Social and Behavioral Sciences Commons^™

Vickrey Auctions With Reserve Pricing, Peter Cramton, Lawrence M. Ausubel

Peter Cramton

We generalize the Vickrey auction to allow for reserve pricing in a multi-unit auction with interdependent values. In the Vickrey auction with reserve pricing, the seller determines the quantity to be made available as a function of the bidders’ reports of private information, and then efficiently allocates this quantity among the bidders. Truthful bidding is a dominant strategy with private values and an ex post equilibrium with interdependent values. If the auction is followed by resale, then truthful bidding remains an equilibrium in the auction-plus-resale game. In settings with perfect resale, the Vickrey auction with reserve pricing maximizes seller revenues.

Auctioning Many Divisible Goods, Peter Cramton, Lawrence M. Ausubel

Peter Cramton

We study the theory and practical implementation of auctioning many divisible goods. With multiple related goods, price discovery is important not only to reduce the winner’s curse, but more importantly, to simplify the bidder’s decision problem and to facilitate the revelation of preferences in the bids. Simultaneous clock auctions are especially desirable formats for auctioning many divisible goods. We examine the properties of these auctions and discuss important practical considerations in applying them.

Competitive Auction Markets In British Columbia, Peter Cramton, Susan Athey

Peter Cramton

US-Canada Softwood Lumber Trade Dispute, On behalf of British Columbia Ministry of Forests.

From Hayek To Keynes: G.L.S. Shackle And Our Ignorance Of The Future, Greg Hill

Greg Hill

G.L.S. Shackle stood at the historic crossroads where the economics of Hayek and Keynes collided. Shackle fused these opposing lines of thought in a macroeconomic theory that draws Keynesian conclusions from Austrian premises. In Shackle’s scheme of thought, the power to imagine alternative courses of action releases decision makers from the web of predictable causation. But the continuous stream of spontaneous and unpredictable choices that originate in the subjective and disparate orientations of individual agents denies us the possibility of rational expectations, and therewith the logical coherence of market equilibrium through time.

What Do The Ibbottson Historical Studies Really Prove About Firm Size, Risk And Return?, Michael Sack Elmaleh

Michael Sack Elmaleh

I deny that the Ibbottson historical studies prove that small and medium caps outperform large caps because they are more risky. First, I question whether covariance measures are necessarily a good proxy for risk. The higher levels of volatility associated with small and medium cap versus large cap may be a statistical artifact: the greater number of transactions associated with large caps as compared to small caps may account for this difference. Secondly, higher returns on small and medium caps may be a function of less efficient information distribution for these securities as compared to large caps. Finally, can we …

Optimal Debt With Unobservable Investments, Michael Raith, Paul Povel

Michael Raith

We study financial contracting when both an entrepreneur’s investment and the resulting revenue are unobservable to an outside investor.We show that a debt contract is always optimal; repayment is induced by a liquidation threat that increases with the extent of default. Moreover, when the entrepreneur’s decision concerns the scale of his project, a contract that minimizes liquidation losses is optimal. When the decision concerns managerial effort or project risk, however, it may be optimal to write a contract with a greater threat of liquidation, to induce the entrepreneur to exert more effort or to choose a less risky project.

Abuse Of Authority And Hierarchical Communication, Guido Friebel, Michael Raith

Michael Raith

If managers and their subordinates have the same basic qualifications, organizations can benefit from replacing unproductive superiors with more productive subordinates. This threat may induce superiors to deliberately recruit unproductive subordinates, or abuse their personnel authority in other ways, to protect themselves. We show that requiring intrafirm communication to pass through a “chain of command” can be an effective way to provide superiors with an incentive to recruit the best possible subordinates.We discuss alternative ways to prevent the abuse of authority and general implications of our analysis for organizational design. We also present supporting evidence from the literature on human …

Competitive Bidding Behavior In Uniform-Price Auction Markets, Peter Cramton

Peter Cramton

Profit-maximizing bidding in uniform price auction markets involves bidding above marginal cost. It therefore is not surprising that such behavior is observed in electricity markets. This incentive to bid above marginal cost is not the result of coordinated action among the bidders. Rather, each bidder is independently selecting its bid to maximize profits based on its estimate of the residual demand curve it faces. The supplier bids a price for its energy capacity to optimize its marginal tradeoff between higher prices and lower quantities. Price response from either demand or other suppliers prevents the supplier from raising its bid too …

The Contribution Of Business Services To Aggregate Productivity Growth, Henk Lm Kox

Henk LM Kox

Una Estimacion Del Coste Marginal En Bienestar Del Sistema Impositivo Español, Ferran Sancho

Ferran Sancho

We numerically estimate partial derivatives associated to tax instruments under the assumption of a non-optimal tax system-

The Political Economy Of The Production Of Customary International Law: The Role Of Non-Governmental Organizations, Donald J. Kochan

Donald J. Kochan

Increasingly, United States courts are recognizing various treaties, as well as declarations, proclamations, conventions, resolutions, programmes, protocols, and similar forms of inter- or multi-national “legislation” as evidence of a body of “customary international law” enforceable in domestic courts, particularly in the area of tort liability. These “legislative” documents, which this Article refers to as customary international law outputs, are seen by some courts as evidence of jus cogens norms that bind not only nations and state actors, but also private individuals. The most obvious evidence of this trend is in the proliferation of lawsuits against corporations with ties to the …

Financial Constraints And Product Market Competition: Ex-Ante Vs. Ex-Post Incentives, Michael Raith, Paul Povel

Michael Raith

This paper analyzes the interaction of financing and output market decisions in a duopoly in which one firm is financially constrained and can borrow funds to finance production costs. Two ideas have been separately analyzed in previous work: Some authors argue that debt strategically affects a firm’s output market decisions, typically making it more aggressive; others argue that the threat of bankruptcy makes debt financing costly, typically making a firm less aggressive. Our model integrates both ideas; moreover, unlike most previous work, we derive debt as an optimal contract. Compared with a situation in which both firms are unconstrained, the …