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Series 2003
03-01. Ennis,
H. M., and Keister, T.
"Government Policy and the Probability of
Coordination Failures"
pdf
file
Abstract: This paper introduces
an approach to the study of optimal government
policy in economies characterized by a coordination
problem and multiple equilibria. Such models
are often criticized as not being useful
for policy analysis because they fail to
assign a unique prediction to each possible
policy choice. We employ a selection mechanism
that assigns, ex ante, a probability to
each equilibrium indicating how likely it
is to obtain. We show how such a mechanism
can be derived as the natural result of
an adaptive learning process. This approach
leads to a well-defined optimal policy problem,
and has important implications for the conduct
of government policy. We illustrate these
implications using a simple model of technology
adoption under network externalities.
03-02. Herrera, H., and Schroth, E.
"Profitable Innovation
Without Patent Protection: The Case of Derivatives"
pdf file
Abstract: Investment banks develop
their own innovative derivatives to underwrite
corporate issues but they cannot preclude
other banks from imitating them. However,
during the process of underwriting an innovator
can learn more than its imitators about the
potential clients. Moving first puts him ahead
in the learning process. Thus, he develops
an information advantage and he can capture
rents in equilibrium despite being imitated.
In this context,
innovation can arise without patent protection.
Consistently with this hypothesis, case studies
of recent innovations in derivatives reveal
that innovators keep private some details
of their deals to preserve the asymmetry of
information.
03-03. Gomberg, A. "How
many sorting equilibria are there (generically)?"
pdf file
Abstract: It is shown that in a generic
two-jurisdiction model of the type introduced
by Caplin and Nalebuff (1997), the number
of sorting equilibria (with jurisdictions
providing distinct policies) is finite and
even.
03-04. Elbittar, A. "Impact
of Valuation Ranking Information on Bidding
in First-Price Auctions: A Laboratory Study"
pdf
file
Abstract: Landsberger, et al. (2001)
have identified optimal bidder behavior in
first-price private-value auctions when the
ranking of valuations is common knowledge,
and derived comparative-statics predictions
regarding the auctioneer's expected revenue
and the efficiency of the allocation. The
experiment reported here tests the behavioral
components of these comparative-statics predictions
using the dual-market bidding procedure, which
permits very powerful tests. The results support
the predictions that buyers are inclined to
bid more aggressively when they learn they
have the low value. Contrary to theory, buyers
are inclined to bid less when they learn they
have the high value. Once information is revealed,
bidders tend to move toward better responses,
exploiting new economic opportunities. Consistent
with theory, the overall proportion of efficient
allocations is lower than in the first-price
auction before information is revealed. But
as a result of high-value bidders decreasing
their bids, the expected revenue does not
increase on a regular basis, contrary to the
theory's predictions.
03-05. Antinolfi, G., and Keister, T.
"Discount Window
Policy, Banking Crises, and Indeterminacy
of Equilibrium "
pdf file
Abstract: We examine optimal discount
window policy in an economy with a linear
investment technology and aggregate liquidity
shocks. Unrestricted lending at the discount
window prevents large shocks from causing
banking crises, but leads to indeterminacy
of stationary equilibrium. We show how a
policy of offering discount-window loans
at an above-market interest rate generates
a unique stationary monetary equilibrium.
Under such a policy, banking crises occur
with positive probability in equilibrium,
but a proper choice of interest rate can
make the welfare loss due to these crises
arbitrarily small. We then modify the model
by introducing diminishing returns to investment
and show that, in this case, the optimal
policy may eliminate banking crises entirely.
03-06. Martinelli, C., and Parker, S.
"Do School Subsidies
Promote Human Capital Accumulation among
the Poor?"
pdf file
Abstract: We investigate the hypothesis
that conditioning transfers to poor families
on school attendance leads to a reallocation
of household resources enhancing the human
capital of the next generation, via the
effect of the conditionality on the shadow
price of human capital. We estimate the
price effect of conditional transfers to
mothers on intrahousehold allocations using
data from a social program in Mexico, and
show that price effects are large and statistically
significant. The estimates suggest that
household resources beyond those directly
subject to conditionality have been reallocated
favorably to children's human capital.
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