The Euro Crisis: Some Reflexions on Institutional Reform

The debate on the Euro crisis understandably has had a strong short term focus. Avoiding short‐term disaster has been tantamount and the long term sustainability issue sometimes neglected; yet, the institutional failure of the Eurozone forces us to reconsider current arrangements in order to restore credibility and sustainability. The article discusses various paths for the reform of the overall governance, from fiscal management to banking regulation, through the recent proposals to mutualize and repackage part of the Sovereign debts into a supranational one or to introduce joint‐and‐several liability

Innovations, Rents and Risk

This research was conducted within the Paul Woolley Research Initiative on Capital Market Dysfunctionalities at IDEI, Toulouse. Support from the Europlace Institute of Finance is gratefully aknowledged. Many thanks to participants in the first conference of the Centre for the Study of Capital Market Dysfunctionality at the London School of Economics, the Pompeu Fabra Conference on the Financial Crisis, the third Banco de Portugal conference on Financial Intermediation, the Europlace Institute of Finance 7th Annual Forum, as well as seminar participants at London Business School, Frankfurt University, the European Central Bank and Amsterdam University, especially Sudipto Bhattacharya, Arnoud Boot, John Boyd, Markus Brunnermeier, Catherine Casamatta, Zvi Eckstein, Guido Friebel, Alex Gümbel, Philipp Hartmann, Augustin Landier, Thomas Mariotti, John Moore, Liliana Pellizzon, Enrico Perotti, Ludovic Phalippou, Guillaume Plantin and Steve Schaefer

The Differentiated Effect of Advertising on Readership: Evidence from a Two-Sided Market Approach

In this paper, we empirically analyze the French print media market by modeling the existence of a reciprocal effect between the size of the readership and the amount of advertising. For this two-sided platform, we measure the cross-effects of advertising on the readership and periodical popularity on advertising. By estimating a structural model of simultaneous demand equations, we quantify some crucial elements in designing pricing and product-differentiating strategies. We measure the impact of advertising on reader demand and find in the data that it has opposite effects depending on whether the publication presents informational or entertaining content. By taking into account the market interactions, we compute price and advertising elasticities. Our results show that advertisers targeting a specific category of the audience would choose its corresponding periodicals and would trade off the size of the readership for these periodicals and the advertising insert price changes. Also, advertising campaigns aimed at reaching a broader spectrum of the population should focus on popular titles and on titles for which demand is inelastic to ensure a more consistent impact of the campaign. Finally, for magazines with low price demand elasticity on the readers’ side, editors’ revenues could be improved by increasing prices. These combined effects should allow a publisher to generate positive margins from both sides of the market, for certain content categories

Social long-term care insurance with two-sided altruism

This paper studies the design of a social long-term care (LTC) insurance when altruism is two-sided. The laissez-faire solution is not efficient, unless there is perfect altruism. Under full information, the rst-best can be decentralized by a linear subsidy on informal aid, a linear tax on bequests when the parent is dependent and state specic lump-sum transfers which provide insurance. We also study a second-best scheme comprising a LTC benet, a payroll tax on childrens earnings and an inheritance tax. This scheme redistributes resources across individuals and between the states of nature and the tax on childrens labor enhances informal care to compensate for the childrens possible less than full altruism

