Seemingly Unrelated Repeated Games

Suppose Player A is playing two apparently independent repeated games with two other people, B and C, with A randomly matched, each period, with either B or C. Each dyad maintains the maximum incentive-compatible level of cooperation within the dyad, even if cooperation has broken down in the other dyad. Thus, if A defects against B, say, then C is still willing to cooperate with A to the maximum incentive-compatible degree. Nevertheless, we show that the simple presence of each cooperative relationship can increase the maximum incentive compatible level of cooperation in the other dyad, due to a counterintuitive circular reasoning or “bootstrapping” effect. With more than two relationships, bootstrapping effects alternate with equally counterintuitive reverse bootstrapping effects.Repeated Games, Random Matching

WHY BUBBLE-BURSTING IS UNPREDICTABLE: WELFARE EFFECTS OF ANTI-BUBBLE POLICY WHEN CENTRAL BANKS MAKE MISTAKES

This paper examines the effect of bubble-bursting policy in the case where the central bank sometimes tries to deflate an asset which is not, in fact, overpriced. We consider the case of a “semi-bubble,” where some traders know that an asset is overpriced, but others do not. Unlike most previous papers on bubble policy, our framework assumes rational traders. We also assume a finite time horizon, to rule out infinite horizon type bubbles. The market’s “fulfilled expectations” equilibria are derived, and standard tools of welfare economics are applied to evaluate the effect of anti-bubble policy. Under the assumption that the announcements of the financial authority can help less informed traders to learn more about a risky asset, market equilibria are presented and compared. We show that, if sellers care relatively more about the states where the central bank makes a negative bubble-bursting announcement, an announcement policy interferes with the asset’s ability to share risks. Conversely, if sellers care relatively less about the announcement states, an announcement policy improves risk sharing. “Information leakage” plays an important role in our analysis. Because of this leakage, central bank announcements can initiate further information revelation between traders. That is, the leakage effect can reveal information that the central bank, itself, does not have. However, this information leakage may not be welfare improving. Also, this leakage effect makes it difficult to predict the effects of bubble-bursting policy. This may complicate both private investment strategies and public policy analysis.greater-fool, asset bubble, asymmetric information, information leakage, Hirshleifer effect

Silence is golden: communication, silence, and cartel stability

This paper studies how cartel stability is influenced by asymmetric information and communication about demand. Firms in a cartel face fluctuating demand in a repeated game framework. In each period, one randomly chosen firm knows current demand. In this context we consider two different equilibria -- one where the informed firm communicates its information to its partners and another where it does not. We show that cartels are extremely unstable when the informed firm communicates with the uninformed firms. However, when the informed firm does not communicate with the uninformed firms cartels can be as stable as when there are no demand fluctuations at all

Silence is golden: communication, silence, and cartel stability

This paper studies how cartel stability is influenced by asymmetric information and communication about demand. Firms in a cartel face fluctuating demand in a repeated game framework. In each period, one randomly chosen firm knows current demand. In this context we consider two different equilibria -- one where the informed firm communicates its information to its partners and another where it does not. We show that cartels are extremely unstable when the informed firm communicates with the uninformed firms. However, when the informed firm does not communicate with the uninformed firms cartels can be as stable as when there are no demand fluctuations at all

WHY BUBBLE-BURSTING IS UNPREDICTABLE: WELFARE EFFECTS OF ANTI-BUBBLE POLICY WHEN CENTRAL BANKS MAKE MISTAKES

This paper examines the effect of bubble-bursting policy in the case where the central bank sometimes tries to deflate an asset which is not, in fact, overpriced. We consider the case of a “semi-bubble,” where some traders know that an asset is overpriced, but others do not. Unlike most previous papers on bubble policy, our framework assumes rational traders. We also assume a finite time horizon, to rule out infinite horizon type bubbles. The market’s “fulfilled expectations” equilibria are derived, and standard tools of welfare economics are applied to evaluate the effect of anti-bubble policy. Under the assumption that the announcements of the financial authority can help less informed traders to learn more about a risky asset, market equilibria are presented and compared. We show that, if sellers care relatively more about the states where the central bank makes a negative bubble-bursting announcement, an announcement policy interferes with the asset’s ability to share risks. Conversely, if sellers care relatively less about the announcement states, an announcement policy improves risk sharing. “Information leakage” plays an important role in our analysis. Because of this leakage, central bank announcements can initiate further information revelation between traders. That is, the leakage effect can reveal information that the central bank, itself, does not have. However, this information leakage may not be welfare improving. Also, this leakage effect makes it difficult to predict the effects of bubble-bursting policy. This may complicate both private investment strategies and public policy analysis

Endperiodic Automorphisms of Surfaces and Foliations

We extend the unpublished work of M. Handel and R. Miller on the classification, up to isotopy, of endperiodic automorphisms of surfaces. We give the Handel-Miller construction of the geodesic laminations, give an axiomatic theory for pseudo-geodesic lamaniations, show the geodesic laminations satisfy the axioms, and prove that paeudo-geodesic laminations satisfying our axioms are ambiently isotopic to the geodesic laminations. The axiomatic approach allows us to show that the given endperiodic automorphism is isotopic to a smooth endperiodic automorphism preserving smooth laminations ambiently isotopic to the original ones. Using the axioms, we also prove the "transfer theorem" for foliations of 3-manifolds., namely that, if two depth one foliations are transverse to a common one-dimensional foliation whose monodromy on the noncompact leaves of the first foliation exhibits the nice dynamics of Handel-Miller theory, then the transverse one-dimensional foliation also induces monodromy on the noncompact leaves of the second foliation exhibiting the same nice dynamics. Our theory also applies to surfaces with infinitely many ends.Comment: Added Sergio Fenley as author. Moved material from Section 12.6 to a new Section 6.7. Rewrote Section 7. Deleted material from Section 6.1 and combined Sections 6.1 and 6.2 into new Section 6.1. Rewrote Section 4.6. Corrected typos and errors and improved expositio