Evolutionary Forces in a Banking System with Speculation and System Risk

For an N players coordination games, Tanaka (2000) proved that the notion of N/2 stability defined by Schaffer (1988) is a necessary and sufficient condition for long run equilibrium in an evolutionary process with mutations (in the sense of Kandori, et. al. (1993)). We argue that the critical number in Schaffer's stability is not unique in every application, but can vary with variables determined before the coordination games. In our specific model, these variables are the portfolio choices of the banks. We derived a Z* stability condition for the long run equilibrium for the banking system, in which there is no speculative bank run. This critical number of players is a function of the size for risky investment, and varies with total risky investments when there are more than two banks. We use this framework to analyze the effect of speculative behavior on banks' risk taking and the phenomenon of system risk, calculating the probability when more than one bank fail together (system risk). Our specific results include: first, we propose a Z* stability condition, which is proved to be a necessary and sufficient condition for such a long run equilibrium in the sense of KMR. This critical number of Z* is a function of the total risky investment in the banking system. In the case with two banks, this value could vary across banks. Second, speculative behaviors do not frustrate single bank's risky taking, but rather, encourage the bank to maintain a high enough level of risky investment, to keep the system stay in the equilibrium of no run. This indicates that although the speculative run equilibrium will be eliminated in the long run, the probability of fundamental run will increase with the mere possibility of speculative behavior. It is well known that sufficiently large exogenous shocks can cause a crisis. For example, Allen and Gale (1998) describe a model in which financial crises are caused by exogenous asset-return shocks. Following a large (negative) shock to asset returns, banks are unable to meet their commitments and are forced to default and liquidate assets. Third, the single bank case does not necessarily apply to the case with multiple banks. Symmetric banks can take different level of risks, which induces a different in the probability of bank failures. The probability of joint failures increases, compare to the case without speculation, but the individual probability of bank failures do not necessarily increase.speculative run, evolution process, random mutations, portfolio management, system risk, equilibrium selection, long run stability

R&D Outsourcing Contract with Information Leakage

This paper studies an R&D outsourcing contract between a firm and a contractor, considereing the possibility that in the interim stage, the contractor might sell the innovation to the rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.R&D outsourcing, Contract, Information leakage, Collusion, Multiple agents

Probing Gravitational Lensing of the CMB with SDSS-IV Quasars

We study the cross-correlation between the Planck CMB lensing convergence map and the eBOSS quasar overdensity obtained from the Sloan Digital Sky Survey (SDSS) IV, in the redshift range $0.9 < z < 2.2$. We detect the CMB lensing convergence-quasar cross power spectrum at $5.4 \sigma$ significance. The cross power spectrum provides a quasar clustering bias measurement that is expected to be particularly robust against systematic effects. The redshift distribution of the quasar sample has a median redshift $z \approx 1.55$, and an effective redshift about $1.51$. The best fit bias of the quasar sample is $b_q = 2.43 \pm 0.45$, corresponding to a host halo mass of $\log_{10}\left( \frac{M}{h^{-1} M_\odot} \right) = 12.54^{+0.25}_{-0.36}$. This is broadly consistent with the previous literature on quasars with a similar redshift range and selection. Since our constraint on the bias comes from the cross-correlation between quasars and CMB lensing, we expect it to be robust to a wide range of possible systematic effects that may contaminate the auto correlation of quasars. We checked for a number of systematic effects from both CMB lensing and quasar overdensity, and found that all systematics are consistent with null within $2 \sigma$. The data is not sensitive to a possible scale dependence of the bias at present, but we expect that as the number of quasars increases (in future surveys such as DESI), it is likely that strong constraints on the scale dependence of the bias can be obtained.Comment: 8 pages, 6 figures, 1 table; matches published version on MNRA