Researching with whom? Stability and manipulation

This paper explores the existence of stable research teams, when the preferences of each agent depend on the set of researchers who are collaborating. We introduce a property over researchers’ preferences, called top responsiveness, guaranteeing the existence of stable research teams configurations. We also provide a stable mechanism, induced by the so-called top covering algorithm, which is strategy-proof when researchers preferences satisfy top responsiveness. Furthermore, we find that, in this framework, the top covering mechanism is the only strategy-proof mechanism that always selects stable allocations.     

Default and aggregate income

This paper studies how default varies with aggregate income. We analyze a model in which optimal contracts enable risk sharing of privately observed, idiosyncratic income by allowing for default. Default provisions allow agents with low idiosyncratic income realizations to repay less and thus provide insurance. Default penalties ensure that only these agents default. We show that default can occur under the optimal contract and that default provisions vary with aggregate income. We provide conditions such that both the amount of default and default penalties vary countercyclically with aggregate income and show that the default rate can be discontinuous.     

Top dominance and the possibility of strategy-proof stable solutions to matching problems

Summary This paper explores the possibility of designing strategy-proof mechanisms yielding satisfactory solutions to the marriage and to the college admissions problem. Our first result is negative. We prove that no strategy-proof mechanism can always choose marriages that are individually rational and Pareto efficient. This strengthens a result by Roth (1982) showing that strategy-proof mechanisms cannot always select stable marriages. The result also applies, a fortiori, to college admissions. Since finding difficulties with strategy-proofness is quite an expected result, we then address a second question which is classical within the incentives literature. Are there restrictions on the preferences of agents under which strategy-proof and stable mechanisms do exist? We identify a nontrivial restriction on the domain of preferences, to be called top dominance, under which there exist strategy-proof and stable mechanisms for both types of matching problems. The mechanisms turn out to be exactly those that derive from the most classical algorithms in the literature; namely, the women's optimal, the men's optimal and the student's optimal. Finally, top dominance is shown to be essentially necessary, as well as sufficient, for the existence of strategy-proof stable matching mechanisms.This work is partially supported by grant PB 89-0294, from the Directión General de Investigatión Ciencia y Tecnología of the Spanish Ministerio de Educación y Ciencia. Salvador Barberà is also grateful to the Instituto de Estudios Fiscales. This research was initiated while both authors were visting GREMAQ, Université des Sciencies Sociales, Toulouse, whose hospitality is gratefully acknowledged. The paper extends results that were circulated as GREMAQ W.P. 91.22.232. We are grateful to Matthew Jackson and Marilda Sotomayor for their comments.     

Entrepreneurial activity, risk, and the business cycle

This paper analyzes a model in which the risk associated with entrepreneurial activity implies that the amount of such activity is procyclical and results in amplification and intertemporal propagation of productivity shocks. In the model risk averse agents choose between a riskless project and a risky project with higher expected output (‘the entrepreneurial activity’). Agents who become entrepreneurs need to bear part of the project-specific risk for incentive reasons. More agents become entrepreneurs when productivity is high, because agents are more willing to bear risk and need to bear less risk for incentive reasons. Furthermore, cross-sectional heterogeneity can be countercyclical.     

Assessing qualitative similarities between financial reporting frameworks using visualization and rules: COREP vs. pillar 3

Financial institutions are struggling with larger volume, more specific and greater frequency of regulatory reporting after the global financial crisis in 2008, especially those that need to report to multiple jurisdictions. To help to improve reporting efficiency, this paper aims to assess the existence of similarities between templates related to credit and counter party credit risk of COREP and Pillar 3 regulatory reporting frameworks by applying Correspondence Analysis and Association Rules Mining. Our results suggest a high degree of overlap between these reporting frameworks, more prominently the three business functions as Front office, Finance and Risk. These patterns can be used as guidance for financial institutions to reshape their reporting architecture.     

Exchange-proofness or divorce-proofness? Stability in one-sided matching markets

Two stability concepts for one-sided matching markets are analyzed: Gale-Shapley stability and ξ-stability. The first one applies best to markets where no status quo allocation is considered, whereas the second one is a solution to be used when property rights are allowed. A common problem of existence is shared by both solution concepts. Hence, we study economic environments where this problem does not exist, and present a family of agents’ preferences for which existence is guaranteed for both Gale-Shapley stable and ξ-stable outcomes. This work was finished while the author was visiting Duke University, whose hospitality is gratefully acknowledged. Swveral discussions with Salvador Barberà, Hervé Moulin and Marilda Sotomayor and some advice by an anonymous referee were specially useful. This work is partially supported by Grants PB 92-0590 and PB 93-0938 from the DGICYT, the Spanish Ministery of Educación Ciencia, and the Institut Valencià d’Investigacions Econòmiques.     

Pigouvian Taxes: A Strategic Approach

This paper analyzes the problem of designing mechanisms to implement efficient solutions in economies with externalities. We provide two simple mechanisms implementing the Pigouvian Social Choice Correspondence in environments in which coalitions can or cannot be formed.     

A derivatives trading recommendation system: The mid‐curve calendar spread case

Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work is aimed to develop a trading recommendation system, and to apply this system to the so‐called Mid‐Curve Calendar Spread (MCCS) trade. To suggest that such approach is feasible, we used a list of 35 different types of MCCSs; a total of 11 predictive and 4 benchmark models. Our results suggest that linear regression with l1‐regularisation (Lasso) compared favourably to other approaches from a predictive and interpretability point of views.     

Collateral and capital structure

We develop a dynamic model of investment, capital structure, leasing, and risk management based on firms' need to collateralize promises to pay with tangible assets. Both financing and risk management involve promises to pay subject to collateral constraints. Leasing is strongly collateralized costly financing and permits greater leverage. More constrained firms hedge less and lease more, both cross-sectionally and dynamically. Mature firms suffering adverse cash flow shocks may cut risk management and sell and lease back assets. Persistence of productivity reduces the benefits to hedging low cash flows and can lead firms not to hedge at all.     

EBITDA margin in brazilian companies Variance decomposition and hierarchical effects

This study explores the controversy between the business and academic perspectives regarding earnings before interest, taxes, depreciation, and amortization (EBITDA). Some authors argue that EBITDA is not useful as an indicator, except for comparing companies within the same sector (Assaf Neto, 2003, McClure, 2006, Stumpp, 2000). On the other hand, the business world strongly uses this type of indicator as a tool to support its decisions (Schmalensee, 1985, Moraes, 2005). This difference in opinions has aroused interest in understanding the reasons for its use and has raised questions regarding the usefulness of EBITDA for comparing companies from both the same and different sectors. By applying Hierarchical Linear Modeling (HLM), the main goal of this research is to observe EBITDA behavior across companies selling goods in Brazil, comparing them within the same sector and across different sectors over time. This research allows for the analysis of the reasons why EBITDA patterns occasionally occur. The results show significant variation in EBITDA among companies across the same sector and across companies from different sectors. On the other hand, our results have shown, nevertheless, that the variability among companies from the same sector was the highest one, raising questions on the actual usefulness of this indicator to compare companies from the same sector.