Optimal second-degree price discrimination and arbitrage: On the role of asymetric information among buyers

The traditional theory of monopolistic screening tackles individualself-selection but does not address the possibility that buyers couldform a coalition to coordinate their purchases and to reallocate thegoods. In this paper, we design the optimal sale mechanism which takesinto account both individual and coalition incentive compatibilityfocusing on the role of asymmetric information among buyers. We showthat when a coalition of buyers is formed under asymmetric information,the monopolist can do as well as when there is no coalition. Although inthe optimal sale mechanism marginal rates of substitution are notequalized across buyers (hence there exists room for arbitrage), theyfail to realize the gains from arbitrage because of the transaction costsin coalition formation generated by asymmetric information.

Strategy-proofness and essentially single-valued cores revisited

We consider general allocation problems with indivisibilities where agents' preferences possibly exhibit externalities. In such contexts many different core notions were proposed. One is the gamma-core whereby blocking is only allowed via allocations where the non-blocking agents receive their endowment. We show that if there exists an allocation rule satisfying ‘individual rationality’, ‘efficiency’, and ‘strategy-proofness’, then for any problem for which the gamma-core is non-empty, the allocation rule must choose a gamma-core allocation and all agents are indifferent between all allocations in the gamma-core. We apply our result to housing markets, coalition formation and networks.

Partial decentralization as a safeguard against favoritism

In this paper I investigate the optimal level of decentralization of tasks for the provision of a local public good. I enrich the well-known trade-off between internalization of spillovers (that favors centralization) and accountability (that favors decentralization) by considering that public goods are produced through multiple tasks. This adds an additional institutional setting, partial decentralization, to the classical choice between full decentralization and full centralization. The main results are that partial decentralization is optimal when both the variance of exogenous shocks to electorate’s utility is large and the electorate expects high performance from politicians. I also show that the optimal institutional setting depends on the degree of substitutability / complementarity between tasks. In particular, I show that a large degree of substitutability between tasks makes favoritism more likely, which increases the desirability of partial decentralization as a safeguard against favoritism.

Mid-term Evaluation of the 2009-14 European Parliament: Legislative activity and decision-making dynamics. CEPS Special Report, 23 July 2012

This special report analyses legislative activity in the European Union and coalition formation in the European Parliament (EP) during the first half of the 7th legislative term, 2009-14. Co-decision is now the ordinary legislative procedure, not by name only: it was deployed on 90% of new proposals in 2010 and 86% in 2011, which suggests that the EP is now more influential than ever. There are differences in the degree of empowerment across committees, however. This report looks at the legislative workload of selected committees as an indicator of change in their influence, identifying which of them won and which lost out in terms of the quantity and type of legislation they tackle.

N-nitroso compound exposure-associated transcriptomic profiles are indicative of an increased risk for colorectal cancer

Endogenous formation of N-nitroso compounds (NOCs), which are known animal carcinogens, could contribute to human carcinogenesis but definitive evidence is still lacking. To investigate the relevance of NOCs in human colorectal cancer (CRC) development, we analyzed whole genome gene expression modifications in human colon biopsies in relation to fecal NOC exposure. We had a particular interest in patients suffering from intestinal inflammation as this may stimulate endogenous NOC formation, and consequently predispose to CRC risk. Inflammatory bowel disease (IBD) patients diagnosed with ulcerative colitis and irritable bowel syndrome patients without inflammation, serving as controls, were therefore recruited. Fecal NOC were demonstrated in the majority of subjects. By associating gene expression levels of all subjects to fecal NOC levels, we identified a NOC exposure-associated transcriptomic response that suggests that physiological NOC concentrations may potentially induce genotoxic responses and chromatin modifications in human colon tissue, both of which are linked to carcinogenicity. In a network analysis, chromatin modifications were linked to 11 significantly modulated histone genes, pointing towards a possible epigenetic mechanism that may be relevant in comprehending NOC-induced carcinogenesis. In addition, pro-inflammatory transcriptomic modifications were identified in visually non-inflamed regions of the IBD colon. However, fecal NOC levels were slightly but not significantly increased in IBD patients, suggesting that inflammation did not strongly stimulate NOC formation. We conclude that NOC exposure is associated with gene expression modifications in the human colon that may suggest a potential role of these compounds in CRC development.

