# EconS Advanced Microeconomics II Handout on Cheap Talk

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 EconS 53 - Advanced Microeconomics II Handout on Cheap Talk. Cheap talk with Stockbrokers (From Tadelis, Ch. 8, Exercise 8.) A stockbroker can give his client one of three recommendations regarding a certain stock: buy (B), hold (H), or sell (S). The stock can be one of three kinds: a winner (W ), mediocre (M), or a loser (L). The stockbroker knows the type of stock but the client knows only that each type is equally likely. The game proceeds as follows: rst. the stockbroker makes a recommendation a fb; H; Sg to the client, after which the client chooses an action a fb; H; Sg and payo s are determined. The payo s to the stockbroker (player ) and client (player ) depend on the type of stock and the action taken by the client (the pairs are (v ; v ) where v i is player i s payo ) as follows (Note that this is not actually a normal form representation of the game, just a payo table): Type of stock Player s action a B H S W (; ) ( ; ) ( ; ) M (; ) (; ) (; ) L ( ; ) ( ; ) (; ) a) Find a babbling perfect Bayesian equilibrium of this game. First, note that the extensive form of the game can be depicted as follows.: Nature Winner Mediocre Loser Stockbroker Stockbroker Stockbroker Buy Hold Sell Buy Hold Sell Buy Hold Sell Client Client Client B H S B H S B H S B H S B H S B H S B H S B H S B H S S C In a babbling equilibrium, the message that the stockbroker sends reveals no information to the client, and is thus useless. We can show that this will be the case due to the stockbroker

2 having incentive to lie. When the stock is a winner ( = W ), the preferred outcomes are B for the stockbroker and B for the client; however, when the stock is mediocre, the preferred outcome are H for the stockbroker and B for the client. Likewise, when the stock is a loser, the preferred outcomes are S for the stockbroker and H for the client. Thus, since the interests of the stockbroker and client are not in alignment, the stockbroker has incentive to lie, and the message will not be useful to the client. Thus, the client is best o by choosing the action that yields the highest expected utility, i.e., EU (Bj) = 3 () + 3 () + 3 () = EU (Hj) = 3 ( ) + 3 () + 3 () = EU (Sj) = 3 ( ) + 3 ( ) + 3 () = which yields B as the babbling perfect Bayesian equilibrium of this game. b) Is there a fully truthful perfect Bayesian equilibrium in which the stockbroker makes the recommendation that, if followed, maximizes the client s payo? No. As we showed in the previous part, the stockbroker only has incentive to be truthful when the stock is a winner. c) What is the most informative perfect Bayesian equilibrium of this game? Since the stockbroker has incentive to be truthful when the stock is a winner, and he it is not in his interest to send the signal B otherwise, we can specify the following strategy: The stockbroker, upon observing that the stock is a winner sends the message a = B. If the stock is not a winner, the stockbroker mixes with.5 probability between signals a = H

3 and a = S as shown in the gure below. Nature Winner Mediocre Loser Stockbroker Stockbroker Stockbroker Buy Hold Sell Buy Hold Sell Buy Hold Sell Client Client Client B H S B H S B H S B H S B H S B H S B H S B H S B H S S C In this case, the clent s best response is to choose B upon receiving a signal of B. When receiving a signal of H or S, the client knows that the stock is not a winner, and maximizes it s expected value EU (Bj) = () + () = EU (Hj) = () + () = EU (Sj) = ( ) + () = and thus, the client is indi erent between B and H.. Labor Market Signaling (From Macho-Stadler and Perez-Castrillo, Ch. 5, Exercise ). Assume that in the market there exists two types of worker, di erentiated by their productivity. Type-k G workers have productivity k =, while the productivity of the type-k B workers is k =. The cost of achieving a given level of education is greater for type-k B workers that for type k G workers. In particular, the cost of e units of education for a type-k individual is c(e; k) = e. k The utility function of a type-k individual is U(w; e; k) = w c(e; k). a) Does a worker s education level in uence his productivity? What would be the optimal education level if rms had the same information as workers as to the value of k? 3

