• Selected
• Entire List

Abstract:
An objective ranking of economics departments worldwide in terms of graduate education is derived. The central idea is that the value of a department is the sum of the values of its PhD graduates, as reflected in the values of their current employing departments. The scores are thus derived as solutions to a linear system of simultaneous equations in the values. The sample includes the top fifty-four departments, the composition of which is determined endogenously using a criterion requiring a minimum of four placements in the departments comprising the sample. Two other related rankings are proposed, which place more emphasis on more recent faculty recruitments. The results point to a very high concentration in the economics PhD education market worldwide, confirming the dominance of the top U.S. departments, in particular of Harvard and M.I.T. Nevertheless, a modest de-concentration trend is under way. The rankings are in close agreement with the 1994 National Research Council survey ranking based on the perceived quality of PhD programs.

economics PhD education, scientific evaluation methods,economics department ranking

Abstract:
The paper analyzes the process of market selection of investment strategies in an incomplete asset market. The pay offs of the assets depend on random factors described in terms of a discrete-time Markov process. Market participants make dynamic investment decisions based on their observations and time. We show that a trader distributing wealth across available assets according to the relative expected returns eventually accumulates the entire market wealth. The result obtains under the assumption that the trader's strategy is asymptotically distinct from the CAPM strategy (prescribing investment in the market portfolio). This assumption turns out to be essentially necessary for the conclusion.

evolutionary finance, portfolio theory, investment strategies, CAPM, market selection, incomplete markets

Abstract:
In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity's final cost. At the Bayesian equilibrium, a bilateral merger is profitable provided that non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts, and provide a rationalization for an efficiency consideration in merger policy.

Horizontal merger, Bayesian Cournot equilibrium, Efficiency gains, Market performance

Abstract:
The literature on supermodular optimization and games is surveyed from the perspective of potential users in economics. This methodology provides a new approach for comparative statics based only on critical assumptions, and allows a general analysis of games with strategic complementarities. The results are presented in a simplified yet rigourous manner, without reference to lattice theory, for the special case of onedimensional parameter and actions sets, with the emphasis being on wide accessibility. Detailed applications are presented for well-known models of consumer behavior, monopoly pass-through, Bertrand and Cournot competition, strategic R&D, search and matching. Wherever appropriate, useful tricks for applications and comparative comments are inserted.

complementarity, supermodularity, comparative statics, ordinal/cardinal, strategic complementarity, oligopoly

Abstract:
The paper examines a game-theoretic model of a financial market in which asset prices are determined endogenously in terms of short-run equilibrium. Investors use general, adaptive strategies depending on the exogenous states of the world and the observed history of the game. The main goal is to identify strategies, allowing an investor to "survive," i.e. to possess a positive, bounded away from zero, share of market wealth over the infinite time horizon. This work links recent studies on evolutionary finance to the classical topic of games of survival pioneered by Milnor and Shapley in the 1950s.

evolutionary finance, dynamic games, stochastic games, games of survival

Abstract:
Recent U.S. legislation (Gramm-Leach-Bliley Act) allows commercial banks to enter merchant banking, i.e. hold equity in non-financial firms. A stylised auction-theoretic model is developed to investigate the effects of bank equity stakes in firms on the competition in bank loans. The main finding is that the largest stake confers a competitive advantage to the holding bank and constitutes a barrier to entry in equity acquisition, resulting in high interest rates charged to firms. This finding unearths an antitrust dimension in the controversial debate on the separation of banking and commerce in the U.S., and provides a theoretical basis for recent empirical evidence on the relationship between bank equity holdings and the cost of debt finance in Germany and Japan.

banking and commerce, regulation and antitrust, Glass-Steagall act, Gramm-Leach-Bliley act, auctions

Abstract:
We prove that the coefficient of absolute prudence is greater than k - times coefficient of absolute risk aversion for the utility function if and only if the coefficient of absolute prudence is (3-k) times the coefficient of absolute risk aversion for the inverse utility function. Moreover this is also equivalent to (k-2)-concavity of the first derivative of the inverse utility function.

