The Simple Analytics of Price Signaling Quality

We present a diagrammatic and step-by-step analysis of price signaling quality. Because quality is a continuum on the real positive line, out-of-equilibrium beliefs need not be specified, i.e., every positive price is a positive outcome in equilibrium. We first study the behavior of the monopoly when price conveys information about quality. We then show the effect of information flows on welfare, i.e., profit and consumer surplus.Asymmetric information, learning, monopoly, quality, signaling

Firms, Shareholders, and Financial Markets

We study the influence of the financial market on the decisions of firms in the real market. To that end, we present a model in which the shareholders portfolio selection of assets and the decisions of the publicly-traded firms are integrated through the market process. Financial access alters the objective function of the firms, and the market interaction of shareholders substantially influences firms behavior in the real sector. After characterizing the unique equilibrium, we show that the financial sector integrates the preferences of all shareholders into the decisions for production and ownership structure. The participation from investors in the financial market also limits the firms’ ability to manipulate real prices, i.e., there is a loss of market power in the real sector. Note that, while the loss of market power changes expected profits, it is not detrimental to shareholders since the expected return of equity share depends on the variance (and not the mean) of profits. Indeed, any change in expected profits is absorbed by the financial price. We also show that financial access increases production, thereby altering the distribution of profits. In particular, financial access induces firms to take on more risk. Finally, financial access makes the relationship between risk-aversion and risk-taking ambiguous. For example, it is possible that an increase in risk-aversion leads to more risk-taking, i.e., the variance of real profits increases.Financial sector, Firm behavior, Market power, Monopoly, Perfect competition, Publicly-traded firm, Shareholder behavior, Risk aversion, Risk taking

On Risk Aversion, Classical Demand Theory, and KM Preferences

Building on Kihlstrom and Mirman (1974)’s formulation of risk aversion in the case of multidimensional utility functions, we study the effect of risk aversion on optimal behavior in a general consumer’s maximization problem under uncertainty. We completely characterize the relationship between changes in risk aversion and classical demand theory. We show that the effect of risk aversion on optimal behavior depends on the income and substitution effects. Moreover, the effect of risk aversion is determined not by the riskiness of the risky good, but rather the riskiness of the utility gamble associated with each decision.Classical Demand Theory, Consumer Choice, Income and Substition Effects, Risk Aversion

Final State Interactions, T-odd PDFs & the Lensing Function

It has been suggested that under certain approximations the Sivers effect can be described in terms of factorization of final state interactions and a spatial distortion of impact parameter space parton distribution; that is a convolution of the so-called lensing function and the impact parameter GPD $E$. In this approach the lensing function is calculated in a non-perturbative eikonal model. This enables a comparison between the a priori distinct Sivers function and the GPD $E$ which goes beyond the discussion of overall signs.Comment: 5 pages, 5 figures, misprints corrected: To appear in the Proceedings of the 10th Conference on the Intersection of Particle and Nuclear Physics (CIPANP 2009) San Diego, CA, 25-31 May 200

The Dynamics of Wages and Employment

In this paper, we demonstrate substantial heterogeneity in wage growth across firms within industry, and across workers within firm in Belgium. This variation does not appear to be consistent with simple measurement error stories, but rather seems to be evidence of a more complex labor market. We also empirically show how different the wage and employment adjustment process looks at different levels of aggregation. Dans ce travail, nous montrons le haut niveau d'hétérogénéité dans la croissance des salaires entre firmes d'une même industrie et entre travailleurs d'une même firme. Ces différences ne semblent pas être causées par de l'erreur de mesure, mais semblent plutôt indicatrice de l'existence d'un marché du travail complexe. Nous montrons également les différences entre les processus d'ajustement de l'emploi et des salaires à différents niveau d'agrégation.

Persistence of Firm and Individual Wage Components

Using longitudinal matched employer-employee data, we show that a standard wage equation ignoring firm and individual effects yields a baseline explaining 36 percent of wage variation. Firm specific wage components, including common firm-wide omitted human capital, accounts for an additional 22 percent. Firm pay differentials are large and persistent. Most of these firm differentials reflect omitted general human capital. We also show the importance of asymmetric information and unobserved heterogeneity in wage setting mechanisms. Nous utilisons une banque de données regroupant de l'information à la fois sur les employeurs et les employés. Nous montrons qu'une équation de capital humain standard qui ignore les effets individuels et les effets de firme explique environ 36% de la variance observée des salaires. Les effets de firme permettent d'expliquer 22% additionnels de cette variance. Les différences de salaires entre firmes sont importants et persistants. Nous montrons que la plus grande partie de ces différences de salaires sont causées par l'omission de certaines variables de capital humain. Par contre, nous montrons que l'asymétrie d'information et l'hétérogénéité non observée jouent également un rôle important dans la détermination des salaires.