4 No. Education is merely a signal to the rm of the worker s productivity, not the productivity itself. If rms could perfectly observe productivity, there would be no reason to obtain education (unless education increased productivity) and thus, e =. For parts (b) through (c), now assume that a worker s productivity is not observable by rms, but that their education level is. Furthermore, assume that rms believe that education greater than or equal to a certain level e O is a signal of high productivity, while education less than this level signals low productivity. Hence rms o er wages according to w(e) = if e e O and w(e) = if e < e O. b) Given these wages, calculate the level of education that each type of agent will choose. Each type of worker will only obtain education if it is pro table, or if the gains to education are greater than what could be received by obtaining no education. This can be expressed as U(; e O ; k) U(; ; k) e O k k Solving this expression yields k e O. Thus, if e O, the type k G agents will have incentive to obtain education, and if e O, both types of agent have incentive to obtain education. The gures below illustrate this e ect. In the rst gure, e O is low enough such that it induces both types of agent to obtain the education to receive the higher paying job (Denoted as on the indi erence curves), whereas the second gure shows a situation where e O is such that only the type k G agent will obtain education. If e O were to shift further to the right, the type-k G indi erence curve for the higher wage would eventually cross below the lower wage s indi erence curve. w Type k B Type k G e O e 4

5 w Type k B Type k G e O e c) Find the necessary condition on e O so that education is an e ective signal of productivity. As shown in part (b), if the cuto value of e O is either too low or too high, both types of agent will choose the same level of education, making the signal ine ective. Thus, the necessary condition is that e O. Remark: Don t worry about the weak inequalities used in this problem. We can assume that when faced with indi erence, the agents choose our desired outcomes. 3. Cheap Talk with a continuum of types Let us extend the environmental regulation exercise you did in class about Cheap Talk messages, to a setting in which the sender (lobbyist) can have a continuum of types (rather than only two), uniformly distributed in the interval [ min ; max ]. Answer the following questions, assuming the same utility functions (p ) for the politician and (p b) for the lobbyist. a) Consider the partially informative strategy pro le in Figure. In particular, all lobbyists with a type < send the same message m, while those above this cuto send a di erent message, m. What are the receiver s beliefs in this partially informative 5

6 equilibrium? m m θ min θ θ max p = θ min + θ p = θ + θ max If message m is received, the receiver s beliefs are totally concentrated on the fact that the true state of the world must be within some of the values of interval, and never from interval : (Interval jm) = and (Interval jm) = Similarly if message m is received, the receiver is convinced that the true state of the world must be within some of the values of interval, and never from interval : (Interval jm) = and (Interval jm) = b) What is the receiver s optimal action (or policy), given the beliefs you speci ed in the previous question? If a message on the rst interval is received, then beliefs are updated (concentrated on the fact that the true state must be in this rst interval). Hence, the optimal action of the receiver is p = min+. This action minimizes the distance between p and the expected value of in the rst interval, which is min+. If a message on the second interval is received, then beliefs are updated (concentrated on the fact that the true state must be in this second interval), and hence, the optimal action of the receiver is p = + max. This action minimizes the distance between p and the expected value of in the second interval, which is + max. 6

7 c) What is the value of that makes a sender with type to be indi erent between sending message m (inducing an action of p = min+ ) and sending a message of m (inducing an action of p = + max )? [Hint: your expression of should depend on max, min, and the parameter re ecting the divergence between the receiver and the sender s preferences, b.] If is the true state, then the sender sends any message in the rst interval. We must check that the sender does not want to deviate to send m. The sender observing a true state of the world in the rst interval who has the highest incentives to deviate towards a message on the second interval is precisely. In fact, he is indi erent between sending a message on the rst and on the second interval: min + Rearranging the expression yields, Further simplifying, Solving for, we obtain, ( + b) ( + b) = min + + max = + max 4( + b) = max + min + = ( max + min ) b ( + b) ( + b) d) Numerical example. Let us now consider a numerical example. Assume that min = and max =, and rewrite the expression of you found in part (c). We know that must be above and below, since otherwise it would be beyond the lower bound min or upper bound max, i.e., < <. Plug in this inequality the value for that you found in the previous questions, and solve for parameter b. What is the range of values for parameter b that support this partially informative PBE with two steps (two partitions)? When min = and max =, the above expression becomes, = ( max + min ) b = b In addition, if = b must be larger than or smaller than, we obtain that < b <, and hence 4 < b < 4 7