absolute prudence, absolute risk aversion, inverse utility function

Abstract:
We consider the issue of first versus second-mover advantage in differentiated-product Bertrand duopoly with general demand and asymmetric linear costs. We generalize existing results for all possible combinations where prices are either strategic substitutes and/or complements, dispensing with common extraneous assumptions. We show that a firm with a sufficiently large cost lead over its rival has a first mover advantage. For the linear version of the model, we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk-dominance. This yields sequential play with the low-cost firm as leader as the unique equilibrium outcome.

price competition, endogenous timing, first/second-mover advantage, risk dominance

Abstract:
We provide an extensive and general investigation of the effects on industry performance - profits, social welfare and price-cost margins - of exogenously changing the number of firms in Cournot markets. This includes an in-depth exploration of the well-known trade-off between competition and production efficiency. Most conventional beliefs actually require some qualifications to be valid. Under scale economies, welfare is maximized by a finite number of firms. Our results shed light on several policy debates in industrial organization, including the relationship between the Herfindahl index and social welfare, destructive competition and natural monopoly. Our analytical approach combines simplicity with generality

Cournot oligopoly, returns to scale, entry, equilibrium comparative statics

Abstract:
The paper examines a game-theoretic evolutionary model of a financial market with endogenous equilibrium asset prices. Assets pay dividends that are partially consumed and partially reinvested. The traders use general, adaptive strategies (portfolio rules), distributing their wealth between assets, depending on the exogenous states of the world and the observed history of the game. The main goal is to identify strategies, allowing an investor to survive, i.e. to possess a positive, bounded away from zero, share of market over the whole infinite time horizon. This work brings together recent studies on evolutionary finance with the classical topic of non-cooperative market games.

evolutionary finance, dynamic games, stochastic games, survival strategies

Abstract:
This paper is an attempt to develop a unified approach to endogenous heterogeneity by constructing general class of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payoff non-concavities and some form of strategic substitutability. We provide a detailed discussion of the relationship of this work with Matsuyama's symmetry breaking framework and with business strategy literature. Our framework generalizes a number of models dealing with two-stage games, with long term investment decisions in the first stage and product market competition in the second stage. We present the main examples that motivate this study to illustrate the generality of our approach.

inter-firm heterogeneity, submodular games, business strategy, innovation strategies

Abstract:
This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal sufficient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results.

Abstract:
While ordinal complementarity is more general than cardinal complementarity, the corresponding global sufficient conditions placed on the primitives of a constrained optimization problem are generally not comparable. We explore this issue in detail for the special case of a Cournot firm. We derive necessary and sufficient conditions for downward-sloping best-responses by imposing the ordinal test only for output levels that are actually reached. Both global tests, cardinal and ordinal, are shown not to be critical sufficient conditions. Finally, we confirm that checking supermodularity of suitably transformed profits can work when the global tests for ordinal and cardinal complementarity both fail.

Cournot oligopoly, complementarity, supermodularity, single-crossing property

Abstract:
This paper considers the well-known Levhari-Mirman model of resource extraction, and investigates the effects of the information structure of the dynamic game - open-loop, Markovian or history-dependent - on the equilibrium consumption path and the overall utility of the agents. The open-loop regime yields a Pareto-optimal outcome. The Markovian regime leads to the most pronounced version of the tragedy of the commons. History-dependent behavior yields an outcome set that is intermediate between the other two cases. The level of efficiency of equilibrium behaviour is thus U-shaped as a function of the level of information extraction strategies are based on. The analysis suggests that in environments characterized by a dynamic (and no market) externality, forcing agents to commit to open-loop behavior would constitute welfare-improving regulation.

dynamic resource games, open-loop, closed-loop and trigger strategies, Pareto optimality, regulation

Abstract:
Amir and Lambson (2003) developed an infinite-horizon, stochastic model of entry and exit by integer numbers of firms facing sunk costs and uncertain market conditions. Here, as examples of the model's usefulness, special cases are applied to the following three issues: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle.

entry and exit, dynamic games, integer constraints

Abstract:
Studies of second-best environmental regulation of identical polluting agents have invariably ignored potentially welfare-improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset. Yet, cost asymmetry between oligopoly firms may well give rise to private as well as social gains. A trade-off is demonstrated for the regulator, between private costs savings and additional social costs when asymmetric treatment is allowed. Asymmetry is indeed optimal for a range of plausible parameter values. Further, it is demonstrated that for a broad class of abatement cost functions, there is scope for increasing welfare while keeping both total output and total emission constant. Some motivating policy issues are discussed in light of the results, including international harmonization and global carbon dioxide reduction.

asymmetric emissions regulation, polluting oligopolists, EU harmonization

Abstract:
An infinite-horizon, stochastic model of entry and exit with sunk costs and imperfect competition is constructed. Simple examples provide insights into: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle. A subgame perfect Nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite-horizon equilibria. This equilibrium has a relatively simple structure characterized by two numbers per finite history. Under very general conditions, it tends to exhibit excessive entry and insufficient exit relative to a social optimum.

