Insider Trading, Informational Effciency and Allocative Effciency

A dominant, net buyer of a certain asset receives a private signal that is correlated with its mean value. We call this insider a Boesky Insider when the quality of the received signal is such that the future value of the asset can be predicted with certainty. We show that even an infinitesimal probability of a Boesky Insider results in informational inefficiency of prices. Insisting that the equilibrium be continuous in the signal accentuates the inefficiency to the extent that no information is conveyed. The informational inefficiency not withstanding, the regime that allows insider trading can result in greater liquidity and is, in an ex-ante sense, Pareto superior when compared to a regime in which insider trading is banned

Extremes and Moderates: A Characterization and an Application to Lobbying

Abstract: In a society where individuals differ in their valuation of different social policies, when might one consider a given individual as having references that are extreme relative to the others? And how important are such preferences in determining eventual policy? In this paper, we describe an individual as being extreme if her views differ from the mainstream to the extent that the rest of the society is able to unanimously agree on a compromise policy that they strictly prefer to what might have been the outcome if such an individual has her own way. Relying on the intermediate property of preferences due to Grandmont [1978] we provide a simple geometric characterization of extreme preferences. Furthermore, we also present an illustrative positive model of lobbying activity where we apply our characterization result to show that every equilibrium social policy is determined only by the activities of those holding extreme preferences even when they are a minorityExtremes, moderates, intermediate preferences, collective decisions and lobbying

Stochastic Stability In A Double Auction

In a k-double auction, a buyer and a seller must simultaneously announce a bid and an ask price respectively. Exchange of the indivisible good takes place if and only if the bid is at least as high as the ask, the trading price being the bid price with probability k and the ask price with probability (1 - k). We show that the stable equilibria of a complete information k-double approximate an asymmetric Nash Bargaining solution with the seller’s bargaining power decreasing in k. Note that ceteras paribus, the payoffs of the seller of the one-shot game increase in k. Nevertheless, as the stochastically stable equilibrium price decreases in k, choosing the seller’s favourite price with a relatively higher probability in individual encounters makes him worse off in the long run

Insider Trading, Informational Effciency and Allocative Effciency

A dominant, net buyer of a certain asset receives a private signal that is correlated with its mean value. We call this insider a Boesky Insider when the quality of the received signal is such that the future value of the asset can be predicted with certainty. We show that even an infinitesimal probability of a Boesky Insider results in informational inefficiency of prices. Insisting that the equilibrium be continuous in the signal accentuates the inefficiency to the extent that no information is conveyed. The informational inefficiency not withstanding, the regime that allows insider trading can result in greater liquidity and is, in an ex-ante sense, Pareto superior when compared to a regime in which insider trading is banned

Stochastic Stability In A Double Auction

In a k-double auction, a buyer and a seller must simultaneously announce a bid and an ask price respectively. Exchange of the indivisible good takes place if and only if the bid is at least as high as the ask, the trading price being the bid price with probability k and the ask price with probability (1 - k). We show that the stable equilibria of a complete information k-double approximate an asymmetric Nash Bargaining solution with the seller's bargaining power decreasing in k. Note that ceteras paribus, the payoffs of the seller of the one-shot game increase in k. Nevertheless, as the stochastically stable equilibrium price decreases in k, choosing the seller's favourite price with a relatively higher probability in individual encounters makes him worse off in the long run.k-double auction; multiple equilibria; risk potential; stochastic stability; Nash Bargaining Solution

Insider Trading, Informational Effciency and Allocative Effciency

A dominant, net buyer of a certain asset receives a private signal that is correlated with its mean value. We call this insider a Boesky Insider when the quality of the received signal is such that the future value of the asset can be predicted with certainty. We show that even an infinitesimal probability of a Boesky Insider results in informational inefficiency of prices. Insisting that the equilibrium be continuous in the signal accentuates the inefficiency to the extent that no information is conveyed. The informational inefficiency not withstanding, the regime that allows insider trading can result in greater liquidity and is, in an ex-ante sense, Pareto superior when compared to a regime in which insider trading is banned.Efficient Markets; Insider Trading; Perfect Bayesian Equilibrium; Pooling; Public Confidence; Zero Probability Event

Three Essays On Bargaining

In the first two chapters, a non-negative function defined on the class of subsets of a finite set of players (or factors) describes the technology for producing a single good. Given this aggregate data, the problem of allocation of surplus among individual players (or factors) is studied in two different models.;In Chapter 1, an axiomatic approach is adopted to construct an allocation rule that is immune to positive monotone transformations of the players\u27 utilities. Under this rule, each player is paid a weighted average of his (or her) marginal contributions to various coalitions. In fact, these weights coincide with the Shapley weights. The model also provides a proper framework for interpreting the Shapley value as the ex-ante evaluation of a conflict situation.;Chapter 2 studies an evolutionary bargaining model in which myopic players with limited memory make simultaneous demands, naively based on precedent. Necessary and sufficient conditions are provided under which the long-run equilibria coincide with the core allocations. Refining the set of equilibria by allowing for the possibility of mistakes, it is shown that the unique limiting equilibrium allocation maximizes the product of players\u27 utilities subject to being in the core of the technology.;Chapter 3 studies the effect of different communication possibilities on the coalitional stability of bargained outcomes. Formally, a graph with the set of players as its vertices describes the communication possibilities. A coalition can be a threat if and only if it is connected. It is then shown that, for a large class of environments, stability with respect to coalition formation ensues if each connected coalition is a tree. Conversely, if there is a connected coalition that is not a tree, there are bargaining situations in which no outcome is stable