8 Intuitively, if the preferences between the receiver (politician) and the sender (lobbyist) are not very divergent (jbj < ), we can obtain a -step equilibrium which is partially informative 4 about the true state of the world. That is, some (although not full) information is transmitted from the sender to the receiver. Otherwise (if jbj > =4) we cannot support such a partially informative equilibrium in two steps, and we would only have a pooling equilibrium in which all type of lobbyists in [ min ; max ] send the same message to the politician. 8

### Quality differentiation and entry choice between online and offline markets

Quality differentiation and entry choice between online and offline markets Yijuan Chen Australian National University Xiangting u Renmin University of China Sanxi Li Renmin University of China ANU Working

Chapter 3 Adverse Selection Adverse selection, sometimes known as The Winner s Curse or Buyer s Remorse, is based on the observation that it can be bad news when an o er is accepted. Suppose that a buyer

### Midterm March 2015. (a) Consumer i s budget constraint is. c i 0 12 + b i c i H 12 (1 + r)b i c i L 12 (1 + r)b i ;

Masters in Economics-UC3M Microeconomics II Midterm March 015 Exercise 1. In an economy that extends over two periods, today and tomorrow, there are two consumers, A and B; and a single perishable good,

### 1 Further Pricing Relationships on Options

1 Further Pricing Relationships on Options 1.1 The Put Option with a Higher Strike must be more expensive Consider two put options on the same stock with the same expiration date. Put option #1 has a strike

### Optimal insurance contracts with adverse selection and comonotonic background risk

Optimal insurance contracts with adverse selection and comonotonic background risk Alary D. Bien F. TSE (LERNA) University Paris Dauphine Abstract In this note, we consider an adverse selection problem

### The E ect of Trading Commissions on Analysts Forecast Bias

The E ect of Trading Commissions on Analysts Forecast Bias Anne Beyer and Ilan Guttman Stanford University September 2007 Abstract The paper models the interaction between a sell-side analyst and a risk-averse

### Paid Placement: Advertising and Search on the Internet

Paid Placement: Advertising and Search on the Internet Yongmin Chen y Chuan He z August 2006 Abstract Paid placement, where advertisers bid payments to a search engine to have their products appear next

### Cheap Talk : Multiple Senders and Multiple Receivers

Corso di Laurea in Economia indirizzo Models and Methods of Quantitative Economics Prova finale di Laurea Cheap Talk : Multiple Senders and Multiple Receivers Relatore Prof. Piero Gottardi Laureando Arya

### Games Played in a Contracting Environment

Games Played in a Contracting Environment V. Bhaskar Department of Economics University College London Gower Street London WC1 6BT February 2008 Abstract We analyze normal form games where a player has

### No 139. Consumer Flexibility, Data Quality and Location Choice. Irina Baye, Irina Hasnas

No 139 Consumer Flexibility, Data Quality and Location Choice Irina aye, Irina Hasnas April 014 IMPINT DICE DISCUSSION PAPE Published by düsseldorf university press (dup) on behalf of Heinrich Heine Universität

### Problem 1 (Issuance and Repurchase in a Modigliani-Miller World)

Problem 1 (Issuance and Repurchase in a Modigliani-Miller World) A rm has outstanding debt with a market value of \$100 million. The rm also has 15 million shares outstanding with a market value of \$10

### Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling

Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling Daron Acemoglu MIT November 3, 2011. Daron Acemoglu (MIT) Education, Selection, and Signaling November 3, 2011. 1 / 31 Introduction

### 2. Information Economics

2. Information Economics In General Equilibrium Theory all agents had full information regarding any variable of interest (prices, commodities, state of nature, cost function, preferences, etc.) In many

### Discussion of Self-ful lling Fire Sales: Fragility of Collateralised, Short-Term, Debt Markets, by J. C.-F. Kuong

Discussion of Self-ful lling Fire Sales: Fragility of Collateralised, Short-Term, Debt Markets, by J. C.-F. Kuong 10 July 2015 Coordination games Schelling (1960). Bryant (1980), Diamond and Dybvig (1983)

### Online shopping and platform design with ex ante registration requirements

Online shopping and platform design with ex ante registration requirements Florian Morath Johannes Münster y December 5, 2014 Abstract We study platform design in online markets in which buying involves

### The Timing of Signaling: To Study in High School or in College?

The Timing of Signaling: To Study in High School or in College? Sanghoon Lee 1 University of British Columbia, Canada Abstract American students study harder in college than in high school while East Asian

