Time of the essence

In most industries, ranging from information systems development to construction, an overwhelming proportion of projects are delayed beyond estimated completion time. This fact constitutes somewhat of a puzzle for existing theory. The present paper studies project delays and optimal contracts under moral hazard in a setting with time to build. Within this setup, project delays are found to be most likely to happen at early stages of development and intimately connected to the degree of commitment of the procurer and the class of contracts that can be enforced. The first-best, optimal spot contracting and optimal long-term contract scenarios are analyzed, as well as commonly encountered additional constraints on the long-term contract.     

Multiple-unit English auctions

This paper examines the outcome of an ascending-price multiple-unit auction. Two bidders, facing continuous, downward-sloping demand functions, participate in the auction of some divisible objects. The auctioneer starts the process by announcing an initial price and asking both bidders to submit sealed-bids of desired quantities. The auctioneer increases the price until the total amount bid for is less than the total supply. We compute the outcome of this auction game under full information and suggest that this mechanism may not maximize expected revenue.     

Notes and Comments: An approximation of caplet implied volatilities in Gaussian models

Abstract It is market practice to quote interest rate derivatives traded “over the counter” in terms of their implied volatility. For this reason, the term structure of at-the-money cap volatilities as well as the volatility surface of at-the-money swaptions are directly observed. This paper analyzes the case of caps. Any analysis of these markets would most likely report two main facts. The first is that the level of the volatility is inversely related to the level of the interest rates. The second is that the term structure is either a decreasing or a humped function of maturity. For a reference, see Rebonato (2003) and Brigo and Mercurio (2001). Rebonato (2003) suggests that the structure of implied volatility is humped in periods of normal market conditions and decreasing when markets are “excited”. Interpreting and explaining such phenomena is indeed an interesting and important issue. Mathematics Subject Classification (2000): 91B70 Journal of Economic Literature Classification: E43, C13     

GAME THEORETIC MODELS OF MIXED OLIGOPOLY

Abstract. In this paper we review various models that have been proposed for the study of mixed oligopoly, that is markets in which private and public firm compete on equal basis using only market instruments.     

A network-based analysis of the impact of structural damage on urban accessibility following a disaster: the case of the seismically damaged Port Au Prince and Carrefour urban road networks

The magnitude 7.0 earthquake that struck Haiti in January 2010 led to an unprecedented effort in collecting and providing geographical information in support of humanitarian aid. Although most of the compiled datasets and generated maps were able to provide specific and detailed information regarding the location of damaged buildings and road interruptions, none or little information was available to describe the accessibility—or otherwise—of the urban space. Here we try to offer an alternative method to define the urban accessibility landscape in the aftermath of earthquake damage, by combining simple graph theory concepts and GIS-based spatial analysis to assess how the urban space accessibility decreases when the road network is damaged.     

Simultaneous Pooled Auctions

Suppose a seller wants to sell k similar or identical objects and there are n > k potential buyers. Suppose that each buyer wants only one object. In this case, we suggest the use of a simultaneous auction that would work as follows. Players are asked to submit sealed bids for one object. The individual with the highest bid chooses an object first; the individual with the second-highest bid chooses the next object; and this process continues until the individual with the kth highest bid receives the last object. Each individual pays the equivalent to his or her bid. When objects are identical, we show that the proposed auction generates the same revenue as a first-price sealed-bid sequential auction. When objects are perfectly correlated, there is no known solution for sequential auctions, whereas we can characterize bidding strategies in the proposed auction. Moreover, the proposed auction is optimal (given an appropriately chosen reserve price), and it may be easier and cheaper to run than a sequential auction.     

Cheating to win: Dishonesty and the intensity of competition

We argue that the intensity of competition within a group or organization can have an important influence on whether or not people cheat. To make this point we first work through a simple model of strategic misreporting in the workplace. For low and high levels of competition we show that, in equilibrium, few are predicted to misreport. It is for medium levels of competition that misreporting is predicted to be highest. We test this prediction experimentally and find good support for it. This finding has implications for the design of incentive structures within groups and organizations.     

The Scottish Tradition in Economics and the Role of Common Sense in Adam Smith's Thought

This essay examines the notion of a 'Scottish Tradition' and the role of common sense in Adam Smith's thought. It is a contribution to the contemporary literature on the 'Scottish Approach' and on the historical investigation of Adam Smith's intellectual background. It argues that a notion of common sense was behind Smith's view of science and that it may provide an epistemological foundation for the Scottish Tradition. The essay attempts to show how the notion of common sense may be seen as a way of emphasising the role of reason and judgement in the conceptualisation of phenomena with pragmatic and aesthetic content.     

Rio reconstruction and flood prevention in Brazil

Until the Rio Flood Reconstruction and Prevention Project, disaster-related projects funded by the World Bank focused primarily on reconstruction, especially immediate, short-term recovery. The Rio de Janeiro project was notable as a targeted effort to reduce disaster vulnerability by promoting long-term multisectoral development strategies. It taught that reconstruction projects must address specific disaster vulnerabilities as well as cross-sectoral needs in Improving urban environmental management. The project represents a significant step towards developing a strategy for long-term prevention and mitigation of natural disasters and environmental degradation. It is also a good example of an effort to develop support for long-term environmental policies by strengthening indigenous managerial and planning capabilities—something that was not possible in short-term recovery projects.     

Sulla rigidita ‘della volatilita’ dell'ottimo portafoglio aleatorio al variare delle aspettative di mercato

Con riferimento al ben noto modello diagonale di Sharpe per le scelte di portafoglio, il presente lavoro si propone di fomire supporto teorico alla congettura (confermata da indagini sul mercato finanziario domestico) di una sostanziale rigidità della volatilità dell'ottimo portafoglio aleatorio al variare delle aspettative di mercato.

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Summary It is well known that one of the key theoretical supports to modern portfolio management derives from the so called diagonal model proposed by W. Sharpe.Precisely managers should build risky portfolios with high beta if the market is expected to rise and conversely with low betas if the market is expected to fall.Here on the contrary we discuss the theoretical bases of what seems to be a law of rigidity of the volatility of the optimal risky portfolio to variations ceteris paribus of the market expectations, quite likely prevailing on financial markets.Indeed this fact seems to be supported by empirical data regarding domestic stock market collected and discussed elsewhere (Stucchi 1988).This seems to suggest that the right response to change in market expectation is to change the bond-stock composition of the protfolio, rather then to act on the volatility of the stock (risky) portfolio.