Delay and Haircuts in Sovereign Debt: Recovery and Sustainability

One of the striking aspects of recent sovereign debt restructurings is, conditional on default, delay length is positively correlated with the size of haircut. In this paper, we develop an incomplete information model of debt restructuring where the prospect of uncertain economic recovery and the signalling about sustainability concerns together generate multi-period delay. The results from our analysis show that there is a correlation between delay length and size of haircut. Such results are supported by evidence. We show that Pareto ranking of equilibria, conditional on default, can be altered once we take into account the ex ante incentive of sovereign debtor. We use our results to evaluate proposals advocated to ensure orderly resolution of sovereign debt crises.

Optimism and commitment: An elementary theory of bargaining and war

We propose an elementary theory of wars fought by fully rational contenders. Two parties play a Markov game that combines stages of bargaining with stages where one side has the ability to impose surrender on the other. Under uncertainty and incomplete information, in the unique equilibrium of the game, long confrontations occur: war arises when reality disappoints initial (rational) optimism, and it persist longer when both agents are optimists but reality proves both wrong. Bargaining proposals that are rejected initially might eventually be accepted after several periods of confrontation. We provide an explicit computation of the equilibrium, evaluating the probability of war, and its expected losses as a function of i) the costs of confrontation, ii) the asymmetry of the split imposed under surrender, and iii) the strengths of contenders at attack and defense. Changes in these parameters display non-monotonic effects.

A Producer Theory with Business Risks

In this paper, we consider a producer who faces uninsurable business risks due to incomplete spanning of asset markets over stochastic goods market outcomes, and examine how the presence of the uninsurable business risks affects the producer's optimal pricing and production behaviours. Three key (inter-related) results we find are: (1) optimal prices in goods markets comprise ‘markup’ to the extent of market power and ‘premium’ by shadow price of the risks; (2) price inertia as we observe in data can be explained by a joint work of risk neutralization motive and marginal cost equalization condition; (3) the relative responsiveness of risk neutralization motive and marginal cost equalization at optimum is central to the cyclical variation of markups, providing a consistent explanation for procyclical and countercyclical movements. By these results, the proposed theory of producer leaves important implications both micro and macro, and both empirical and theoretical.

(Don’t) Make My Vote Count

Proponents of proportional electoral rules often argue that majority rule depresses turnout and may lower welfare due to the 'tyranny of the majority' problem. The present paper studies the impact of electoral rules on turnout and social welfare. We analyze a model of instrumental voting where citizens have private information over their individual cost of voting and over the alternative they prefer. The electoral rule used to select the winning alternative is a combination of majority rule and proportional rule. Results show that the above arguments against majority rule do not hold in this set up. Social welfare and turnout increase with the weight that the electoral rule gives to majority rule when the electorate is expected to be split, and they are independent of the electoral rule employed when the expected size of the minority group tends to zero. However, more proportional rules can increase turnout within the minority group. This effect is stronger the smaller the minority group. We then conclude that majority rule fosters overall turnout and increases social welfare, whereas proportional rule fosters the participation of minorities.

Pecuniary Externality through Credit Constraints: Two Examples without Uncertainty

This paper is a contribution to the growing literature on constrained inefficiencies in economies with financial frictions. The purpose is to present two simple examples, inspired by the stochastic models in Gersbach-Rochet (2012) and Lorenzoni (2008), of deterministic environments in which such inefficiencies arise through credit constraints. Common to both examples is a pecuniary externality, which operates through an asset price. In the second example, a simple transfer between two groups of agents can bring about a Pareto improvement. In a first best economy, there are no pecuniary externalities because marginal productivities are equalised. But when agents face credit constraints, there is a wedge between their marginal productivities and those of the non-credit-constrained agents. The wedge is the source of the pecuniary externality: economies with these kinds of imperfections in credit markets are not second-best efficient. This is akin to the constrained inefficiency of an economy with incomplete markets, as in Geanakoplos and Polemarchakis (1986).

Consumption Inequality and Discount Rate Heterogeneity

Although standard incomplete market models can account for the magnitude of the rise in consumption inequality over the life cycle, they generate unrealistically concave age pro.les of consumption inequality and unrealistically less wealth inequality. In this paper, I investigate the role of discount rate heterogeneity on consumption inequality in the context of incomplete market life cycle models. The distribution of discount rates is estimated using moments from the wealth distribution. I .nd that the model with heterogeneous income pro.les (HIP) and discount rate heterogeneity can successfully account for the empirical age pro.le of consumption inequality, both in its magnitude and in its non-concave shape. Generating realistic wealth inequality, this simulated model also highlights the importance of ex ante heterogeneities as main sources of life time inequality.