### Perfect Bayesian Equilibrium

Perfect Bayesian Equilibrium When players move sequentially and have private information, some of the Bayesian Nash equilibria may involve strategies that are not sequentially rational. The problem is

### Chapter 7. Sealed-bid Auctions

Chapter 7 Sealed-bid Auctions An auction is a procedure used for selling and buying items by offering them up for bid. Auctions are often used to sell objects that have a variable price (for example oil)

### Does horizontal FDI lead to more knowledge spillovers than vertical FDI?

NiCE Working Paper 10-101 January 2010 Does horizontal FDI lead to more knowledge spillovers than vertical FDI? Nicole Roording Albert de Vaal Nijmegen Center for Economics (NiCE) Institute for Management

### Pricing Cloud Computing: Inelasticity and Demand Discovery

Pricing Cloud Computing: Inelasticity and Demand Discovery June 7, 203 Abstract The recent growth of the cloud computing market has convinced many businesses and policy makers that cloud-based technologies

### Interlinkages between Payment and Securities. Settlement Systems

Interlinkages between Payment and Securities Settlement Systems David C. Mills, Jr. y Federal Reserve Board Samia Y. Husain Washington University in Saint Louis September 4, 2009 Abstract Payments systems

### Pre-trial Settlement with Imperfect Private Monitoring

Pre-trial Settlement wit Imperfect Private Monitoring Mostafa Beskar University of New Hampsire Jee-Hyeong Park y Seoul National University July 2011 Incomplete, Do Not Circulate Abstract We model pretrial

### Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle

Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle Pierre Picard 24 November 2009 Abstract We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market

Advanced Microeconomics Static Bayesian games Harald Wiese University of Leipzig Harald Wiese (University of Leipzig) Advanced Microeconomics / 7 Part E. Bayesian games and mechanism design Static Bayesian

### A Simpli ed Axiomatic Approach to Ambiguity Aversion

A Simpli ed Axiomatic Approach to Ambiguity Aversion William S. Neilson Department of Economics University of Tennessee Knoxville, TN 37996-0550 wneilson@utk.edu March 2009 Abstract This paper takes the

### Information Gatekeepers on the Internet and the Competitiveness of. Homogeneous Product Markets. By Michael R. Baye and John Morgan 1.

Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets By Michael R. Baye and John Morgan 1 Abstract We examine the equilibrium interaction between a market for

### The maximal-damage paradigm in antitrust regulation and leniency programs

The maximal-damage paradigm in antitrust regulation and leniency programs Harold Houba y VU University Amsterdam and Tinbergen Institute Evgenia Motchenkova z VU University Amsterdam and Tinbergen Institute

### Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle

Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle Pierre Picard y 22 August 2010 Abstract We show that an equilibrium always exists in the Rothschild-Stiglitz insurance market

### Adverse selection and moral hazard in health insurance.

Adverse selection and moral hazard in health insurance. Franck Bien David Alary University Paris Dauphine November 10, 2006 Abstract In this paper, we want to characterize the optimal health insurance

### Health Economics: ECON 364 Health Care Supply: Physicians in Marketplace

Health Economics: ECON 364 Health Care Supply: Physicians in Marketplace Teng Wah Leo St. Francis Xavier University Department of Economics October 2007 We have consider how physicians individual choices

### Can a Lump-Sum Transfer Make Everyone Enjoy the Gains. from Free Trade?

Can a Lump-Sum Transfer Make Everyone Enjoy te Gains from Free Trade? Yasukazu Icino Department of Economics, Konan University June 30, 2010 Abstract I examine lump-sum transfer rules to redistribute te

### Parimutuel versus Fixed-Odds Markets

Parimutuel versus Fixed-Odds Markets Marco Ottaviani Peter Norman Sørensen y April 2005 Abstract This paper compares the outcomes of parimutuel and competitive xed-odds betting markets. In the model, there

### Tiered and Value-based Health Care Networks

Tiered and Value-based Health Care Networks Ching-to Albert Ma Henry Y. Mak Department of Economics Department of Economics Boston Univeristy Indiana University Purdue University Indianapolis 270 Bay State

### Competing for Consumers Online: The Advertising Strategies of. Vertically Di erentiated Firms

Competing for Consumers Online: The Advertising Strategies of Vertically Di erentiated Firms Taylan Yalcin Harvard Business School, Harvard University tyalcin@hbs.edu Elie Ofek Harvard Business School,

### Optimal Auctions. Jonathan Levin 1. Winter 2009. Economics 285 Market Design. 1 These slides are based on Paul Milgrom s.

