Structural holes in social networks

We consider a setting where every pair of players that undertake a transaction (e.g. exchange goods or information) creates a unit surplus. A transaction can take place only if the players involved have a connection. If the connection is direct the two players split the surplus equally, while if it is indirect then intermediate players also get an equal share of the surplus. Thus, individuals form links with others to create surplus, to gain intermediation rents, and to circumvent others who are trying to become intermediary.Our analysis clarifies the interplay between these forces in the process of strategic network formation. First, we show that, in the absence of capacity constraints on links, it leads to the emergence of a star network where a single agent acts as an intermediary for all transactions and enjoys significantly higher payoffs. Second, we study the implications of capacity constraints in the ability of agents to form links. In this case, distances between players must be long, which induces players who are “far off” to connect in order to avoid paying large intermediation rents. A cycle network then emerges, payoffs being equal across all players.     

IMF concern for reputation and conditional lending failure: Theory and empirics

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF's desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982–2001, we find that a longer relationship does increase IMF disbursements.     

Endogenous private information structures

We formally incorporate the option to gather information into a game and thus endogenize the information structure. We ask whether models with exogenous information structures are robust with respect to this endogenization. Any Nash equilibrium of the game with information acquisition induces a Nash equilibrium in the corresponding game with an exogenous structure. We provide sufficient conditions on the structure of the game for which this remains true when ‘Nash’ is replaced by ‘sequential’. We characterize the (sequential) Nash equilibria of games with exogenous information structures that can arise as a (sequential) Nash equilibrium of games with endogenous information acquisition.     

The type-agent core for exchange economies with asymmetric information

The type-agent core is a new solution concept for exchange economies with asymmetric information. It coincides with the set of subgame-perfect equilibrium outcomes of a simple competitive screening game. Uninformed intermediaries help the agents to cooperate in an attempt to make some profit. The paper extends the work of Perez-Castrillo [Cooperative outcomes through non-cooperative games, Games Econ. Behav. 7 (1994) 428-440] to exchange economies with non-transferable utility and asymmetric information. The type-agent core is a subset of Wilson's coarse core [Wilson, Information, efficiency, and the core of an economy, Econometrica 46 (1978) 807-816]. It is never empty, even though it may be a strict subset of Wilson's fine core. In addition, it converges towards the set of constrained market equilibria as the economy is replicated.     

Wage inequality, technology, and trade

The recent widening of wage inequality has been attributed by some to skill-biased-technical-change and by others to trade liberalization. This paper examines the two explanations within a unified model and also presents a new modeling of skill-biased-technical-change, where skilled workers replace unskilled ones. As a result technology adoption is endogenous and does not occur in all countries. Hence, wages for both types of workers, trade patterns and also factor productivities in all countries are endogenously determined. The model sheds light on the relationship between technology and trade, on the reasons for global productivity differences and on the causes for the recent rise in wage inequality.     

Short-memory equilibrium in stochastic overlapping generations economies

In stochastic OLG exchange economies, we show that short-memory equilibria—the natural extension from deterministic economies of steady states, low-order cycles, or finite state-space stationary sunspots equilibria—fail to exist generically in utilities. As a result, even with independent and identically distributed exogenous shocks there is serial correlation in endogenous economic variables in equilibrium. This arises even if utilities are time-separable, some goods inferior, and there are no technological lags. Hence, the origins of economic fluctuations can be traced only to the demographic structure of a heterogeneous agent, multiple-good economy.     

Bidding for surplus in network allocation problems

In this paper we study non-cooperative foundations of network allocation rules. We focus on three allocation rules: the Myerson value, the position value and the component-wise egalitarian solution. For any of these three rules we provide a characterization based on component efficiency and some balanced contribution property. Additionally, we present three mechanisms whose equilibrium payoffs are well defined and coincide with the three rules under consideration if the underlying value function is monotonic. Non-monotonic value functions are shown to deal with allocation rules applied to monotonic covers. The mechanisms are inspired by the implementation of the Shapley value by Pérez-Castrillo and Wettstein [Bidding for the surplus: a non-cooperative approach to the Shapley value, J. Econ. Theory 100 (2) (2001) 274-294].     

Intertemporal market division:: A case of alternating monopoly

In this paper, we report on an equilibrium with market dominance that exists in a simple two-firm model that features neither entry barriers nor sophisticated punishment strategies. This equilibrium induces an intertemporal market division in which the two firms alternate as monopolists - despite the fact that the model also sustains a Cournot duopoly. Even when initially both firms are active in the market, the alternating monopoly reveals itself rather quickly. Moreover, it Pareto dominates the Cournot equilibrium - as it is close to the cartel outcome. Several examples of what well may be such alternating monopolies are presented.     

Performance rating and yardstick competition in social service provision

This paper investigates whether national evaluation of decentralised government performance tends, by lessening local information spill-overs, to reduce the scope for local performance comparisons and consequently to lower the extent of spatial auto-correlation among local government expenditures. It analyses local government expenditures on personal social services in the UK before and after the introduction of a national performance assessment system (SSPR, Social Services Performance Rating) that would attribute a rating to each local authority. The empirical evidence is consistent with the hypothesis that the SSPR has reduced local yardstick competition.     

Testing for Seasonal Fractional Roots in German Real Output

Abstract. This paper examines the seasonal structure of German real GNP per capita by using a version of Robinson's (1994) tests which is suitable in the context of seasonality. This method has several advantages over alternative approaches when testing for seasonal unit roots. First, unlike standard tests, which are nested in AR alternatives, it is embedded in fractional alternatives. Second, it allows testing at the zero frequency and at each of the seasonal frequencies separately. Third, it makes it possible to test for different orders of integration at each of the frequencies simultaneously. The empirical analysis suggests that the real output series may have a unit root at the zero frequency, and fractional rather than unit roots at the seasonal ones. This is in contrast to the findings reported by Lutkepohl et al. (1999) in their study on German money demand, and shows the importance of modelling the seasonal features of the data in alternative ways.