Trade disclosure and price dispersion

This paper determines the effects of post-trade opaqueness on market performance. We find that the degree of market transparency has important effects on market equilibria. In particular, we show that dealers operating in a transparent structure set regret-free prices at each period making zero expected profits in each of the two trading rounds, whereas in the opaque market dealers invest in acquiring information at the beginning of the trading day. Moreover, we obtain that if there is no trading activity in the first period, then market makers only change their quotes in the opaque market. Additionally, we show that trade disclosure increases the informational efficiency of transaction prices and reduces volatility. Finally, concerning welfare of market participants, we obtain ambiguous results. Keywords: Market microstructure, Post-trade transparency, Price experimentation, Price dispersion.

Accuracy vs. simplicity: a complex trade-off

Inductive learning aims at finding general rules that hold true in a database. Targeted learning seeks rules for the predictions of the value of a variable based on the values of others, as in the case of linear or non-parametric regression analysis. Non-targeted learning finds regularities without a specific prediction goal. We model the product of non-targeted learning as rules that state that a certain phenomenon never happens, or that certain conditions necessitate another. For all types of rules, there is a trade-off between the rule's accuracy and its simplicity. Thus rule selection can be viewed as a choice problem, among pairs of degree of accuracy and degree of complexity. However, one cannot in general tell what is the feasible set in the accuracy-complexity space. Formally, we show that finding out whether a point belongs to this set is computationally hard. In particular, in the context of linear regression, finding a small set of variables that obtain a certain value of R2 is computationally hard. Computational complexity may explain why a person is not always aware of rules that, if asked, she would find valid. This, in turn, may explain why one can change other people's minds (opinions, beliefs) without providing new information.

Countervailing power? Collusion in markets with decentralized trade

We consider the collective incentives of buyers and sellers to form cartels in markets where trade is realized through decentralized pairwise bargaining. Cartels are coalitions of buyers or sellers that limit market participation and compensate inactive members for abstaining from trade. In a stable market outcome, cartels set Nash equilibrium quantities and cartel memberships are immune to defections. We prove that the set of stable market outcomes is non-empty and we provide its full characterization. Stable market outcomes are of two types: (i) at least one cartel actively restrains trade and the levels of market participation are balanced, or (ii) only one cartel, eventually the cartel that forms on the long side of the market, is active and it reduces trade slightly below the opponent's.

A maximal domain of preferences for tops-only rules in the division problem

The division problem consists of allocating an amount M of a perfectly divisible good among a group of n agents. Sprumont (1991) showed that if agents have single-peaked preferences over their shares, the uniform rule is the unique strategy-proof, efficient, and anonymous rule. Ching and Serizawa (1998) extended this result by showing that the set of single-plateaued preferences is the largest domain, for all possible values of M, admitting a rule (the extended uniform rule) satisfying strategy-proofness, efficiency and symmetry. We identify, for each M and n, a maximal domain of preferences under which the extended uniform rule also satisfies the properties of strategy-proofness, efficiency, continuity, and "tops-onlyness". These domains (called weakly single-plateaued) are strictly larger than the set of single-plateaued preferences. However, their intersection, when M varies from zero to infinity, coincides with the set of single-plateaued preferences.

Asymmetries in the capacity-inflation trade-off

This paper analyzes the joint dynamics of two key macroeconomic variables for the conduct of monetary policy: inflation and the aggregate capacity utilization rate. An econometric procedure useful for estimating dynamic rational expectation models with unobserved components is developed and applied in this context. The method combines the flexibility of the unobserved components approach, based on the Kalman recursion, with the power of the general method of moments estimation procedure. A 'hyb id' Phillips curve relating inflation to the capacity utilization gap and incorporating forward and backward looking components is estimated. The results show that such a relationship in non-linear: the slope of the Phillips curve depends significantly on the magnitude of the capacity gap. These findings provide support for studying the implications of asymmetricmonetary policy rules.

