Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy

This paper extends Svensson and Woodford’s (2003) partial information framework by allowing the private agents to achieve robustness against incomplete information about the structure of the economy by distorting their expectations in a particular direction. It shows how a linear rational expectations equilibrium under concern for robustness can be solved by exploiting the recursive structure of the problem and appropriately modifying the Bellman equations in their framework. The standard Kalman filter is then used for information updating under imperfect measurement of the state variables. The standard New Keynesian model is used for illustrating how concern for modelling errors interacts with imperfect information. Agents achieve robustness by simultaneously over-estimating the persistence of exogenous shocks, but under-estimating the policy response to the output gap. This under- estimation, combined with imperfect measurement, leads to larger and more persistent responses of private consumption to government expenditure shocks under robust expectations.expectations, robust control, model uncertainty, monetary policy, imperfect information

Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy

This paper extends Svensson and Woodford’s (2003) partial information framework by allowing the private agents to achieve robustness against incomplete information about the structure of the economy by distorting their expectations in a particular direction. It shows how a linear rational expectations equilibrium under concern for robustness can be solved by exploiting the recursive structure of the problem and appropriately modifying the Bellman equations in their framework. The standard Kalman filter is then used for information updating under imperfect measurement of the state variables. The standard New Keynesian model is used for illustrating how concern for modelling errors interacts with imperfect information. Agents achieve robustness by simultaneously over-estimating the persistence of exogenous shocks, but under-estimating the policy response to the output gap. This under-estimation, combined with imperfect measurement, leads to larger and more persistent responses of private consumption to government expenditure shocks under robust expectations.expectations; robust control; model uncertainty; monetary policy; imperfect information

Dividend changes and stock price informativeness

We investigate how private information in stock prices impacts quarterly dividend changes. We find that the positive relationship between past returns and current dividend changes strengthens when returns convey more private information. This finding is robust to the use of several price informativeness measures and the inclusion of managerial private information and stock overvaluation measures. Managers seem to learn new information from stock prices that they use when deciding on their dividend policy. This study highlights private information in stock prices as an important determinant of dividend policy and contributes to the literature on the real effects of financial markets

The Impact of Private Ownership, Incentives and Local Development Objectives on University Technology Transfer Performance

We study the impact of private ownership, incentive pay and local development objectives on university licensing performance. We develop and test a simple contracting model of technology licensing offices, using new survey information together with panel data on U.S. universities for 1995-99. We find that private universities are much more likely to adopt incentive pay than public ones, but ownership does not affect licensing performance conditional on the use of incentive pay. Adopting incentive pay is associated with about 30-40 percent more income per license. Universities with strong local development objectives generate about 30 percent less income per license, but are more likely to license to local (in-state) startup companies. In addition, we show that government constraints on university licensing activity are .costly. in terms of foregone license income and the creation of start-up companies. These results are robust to controls for observed and unobserved heterogeneity.incentives, performance pay, universities, technology transfer, licensing, local development

Information Certainty Determines Social and Private Information Use in Ants

Decision-making in uncertain environments requires animals to evaluate, contrast and integrate various information sources to choose appropriate actions. In consensus-making groups, quorum responses are commonly used to combine private and social information, leading to both robust and flexible decisions. Here we show that in house-hunting ant colonies, individuals fine-tune the parameters of their quorum responses depending on their private knowledge: informed ants evaluating a familiar new nest rely relatively more on social than private information when the certainty of their private information is low, and vice versa. This indicates that the ants follow a highly sophisticated `copywhen-uncertain' social learning strategy similar to that observed in a few vertebrate species. Using simulations, we further show that this strategy improves colony performance during emigrations and confers well-informed individuals more weight in the decision process, thus representing a novel mechanism for the emergence of leadership in collective decision-making

Board Structure and Price Informativeness

We develop and test the hypothesis that private information incorporated into stock prices affects the structure of corporate boards. Stock price informativeness may be a complement to board monitoring, because the information revealed by prices can be used by directors to monitor management. But price informativeness may also be a substitute for board monitoring, because more informative prices can trigger external monitoring mechanisms, such as takeovers. We find robust evidence for the substitution effect: Stock price informativeness, as measured by the probability of informed trading (PIN), is negatively related to board independence. Consistent with the model's predictions, this relationship is particularly strong for firms exposed to external governance mechanisms and internal governance mechanisms, and firms for which firm-specific knowledge is relatively unimportant. We address endogeneity concerns in a number of different ways and conclude that our results are unlikely to be driven by omitted variables or reverse causality. The results are also robust to using different measures of price informativeness and different proxies for board monitoringCorporate boards, Independent directors, Price informativeness

INFORMATION AGGREGATION, COSTLY VOTING AND COMMON VALUES

In a model of majority voting with common values and costly but voluntary participation, we show that in the vicinity of equilibrium, it is always Pareto-improving for more agents, on the average, to vote. This demonstrates that the negative voting externality identified by Borgers(2001) in the context of private values is always dominated by a positive informational externality. In addition, we show that multiple Pareto-ranked voting equilibria may exist and moreover, majority voting with compulsory participation can Pareto dominate majority voting with voluntary participation. Finally, we show that the inefficiency result is robust to limited preference heterogeneityVoting ; information ; pivot ; externality ; inefficiency

Voluntary Disclosure in Leader-Follower Games

We study voluntary disclosure strategies in leader-follower games where firms choose real actions sequentially after simultaneously disclosing information. We show that the leader incurs an endogenous consistency cost when withholding information because it must choose a suboptimal real action to avoid that its private information is revealed to the follower. This consistency cost induces the leader to disclose more information in equilibrium than an equally informed follower. We establish this result in the context of a voluntary disclosure model with uncertain information endowment and show that it is robust under alternative modeling choices regarding the disclosure friction, the number of followers, and the impact of firms' private information on their rivals' profit

Credit Information Sharing Coverage and Depth and Their Impact on Bank Non-Performing Loans

This study provides an international evidence of how credit information sharing coverage and depth impact on bank non-performing loans across the income brackets categorized by the World Bank. Employing anova and robust standard errors OLS estimation techniques, the results suggest that both coverage and depth of information shared are imperative in reducing bank non-performing loans. However, coverage of credit information shared is more effective in reducing non-performing loans with public credit registries while depth of information shared is more effective with private credit bureaus. The findings further prove that the use of both private and public bureaus and registries are more effective in reducing non-performing loans than using either of them. The study finally finds that non-performing in low income countries varied significantly from that of high income countries. These findings are largely consistent with previous studies and require the implementation of policies that deepen the coverage and depth of credit information shared across the income brackets especially low income countries