Economics - Research Publications

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    Replication: Belief elicitation with quadratic and binarized scoring rules
    Erkal, N ; Gangadharan, L ; Koh, BH (Elsevier, 2020-12-01)
    Researchers increasingly elicit beliefs to understand the underlying motivations of decision makers. Two commonly used methods are the quadratic scoring rule (QSR) and the binarized scoring rule (BSR). Hossain and Okui (2013) use a within-subject design to evaluate the performance of these two methods in an environment where subjects report probabilistic beliefs over binary outcomes with objective probabilities. In a near replication of their study, we show that their results continue to hold with a between-subject design. This is an important validation of the BSR given that researchers typically implement only one method to elicit beliefs. In favor of the BSR, reported beliefs are less accurate under the QSR than the BSR. Consistent with theoretical predictions, risk-averse subjects distort their reported beliefs under the QSR.
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    Intra-industry spill-over effect of default: Evidence from the Chinese bond market
    Hu, X ; Luo, H ; Xu, Z ; Li, J (WILEY, 2021-09)
    Abstract We investigate the intra‐industry spill‐over effect of defaults in the Chinese bond market by using a sample of public corporate debt securities for the period 2014–2018. We find that both industry portfolios and individual firms witness a strong contagion effect, which further spreads to the primary bond market, triggering a surge in the debt financing cost for default industries. Moreover, this contagion effect is stronger for low‐competition industries and regulated industries, as well as when a default happens to state‐owned enterprises. Better information access and higher bond liquidity alleviate the contagion effect, lending support to the information updates and liquidity dry‐up hypotheses.
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    When Walras meets Vickrey
    Delacrétaz, D ; Loertscher, S ; Mezzetti, C (The Econometric Society, 2022-11)
    We consider general asset market environments in which agents with quasilinear payoffs are endowed with objects and have demands for other agents' objects. We show that if all agents have a maximum demand of one object and are endowed with at most one object, the VCG transfer of each agent is equal to the largest net Walrasian price of this agent. Consequently, the VCG deficit is equal to the sum of the largest net Walrasian prices over all agents. Generally, whenever Walrasian prices exist, the sum of the largest net Walrasian prices is a nonnegative lower bound for the deficit, implying that no dominant‐strategy mechanism runs a budget surplus while respecting agents' ex post individual rationality constraints.
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    Double Markups, Information, and Vertical Mergers
    Loertscher, S ; Marx, LM (SAGE Publications, 2022-09-01)
    In vertical contracting models with complete information and linear prices, double markups that arise between independent firms provide an efficiency rationale for vertical mergers since these eliminate double markups (EDM). However, the double markups vanish even without vertical integration if the firms are allowed to use two-part tariffs. Hence, the efficiency rationale for vertical mergers in models of complete information requires restrictions on the contracts that firms can use. In a sense, with complete information, two-part tariffs are simply too powerful. If instead one allows incomplete information and removes the restriction on contract forms, then vertical mergers continue to have an effect that is analogous to EDM, but they also have the potential to affect the overall efficiency of the market to the detriment of society. Consequently, the social surplus effects of vertical integration depend on the underlying market structure, and vertical mergers are, in and of themselves, neither good nor bad. We illustrate through an example that with incomplete information, the private benefits from vertical integration tend to be excessive; that is, vertical mergers remain profitable even when they are socially harmful.
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    Monopoly Pricing, Optimal Randomization, and Resale
    Loertscher, S ; Muir, EV (UNIV CHICAGO PRESS, 2022-03-01)
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    Leadership selection: Can changing the default break the glass ceiling?
    Erkal, N ; Gangadharan, L ; Xiao, E (ELSEVIER SCIENCE INC, 2022-04)
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    Income and saving responses to tax incentives for private retirement savings
    Chan, MK ; Morris, T ; Polidano, C ; Vu, H (ELSEVIER SCIENCE SA, 2022-02)
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    To sell public or private goods
    Loertscher, S ; Marx, LM (SPRINGER HEIDELBERG, 2022-09)
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    On the optimality of joint periodic and extraordinary dividend strategies
    Avanzi, B ; Lau, H ; Wong, B (ELSEVIER, 2021-08-13)
    In this paper, we model the cash surplus (or equity) of a risky business with a Brownian motion (with a drift). Owners can take cash out of the surplus in the form of “dividends”, subject to transaction costs. However, if the surplus hits 0 then ruin occurs and the business cannot operate any more. We consider two types of dividend distributions: (i) periodic, regular ones (that is, dividends can be paid only at countably many points in time, according to a specific arrival process); and (ii) extraordinary dividend payments that can be made immediately at any time (that is, the dividend decision time space is continuous and matches that of the surplus process). Both types of dividends attract proportional transaction costs, but extraordinary distributions also attract fixed transaction costs, which is a realistic feature. A dividend strategy that involves both types of distributions (periodic and extraordinary) is qualified as “hybrid”. We determine which strategies (either periodic, immediate, or hybrid) are optimal, that is, we show which are the strategies that maximise the expected present value of dividends paid until ruin, net of transaction costs. Sometimes, a liquidation strategy (which pays out all monies and stops the process) is optimal. Which strategy is optimal depends on the profitability of the business, and the level of (proportional and fixed) transaction costs. Results are illustrated.