Deliberative voting

We analyze a model of jury decision making in which jurors deliberate before casting their votes. We consider a wide range of voting institutions and show that deliberations render these equivalent with respect to the sequential equilibrium outcomes they generate. In particular, in the context of a jury setup, all voting rules excluding the two types of unanimity rules (one requiring a unanimous consensus to acquit, one requiring a unanimous consensus to convict) induce the same set of equilibria outcomes. We show the robustness of our results with respect to several restrictions on communication protocols and jurors’ strategies. Furthermore, we demonstrate that our observations extend to practically all of the voting structures commonly studied in the voting literature. The paper suggests the importance of accounting for communication in models of collective choice.     

Unmediated communication in games with complete and incomplete information

We study the effects of adding unmediated communication to static, finite games of complete and incomplete information. We characterize S^U(G), the set of outcomes of a game G, that are induced by sequential equilibria of cheap talk extensions. A cheap talk extension of G is an extensive-form game in which players communicate before playing G. A reliable mediator is not available and players exchange private or public messages that do not affect directly their payoffs. We first show that if G is a game of complete information with five or more players and rational parameters, then S^U(G) coincides with the set of correlated equilibria of G. Next, we demonstrate that if G is a game of incomplete information with at least five players, rational parameters and full support (i.e., all profiles of types have positive probability), then S^U(G) is equal to the set of communication equilibria of G.     

Why don't Lenders renegotiate more home mortgages? Redefaults,self-cures and securitization

A leading explanation for the lack of widespread mortgage renegotiation is the existence of frictions in the mortgage securitization process. This paper finds similarly small renegotiation rates for securitized loans and loans held on banks' balance sheets that become seriously delinquent, in particular during the early part of the financial crisis. We argue that information issues endemic to home mortgages, where lenders negotiate with large numbers of borrowers, lead to barriers in renegotiation. Consistent with the theory, renegotiation rates are strongly negatively correlated with the degree of informational asymmetries between borrowers and lenders over the course of the crisis.     

Just the facts: An initial analysis of subprime’s role in the housing crisis

Using two large proprietary datasets from New England, this paper establishes some basic facts about the subprime crisis. First, while unaffordable interest-rate resets are often blamed for setting off this crisis, most subprime borrowers who defaulted did so well in advance of their reset dates. Defaults on subprime adjustable-rate mortgages are more sensitive to declining housing prices than are defaults on fixed-rate loans, however, and the data support a number of alternative explanations for this finding. Second, many borrowers with good credit scores took out subprime loans as the housing boom gathered steam. It is hard to construct a prima facie case that these borrowers were inappropriately steered into the subprime market, however, because the loans that these borrowers took out were too risky for prime treatment. Finally, 70% of Massachusetts homes recently lost to foreclosure were originally purchased with prime mortgages. But subprime refinancing is especially prevalent among owners who were likely to have extracted substantial amounts of equity before they defaulted.     

Aggregation of expert opinions

Conflicts of interest arise between a decision maker and agents who have information pertinent to the problem because of differences in their preferences over outcomes. We investigate how the decision maker can extract the information by distorting the decisions that will be taken. We show that only slight distortions will be necessary when agents' signals are sufficiently accurate or when the number of informed agents becomes large. We argue that the particular mechanisms analyzed are substantially less demanding informationally than those typically employed in implementation and virtual implementation. Further, the mechanisms are immune to manipulation by small groups of agents.     

SELECTED PROBLEMS OF INTER-COUNTRY COMPARISONS ON THE BASIS OF THE EXPERIENCE OF THE EEC

The formidable expansion in the scope of the United Nations International Comparison Project has brought into evidence limitations of the methodology used in the first three phases. The author considers that there are two indispensable conditions needed to give renewed impetus to the ICP: (a) the objectives must be redefined, and (b) the methodology must be built on an entirely new basis. He considers the broad lines of such an evolution to be the following. (a) The objective of volume comparison must be kept distinct from that of purchasing power comparison, given that both the basic material and the formulae to be used at the aggregate level differ in the two cases. (b) At the basic heading level, it is proposed, for both volume and purchasing power comparisons, to replace the multilateral approach by a “minimum scale” binary and unilateral approach, and to use the EKS method. This will make possible an improvement in the accuracy of the estimates, a reduction in the overall costs, and a drastic reduction in execution time. What is more, it would be possible to regionalize the worldwide comparison, in the sense that the results of the basic heading comparisons already obtained at the regional level for regional purposes can be used as an input in the framework of the worldwide comparison. At the aggregate level, in the framework of volume comparison, it is proposed that a constant price procedure in the spatial sense should continue to be used. It is, however, proposed that the prices of the set of countries (GK) be replaced by a structure of common “equi-distant” prices (G). This would permit the elimination of the significant systematic distortions observed in the comparison between rich and poor countries in the first three phases of ICP. What is more, this gives maximum stability to results obtained for the same countries at different geographical levels. By using a set of common “equi-distant” quantities, the same advantage can be obtained in the purchasing power comparison.     