Optimal Auctions Jonathan Levin 1 Economics 285 Market Design Winter 29 1 These slides are based on Paul Milgrom s. onathan Levin Optimal Auctions Winter 29 1 / 25 Optimal Auctions What auction rules lead

### February 2013. Abstract

Marking to Market and Ine cient Investments Clemens A. Otto and Paolo F. Volpin February 03 Abstract We examine how mark-to-market accounting a ects investment decisions in an agency model with reputation

### Corporate Underinvestment in the Presence of Symmetric and Asymmetric Information

Corporate Underinvestment in the Presence of Symmetric and Asymmetric Information DISSERTATION zur Erlangung des Grades eines Doktors der Wirtschaftswissenschaft eingereicht an der Fakultät für Wirtschaftswissenschaften

### Optimal Investment. Government policy is typically targeted heavily on investment; most tax codes favor it.

Douglas Hibbs L, L3: AAU Macro Theory 0-0-9/4 Optimal Investment Why Care About Investment? Investment drives capital formation, and the stock of capital is a key determinant of output and consequently

### On the incentives of an integrated ISP to favor its own content

On the incentives of an integrated ISP to favor its own content Duarte Brito y UNL and CEFAGE-UE dmb@fct.unl.pt Pedro Pereira z AdC and CEFAGE-UE pedro.br.pereira@gmail.com. João Vareda x European Commission

### Heterogeneous Expectations, Adaptive Learning, and Evolutionary Dynamics

Heterogeneous Expectations, Adaptive Learning, and Evolutionary Dynamics Eran A. Guse West Virginia University November 006 (Revised December 008) Abstract This paper presents a linear self-referential

Brunel University Msc., EC5504, Financial Engineering Prof Menelaos Karanasos Lecture Notes: Volatility Trading Strategies 1 Volatility Trading Strategies As previously explained, volatility is essentially

### Covert Networks and the Antitrust Policy

Covert Networks and the Antitrust Policy Flavia Roldán Universidad ORT Uruguay and Public-Private Sector Research Center, IESE Business School June, 2011 Abstract This article studies the e ectiveness

### Advice by an Informed Intermediary: Can You Trust Your Broker? Centre for Economic and Financial Research at New Economic School

Centre for Economic and Financial Research at New Economic School October 008 Advice by an Informed Intermediary: Can You Trust Your Broker? Anton Suvorov Natalia Tsybuleva Working Paper o CEFIR / ES Working

### On the Interconnection of Networks and Gains from Trade in Business Services

Toru Kikuchi / Journal of Economic Research 8 (2003) 69{76 69 On the Interconnection of Networks and Gains from Trade in Business Services Toru Kikuchi 1 Kobe University Received 1 April 2003; accepted

### Technology Licensing by Advertising Supported Media Platforms: An Application to Internet Search Engines

No 23 Technology Licensing by Advertising Supported Media Platforms: An Application to Internet Search Engines Geza Sapi, Irina Suleymanova June 2011 IMPRINT DICE DISCUSSION PAPER Published by Heinrich

### Panel Data Econometrics

Panel Data Econometrics Master of Science in Economics - University of Geneva Christophe Hurlin, Université d Orléans University of Orléans January 2010 De nition A longitudinal, or panel, data set is

### Federal Reserve Bank of New York Staff Reports. Deficits, Public Debt Dynamics, and Tax and Spending Multipliers

Federal Reserve Bank of New York Staff Reports Deficits, Public Debt Dynamics, and Tax and Spending Multipliers Matthew Denes Gauti B. Eggertsson Sophia Gilbukh Staff Report No. 551 February 2012 Revised

### The Real Business Cycle Model

The Real Business Cycle Model Ester Faia Goethe University Frankfurt Nov 2015 Ester Faia (Goethe University Frankfurt) RBC Nov 2015 1 / 27 Introduction The RBC model explains the co-movements in the uctuations