Organizing competition for the market

The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms

Essays in Financial Accounting and Auditing

Cette thèse de doctorat porte sur le reporting financier. L'objectif principal du premier chapitre est de comprendre le rôle de la comptabilité à la juste valeur, en tenant compte de la possibilité pour les banques d'utiliser leur information privée (reporting de niveau 3) pour calculer les justes valeurs. À savoir, j'analyse un modèle de réglementation prudentielle pour faire la lumière sur les incitations des banques à utiliser les rapports de niveau 3. J'introduis des mesures comptables en tant qu'intrants primaires dans les exigences de fonds propres établies par un organisme de réglementation afin de répartir efficacement les droits de contrôle au sein d'une banque et de fournir une discipline de gestion. Mon analyse des externalités de reporting de niveau 3 met en évidence un arbitrage intéressant entre la transparence et la stabilité financière. D'une part, les rapports de niveau 3 réduisent la capacité des parties prenantes d'une banque à extraire des informations des états financiers de banques similaires. D'un autre côté, les rapports de niveau 3 réduisent le risque systémique causé par la comptabilisation à la valeur de marché. En outre, la manipulation rend le signalement de niveau 3 moins souhaitable, ce qui peut à son tour augmenter le risque systémique. Le deuxième chapitre de cette thèse est co-écrit avec Jeremy Bertomeu de l'Université de Californie à San Diego et Haresh Sapra de l'Université de Chicago. Dans ce chapitre, nous abordons la question du système optimal de provisionnement des pertes sur prêts pour les banques. En particulier, nous développons d'abord un cadre pour étudier comment la mesure comptable et la réglementation prudentielle interagissent pour affecter les incitations d'une banque à obtenir un crédit. Notre résultat principal est que le système de mesure comptable et l'effet de levier bancaire sont des outils politiques qui devraient être utilisés en parallèle, générant plus de valeur que les systèmes reposant soit sur la réglementation comptable, soit sur la réglementation prudentielle. Ensuite, nous utilisons nos résultats pour faire la lumière sur le débat actuel sur le modèle approprié de provisionnement des pertes sur prêts pour les banques. Nous montrons que si les banques prennent des risques excessifs dans le cadre d'un modèle de pertes encourues, un modèle de pertes attendues peut entraîner des liquidations excessives. Le troisième chapitre de cette thèse s'éloigne des rapports financiers pour les banques afin de se concentrer sur l'analyse des incitations des auditeurs à fournir une qualité d'audit élevée. En particulier, j'essaie de comprendre l'impact de la fourniture de services autres que d'audit (NAS) sur les incitations des sociétés d'audit, afin de conclure sur la meilleure façon de réguler cette industrie. Je crois qu'une meilleure compréhension des incitations des auditeurs est nécessaire pour concevoir de meilleures réglementations. À cette fin, je développe un cadre qui fournit de nouvelles perspectives sur les effets incitatifs des NAS sur les auditeurs. Je montre qu'il peut être optimal pour les investisseurs d'une entreprise cliente de laisser l'auditeur externe fournir des NAS en raison d'une externalité d'incitation. En effet, la possibilité de fournir des NAS en cas de détection d'anomalies financières augmente les incitations de l'auditeur à exercer un effort d'audit. Cependant, en dépit de cette externalité positive, la fourniture de NAS peut diminuer la qualité perçue de l'audit, ce qui peut à son tour rendre la fourniture de NAS par les auditeurs indésirables. Ainsi, mon analyse révèle un arbitrage intéressant pour les régulateurs entre l'effet d'incitation positif et la diminution de la qualité de l'audit. L'élimination de la restriction actuelle sur les honoraires d'audit conditionnels peut compenser cette baisse ex post de la qualité de l'audit tout en préservant les incitations ex ante.This thesis focuses on financial reporting. The main objective of the first chapter is to understand the role of fair value accounting, taking into account the possibility for banks to use their private information (Level 3 reporting) to compute fair values. Namely, I analyze a model of prudential regulation to shed some light on banks' incentives to use Level 3 reporting. I bring in accounting measures as the primary inputs into capital requirements set by a regulator to efficiently allocate control rights within a bank and to provide managerial discipline. My analysis of the Level 3 reporting externalities highlights an interesting tradeoff between transparency and financial stability. On the one hand, Level 3 reporting reduces the ability for a bank's stakeholders to extract information from financial statements of similar banks. On the other hand, Level 3 reporting decreases systemic risk caused by mark-to-market accounting. Further, manipulation makes Level 3 reporting less desirable, which may in turn increase systemic risk. I believe that the framework of this chapter offers other opportunities to study the real-effects of fair value accounting that have not yet been explored. The second chapter of this thesis is co-authored with Jeremy Bertomeu of the University of California San Diego and Haresh Sapra of the University of Chicago. In this chapter, we tackle the question of the optimal loan loss provisioning system for banks. In particular, we develop first a framework to study how accounting measurement and prudential regulation interact to affect a bank's incentives to originate credit. Our main result is that the accounting measurement system and bank leverage are policy tools that should be used in tandem, generating more value than systems that rely either on accounting regulation or on prudential regulation. Then, we use our results to shed some light on the current debate on the appropriate loan loss provisioning model for banks. We show that while banks engage in excessive risk-taking under an incurred loss model, an expected loss model can lead to excessive liquidations. The third chapter of this thesis moves away from financial reporting for banks to focus on the analysis of auditors' incentives to deliver high audit quality. In particular, I try to understand the impact of the provision of non-audit services (NAS) on audit firms' incentives, in order to conclude on the best way to regulate this industry. I believe that a better understanding of auditors' incentives is necessary to design better regulations. To that end, I develop a framework that provides new insights into the incentive effects of NAS on auditors. I show that it can be optimal for the investors of a client firm to let the external auditor provide NAS because of an incentive externality. Indeed, the possibility of providing NAS contingent on detecting financial misstatements increases the auditor's incentives to exert audit effort. However, despite this positive externality, the provision of NAS may decrease perceived audit quality, which may in turn render the provision of NAS by auditors undesirable. Thus, my analysis uncovers an interesting tradeoff for regulators between the positive incentive effect and the decrease in audit quality. Removing the current restriction on contingent audit fees may offset this ex post decrease in audit quality while preserving the ex ante incentives