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on Contract Theory and Applications |
| By: | Reside Renato E |
| Abstract: | This study analyzes the determinats of stress in public-private partnerships (PPPs) in infrastructure investment. The empirical analysis in this study yields a number of surprising results: 1.Strong growth and rigid currency regimes heighten risk by leading to adverse selection of proponents and moral hazard in project design 2.Many of the World Bank's indices of governance quality lead to perverse outcomes, suggesting that new governance standards must be used to judge PPPs 3.Except for political risk guarantees, loans and equity from multilateral institutions have no effects on outcomes ;however, political risk guarantees are rarely utilized ,suggesting that they may need to be redesigned or marketed better to be more useful. [WP 133] |
| Keywords: | Stress;Risk;Political Risk;Infrastructure;Public-Private Partnership Investments;Public-Private Partnership Outcomes;Governance;Macroeconomic Channels;Adverse Selection;Moral Hazard;Project Design |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:1956&r=cta |
| By: | Joshua Aizenman |
| Abstract: | This paper illustrates the paradox of prudential under-regulation in an economy that adopts financial reform, a reform which exposes the economy to future financial crises. There is individual-uncertainty about the crisis incidence, and the probability of the crisis is updated sequentially applying Bayesian inference. Costly regulation can mitigate the probability of the crisis. We identify conditions where the regulation level supported by the majority is positive after the reform, but below the socially optimal level. Tranquil time, when the crisis would not take place, reduces the regulation intensity. If the spell of no crisis is long enough, the regulation level may drop to zero, despite the fact that the socially optimal regulation level remains positive. The less informative is the prior regarding the probability of a crisis, the faster will be the drop in regulations induced by a no-crisis, good luck run. The challenges facing the regulator are aggravated by asymmetric information, as is the case when the public does not observe regulator’s effort. Higher regulator effort, while helping avoiding a crisis, may be confused as a signal that the environment is less risky, reducing the posterior probability of the crisis, eroding the support for costly future regulation. The other side of the regulation paradox is that crisis resulting with unanticipated high costs may induce over-regulation and stagnation, as the parties that would bear the cost of the over regulation are underrepresented in the decision making process. We also outline a regulatory structure that mitigates the above concerns, including information disclosure; increasing the independence of the regulatory agency from the political process; centralizing the regulatory process and increasing its transparency; and adopting global standards of minimum prudential regulations and information disclosure, enforced by the domestic regulator. |
| JEL: | F02 F15 F36 F42 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15018&r=cta |
| By: | Gonzalez, Aldo; Benitez, Daniel |
| Abstract: | The authors compare the two merger control systems currently employed worldwide: a mandatory system based on merger size threshold and a voluntary system with ex-post monitoring and fines. The voluntary system possesses two informational advantages: (i) the enforcement agency employs more information -verifiable and non verifiable parameters- to decide the set of mergers to investigate, and (ii) the first move of merging firms reveals useful information to the agency about the competitive risk of a merger. If fines for undue omission to notify are upward limited, then a mixed mechanism is optimal, where small transactions are under a voluntary regime while the big mergers are obliged to report. Remedies for fixing anticompetitive mergers act as an instrument that induces firms to notify the operation, improving further the advantage of the voluntary mechanism. |
| Keywords: | Microfinance,Bankruptcy and Resolution of Financial Distress,Corporate Law,Economic Theory&Research,Small Scale Enterprise |
| Date: | 2009–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4936&r=cta |
| By: | Marion Oury (HEC Paris); Olivier Tercieux (Paris School of Economics and CNRS) |
| Abstract: | It is well-known that mechanism design literature makes many simplifying infor- mational assumptions in particular in terms of common knowledge of the environment among players. In this paper, we introduce a notion of continuous implementation and characterize when a social choice function is continuously implementable. More specif- ically, we say that a social choice function is continuously (partially) implementable if it is (partially) implementable for types in the model under study and it continues to be (partially) implementable for types "close" to this initial model. We ?rst show that if the model is of complete information a social choice function is continuously (partially) implementable only if it satis?es Maskin?s monotonicity. We then extend this result to general incomplete information settings and show that a social choice function is continuously (partially) implementable only if it is fully implementable in iterative dominance. For ?nite mechanisms, this condition is also su¢ cient. We also discuss implications of this characterization for the virtual implementation approach. |
| Keywords: | High order beliefs, robust implementation |
| JEL: | C79 D82 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:ads:wpaper:0090&r=cta |
| By: | Facundo Albornoz; Joan Esteban; Paolo Vanin |
| Abstract: | This paper studies a model of announcements by a privately in- formed government about the future state of the economic activity in an economy subject to recurrent shocks and with distortions due to income taxation. Although transparent communication would ex ante be desirable, we find that even a benevolent government may ex-post be non-informative, in an attempt to countervail the tax distortion with a `second best' compensating distortion in information. This re- sult provides a rationale for independent national statistical offices, committed to truthful communication. We also find that whether inequality in income distribution favors or harms government trans- parency depends on labor supply elasticity. |
| Keywords: | Government announcements, Cheap talk, Asymmetric information, Inequality |
| JEL: | D82 E61 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:09-03&r=cta |
| By: | Bruno Biais; Pierre-Olivier Weill |
| Abstract: | We propose a dynamic competitive equilibrium model of limit order trading, based on the premise that investors cannot monitor markets continuously. We study how limit order markets absorb transient liquidity shocks, which occur when a significant fraction of investors lose their willingness and ability to hold assets. We characterize the equilibrium dynamics of market prices, bid-ask spreads, order submissions and cancelations, as well as the volume and limit order book depth they generate. |
| JEL: | G12 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15009&r=cta |
| By: | Prüfer, J. (Tilburg University, Center for Economic Research) |
| Abstract: | The process of innovation is driven by two main factors: new inventions and institutions supporting the transformation of inventions into marketable innovations. This paper proposes a new institution, called a semi- public contest, that has been neglected by the economic literature but exists frequently in practice. I show how semi-public contests can mitigate a dilemma that arises at a very early stage of innovative activity and specify the general requirements for situations in which a semi-public contest can increase welfare. This paper's results suggest that governments promote knowledge about the semi-public contest mechanism but refrain from direct public funding of contests. |
| Keywords: | Innovation;Contests;Entrepreneurs;Institutional Design;Business Plan Competitions;Auctions |
| JEL: | D02 D86 L10 O31 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200933&r=cta |
| By: | Renaud Bourlès (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579, Université Toulouse 1 - Université Toulouse 1); Dominique Henriet (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579) |
| Abstract: | The aim of this paper is to analyze the need for capital and default regulation in insurance. Proponents of deregulation argue that these requirements are useless as insurers would hold enough capital as soon as the insured are fully informed about their default probability. Adding to the purpose the relationship between an insurer and her security holders (that is the issuance and dividend policy) we show that the second best capital reserve decided by the security holders is suboptimal whenever the return on cash inside the firm is smaller than outside. Because of limited commitment on recapitalization, disclosure of information may not be enough. Given these characteristics, State commitment to recapitalize could be an alternative regulation policy. |
| Keywords: | insurance, capital reserve, regulation, recapitalization |
| Date: | 2009–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00386453_v1&r=cta |