### On the e ect of taxation in the online sports betting market 1. Juan Vidal-Puga 1 SUMMARY

X Congreso Galego de Estatística e Investigación de Operacións Pontevedra, 3 4 5 de novembro de 20 On the e ect of taxation in the online sports betting market Universidade de Vigo Juan Vidal-Puga SUMMRY

### Domestic and Cross-Border Mergers in Unionized Oligopoly

Domestic and Cross-Border Mergers in Unionized Oligopoly Beatrice Pagel y Christian Wey z June 202 Abstract We re-examine the model of Lommerud et al. (2006) which shows that cross-border mergers should

### Is Talk Cheap Online: Strategic Interaction in A Stock Trading Chat Room

Is Talk Cheap Online: Strategic Interaction in A Stock Trading Chat Room Jie Lu Bruce Mizrach 1 1 Rutgers University Fundamental and Non-fundamental Asset Price Dynamics Feb. 2008 Lu/Mizrach (Rutgers U.)

### FINAL EXAM, Econ 171, March, 2015, with answers

FINAL EXAM, Econ 171, March, 2015, with answers There are 9 questions. Answer any 8 of them. Good luck! Problem 1. (True or False) If a player has a dominant strategy in a simultaneous-move game, then

### Decentralised Bilateral Trading in a Market with Incomplete Information

Decentralised Bilateral Trading in a Market with Incomplete Information Kalyan Chatterjee 1 Kaustav Das 23 May 28, 2013 1 Department of Economics, The Pennsylvania State University, University Park, Pa.

### Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets

Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Nathaniel Hendren January, 2014 Abstract Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that

Buying shares and/or votes for corporate control Eddie Dekel and Asher Wolinsky 1 April 2011 1 Dekel (corresponding author) is at the Department of Economics, Tel Aviv University and Northwestern University,

### The Detaxation of Overtime Hours: Lessons from the French Experiment

The Detaxation of Overtime Hours: Lessons from the French Experiment Pierre Cahuc (Polytechnique, CREST) Stephane Carcillo (OECD, Université Paris 1) December 2010 1 / 35 Introduction In October 2007:

### Market Power, Forward Trading and Supply Function. Competition

Market Power, Forward Trading and Supply Function Competition Matías Herrera Dappe University of Maryland May, 2008 Abstract When rms can produce any level of output, strategic forward trading can enhance

### CONTRACTUAL SIGNALLING, RELATIONSHIP-SPECIFIC INVESTMENT AND EXCLUSIVE AGREEMENTS

CONTRACTUAL SIGNALLING, RELATIONSHIP-SPECIFIC INVESTMENT AND EXCLUSIVE AGREEMENTS LUÍS VASCONCELOS y Abstract. I analyze a simple model of hold-up with asymmetric information at the contracting stage.

### Long-Term Debt Pricing and Monetary Policy Transmission under Imperfect Knowledge

Long-Term Debt Pricing and Monetary Policy Transmission under Imperfect Knowledge Stefano Eusepi, Marc Giannoni and Bruce Preston The views expressed are those of the authors and are not necessarily re

### Chapter 1: The Modigliani-Miller Propositions, Taxes and Bankruptcy Costs

Chapter 1: The Modigliani-Miller Propositions, Taxes and Bankruptcy Costs Corporate Finance - MSc in Finance (BGSE) Albert Banal-Estañol Universitat Pompeu Fabra and Barcelona GSE Albert Banal-Estañol

### An optimal redistribution scheme for trade gains

An optimal redistribution scheme for trade gains Marco de Pinto y University of Kassel May 25, 202 Abstract The contribution of this paper is to derive an optimal redistribution scheme for trade gains

### Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle

Participating insurance contracts and the Rothschild-Stiglitz equilibrium puzzle Pierre Picard Ecole Polytechnique July 2009 Pierre Picard (Ecole Polytechnique) July 2009 1 / 25 Overview 1 Motivation and

### Corporate Income Taxation

Corporate Income Taxation We have stressed that tax incidence must be traced to people, since corporations cannot bear the burden of a tax. Why then tax corporations at all? There are several possible

### CPC/CPA Hybrid Bidding in a Second Price Auction

CPC/CPA Hybrid Bidding in a Second Price Auction Benjamin Edelman Hoan Soo Lee Working Paper 09-074 Copyright 2008 by Benjamin Edelman and Hoan Soo Lee Working papers are in draft form. This working paper