Red meat intake-induced increases in fecal water genotoxicity correlate with pro-carcinogenic gene expression changes in the human colon

Red meat consumption is associated with an increased colorectal cancer (CRC) risk, which may be due to an increased endogenous formation of genotoxic N-nitroso compounds (NOCs). To assess the impact of red meat consumption on potential risk factors of CRC, we investigated the effect of a 7-day dietary red meat intervention in human subjects on endogenous NOC formation and fecal water genotoxicity in relation to genome-wide transcriptomic changes induced in colonic tissue. The intervention showed no effect on fecal NOC excretion but fecal water genotoxicity significantly increased in response to red meat intake. Colonic inflammation caused by inflammatory bowel disease, which has been suggested to stimulate endogenous nitrosation, did not influence fecal NOC excretion or fecal water genotoxicity. Transcriptomic analyses revealed that genes significantly correlating with the increase in fecal water genotoxicity were involved in biological pathways indicative of genotoxic effects, including modifications in DNA damage repair, cell cycle, and apoptosis pathways. Moreover, WNT signaling and nucleosome remodeling pathways were modulated which are implicated in human CRC development. We conclude that the gene expression changes identified in this study corroborate the genotoxic potential of diets high in red meat and point towards a potentially increased CRC risk in humans.

Terrorism and cabinet duration

Terrorism can strengthen or weaken electoral support for ruling governments. We show in a simple model of coalition formation that, regardless of the direction of a public opinion shock, the impact of terrorism on cabinet duration is ambiguous. However, in an analysis of a data set including 2,400 cabinets in over 150 countries in the period 1970–2002, we find that terrorism, on average, shortens cabinet duration. This result is robust for a range of alternative terror measures and is present in both democratic as well as autocratic political regimes.

Trade liberalization and industrial concentration: evidence from Brazil

This paper applies an endogenous lobby formation model to explain the extent of trade protection granted to Brazilian manufacturing industries during the 1988- 1994 trade liberalization episode. Using a panel data set covering this period, we find that even in an environment in which a major regime shift has been introduced, more concentrated sectors have been able to obtain policy advantages, that lead to a reduction in international competition. The importance of industry structure appears to be substantial: In our baseline specification, an increase in concentration by 20% leads to an increase in protection by 5%-7%.

The executive toolbox: building legislative support in a multiparty presidential regime

How do presidents win legislative support under conditions of extreme multipartism? Comparative presidential research has offered two parallel answers, one relying on distributive politics and the other claiming that legislative success is a function of coalition formation. We merge these insights in an integrated approach to executive-legislative relations, also adding contextual factors related to dynamism and bargaining conditions. We find that the two presidential “tools” – pork and coalition goods – are substitutable resources, with pork functioning as a fine-tuning instrument that interacts reciprocally with legislative support. Pork expenditures also depend upon a president’s bargaining leverage and the distribution of legislative seats.

Nitric oxide down-regulates the expression of the catalytic NADPH oxidase subunit Nox1 in rat renal mesangial cells

Glomerular mesangial cells can produce high amounts of nitric oxide (NO) and reactive oxygen species (ROS). Here we analyzed the impact of NO on the ROS-generating system, particularly on the NADPH oxidase Nox1. Nox1 mRNA and protein levels were markedly decreased by treatment of mesangial cells with the NO-releasing compound DETA-NO in a concentration- and time-dependent fashion. By altering the cGMP signaling system with different inhibitors or activators, we revealed that the effect of NO on Nox1 expression is at least in part mediated by cGMP. Analysis of a reporter construct comprising the 2547 bp of the nox1 promoter region revealed that a stimulatory effect of IL-1beta on nox1 transcription is counteracted by an inhibitory effect of IL-1beta-evoked endogenous NO formation. Moreover, pretreatment of mesangial cells with DETA-NO attenuated platelet-derived growth factor (PDGF)-BB or serum stimulated production of superoxide as assessed by real-time EPR spectroscopy and dichlorofluorescein formation. Transfection of mesangial cells with siRNAs directed against Nox1 and Nox4 revealed that inhibition of Nox1, but not Nox4 expression, is responsible for the reduced ROS formation by NO. Obviously, there exists a fine-tuned crosstalk between NO and ROS generating systems in the course of inflammatory diseases.

Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

Myopic or farsighted : bilateral trade agreements among three symmetric countries

We examine network formation via bilateral trade agreement (BTA) among three symmetric countries. Each government decides whether to form a link or not via a BTA depending on the differential of ex-post and ex-ante sum of real wages in the country. We model the governmental decision in two forms, myopic and farsighted and analyze the effects on the BTA network formation. First, we find that both myopic and farsighted games never induce the formation of star networks nor empty networks. Second, the networks resulting from myopic game coincides with those resulting from farsighted games.