On the number of K3,3-minor-free and maximal K3,3-minor-free graphs

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Colombian international trade from a physical perspective: towards an ecologial "Prebisch Thesis"

Prebisch's approach to economic development was based on the notion that there is an international historical division of labour. Peripheral countries are specialized in exporting primary goods while centre countries export industrial goods. The Terms of trade for peripheral countries tend to deteriorate. This approach can be extendend to ecological issues. The international Centre-Periphery division does not only involve the monetary exchange of goods and capital, but also the physical exchange in which Southern countries provide materials and energy so that Northern countries can develop their socioconomic metabolism. This metabolism process is guaranteed through cheap prices for primary goods. This paper aims to apply and extend Prebisch's thought on unequal exchange, both monetary and ecological, in relation to colombian trade in the period 1970-2002, using material flow analysis.

Maximal C*-algebras of quotients and injective envelopes of C*-algebras

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North-South trade and directed technical change

In a world where poor countries provide weak protection for intellectual property rights (IPRs), market integration shifts technical change in favor of rich nations. Through this channel, free trade may amplify international income differences. At the same time, integration with countries where IPRs are weakly protected can slow down the world growth rate. An important implication of these results is that protection of intellectual property is most beneficial in open countries. This prediction, which is novel in the literature, is consistent with evidence from a panel of 53 countries observed in the years 1965-1990. The paper also provides empirical support for the mechanism linking North-South trade to the direction of technical change: an increase in import penetration from low-wage, low-IPRs, countries is followed by a sharp fall in R&D investment in a panel of US manufacturing sectors.

Trade of permits for greenhouse gas emissions; bilateral trade need not be the answer

The Kyoto Protocol sets national quotas on CO2 emissions and allows international trade of these quotas. We argue that this trade is characterized by asymmetric, identity-dependent externalities, and show that bilateral trade may not be sufficient for an efficient allocation of emissions. We derive conditions under which bilateral trade does improve the allocation of permits. The conditions are strong. In this sense, we argue that, for emissions permits, market design matters.

The international trade as the sole engine of growth for an economy

Can international trade act as the sole engine of growth for an economy? If yes, what are the mechanisms through which trade operates in transmitting permanent growth? This paper answers these questions with two simple two-country models, in which only one country enjoys sustained growth in autarky. The models differ in the assumptions on technical change, which is either labour- or capital-augmenting. In both cases, the stagnant economy imports growth by trading. In the first model, growth is transmitted because of permanent increases in the trade volume. In the alternative framework, the stagnant economy imports sustained growth because its terms of trade permanently improve.

New estimates for the maximal singular integral

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Cognition, Resources, and Institutions in the Explanation of Attitudes to Free Trade

This article proposes a framework for the analysis of attitudes to foreign trade policies that challenges the traditional skill-endowment approach. The traditional approach assumes informed individuals who calculate the costs and benefits of alternative policies. We propose that individuals lack information and that their positions rest on economic vulnerability, as mediated through risk-aversion. We also stress the role of environmental signals and political endorsements in guiding individuals' views on trade policy. We test this alternative approach with a Spanish survey conducted in May 2009 and the ISSP survey conducted in 2003 in a large number of less developed and more developed countries. The Spanish data show that the population is largely uninformed and that their ideas about the consequences of free trade policy do not explain attitudes among different socio-demographic groups. Meanwhile, the ISSP data contradict important aspects of the traditional approach and are consistent with the alternative approach.

Migration and trade: Theory with an Application to the Eastern- Western European Integration

The remarkable increase in trade flows and in migratory flows of highly educated people are two important features of globalization of the last decades. This paper extends a two-country model of inter- and intraindustry trade to a rich environment featuring technological differences, skill differences and the possibility of international labor mobility. The model is used to explain the patterns of trade and migration as countries remove barriers to trade and to labor mobility. We parameterize the model to match the features of the Western and Eastern European members of the EU and analyze first the effects of the trade liberalization which occured between 1989 and 2004, and then the gains and losses from migration which are expected to occur if legal barriers to labor mobility are substantially reduced. The lower barriers to migration would result in significant migration of skilled workers from Eastern European countries. Interestingly, this would not only benefit the migrants and most Western European workers but, via trade, it would also benefit the workers remaining in Eastern Europe. Key Words: Skilled Migration, Gains from Variety, Real Wages, Eastern-Western Europe. JEL Codes: F12, F22, J61.