Supersymmetric electric-magnetic duality of hypergravity

Hypergravity is the theory in which the graviton, of spin-2, has a supersymmetric partner of spin-5/2. There are "no-go" theorems that prevent interactions in these higher spin theories. However, it appears that one can circumvent them by bringing in an infinite tower of higher spin fields. With this possibility in mind, we study herein the electric-magnetic duality invariance of hypergravity. The analysis is carried out in detail for the free theory of the spin-(2,5/2) multiplet, and it is indicated how it may be extended to the infinite tower of higher spins. Interactions are not considered. The procedure is the same that was employed recently for the spin-(3/2,2) multiplet of supergravity. One introduces new potentials ("prepotentials") by solving the constraints of the Hamiltonian formulation. In terms of the prepotentials, the action is written in a form in which its electric-magnetic duality invariance is manifest. The prepotential action is local, but the spacetime invariance is not manifest. Just as for the spin-2 and spin-(3/2,2) cases, the gauge symmetries of the prepotential action take a form similar to those of the free conformal theory of the same multiplet. The automatic emergence of gauge conformal invariance out of demand of manifest duality invariance, is yet another evidence of the subtle interplay between duality invariance and spacetime symmetry. We also compare and contrast the formulation with that of the analogous spin-(1,3/2) multiplet

Information in Cournot: Signaling with Incomplete Control

We embed signaling in the classical Cournot model in which several firms sell a homogeneous good. The quality is known to all the firms, but only to some buyers. The quantity-setting firms can manipulate the price to signal quality. Because there is only one price in a market for a homogeneous good, each firm incompletely controls the price-signal through the quantity decision. We characterize the unique signaling Cournot equilibrium in which the price signals quality to the uninformed buyers. We then compare the signaling Cournot equilibrium with the full-information Cournot equilibrium. Signaling is shown to increase the equilibrium price. Moreover, under certain conditions regarding the composition of buyers, the number of firms, and the distribution of costs across firms, the effects of signalling and market externality cancel each other. In other words, the profits under signaling Cournot equal the profits of a cartel in a full-information environment.Cournot, Homogeneous good, Learning, Quality, Signaling.

Optimal Growth and Uncertainty: Learning

We introduce learning in a Brock-Mirman environment and study the effect of risk generated by the planner's econometric activity on optimal consumption and investment. Here, learning introduces two sources of risk about future payoffs: structural uncertainty and uncertainty from the anticipation of learning. The latter renders control and learning nonseparable. We present two sets of results in a learning environment. First, conditions under which the introduction of learning increases or decreases optimal consumption are provided. The effect depends on the strengths and directions of the two sources of risk, which may pull in opposite directions. Second, the effects of changes in the mean and riskiness of the distribution of the signal and initial beliefs on optimal consumption are studied.Optimal Growth, Uncertainty, Learning, Dynamic Programming

Investment in a Monopoly with Bayesian Learning

We study how learning affects an uninformed monopolist's supply and investment decisions under multiplicative uncertainty in demand. The monopolist is uninformed because it does not know one of the parameters defining the distribution of the random demand. Observing prices reveals this information slowly. We first show how to incorporate Bayesian learning into dynamic programming by focusing on sufficient statistics and conjugate families of distributions. We show their necessity in dynamic programming to be able to solve dynamic programs either analytically or numerically. This is important since it is not true that a solution to the infinite-horizon program can be found either analytically or numerically for any kinds of distributions. We then use specific distributions to study the monopolist's behavior. Specifically, we rely on the fact that the family of normal distributions with an unknown mean is a conjugate family for samples from a normal distribution to obtain closed-form solutions for the optimal supply and investment decisions. This enables us to study the effect of learning on supply and investment decisions, as well as the steady state level of capital. Our findings are as follows. Learning affects the monopolist's behavior. The higher the expected mean of the demand shock given its beliefs, the higher the supply and the lower the investment. Although learning does not affect the steady state level of capital since the uninformed monopolist becomes informed in the limit, it reduces the speed of convergence to the steady state.