### Economics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.

Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a

### Lecture Notes: Basic Concepts in Option Pricing - The Black and Scholes Model

Brunel University Msc., EC5504, Financial Engineering Prof Menelaos Karanasos Lecture Notes: Basic Concepts in Option Pricing - The Black and Scholes Model Recall that the price of an option is equal to

### Dark Pool Trading Strategies, Market Quality and Welfare. Online Appendix

Dark Pool Trading Strategies, Market Quality and Welfare Online ppendix Sabrina Buti Barbara Rindi y Ingrid M. Werner z December, 015 Uniersity of Toronto, Rotman School of Management, sabrina.buti@rotman.utoronto.ca

### Voluntary Voting: Costs and Bene ts

Voluntary Voting: Costs and Bene ts Vijay Krishna y and John Morgan z November 7, 2008 Abstract We study strategic voting in a Condorcet type model in which voters have identical preferences but di erential

### Minimum Coverage Regulation in Insurance Markets

Minimum Coverage Regulation in Insurance Markets Daniel McFadden y, Carlos Noton z and Pau Olivella x Abstract We study the consequences of imposing a minimum coverage in an insurance market where enrollment

### pre-trial bargaining

Private antitrust enforcement in the presence of pre-trial bargaining Sylvain Bourjade Toulouse Business School s.bourjade@esc-toulouse.fr Patrick Rey Toulouse School of Economics (GREMAQ and IDEI) prey@cict.fr

### Labor Market Cycles and Unemployment Insurance Eligibility

Labor Market Cycles and Unemployment Insurance Eligibility Miquel Faig Min Zhang y Febrary 16, 2008 Abstract If entitlement to UI bene ts must be earned with employment, generous UI is an additional bene

### Problem Set 9 Solutions

Problem Set 9 s 1. A monopoly insurance company provides accident insurance to two types of customers: low risk customers, for whom the probability of an accident is 0.25, and high risk customers, for

### The Stock Market, Monetary Policy, and Economic Development

The Stock Market, Monetary Policy, and Economic Development Edgar A. Ghossoub University of Texas at San Antonio Robert R. Reed University of Alabama July, 20 Abstract In this paper, we examine the impact

### Favorite-Longshot Bias in Parimutuel Betting: an Evolutionary Explanation

Favorite-Longshot Bias in Parimutuel Betting: an Evolutionary Explanation Atsushi Kajii KIER, Kyoto University Takahiro Watanabe Tokyo Metropolitan University December, 04 Abstract We o er an evolutionary

### Second degree price discrimination

Bergals School of Economics Fall 1997/8 Tel Aviv University Second degree price discrimination Yossi Spiegel 1. Introduction Second degree price discrimination refers to cases where a firm does not have

Buying shares and/or votes for corporate control Eddie Dekel and Asher Wolinsky 1 July 2010 1 Dekel is at the Department of Economics, Tel Aviv University and Northwestern University, Evanston, IL 60208,

### Technology Adoption in Markets with Network Effects: Theory and Experimental Evidence

No 33 Technology Adoption in Markets with Network Effects: Theory and Experimental Evidence Claudia Keser, Irina Suleymanova, Christian Wey October 2011 IMPRINT DICE DISCUSSION PAPER Published by Heinrich

### Costs and Bene ts of Dynamic Trading in a Lemons Market

Costs and Bene ts of Dynamic Trading in a Lemons Market William Fuchs Andrzej Skrzypacz December 1, 01 Abstract We study a dynamic market with asymmetric information that creates the lemons problem. We

### Lesson 5. Risky assets

Lesson 5. Risky assets Prof. Beatriz de Blas May 2006 5. Risky assets 2 Introduction How stock markets serve to allocate risk. Plan of the lesson: 8 >< >: 1. Risk and risk aversion 2. Portfolio risk 3.

