Risk and the role of collateral in debt renegotiation

In his basic model of debt renegotiation, BESTER [1994] argues that collateral is more effective if high risk projects are financed. This result, however, crucially depends on the definition of risk. Using the second-order stochastic dominance criterion introduced by ROTHSCHILD AND STIGLITZ [1970], we show that it is not a project's high risk, induced by a high probability of default, that makes collateral more effective. Instead it turns out that, given the expected return, the probability of default has no impact on the collateral's effectiveness. Moreover, a higher risk of the project caused by a higher loss given default makes the use of collateral even less effective. --Debt renegotiation,Collateral,Risk,Stochastic dominance

Intrafirm Conflicts and Interfirm Price Competition

We study interfirm price competition in the presence of horizontal and vertical intrafirm conflicts in each firm. Intrafirm conflicts are captured by a principal-agent framework with firms employing more than one agent and implementing a tournament incentive scheme. The principals offer premium incentives in the sense of revenue shares to which agents react by proposing a sales price. Introducing such intrafirm conflicts results in higher prices and lower effort levels. Increasing the number of agents lowers the optimal surplus share of the agents as well as the individual effort and the sales prices. Firm profits first increase and then decrease when employing more and more agents suggesting that principals should employ an intermediate number of agents.Price competition, Agency theory

Models Of Business Cycles With Endogenous Technology

Traditionally, theories of the business cycle have assumed that technological change is exogenous to the economic process, although there is considerable evidence that changes in technology depend on economic factors. This thesis examines the implications of endogenous technology for business cycle theory. It constructs two basic general models of output fluctuations. In the first model technical knowledge advances through learning by doing and in the second case there exists an innovation production function and technical progress depends on R&D. Nested within the two general models are both real and monetary business cycle models, so enabling comparisons between monetary models with endogenous technology and conventional monetary models (with exogenous technology), between real business cycle models with endogenous technology and conventional real business cycle models, and between monetary models with endogenous technology and conventional real business cycle models.;The major findings are as follows: Firstly, there is a long-run non-neutrality of money in models with endogenous technology, because monetary innovations can alter technology and so permanently shift the time path of output. Secondly, money is not superneutral in the models with endogenous technology, nor is the conditional probability distribution of output invariant with respect to changes in the money supply rule. Thirdly, as regards the real business cycle models, if technology is endogenous, even a temporary change in productivity can have permanent affects on output because it can change the level of technology. Finally, in both the real and monetary models with endogenous technology, output is non-stationary and exhibits a greater-than-unit root, implying that the growth rate of output increases over time. This stands in strong contrast to conventional monetary models (where the output process is stationary) and conventional real models (where output has at most a unit root). The thesis also considers the implications of wage indexation and of allowing technology to depreciate.;The conclusions of the thesis are that the influence of real and monetary shocks on the economy is very different when technology is endogenous than when it is treated as exogenous and it suggests that business cycle models that ignore the endogeneity of technology can give misleading results

Equity versus Efficiency? - Evidence from Three-Person Generosity Experiments -

In two-person generosity games the proposer's agreement payoff is exogenously given whereas that of the responder is endogenously determined by the proposer's choice of the pie size. Earlier results for two-person generosity games show that participants seem to care more for efficiency than for equity. In three-person generosity games equal agreement payoffs for two of the players are either exogenously excluded or imposed. We predict that the latter crowds out - or at least weakens - efficiency seeking. Our treatments rely on a 2x3 factorial design differing in whether the responder or the third (dummy) player is the residual claimant and whether the proposer's agreement payoff is larger, equal, or smaller than the other exogenously given agreement payoff.generosity game, equity, efficiency, experiment

Path Dependence Without Denying Deliberation : An Exercise Model Connecting Rationality and Evolution

Traditional game theory usually relies on commonly known decision rationality meaning that choices are made in view of their consequences (the shadow of the future). Evolutionary game theory, however, denies any cognitive deliberation by assuming that choice behavior evolves due to its past success (the shadow of the past) as typical in evolutionary biology. Indirect evolution does not consider the two opposite approaches as mutually exclusive but allows to combine them in various ways (Berninghaus et al., 2003). Here we provide a simple application allowing any linear combination of rational deliberation and path dependence, i.e. of the two "shadows". --

Market Structure, Common Ownership and Coordinated Manager Compensation

We study oligopolistic competition in product markets where the firms’ quantity decisions are delegated to managers. Some firms are commonly owned by shareholders such as index funds whereas the other firms are owned by independent shareholders. Under such an asymmetric ownership structure, the common owners have an incentive to coordinate when designing the manager compensation schemes. This implicit collusion induces a less aggressive output behavior by the coordinated firms and a more aggressive behavior by the noncoordinated firms. The profits of the noncoordinated firms are increasing in the number of coordinated firms. The profits of the coordinated firms exceed the profits without coordination if at least 80 % of the firms are commonly owned - an astonishing resemblance to the merger literature

Verschiedene Gründüngerpflanzen – Anbaueignung und Unkrautunterdrückung im Direktsaatsystem vor Winterweizen

In a small-plot field trial 33 green manure plants (GM) were examined for their ability to suppress weeds in a no-tillage system. A roll-chopper was used to suppress the GMs before seeding winter wheat. The success of this organic method to control GMs was compared to the standard method using a non selective herbicide. Species of the group brassicaceae, monocotyles and plant mixtures covered the soil faster, produced more biomass and suppressed weeds more efficiently than species of the group legumes and dicotyles. In spring, weed infestation in all roll-chopper treatments always exceeded economic threshold values whereas in the herbicide treatment weed infestations remained below these values. Additionally, wheat yield and density was reduced in the roll-chopper treatment compared to the herbicide treatment. Application of the roll-chopper together with a suitable GM for Swiss growing conditions will have to be improved before its introduction for no tillage agriculture in organic farming

Risk and the Role of Collateral in Debt Renegotiation

In his basic model of debt renegotiation, BESTER [1994] argues that collateral is more effective if high risk projects are financed. This result, however, crucially depends on the definition of risk. Using the second-order stochastic dominance criterion introduced by ROTHSCHILD AND STIGLITZ [1970], we show that it is not a project’s high risk, induced by a high probability of default, that makes collateral more effective. Instead it turns out that, given the expected return, the probability of default has no impact on the collateral’s effectiveness. Moreover, a higher risk of the project caused by a higher loss given default makes the use of collateral even less effective