Three essays in information and its acquisition

This thesis consists of three essays in economic theory, two on search models with information acquisition and one on repeated games when precise information about discount factors is unavailable. In the first essay, I develop a model in which optimal costly information acquisition by individual firms causes adverse selection in the market as a whole. Each firm’s information acquisition policy determines which customers it serves, which in turn affects the distribution of remaining customers and hence other firms’ incentives. I show that when information acquisition is ‘smooth’, the adverse selection externality due to each firm is dampened, and in equilibrium all firms make positive profits. By contrast, with lumpy information acquisition, only a limited number of firms are profitable. I establish that my results apply to a broad class of continuous-time information acquisition processes. The second essay explores information acquisition in labor markets. Noting that African-Americans face shorter employment durations than similar whites, we hypothesize that employers discriminate in acquiring ability-relevant information. We construct a model with a binary information generating process, ‘monitoring’, at the disposal of firms. Monitoring black but not white workers is self-sustaining. This ‘bad’ equilibrium is not merely a matter of coordination; rather, it is determined by history and not easily reversed. The model’s additional predictions, lower lifetime incomes and longer unemployment durations for blacks, are both strongly empirically supported. In the third essay, we investigate the possibility of repeated games equilibria that are robust to the discount factors. We prove a negative result which shows that a sizable part of the set of feasible individually rational payoffs can never be produced by such equilibria. We find the cutoff defining this region and interpret it as a limit on the ability to punish deviations when future rewards for randomization cannot be finely calibrated. Furthermore, we present a robust folk theorem to support payoffs in the complementary region with strategies that remain Subgame Perfect Nash Equilibria at all greater discount factors

Information in Mechanism Design

We survey the recent literature on the role of information for mechanism design. We specifically consider the role of endogeneity of and robustness to private information in mechanism design. We view information acquisition of and robustness to private information as two distinct but related aspects of information management important in many design settings. We review the existing literature and point out directions for additional future work.Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management

Information in Mechanism Design

We survey the recent literature on the role of information in mechanism design. First, we discuss an emerging literature on the role of endogenous payoff and strategic information for the design and the efficiency of the mechanism. We specifically consider information management in the form of acquisition of new information or disclosure of existing information. Second, we argue that in the presence of endogenous information, the robustness of the mechanism to the type space and higher order beliefs becomes a natural desideratum. We discuss recent approaches to robust mechanism design and robust implementation.Mechanism Design, Information Acquisition, Ex Post Equilibrium, Robust Mechanism Design, Interdependent Values, Information Management

Impact of Acquisitions on CEO pay

I examine the impact of acquisition on the pay of CEOs of S&P 1500 firms from 1994-2010. I find insignificant effect of firm performance on post-acquisition CEO pay. Controlling for firm size, CEOs are paid a premium in post-acquisition pay. I find no evidence of differential pay increase for domestic and international acquisitions. Post-acquisition increase in CEO pay is not contingent on the wealth effects and CEOs are not penalized for 'wealth-reducing' acquisitions. I find evidence that a part of acquisition premium in CEO pay can be attributed to the strength of governance. Controlling for survivor bias, the effect of acquisition on CEO pay is downward adjusted

Cinderella Sovereignty

The Blocher-Gulati critique of the barriers to secession under public international law is insightful and thought provoking, an important contribution in its own right. I wish it had not been eclipsed by the authors\u27 clever and provocative fix: turning sovereignty into a tradable commodity. I suspect that this fix would bring about more suffering than the status quo for two reasons. First, a market for sovereign control is unlikely to be a market in any meaningful sense. Therefore, trading sovereignty would not discipline oppressors. Second, should something like a real market materialize, it could diminish the incentives for states to treat their populations better just as plausibly as it could improve them. Distant empires could find it easier to traffic in oppressed people and territories, which would pass from state to state as their masters lose interest. A class of marginal client statelets would grow, endowed with a poor stepchild of sovereignty, which would leave their people defenseless and voiceless