What is the Causal Effect of Information and Learning about a Public Good on Willingness to Pay?

In this study we elicit agents’ prior information set regarding a public good, exogenously give information treatments to survey respondents and subsequently elicit willingness to pay for the good and posterior information sets. The design of this field experiment allows us to perform theoretically motivated hypothesis testing between different updating rules: non-informative updating, Bayesian updating, and incomplete updating. We find causal evidence that agents imperfectly update their information sets. We also field causal evidence that the amount of additional information provided to subjects relative to their pre-existing information levels can affect stated WTP in ways consistent overload from too much learning. This result raises important (though familiar) issues for the use of stated preference methods in policy analysis.

Choice, Deferral and Consistency

In this paper we study decision making in situations where the individual’s preferences are not assumed to be complete. First, we identify conditions that are necessary and sufficient for choice behavior in general domains to be consistent with maximization of a possibly incomplete preference relation. In this model of maximally dominant choice, the agent defers/avoids choosing at those and only those menus where a most preferred option does not exist. This allows for simple explanations of conflict-induced deferral and choice overload. It also suggests a criterion for distinguishing between indifference and incomparability based on observable data. A simple extension of this model also incorporates decision costs and provides a theoretical framework that is compatible with the experimental design that we propose to elicit possibly incomplete preferences in the lab. The design builds on the introduction of monetary costs that induce choice of a most preferred feasible option if one exists and deferral otherwise. Based on this design we found evidence suggesting that a quarter of the subjects in our study had incomplete preferences, and that these made significantly more consistent choices than a group of subjects who were forced to choose. The latter effect, however, is mitigated once data on indifferences are accounted for.

Estimació de les emissions de metà generades per fermentació entèrica a la ramaderia bovina a Catalunya, com a font de gasos d'efecte hivernacle (GEH)

L’emissió de GEH generats per processos relacionats amb l’activitat antropogènica ha provocat que la temperatura mitjana de la Terra augmenti, originant el que es coneix com escalfament global. Les possibles conseqüències negatives per al conjunt de la biosfera han portat a l’adopció d’acords internacionals que obliguen als diferents Estats a realitzar Inventaris Nacionals d’Emissions a l’Atmosfera. El CH4, que és exhalat o eructat com a resultat del procés de fermentació entèrica dels remugants, genera un impacte que ha de ser quantificat en els diferents inventaris. En aquest projecte s’ha realitzat l’estimació del CH4 generat per la fermentació entèrica dels bovins a Catalunya. Per aquest objectiu s’han utilitat les equacions explicitades a les directrius del Panel Intergovernamental sobre el Canvi Climàtic (IPCC), així com l’equació de Cambra, L. et al. (2008) per a la determinació del factor de conversió Ym. El resultat final rebaixa les quantitats inventariades tant per l’administració catalana com per l’espanyola.

Information Design

There are two ways of creating incentives for interacting agents to behave in a desired way. One is by providing appropriate payoff incentives, which is the subject of mechanism design. The other is by choosing the information that agents observe, which we refer to as information design. We consider a model of symmetric information where a designer chooses and announces the information structure about a payoff relevant state. The interacting agents observe the signal realizations and take actions which affect the welfare of both the designer and the agents. We characterize the general finite approach to deriving the optimal information structure for the designer - the one that maximizes the designer's ex ante expected utility subject to agents playing a Bayes Nash equilibrium. We then apply the general approach to a symmetric two state, two agent, and two actions environment in a parameterized underlying game and fully characterize the optimal information structure: it is never strictly optimal for the designer to use conditionally independent private signals; the optimal information structure may be a public signal or may consist of correlated private signals. Finally, we examine how changes in the underlying game affect the designer's maximum payoff. This exercise provides a joint mechanism/information design perspective.

Choosing on Influence

Interaction, the act of mutual influence between two or more individuals, is an essential part of daily life and economic decisions. Yet, micro-foundations of interaction are unexplored. This paper presents a first attempt to this purpose. We study a decision procedure for interacting agents. According to our model, interaction occurs since individuals seek influence for those issues that they cannot solve on their own. Following a choice-theoretic approach, we provide simple properties that aid to detect interacting individuals. In this case, revealed preference analysis not only grants the underlying preferences but also the influence acquired. Our baseline model is based on two interacting individuals, though we extend the analysis to multi-individual environments.

