Modelling the role of credit rating agencies : Do they spark off a virtuous circle?

In this paper, we propose a model of credit rating agencies using the global games framework to incorporate information and coordination problems. We introduce a refined utility function of a credit rating agency that, additional to reputation maximization, also embeds aspects of competition and feedback effects of the rating on the rated firms. Apart from hinting at explanations for several hypotheses with regard to agencies' optimal rating assessments, our model suggests that the existence of rating agencies may decrease the incidence of multiple equilibria. If investors have discretionary power over the precision of their private information, we can prove that public rating announcements and private information collection are complements rather than substitutes in order to secure uniqueness of equilibrium. In this respect, rating agencies may spark off a virtuous circle that increases the efficiency of the market outcome

Information, competition and (In) complete discrimination

Nous considérons une firme qui génère un risque pour l'environnement via son activité industrielle et qui a une information privée à la fois sur son effort de précaution et sur le montant de ses actifs. Nous étudions l'interaction entre l'audit ex ante de l'effort de précaution par un régulateur et la vérification ex post de la capacité financière par un juge en cas d'accident. Du point de vue des incitations, les deux instruments sont utiles. Le policy-mix optimal dépend de la règle gouvernant l'intervention ex post et de l'efficience de l'intervention ex ante.

Optimal Transmission Regulation in an Integrated Energy Market

The capacity of the transmission network determines the extent of integration of a multinational energy market. Cross-border externalities render coordination of network maintenance and investments across countries valuable. Is it then optimal to collect powers in the hands of a single regulator? Should a common system operator manage the entire network? I show that optimal network structure depends on (i ) how the common regulator would balance the interests of the different member states; (ii ) how the gains from market integration vary across countries; (iii ) network characteristics (substitutability versus complementarity); and (iv ) the social cost of operator rent.Multi-national Energy Market; Transmission; Supranational Regulation; System Operation; Multi-contracting

Competition for money market deposit accounts

Money market deposit account ; Interest rates

Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ

Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and designs policies according to some other criterion than individuals’ preferences. Using the self-selection approach to tax problems developed by Stiglitz (1982) and Stern (1982), the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals’ well-being using a different utility function than the one maximized by private agents.optimal taxation, behavioral economics, paternalism, merit goods, non-welfarism

Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ

Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and design policies according to some other criterion than individuals’ preferences. Using the self-selection approach to tax problems developed by Stiglitz (1982) and Stern (1982), the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals’ well-being using a different utility function than the one maximized by private agents.optimal taxation; behavioral economics; paternalism; merit goods; non-welfarism

On the Optimality of Privacy in Sequential Contracting

This paper studies the exchange of information between two principals who contract sequentially with the same agent, as in the case of a buyer who purchases from multiple sellers. We show that when (a) the upstream principal is not personally interested in the downstream level of trade, (b) the agent’s valuations are positively correlated, and (c) preferences in the downstream relationship are separable, then it is optimal for the upstream principal to offer the agent full privacy. On the contrary, when any of these conditions is violated, there exist preferences for which disclosure is strictly optimal, even if the downstream principal does not pay for the information. We also examine the effects of disclosure on welfare and show that it does not necessarily reduce the agent’s surplus in the two relationships and in some cases may even yield a Pareto improvement. The paper describes this condition and its implications.contractual and informational externalities, mechanism design, optimal disclosure policies, sequential common agency games, exogenous and endogenous private information.

Three Levels of Alliance Management

alliance, management