Cinderella Sovereignty

The Blocher-Gulati critique of the barriers to secession under public international law is insightful and thought provoking, an important contribution in its own right. I wish it had not been eclipsed by the authors\u27 clever and provocative fix: turning sovereignty into a tradable commodity. I suspect that this fix would bring about more suffering than the status quo for two reasons. First, a market for sovereign control is unlikely to be a market in any meaningful sense. Therefore, trading sovereignty would not discipline oppressors. Second, should something like a real market materialize, it could diminish the incentives for states to treat their populations better just as plausibly as it could improve them. Distant empires could find it easier to traffic in oppressed people and territories, which would pass from state to state as their masters lose interest. A class of marginal client statelets would grow, endowed with a poor stepchild of sovereignty, which would leave their people defenseless and voiceless

The Luxembourg Effect: Patent Boxes and the Limits of International Cooperation

This article uses patent boxes, which reduce taxes on income from patents and other IP assets, to illustrate the fact that the jurisprudence of the European Court of Justice has a longer reach than has previously been recognized. This article argues that, along with having effects within the European Union, the ECJ’s decisions can also have effects on countries outside of the EU. In the direct tax context, the ECJ’s jurisprudence has hampered the ability of both EU and non-EU countries to police international tax avoidance. In 2015, the Organisation for Economic Co-operation and Development (OECD) proposed restrictions on patent boxes that were designed to limit income-shifting opportunities. As this article points out, these restrictions are weaker than they could have been due to EU legal constraints. Although the majority of countries involved in the OECD’s work on patent boxes were not EU Member States, they were all constrained by the ECJ’s permissive definition of tax avoidance. This article argues that the tax jurisprudence of the ECJ placed downward pressure on international tax avoidance standards and that this in turn shows that countries both within and without the European Union are losing the ability to prevent international tax avoidance to the degree that would have been possible in the absence of the ECJ’s tax jurisprudence. This article refers to this downward pressure as the Luxembourg effect. This effect is even more important in the context of the United Kingdom’s “Brexit” vote to leave the European Union since it highlights that a vote to be free of EU law may not have the desired effect if even non-EU countries are subject to the consequences of the ECJ’s jurisprudence

Financial incentives to promote active travel: an evidence review and economic framework

ContextFinancial incentives, including taxes and subsidies, can be used to encourage behavior change. They are common in transport policy for tackling externalities associated with use of motor vehicles, and in public health for influencing alcohol consumption and smoking behaviors. Financial incentives also offer policymakers a compromise between “nudging,” which may be insufficient for changing habitual behavior, and regulations that restrict individual choice.Evidence acquisitionThe literature review identified studies published between January 1997 and January 2012 of financial incentives relating to any mode of travel in which the impact on active travel, physical activity, or obesity levels was reported. It encompassed macroenvironmental schemes, such as gasoline taxes, and microenvironmental schemes, such as employer-subsidized bicycles. Five relevant reviews and 20 primary studies (of which nine were not included in the reviews) were identified.Evidence synthesisThe results show that more-robust evidence is required if policymakers are to maximize the health impact of fiscal policy relating to transport schemes of this kind.ConclusionsDrawing on a literature review and insights from the SLOTH (sleep, leisure, occupation, transportation, and home-based activities) time-budget model, this paper argues that financial incentives may have a larger role in promoting walking and cycling than is acknowledged generally

Do Investors Value Insider Trading Laws? International Evidence

The article presents a simple agency model of the relationship between corporate valuation and insider trading laws. The article then investigates the model’s three testable hypotheses using firm-level data from a cross-section of developed countries. I find that more stringent insider trading laws and enforcement are associated with greater corporate valuation among the sample firms in common countries, while they are generally irrelevant to corporate valuation for the sample firms in civil law countries. This puzzling dichotomy is robust to various alternative specifications and to controlling for a wide range of potentially omitted variables. The result for the firms in common law countries is consistent with the claim that insider trading laws can help to reduce corporate agency costs. I also find that insider trading laws and cash flow ownership appear to be complementary means to reduce agency costs, contrary to my hypothesis that they are substitute mechanisms for controlling agency costs; however, this result is generally statistically insignificant. Finally, I confirm prior findings of an “incentive effect” of greater cash flow ownership by controlling shareholders.http://deepblue.lib.umich.edu/bitstream/2027.42/57217/1/wp837 .pd