Social memory,evidence, and conflict

This paper examines an equilibrium model of social memory — a society's vicarious beliefs about its past. We show that incorrect social memory is a key ingredient in creating and perpetuating destructive conflicts.We analyze an infinite-horizon model in which two countries face off each period in a game of conflict characterized by the possibility of mutually destructive “all out war” that yields catastrophic consequences for both sides. Each country is inhabited by a dynastic sequence of individuals. Each individual cares about future individuals in the same country, and can communicate with the next generation of their countrymen using private messages. Social memory is based on these messages, and on physical evidence — a sequence of imperfectly informative public signals of past behavior. We find that if the future is sufficiently important for all individuals, then regardless of the precision of physical evidence from the past there is an equilibrium in which the two countries engage in all out war with arbitrarily high frequency, an outcome that cannot arise in the standard repeated game. In our construction, each new generation “repeats the mistakes” of its predecessors, leading to an endless cycle of destructive behavior.Surprisingly, we find that degrading the quality of information that individuals have about current decisions may “improve” social memory. This in turn ensures that arbitrarily frequent all out wars cannot occur.     

Utility indifference valuation for jump risky assets

We discuss utility maximization problems with exponential preferences in an incomplete market where the risky asset dynamics is described by a pure jump process driven by two independent Poisson processes. This includes results on portfolio optimization under an additional European claim. Value processes of the optimal investment problems, optimal hedging strategies and the indifference price are represented in terms of solutions to backward stochastic equations driven by the Poisson martingales. Via a duality result, the solution to the dual problems is derived. In particular, an explicit expression for the density of the minimal martingale measure is provided. The Markovian case is also discussed. This includes either asset dynamics dependent on a pure jump stochastic factor or claims written on a correlated non tradable asset.     

Information acquisition in committees

The goal of this paper is to illustrate the significance of information acquisition in mechanism design. We provide a stark example of a mechanism design problem in a collective choice environment with information acquisition. We concentrate on committees that are comprised of agents sharing a common goal and having a joint task. Members of the committee decide whether to acquire costly information or not at the outset and are then asked to report their private information. The designer can choose the size of the committee, as well as the procedure by which it selects the collective choice, i.e., the correspondence between agents' reports and distributions over collective choices. We show that the ex ante optimal device may be ex post inefficient, i.e., lead to suboptimal aggregation of information from a statistical point of view. For particular classes of parameters, we describe the full structure of the optimal mechanisms.     

A “Super” Folk Theorem for dynastic repeated games

We analyze dynastic repeated games. These are repeated games in which the stage game is played by successive generations of finitely-lived players with dynastic preferences. Each individual has preferences that replicate those of the infinitely-lived players of a standard discounted infinitely-repeated game. Individuals live one period and do not observe the history of play that takes place before their birth, but instead create social memory through private messages received from their immediate predecessors. Under mild conditions, when players are sufficiently patient, all feasible payoff vectors (including those below the minmax of the stage game) can be sustained by sequential equilibria of the dynastic repeated game with private communication. In particular, the result applies to any stage game with n  ≥  4 players for which the standard Folk Theorem yields a payoff set with a non-empty interior. We are also able to characterize fully the conditions under which a sequential equilibrium of the dynastic repeated game can yield a payoff vector not sustainable as a subgame perfect equilibrium of the standard repeated game. For this to be the case it must be that the players’ equilibrium beliefs violate a condition that we term “inter-generational agreement.” A previous version of this paper was circulated as Anderlini et al. (2005). We are grateful to Jeff Ely, Leonardo Felli, Navin Kartik, David Levine, Stephen Morris, Michele Piccione, Andrew Postlewaite, Lones Smith and to seminar audiences at Bocconi, Cambridge, CEPR-Guerzensee, Chicago, Columbia, Edinburgh, Essex, Georgetown, Leicester, LSE, Northwestern, Oxford, Rome (La Sapienza), Rutgers, SAET-Vigo, Stanford, SUNY-Albany, UCL, UC-San Diego, Venice and Yale for helpful feedback.