets

We develop a model for studying dynamic competition in environments with frictions that lead to partial lock-in of customers to products. The dynamic aspects associated with customer retention and acquisition introduce pricing incentives that do not exist in more traditional, static product markets. The proposed model, while highly stylized, maintains certain symmetry properties that allow us to obtain equilibrium existence and uniqueness. We then study the comparative statics of the model and derive a closed-form relationship between average equilibrium markups and the Herfindahl index. We illustrate how the model can be used by analyzing mergers in such a dynamic environment.     

A cause for policy concern: the expansion of household credit in middle-income economies

This article discusses the significance of the recent growth in household credit across a range of middle-income economies. This growth is understood primarily as a result of policy, including the promotion of individual borrowing as a means to fund access to housing, education and health. A formal model of credit extension and allocation is developed, establishing that consumption lending makes a comparatively stronger contribution to aggregate profitability as well as financial fragility than production lending. Consumption lending may be understood to create distinctive endogenous tendencies to credit-market instability. The findings point to the need for a critical reconsideration of reliance on this lending for social and macroeconomic policy.     

Investors’ perspective on portfolio insurance

Portuguese Economic Journal - This study supports the use of behavioural finance to explain the popularity of portfolio insurance. Portfolio insurance strategies are important financial solutions...     

The New Age of Innovation: Driving Cocreated Value through Global Networks by C. K. Prahalad and M. S. Krishnan

Books reviewed in this issue:

• ? The New Age of Innovation: Driving Cocreated Value through Global Networks.
• ? Generation Blend: Managing across the Technology Age Gap
• ? Conquering Innovation Fatigue: Overcoming the Barriers to Personal and Corporate Success

     

Globalization and Contemporary Banking: On the Impact of New Technology

Technological innovation has contributed to recent changes inthe conduct and character of banking, but its impact has beencontradictory. First, money-dealing transactions have becomecheaper, but investment costs have increased and a broader rangeof services had to be provided. The cost efficiency of bankshas not improved. Second, banks have developed computationallyintensive, ‘arms length’ techniques to assess creditworthinessand manage risk. Thus, they have been able to generate new revenuestreams from lending to individuals and from fees for moneymarket mediation. This shift has signalled a decline of ‘relational’banking. Third, new technology and related practices have facilitatedthe entry of foreign banks into developing countries, wherethey can exploit ‘arms length’, technologicallydemanding niches in domestic markets. This has not improvedthe efficiency of host banking systems, nor increased the availabilityof credit to the productive sector.     

The set of equilibria of first-price auctions

I specify the class of functions that are equilibria of symmetric first-price auctions. A formula to recover the distribution of valuations for any equilibrium bidding strategy is given.     

How Endowments, Accumulations, and Choice Determine the Geography of Agricultural Productivity in Ecuador

Spatial disparity in incomes and productivity is apparent acrossand within countries. Most studies of the determinants of suchdifferences focus on cross-country comparisons or location choiceamong firms. Less studied are the large differences in agriculturalproductivity within countries related to concentrations of ruralpoverty. For policy, understanding the determinants of thisgeography of agricultural productivity is important, becausestrategies to reduce poverty often feature components designedto boost regional agricultural incomes. Census and endowmentdata for Ecuador are used to estimate a model of endogenoustechnology choice to explain large regional differences in agriculturaloutput and factor productivity. A composite-error estimationtechnique is used to separate systemic determinants from idiosyncraticdifferences. Simulations are employed to explore policy avenues.The findings suggest a differentiation between the types ofpolicies that promote growth in agriculture generally and thosethat are more likely to assist the rural poor.     

Bayesian selection of technology assumptions for the transformation from supply-use to input–output tables

ABSTRACT

In the construction of input–output models from supply-use tables, technology assumptions disambiguate how an industry uses inputs in the production recipe of multiple outputs. This paper uses Bayes' theorem to select technology assumptions, taking into account empirical observations. The paper presents a formulation to explore hybrids between product and industry technology assumptions in product-by-product tables. We then present Markov chain Monte-Carlo techniques to implement the Bayesian method for selecting technology assumptions. We apply the method in a case study using Eurostat supply-use tables of 2004 and 2005, exhibiting a volume of secondary products of less than 13%, and 59 products and industries per country. The results show that the choice of technology is not important, given that there is no strong evidence in favour of any of them.     

Capital asset pricing model in Portugal: Evidence from fractal regressions

We examine risk profiles of the Portuguese stock market index component stocks using a novel approach to the classical capital asset pricing model (CAPM). Specifically, we estimate the CAPM via fractal regressions that allow studying the marginal effects at selected scales. In this way, we can reveal whether the risk is perceived differently by market participants with different investment horizons. Apart from the analysis itself, we provide new statistical insights into the issue of separating and comparing the scale-specific effects with statistical validity. We find several stocks deviating from an expected risk perception homogeneity across investment horizons. This is true for both analysed periods, i.e. before and after the global financial crisis. There are also several stocks that changed their relationship to the market portfolio in between, which has strong implications for possible portfolio construction. The proposed methodology is not limited to financial topics but can be used in any discipline where the scale-specific marginal effects might be of interest.