Politicising the Union? The Influence of ‘Leading Candidates’ for the Commission Presidency. Bruges Political Research Paper No. 36, October 2014

‘Leading candidates’ competed for the European Commission Presidency in the campaign for the European elections in May 2014. This element of political contestation poses a challenge to the Union’s institutional design. This article investigates to what extent competing ‘leading candidates’ enhances the process of deliberation and party contestation and thus strengthen the role of European Parliament (EP) party groups. In light of the example of the ‘Progressive Alliance of Socialists and Democrats’ and its ‘leading candidate’, Martin Schulz, it is shown that the election campaign did strive to be EU-wide. However, Schulz’s influence on internal party cohesion and coalition formation remained limited. Therefore the influence of an elected ‘leading candidate’ is regarded as a symbolic act, which could deepen the relationship between the EP and the Commission as well as strengthen the democratic and political standing of both institutions vis-à-vis the European Council.

Ceramide induces a loss in cytosolic peroxide levels in mononuclear cells

Ceramide (a sphingolipid) and reactive oxygen species are each partly responsible for intracellular signal transduction in response to a variety of agents. It has been reported that ceramide and reactive oxygen species are intimately linked and show reciprocal regulation [Liu, Andreieu-Abadie, Levade, Zhang, Obeid and Hannun (1998) J. Biol. Chem. 273, 11313-11320]. Utilizing synthetic, short-chain ceramide to mimic the cellular responses to fluctuations in natural endogenous ceramide formation or using stimulation of CD95 to induce ceramide formation, we found that the principal redox-altering property of ceramide is to lower the [peroxide]cyt (cytosolic peroxide concentration). Apoptosis of Jurkat T-cells, primary resting and phytohaemagglutinin-activated human peripheral blood T-lymphocytes was preceded by a loss in [peroxide]cyt, as measured by the peroxide-sensitive probe 2′,7′-dichlorofluorescein diacetate (also reflected in a lower rate of superoxide dismutase-inhibitable cytochrome c reduction), and this was not associated with a loss of membrane integrity. Where growth arrest of U937 monocytes was observed without a loss of membrane integrity, the decrease in [peroxide]cyt was of a lower magnitude when compared with that preceding the onset of apoptosis in T-cells. Furthermore, decreasing the cytosolic peroxide level in U937 monocytes before the application of synthetic ceramide by pretreatment with either of the antioxidants N-acetyl cysteine or glutathione conferred apoptosis. However, N-acetyl cysteine or glutathione did not affect the kinetics or magnitude of ceramide-induced apoptosis of Jurkat T-cells. Therefore the primary redox effect of cellular ceramide accumulation is to lower the [peroxide]cyt of both primary and immortalized cells, the magnitude of which dictates the cellular response.

Essays On Political Economy

The first chapter analizes conditional assistance programs. They generate conflicting relationships between international financial institutions (IFIs) and member countries. The experience of IFIs with conditionality in the 1990s led them to allow countries more latitude in the design of their reform programs. A reformist government does not need conditionality and it is useless if it does not want to reform. A government that faces opposition may use conditionality and the help of pro-reform lobbies as a lever to counteract anti-reform groups and succeed in implementing reforms. The second chapter analizes economies saddled with taxes and regulations. I consider an economy in which many taxes, subsidies, and other distortionary restrictions are in place simultaneously. If I start from an inefficient laissez-faire equilibrium because of some domestic distortion, a small trade tax or subsidy can yield a first-order welfare improvement, even if the instrument itself creates distortions of its own. This may result in "welfare paradoxes". The purpose of the chapter is to quantify the welfare effects of changes in tax rates in a small open economy. I conduct the simulation in the context of an intertemporal utility maximization framework. I apply numerical methods to the model developed by Karayalcin. I introduce changes in the tax rates and quantify both the impact on welfare, consumption and foreign assets, and the path to the new steady-state values. The third chapter studies the role of stock markets and adjustment costs in the international transmission of supply shocks. The analysis of the transmission of a positive supply shock that originates in one of the countries shows that on impact the shock leads to an inmediate stock market boom enjoying the technological advance, while the other country suffers from depress stock market prices as demand for its equity declines. A period of adjustment begins culminating in a steady state capital and output level that is identical to the one before the shock. The the capital stock of one country undergoes a non-monotonic adjustment. The model is tested with plausible values of the variables and the numeric results confirm the predictions of the theory.