Entry, Exit, Dynamic games, Integer constraints

Abstract:
No abstract available.

Abstract:
This paper provides a thorough analysis of oligopolistic markets with positive demand-side network externalities and perfect compatibility. The minimal structure imposed on the model primitives is such that industry output increases in a firm's rivals' total output as well as in the expected network size. This leads to a generalized equilibrium existence treatment that includes guarantees for a nontrivial equilibrium, and some insight into possible multiplicity of equilibria. We formalize the concept of industry viability and show that it is always enhanced by having more firms in the market and/or by technological improvements. We also characterize the effects of market structure on industry performance, with an emphasis on departures from standard markets. As per-firm profits need not be monotonic in the number of competitors, we revisit the concept of free entry equilibrium for network industries. The approach relies on lattice-theoretic methods, which allow for a unified treatment of various general results in the literature on network goods. Several illustrative examples with closed-form solutions are also provided.

Network effects, demand-side externalities, Cournot oligopoly, su-permodularit

Abstract:
In the standard two-stage framework of R&D/product market competition, this paper provides a performance comparison between monopoly and the cartelized research joint venture, using two well-known models based on different versions of the R&D spillover process. According to the model with a wider scope of application, monopoly always leads to a higher propensity for R&D and, when R&D costs are low, to the best overall market performance. The results also allow for a comparison between the two underlying models of strategic R&D.

Abstract:
The paper examines a game-theoretic evolutionary model of an asset market with endogenous equilibrium asset prices. Assets pay dividends that are partially consumed and partially reinvested. The investors use general, adaptive strategies (portfolio rules), distributing their wealth between assets, depending on the exogenous states of the world and the observed history of the game. The main goal is to identify strategies, allowing an investor to "survive," i.e. to possess a positive, bounded away from zero, share of market wealth over the whole infinite time horizon. This work brings together recent studies on evolutionary finance with the classical topic of non-cooperative market games.

evolutionary finance, dynamic games, stochastic games, survival strategies

Abstract:
The paper derives clear-cut and robust conclusions on the effects of sharing firm-specific information in general linear oligopoly. In Cournot (Bertrand) oligopoly, revealing (concealing) firm-specific cost information is the dominant strategy for each firm. In both competition modes firms have incentives to share firm-specific demand information. Sharing firm-specific cost information always hurts consumers but is socially beneficial in Cournot oligopoly and socially harmful in Bertrand oligopoly. Sharing firm-specific demand information also hurts consumers but increases welfare. Contrary to most existing results these findings are independent of distributional assumptions on costs and signals and hold for general asymmetric oligopoly with any mixture of substitute, complementary and independent goods.

information sharing, cost uncertainty, firm-specific information, benchmarking

Abstract:
The paper investigates prices and the deadweight loss in multi-product monopoly (MPM) with linear demand and constant marginal costs. We examine MPM with three commonly used demand structures: standard heterogeneous products, vertically (quality) and horizontally (spatially) differentiated products. Contrary to existing results we find that in all three cases a product's price depends only on specific characteristics of that product, independent of product interactions, the characteristics of other goods and even the number of other goods. We also show that in all three models the deadweight loss due to monopoly pricing is equal to half the total monopoly profit.

Multi-Product Monopoly

Abstract:
In the framework of symmetric Cournot oligopoly, this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that, as the number of firms increases, the minimal and maximal equilibria lead to (i) decreasing industry price and increasing or decreasing per-firm output; and (ii) increasing industry price (and decreasing per firm output.) In both cases, per-firm profits are decreasing.

The analysis relies crucially on lattice-theoretic methods and yields general, unambiguous and easily interpretable conclusions of a global nature. As a byproduct of independent interest, new insight into the existence of Cournot equilibrium is developed.