Bidding With Securities: Auctions and Security Design

We study security-bid auctions in which bidders compete by bidding with securities whose payments are contingent on the realized value of the asset being sold. Such auctions are commonly used, both formally and informally. In formal auctions, the seller restricts bids to an ordered set, such as an equity share or royalty rate, and commits to a format, such as first or second-price. In informal settings with competing buyers, the seller does not commit to a mechanism upfront. Rather, bidders offer securities and the seller chooses the most attractive bid, based on his beliefs, ex-post. We characterize equilibrium payoffs and bidding strategies for formal and informal auctions. For formal auctions, we examine the impact of both the security design and the auction format. We define a notion of the steepness of a set of securities, and show that steeper securities lead to higher revenues. We also show that the revenue equivalence principle holds for equity and cash auctions, but that it fails for debt (second-price auctions are superior) and for options (a first-price auction yields higher revenues). We then show that an informal auction yields the lowest possible revenues across all possible formal mechanisms. Finally, we extend our analysis to consider the effects of liquidity constraints, different information assumptions, and aspects of moral hazard.

Persuasion bias, social influence, and uni-dimensional opinions.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one’s influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals’ opinions over a multidimensional set of issues converge to a single “left-right” spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

A Model of Persuasion - With Implications for Financial Markets

We propose a model of the phenomenon of persuasion. We argue that individual beliefs evolve in a way that overweights the opinions and information of individuals whom they "listen to" relative to other individuals. Such agents can be understood to be acting as though they believe they listen to a representative sample of the individuals with valuable information, even though they may not. We analyze dynamics and convergence of beliefs, characterizing when agents' beliefs converge over time to the same beliefs, and when they instead diverge. Convergent beliefs can be characterized as the weighted average of agents' initial beliefs, and these weights can be interpreted as a measure of ``influence.'' We then explore implications in an asset trading setting. Here we demonstrate that agents profit from being influential as well as being accurate. When agents' choice of whom to listen to is endogenous, we show that an individual's influence can be persistent, even though the individual may be inaccurate.

The Role of Competitive Interactions, Phenolics, and Feeding by Mesograzers in Eurasian Watermilfoil (Myriophyllum Spicatum) Invasions

Invasive plants can spread to a degree that disrupts the structure of an ecosystem and causes damage to the environment. Factors contributing to plant invasiveness are incompletely understood, but elevated levels of chemical deterrents may enhance invasion success. This study examined competitive interactions, chemical defense production, and palatability in native Ceratophyllum demersum(coontail) and invasive Myriophyllum spicatum (milfoil). A laboratory competition experiment examined differences in C. demersum and M. spicatum growth in monoculture and polyculture. Since coontail can allelopathically reduce the growth of some plants, M. spicatum was grown in water containing chemical cues from each species. Field-collected samples of each species were freeze dried and ground for phenolic analysis and a palatability experiment. Freeze-dried, ground tissue from each plant species was incorporated into an artificial diet that was offered to amphipods (Gammarus sp.) in a choice feeding experiment. Coontail grew similarly well in both monoculture and polyculture, while milfoil grew better in polyculture. Milfoil growth was lowest in milfoil-conditioned water that contained its own chemical cues, showing that coontail did not allelopathically inhibit the growth of milfoil. Phenolic analysis showed that milfoil contained more phenolics than coontail, which should lead to greater amphipod feeding on the agar food made with coontail than with milfoil. Although other factors could affect competitive interactions and plant palatability, the results suggest that coontail can successfully compete with milfoil and that herbivores may alter competitive interactions between these species

Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. Any desirable public subsidies to banks’ activities should be given directly and not in ways that encourage leverage. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support. We conclude that bank equity is not socially expensive, and that high leverage is not necessary for banks to perform all their socially valuable functions, including lending, taking deposits and issuing money-like securities. To the contrary, better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal, and, viewed from an ex ante perspective, high leverage may not even be privately optimal for banks. Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy.capital regulation, financial institutions, capital structure, too big to fail, systemic risk, bank equity, contingent capital, Basel.

Endogenous Information Flows and the Clustering of Announcements

We consider the release of information by a firm when the manager has discretion regarding the timing of its release. While it is well known that firms appear to delay the release of bad news, we examine how external information about the state of the economy (or the industry) affects this decision. We develop a dynamic model of strategic disclosure in which a firm may privately receive information at a time that is random (and independent of the state of the economy). Because investors are uncertain regarding whether and when the firm has received information, the firm will not necessarily disclose the information immediately. We show that bad news about the economy can trigger the immediate release of information by firms. Conversely, good news about the economy can slow the release of information by firms. As a result, the release of negative information tends to be clustered. Surprisingly, this result holds only when firms can preempt the arrival of external information by disclosing their own information first. These results have implications for conditional variance and skewness of stock and market returns

Test design and minimum standards

We analyze test design and certification standards when an uninformed seller has the option to generate and disclose costly information regarding asset quality. We characterize equilibria by a minimum principle: the test and disclosure policy are chosen to minimize the asset’s value conditional on nondisclosure. Thus, when sellers choose the information provided, simple pass/fail certification tests are likely to dominate the market. A social planner could raise informational and allocative efficiency, and lower deadweight testing costs, by raising the certification standard. Monopolist certifiers also satisfy the minimum principle but set a higher standard and reduce testing rates to maximize revenue

Mental Stress and Exercise Training Response: Stress-sleep Connection may be Involved

Universidade Federal de São Paulo, Dept Prevent Med, Ctr Mindfulness & Hlth Promot, São Paulo, BrazilWashington Univ, Sch Med, Div Cardiol, Heart Rate Variabil Lab, St Louis, MO USAUniversidade Federal de São Paulo, Dept Prevent Med, Ctr Mindfulness & Hlth Promot, São Paulo, BrazilWeb of Scienc

Quality of child health care in the family health strategy

OBJECTIVE: to verify the quality of child health care in the Family Health Strategy (FHS) in a state capital of Northeastern Brazil. METHODS: a descriptive study using a quantitative approach was carried out in 2010 with 66 primary care (PC) teams represented by their doctors and nurses. The survey used part of the Evaluation for Quality Improvement of the Family Health Strategy² (AMQ), a self-rating instrument of the Brazilian Ministry of Health which evaluates the FHS actions and services and classifies them by the following quality-based standards of care: Elementary, undergoing development, Consolidated, Good or Advanced. RESULTS: 84.1% of the FHS-teams rated themselves as providing "Elementary" actions and services, and 47.7% of them considered that they provided "Advanced" ones. The health teams with less than four years of implementation rated themselves better. CONCLUSION: these findings suggest that most of the FHC-teams are providing care with an elementary standard of quality, and indicate that better quality child care is apparently delivered with by teams with less time of implementation

Incentive Compatibility and Differentiability New Results and Classic Applications

We provide several generalizations of Mailath's (1987) result that in games of asymmetric information with a continuum of types incentive compatibility plus separation implies differentiability of the informed agent's strategy. The new results extend the theory to classic models in finance such as Leland and Pyle (1977), Glosten (1989), and DeMarzo and Duffie (1999), that were not previously covered