Deregulation

It is well known in the theoretical literature on deregulation, that any informative signal will be used to give the firm appropriate incentives. This paper presents a model of deregulation that draws on the multi-task model of Holmstrom and Milgrom (1991). Sufficient conditions are derived for deregulation to be optimal despite the existence of a signal that contains information about the firm’s activity. The conditions ensure that there is an adverse response by the firm whenever the regulator tries to use the signal for incentives.This report was commisioned by Asia Pacific School of Economics and Government, AN

The Hold-Out Problem

Suppose a developer wants to buy n adjacent blocks of land that are currently in the possession of n different owners. The value of the blocks of land to the developer is greater than the sum of the individual values of the blocks for each owner. Under complete information about individual valuations, the developer could make a take-it-or-leave-it simultaneous offer to all owners equal to their valuations. The owners would accept the offers, the outcome would be efficient and the developer would get all the surplus. On the other hand, if the owner were to negotiate with the owners sequentially, the final division of the surplus would depend on who would have make the final offer. This individual would end up with the entire surplus and the efficient allocation would be implemented but at the expense of costly delay. Given the possible advantage that arises from being the last to make an offer, players may strategically delay the start of a negotiation. This is the hold-out problem that we examine in this paper. We develop a model in which players decide on the probability that they will go to the negotiating table with the developer. We characterise the full set of equilibria as they correspond to functions of owners valuations, and the developers valuation of subsets of land. Hold out occurs when the developer's valuation of individual blocks is the same as individual owners valuations, or if the valuation of all of the blocks of land by the developer is sufficiently large.

Chasing patents

We examine the problem faced by a company that wishes to purchase patents in the hands of two different patent owners. Complementarity of these patents in the production process of the company is a prime effciency reason for them being owned (or licenced) by the company. We show that this very same complementarity can lead to patent owners behaving strategically in bargaining, and delaying their sale to the company. When the company is highly leveraged, such ineffcient delay is limited. Comparative statics results are also obtained

The Identity of the Generator in the Problem of Social Cost

One of Coase\u27s central insights is that distinguishing between the generator and recipient of an externality is of limited value because externality problems are reciprocal. We reconsider the relevance of the identity of the generator in a model with non-contractible investment ex ante but frictionless bargaining over the externality ex post. In this framework, a party may distort its investment to worsen the other\u27s threat point in bargaining. We demonstrate that the presence of this distortion depends, among other factors, on whether the investing party is a generator. Social efficiency can sometimes be improved by conditioning property rights on the identity of the generator: for example, assigning damage rights if the rights holder is a generator and injunction rights if the rights holder is a recipient can be more efficient than either unconditional damage or injunction rights

Holdouts in Sovereign Debt Restructuring: A Theory of Negotiation in a Weak Contractual Environment

Why is it difficult to restructure sovereign debt in a timely manner? In this paper we present a theory of the sovereign debt restructuring process in which delay arises as individual creditors hold-up a set- tlement in order to extract greater payments from the sovereign. We then use the theory to analyze recent policy proposals aimed at ensuring equal repayment of creditor claims. Strikingly, we show that such collective action policies may increase delay by encouraging free-riding on negotiation costs, even while preventing hold-up and reducing total negotiation costs. A calibrated version of the model can account for observed delays, and finds that free riding is quantitatively relevant: whereas in sim- ple low-cost debt restructuring operations collective mechanisms will reduce delay by more than 60%, in high-cost complicated restructurings the adoption of such mechanisms results in a doubling of delay.

Three essays on contracts and social harm

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 1993.Includes bibliographical references.by Rohan Pitchford.Ph.D