### Lecture 11: The Design of Trading Platforms (Alos-Ferrer et al. 2010)

Lecture 11: The Design of Trading Platforms (Alos-Ferrer et al. 2010) 1. Introduction Lecture 10: selection between exogenously given market institutions now: emergence of new institutions 2 possibilities

### Loan Prospecting. January 2011

Loan Prospecting Florian Heider y Roman Inderst z January 2011 Abstract We analyze corporate lending when loan o cers must be incentivized to prospect for loans and to transmit the soft information they

### A Simpli ed Axiomatic Approach to Ambiguity Aversion

A Simpli ed Axiomatic Approach to Ambiguity Aversion William S. Neilson Department of Economics University of Tennessee Knoxville, TN 37996-0550 wneilson@utk.edu May 2010 Abstract This paper takes the

### UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS

UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS Exam: ECON4310 Intertemporal macroeconomics Date of exam: Thursday, November 27, 2008 Grades are given: December 19, 2008 Time for exam: 09:00 a.m. 12:00 noon

### Moral Hazard. Itay Goldstein. Wharton School, University of Pennsylvania

Moral Hazard Itay Goldstein Wharton School, University of Pennsylvania 1 Principal-Agent Problem Basic problem in corporate finance: separation of ownership and control: o The owners of the firm are typically

### Cooperation with Network Monitoring

Cooperation with Network Monitoring Alexander Wolitzky Microsoft Research and Stanford University July 20 Abstract This paper studies the maximum level of cooperation that can be sustained in sequential

### Cowles Foundation for Research in Economics at Yale University

Cowles Foundation for Research in Economics at Yale University Cowles Foundation Discussion Paper No. 1758R March 21 Revised August 21 TARGETING IN ADVERTISING MARKETS: IMPLICATIONS FOR OFFLINE VS. ONLINE

### Adverse Selection and the Market for Health Insurance in the U.S. James Marton

Preliminary and Incomplete Please do not Quote Adverse Selection and the Market for Health Insurance in the U.S. James Marton Washington University, Department of Economics Date: 4/24/01 Abstract Several

### Uninformative Advertising as an Invitation to Search

Uninformative Advertising as an Invitation to Search Dina Mayzlin and Jiwoong Shin Yale University October 2009 The authors contributed equally, and their names are listed in alphabetical order. We thank

### Changing income shocks or changed insurance - what determines consumption inequality?

Changing income shocks or changed insurance - what determines consumption inequality? Johannes Ludwig Ruhr Graduate School in Economics & Ruhr-Universität Bochum Abstract Contrary to the implications of

### Universities as Stakeholders in their Students Careers: On the Benefits of Graduate Taxes to Finance Higher Education

D I S C U S S I O N P A P E R S E R I E S IZA DP No. 5330 Universities as Stakeholders in their Students Careers: On the Benefits of Graduate Taxes to Finance Higher Education Tom McKenzie Dirk Sliwka

### Dynamic Pricing of Enterprise Software with Value Uncertainty: Motivation for Selling Software as a Service

Dynamic Pricing of Enterprise Software with Value Uncertainty: Motivation for Selling Software as a Service November 26, 2011 Abstract This paper studies a software vendor s decision to o er perpetual

### What is it About Schooling that the Labor Market Rewards? The Components of the Return to Schooling

What is it About Schooling that the Labor Market Rewards? The Components of the Return to Schooling Cyril D. Pasche University of Geneva, Switzerland June 27, 2008 (University of Geneva, Switzerland) Components

### Economics of Insurance

Economics of Insurance In this last lecture, we cover most topics of Economics of Information within a single application. Through this, you will see how the differential informational assumptions allow

### «Internet access and investment incentives for broadband service providers»

«Internet access and investment incentives for broadband service providers» Edmond BARANES Jean-Christophe POUDOU DR n 2011-09 Internet access and investment incentives for broadband service providers

### Customer Value-based Management: Competitive Implications

Customer Value-based Management: Competitive Implications Upender Subramanian, Jagmohan S. Raju, Z. John Zhang The Wharton School 700 Jon M. Huntsman Hall 3730 Walnut Street Philadelphia, PA 19104-6340

### Discussion of Growing Like China

Discussion of Growing Like China by Song, Storesletten and Zilibotti Alberto Martin CREI and UPF December 2008 Alberto Martin (CREI and UPF) Discussion of Growing Like China December 2008 1 / 10 This paper

### Contract Law and the Boundaries of the Firm

Susheng Wang and Tian Zhu / Journal of Economic Research 9 (2004) 93{113 93 Contract Law and the Boundaries of the Firm Susheng Wang 1 Hong Kong University of Science and Technology Tian Zhu 2 Hong Kong

### Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard

Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard Min Zhang y Miquel Faig z May 4, 2011 Abstract If entitlement to UI bene ts must be earned with employment, generous UI is an additional