Financial development, labor and market regulations and growth

This paper investigates the importance that market regulation and financial imperfections have on firm growth. We analyse institutions af- fecting labor market as Employment Protection Laws (EP) and Product Market Regulation (PM). We show that together with the beneficial effects of financial development, a firm will get less financing, and thus investless, in a weak financial market (finance effect), the strictness of product and labor market regulations also affect firm growth (labor effect). In particular, we show that the stricter the rules the more detrimental the influence on growth in sectoral value added for a large number of countries. We also show that the labor effect overcomes the positive finance effect.

Security prices and market transparency: the role of prior information

This paper analyzes the role of traders' priors (proper versus improper) on the implications of market transparency by comparing a pre-trade transparent market with an opaque market in a set-up based on Madhavan (1996). We show that prices may be more informative in the opaque market, regardless of how priors are modelled. In contrast, the comparison of market liquidity and volatility in the two market structures are affected by prior specification. Key words: Market microstructure, Transparency, Prior information

Imperfect competition and market liquidity with a supply informed trader

We develop a model of insider trading where agents have private information either about liquidation value or about supply and behave strategically to maximize their profits. The supply informed trader plays a dual role in market making and in information revelation. This trader not only reveals a part of the information he owns, but he also induces the other traders to reveal more of their private information. The presence of different types of information decreases market liquidity and induces non-monotonicity of the market indicators with respect to the variance of liquidation value. Replacing the noise introduced by liquidity traders with a random supply also allows us to study the effect the shocks on different components of supply have on prices and quantities.

Demand elasticity and market power in the spanish electricity market

In this paper we check whether generator's bid behavior at the Spanish whosale electricity market is consistent with the hypothesis of profit maximization on their residual demands. Using OMEL data, we find the arc-elacticity of the residual demand around the system marginal price. The results suggest thet the larger firms are not actually profit-msximization. We argue how the regulatory environment may drive these results. Finally, we repeat the analysis for the first session of the intra-day market where presumably firms may not have the same incentives as in the day-ahead market.

Entry and market selection of firms: a laboratory study

We study competition in experimental markets in which two incumbents face entry by three other firms. Our treatments vary with respect to three factors: sequential vs. block or simultaneous entry, the cost functions of entrants and the amount of time during which incumbents are protected from entry. Before entry incumbents are able to collude in all cases. When all firms' costs are the same entry always leads consumer surplus and profits to their equilibrium levels. When entrants are more efficient than incumbents, entry leads consumer surplus to equilibrium. However, total profits remain below equilibrium, due to the fact that the inefficient incumbents produce too much and efficient entrants produce too little. Market behavior is satisfactory from the consumers' standpoint, but does not yield adequate signals to other potential entrants. These results are not affected by whether entry is simultaneous or sequential. The length of the incumbency phase does have some subtle effects.

A Comparison of the poverty impact of transfers, taxes and market income across five OECD Countries

This paper compares the poverty reduction impact of income sources, taxes and transfers across five OECD countries. Since the estimation of that impact can depend on the order in which the various income sources are introduced into the analysis, it is done by using the Shapley value. Estimates of the poverty reduction impact are presented in a normalized and un-normalized fashion, in order to take into into account the total as well as the per dollar impacts. The methodology is applied to data from the Luxembourg Income Study (LIS) database.

Using problem-based learning for introducing producer theory and market structure in intermediate microeconomics

This paper shows how instructors can use the problem‐based learning method to introduce producer theory and market structure in intermediate microeconomics courses. The paper proposes a framework where different decision problems are presented to students, who are asked to imagine that they are the managers of a firm who need to solve a problem in a particular business setting. In this setting, the instructors’ role isto provide both guidance to facilitate student learning and content knowledge on a just‐in‐time basis

Information revelation and market incompleteness

\documentstyle[portada,11pt]{article}This paper shows that the presence of private information in aneconomy can be a source of market incompleteness even when it is feasibleto issue a set of securities that completely eliminates the informationalasymmetries in equilibrium. We analyze a simple security design model in which avolume maximizing futures exchange chooses not only the characteristics ofeach individual contract but also the number of contracts. Agents have rationalexpectations and differ in information, endowments and, possibly, attitudestoward risk. The emergence of complete or incomplete markets in equilibriumdepends on whether the {\it adverse selection effect} is stronger or weakerthan the {\it Hirshleifer effect}, as new securitiesare issued and prices reveal more information. When the Hirshleifer effectdominates, the exchange chooses an incomplete set of financial contracts, andthe equilibrium price is partially revealing.

Judges' cognition and market order

We argue that during the crystallization of common and civil law in the 19th century, the optimal degree of discretion in judicial rulemaking, albeit influenced by the comparative advantages of both legislative and judicial rulemaking, was mainly determined by the anti-market biases of the judiciary. The different degrees of judicial discretion adopted in both legal traditions were thus optimally adapted to different circumstances, mainly rooted in the unique, market-friendly, evolutionary transition enjoyed by English common law as opposed to the revolutionary environment of the civil law. On the Continent, constraining judicial discretion was essential for enforcing freedom of contract and establishing a market economy. The ongoing debasement of pro-market fundamentals in both branches of the Western legal system is explained from this perspective as a consequence of increased perceptions of exogenous risks and changes in the political system, which favored the adoption of sharing solutions and removed the cognitive advantage of parliaments and political leaders.

Overconfidence and market efficiency with heterogeneous agents

We study financial markets in which both rational and overconfident agents coexist and make endogenous information acquisition decisions. We demonstrate the following irrelevance result: when a positive fraction of rational agents (endogeneously) decides to become informed in equilibrium, prices are set as if all investors were rational, and as a consequence the overconfidence bias does not aect informational efficiency, price volatility, rational traders expected profits or their welfare. Intuitively, as overconfidence goes up, so does price infornativeness, which makes rational agents cut their information acquisition activities, effectively undoing the standard effect of more aggressive trading by the overconfident.

Composition of electricity generation portfolios, pivotal dynamics and market prices

We use a simulation model to study how the diversification of electricity generation portfoliosinfluences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.

Giffen goods and market making

This paper shows that information effects per se are not responsible forthe Giffen goods anomaly affecting competitive traders demands in multi-asset, noisy rational expectations equilibrium models. The role thatinformation plays in traders strategies also matters. In a market withrisk averse, uninformed traders, informed agents havea dual motive for trading: speculation and market making. Whilespeculation entails using prices to assess the effect of private signalerror terms, market making requires employing them to disentangle noisetraders effects in traders aggregate orders. In a correlated environment,this complicates a trader s signal-extraction problem and maygenerate upward-sloping demand curves. Assuming either (i) that competitive,risk neutral market makers price the assets, or that (ii) the risktolerance coefficient of uninformed traders grows without bound, removesthe market making component from informed traders demands, rendering themwell behaved in prices.

Auctions of licences and market structure

This paper studies sequential auctions of licences to operate in amarket where those firms that obtain at least one licence then engage ina symmetric market game. I employ a new refinement of Nash equilibrium,the concept of {\sl Markovian recursively undominated equilibrium}.The unique solution satisfies the following properties: (i) when severalfirms own licences before the auction (incumbents), new entrants buylicences in each stage, and (ii) when there is no more than one incumbent,either the single firm preempts entry altogether or entry occurs inevery stage, depending on the parameter configuration.