A Property of Nash Equilibria in Repeated Games with Incomplete Information

We consider two-person non-zero-sum infinitely repeated games with lack of information on one side. The characterization of Nash equilibrium payoffs obtained by Hart allows for complex strategies, which are actually required by some equilibrium payoffs in some games. We show that appropriate one-shot public communication mechanisms make Nash equilibrium payoffs achievable by means of simple strategies. Furthermore, these mechanisms satisfy a notion of self-fulfillment.Journal of Economic LiteratureClassification Numbers: D82, C72.     

Self-help Groups and Income Generation in the Informal Settlements of Nairobi

The aim of this paper is to understand the functioning and thescope of self-help groups in the informal settlements of urbanareas as a means of generating income for poor households. Ituses a unique data set collected by the author in 1999 surveyingall individual group members from several informal settlementsin Nairobi. It studies the individual determinants of earningswithin groups and relates group composition to various indicatorsof group functioning. Sex, age and ethnic identity are amongthe most important determinants of individual reliance on groupincome and of access to group loans. Heterogeneity in earningsamong members is shown to reduce their ability to borrow fromthe group as a whole but not from each other. The impact ofethnic and other forms of heterogeneity on the division of labour,choice of compensation schemes, sanctioning technology and recruitmentcriteria is also described.     

Liberal parentalism

What normative constraints should bind parents (or policy makers) if they intervene in the choices of children (or constituencies) whose preferences evolve over time? For a sophisticated child who anticipates correctly his preference change, we prove that generically there exist parental interventions that are Pareto improving over the backward induction path that the child will follow on his own. If, in contrast, the child misperceives his future preferences, Pareto improving interventions might not exist, and even nudges might be painfully sobering. The parent may then choose to minimize the maximal disappointment along time that her benevolent intervention would cause.     

Production and financial policies under asymmetric information

We propose an extension of the standard general equilibrium model with production and incomplete markets to situations in which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant. We establish the existence of equilibria and discuss the nature of the inefficiencies introduced by the presence of asymmetric information. We also illustrate the properties of the model in three simple examples. We would like to thank Alberto Bisin, Armando Dominioni, Piero Gottardi, Tito Pietra, Paolo Siconolfi, and an anonymous referee for useful suggestions and comments.     

Two remarks on the inner core

For the case of smooth concave exchange economies, we provide a characterization of the inner core as the set of feasible allocations such that no coalition can improve on it, even if coalitions are allowed to use some random plans. For the case of compactly generated games, we discuss Myerson's definition of the inner core, and we characterize it using lexicographic utility weight systems.     

Political Competition in Weak States

In the developing areas, politics is often undemocratic, states lack a monopoly over violence, and politicians play upon cultural identities. To analyze politics in such settings, we develop a model in which politicians compete to build a revenue yielding constituency. Citizens occupy fixed locations and politicians seek to maximize rents. To secure revenues, politicians must incur the costs of providing local public goods and mobilizing security services. Citizens must participate, i.e. pay taxes; but can choose which leader to support. The model enables us to explore the impact of cultural identities and varying notions of military power.     

Decomposition of gender differentials in agricultural productivity in Ethiopia

A number of studies document gender differentials in agricultural productivity. However, they are limited to region and crop‐specific estimates of the mean gender gap. This article improves on previous work in three ways. First, data representative at the national level and for a wide variety of crops is exploited. Second, decomposition methods—traditionally used in the analysis of wage gender gaps—are employed. Third, heterogeneous effects by women's marital status and along the productivity distribution are analyzed. Drawing on data from the 2011–2012 Ethiopian Rural Socioeconomic Survey, we find an overall 23.4 percentage point productivity differential in favor of men, of which 13.5 percentage points (57%) remain unexplained after accounting for gender differences in land manager characteristics, land attributes, and access to resources. The magnitude of the unexplained fraction is large relative to prior estimates in the literature. A more detailed analysis suggests that differences in the returns to extension services, land certification, land extension, and product diversification may contribute to the unexplained fraction. Moreover, the productivity gap is mostly driven by non‐married female managers—particularly divorced women—; married female managers do not display a disadvantage. Finally, overall and unexplained gender differentials are more pronounced at mid‐levels of productivity.     

Systemic financial risk indicators and securitised assets: an agent-based framework

The paper presents an agent-based model of a credit economy which includes a securitisation process and a bailout mechanism for bank bankruptcies. Within this framework, banks are able to sell mortgages to a financial vehicle corporation, which finances its activity by creating mortgage-backed securities and selling them to a mutual fund. In turn, the mutual fund collects liquidity by selling shares to households and remunerates them with a monthly interest. The impact of this mechanism is analysed by means of computational experiments for different levels of banks’ securitisation propensity. Furthermore, we study a set of systemic risk indicators which have the aim of assessing the imbalances in the financial system. Two of them are the mortgage-to-GDP ratio and the capital adequacy ratio, which are constructed to detect only the on-balance sheet changes in banks’ credit exposure. We consider two additional indicators, similar to the previous ones with the only difference that they are also able to account for the off-balance sheet items. Moreover, we adopt an indicator, the so-called “virtuous–unvirtuous cycle” indicator, which, besides off-balance assets, targets also the GDP. The results show that higher securitisation propensity weakens the financial stability of banks with relevant effects on different sectors of the economy. Most importantly, the analysis of systemic risk reveals the important issue of designing suitable systemic risk indicators for predicting incoming financial crises, finding that an essential feature of these indicators should be to integrate banks’ off-balance sheet assets.