nep-cta New Economics Papers
on Contract Theory and Applications
Issue of 2010‒02‒27
four papers chosen by
Simona Fabrizi
Massey University Department of Commerce

  1. Asymmetric Information, Portfolio Managers, and Home Bias By Wioletta Dziuda; Jordi Mondria
  2. Bargaining over bets. By Eliaz, K.; Spiegler, R.
  3. Corporate Risk Management and Dividend Signaling Theory By Georges Dionne; Karima Ouederni
  4. The 'Boston' School Choice Mechanism By Fuhito Kojima; M. Utku Ünver

  1. By: Wioletta Dziuda; Jordi Mondria
    Abstract: We propose a model of delegated asset management in which individual investors are more informed about the domestic market than the foreign market and face uncertainty about quality of portfolio managers. The model shows that asymmetric information of individual investors results in home bias even if professional fund managers are equally well informed about all markets. Additionally, the model generates predictions about the size and the quality of mutual funds that are consistent with empirical studies: there are fewer mutual funds investing domestically, but their quality and market value are higher.
    Keywords: Asymmetric Information, Portfolio Managers, and Home Bias
    JEL: F30 D82 G11
    Date: 2010–02–12
  2. By: Eliaz, K.; Spiegler, R.
    Abstract: When two agents hold different priors over an unverifiable state of nature, which affects the outcome of a game they are about to play, they have an incentive to bet on the game's outcome. We pose the following question: what are the limits to the agents' ability to realize gains from such speculative bets when their priors are private information? We apply a “mechanism design” approach to this question. We characterize interim-efficient bets and discuss their implementability in terms of the underlying game's payoff structure. In particular, we show that as the costs of unilaterally manipulating the bet's outcome become more symmetric across states and agents, implementation becomes easier.
    Date: 2009–05
  3. By: Georges Dionne; Karima Ouederni
    Abstract: This paper investigates the effect of corporate risk management on dividend policy. We extend the signaling framework of Bhattacharya (1979) by including the possibility of hedging the future cash flow. We find that the higher the hedging level, the lower the incremental dividend. This result is in line with the purpoted positive relation between information asymmetry and dividend policy (e.g., Miller and Rock, 1985) and the assertion that risk management alleviates the information asymmetry problem (e.g., DaDalt et al., 2002). Our theoretical model has testable implications.
    Keywords: Signaling theory, Dividend policy, Risk management policy, Corporate hedging, Information asymmetry
    JEL: G35 G32 D82
    Date: 2010
  4. By: Fuhito Kojima (Stanford University); M. Utku Ünver (Boston College)
    Abstract: The Boston mechanism is a popular student placement mechanism in school choice programs around the world. We provide two characterizations of the Boston mechanisms. We introduce two new axioms, respect of preference rankings and rank-respecting Maskin monotonicity. A mechanism is the Boston mechanism for some priority if and only if it respects preference rankings and satisfies consistency, resource monotonicity, and rank-respecting Maskin monotonicity. In environments where each type of object has exactly one unit, as in house allocation, a characterization is given by respect of preference rankings, individual rationality, population monotonicity, and rank-respecting Maskin monotonicity.
    Keywords: Mechanism design, matching, school choice, market design, Boston mechanism
    JEL: C78 D78
    Date: 2010–02–04

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