Delay and Haircuts in Sovereign Debt: Recovery and Sustainability

One of the striking aspects of recent sovereign debt restructurings is, conditional on default, delay length is positively correlated with the size of "haircut", which is size of creditor losses. In this paper, we develop an incomplete information model of debt restructuring where the prospect of uncertain economic recovery and the signalling about sustainability concerns together generate multi-period delay. The results from our analysis show that there is a correlation between delay length and size of haircut. Such results are supported by evidence. We show that Pareto ranking of equilibria, conditional on default, can be altered once we take into account the ex ante incentive of sovereign debtor. We use our results to evaluate proposals advocated to ensure orderly resolution of sovereign debt crises.

Prognostication after cardiac arrest and hypothermia: a prospective study.

Current American Academy of Neurology (AAN) guidelines for outcome prediction in comatose survivors of cardiac arrest (CA) have been validated before the therapeutic hypothermia era (TH). We undertook this study to verify the prognostic value of clinical and electrophysiological variables in the TH setting. A total of 111 consecutive comatose survivors of CA treated with TH were prospectively studied over a 3-year period. Neurological examination, electroencephalography (EEG), and somatosensory evoked potentials (SSEP) were performed immediately after TH, at normothermia and off sedation. Neurological recovery was assessed at 3 to 6 months, using Cerebral Performance Categories (CPC). Three clinical variables, assessed within 72 hours after CA, showed higher false-positive mortality predictions as compared with the AAN guidelines: incomplete brainstem reflexes recovery (4% vs 0%), myoclonus (7% vs 0%), and absent motor response to pain (24% vs 0%). Furthermore, unreactive EEG background was incompatible with good long-term neurological recovery (CPC 1-2) and strongly associated with in-hospital mortality (adjusted odds ratio for death, 15.4; 95% confidence interval, 3.3-71.9). The presence of at least 2 independent predictors out of 4 (incomplete brainstem reflexes, myoclonus, unreactive EEG, and absent cortical SSEP) accurately predicted poor long-term neurological recovery (positive predictive value = 1.00); EEG reactivity significantly improved the prognostication. Our data show that TH may modify outcome prediction after CA, implying that some clinical features should be interpreted with more caution in this setting as compared with the AAN guidelines. EEG background reactivity is useful in determining the prognosis after CA treated with TH.

Study of humoral immune response in mammals immunized with Plasmodium falciparum antigenic preparations

Six Plasmodium falciparum protein fractions, isolated under reducing conditions, were used to immunize mice, rabbits and the squirrel monkey Saimiri sciureus. Five or seven subcutaneous injections of each antigenic preparation, in conjunction with Freund's complete or incomplete adjuvants, were administered. This led to the development of specific antibodies detected by IFAT, ELISA or immunobloting which inhibited merozoite reinvasion in in vitro P. falciparum cultures. This activity seems to be associated with rhoptry proteins contained in fractions Pf F2 and Pf F4.

Effect of somatostatin on duodenal glucose absorption in man.

OBJECTIVE: The hyperglycemic hyperinsulinemic clamp technique using intraduodenally infused glucose is an attractive tool for studying postprandial glucose metabolism under strictly controlled conditions. Because it requires the use of somatostatin (SST), we examined, in this study, the effect of SST on intestinal glucose absorption. CONTEXT: Twenty-six normal volunteers were given a constant 3-h intraduodenal infusion of glucose (6 mg.kg(-1).min(-1)) labeled with [2-(3)H]glucose for glucose absorption measurement. During glucose infusion, 19 subjects received iv SST at doses of 10-100 ng.kg(-1).min(-1) plus insulin and glucagon, and seven subjects were studied under control conditions. In the controls, glucose was absorbed at a rate that, after a 20-min lag period, equaled the infusion rate. RESULTS: With all the doses of SST tested, absorption was considerably delayed but equaled the rate of infusion after 3 h. At that time, only 5 +/- 2% of the total amount of infused glucose was unabsorbed in the control subjects vs. 36 +/- 2% (P < 0.001) in the SST-infused subjects. In the latter, the intraluminal residue was almost totally absorbed within 40 min of the cessation of SST infusion. At the lowest dose of SST tested (10 ng.kg(-1).min(-1)), suppression of insulin secretion was incomplete. CONCLUSION: These properties of SST hamper the use of intraduodenal hyperglycemic hyperinsulinemic clamps as a tool for exploring postprandial glucose metabolism.