We study the optimal selling mechanism and information disclosure policy for a house seller. The seller can select any selling mechanism, including an auction, and release additional information about the house to buyers. Release of information adjusts the buyers' values and bids. We find that the optimal mechanism is a combination of the optimal auction and full information disclosure. But if the seller uses a second-price auction instead, concealing additional information about the house may be optimal for her. Moreover, the seller can extract buyers' private value adjustments by selling them contracts similar to European call options.
{"title":"Information Disclosure in Housing Auctions","authors":"A. Arefeva, Delong Meng","doi":"10.2139/ssrn.3772307","DOIUrl":"https://doi.org/10.2139/ssrn.3772307","url":null,"abstract":"We study the optimal selling mechanism and information disclosure policy for a house seller. The seller can select any selling mechanism, including an auction, and release additional information about the house to buyers. Release of information adjusts the buyers' values and bids. We find that the optimal mechanism is a combination of the optimal auction and full information disclosure. But if the seller uses a second-price auction instead, concealing additional information about the house may be optimal for her. Moreover, the seller can extract buyers' private value adjustments by selling them contracts similar to European call options.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126560925","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jean-Paul L’Huillier, Sanjay R. Singh, Donghoon Yoo
Diagnostic expectations have emerged as an important departure from rational expectations in macroeconomics and finance. We present a first treatment of diagnostic expectations in linear macroeconomic models. To this end, we establish a strong additivity property for diagnostic expectations. The solution method and stability properties are discussed in full generality. Under some conditions, diagnostic expectations generate higher volatility than rational expectations. We show that this is true in standard New Keynesian models, as in medium-scale DSGE models; in real business cycle models output and investment are char- acterized by dampening, instead. Finally, we discuss how the combination of diagnosticity with imperfect information can rationalize under- and over-reaction in macroeconomics.
{"title":"Diagnostic Expectations and Macroeconomic Volatility","authors":"Jean-Paul L’Huillier, Sanjay R. Singh, Donghoon Yoo","doi":"10.2139/ssrn.3778231","DOIUrl":"https://doi.org/10.2139/ssrn.3778231","url":null,"abstract":"Diagnostic expectations have emerged as an important departure from rational expectations in macroeconomics and finance. We present a first treatment of diagnostic expectations in linear macroeconomic models. To this end, we establish a strong additivity property for diagnostic expectations. The solution method and stability properties are discussed in full generality. Under some conditions, diagnostic expectations generate higher volatility than rational expectations. We show that this is true in standard New Keynesian models, as in medium-scale DSGE models; in real business cycle models output and investment are char- acterized by dampening, instead. Finally, we discuss how the combination of diagnosticity with imperfect information can rationalize under- and over-reaction in macroeconomics.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117315973","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Malte Heilig, Maximilian A. Müller, Caspar David Peter
Investors increasingly rely on digital infrastructure to acquire information and we study how a large, unexpected server outage of the SEC’s EDGAR system affects liquidity to characterize the resilience and capital market effect of information acquisition in the digital age. The SEC’s EDGAR system receives millions of requests per day for information on publicly listed firms and we find that liquidity worsens for firms more strongly affected by its outage. This effect is stronger when failed requests stem from funds and financial institutions, when they are algorithmic in nature, and when they target information not easily available elsewhere.
{"title":"'503 Service Unavailable': When Acquiring Information Goes Wrong","authors":"Malte Heilig, Maximilian A. Müller, Caspar David Peter","doi":"10.2139/ssrn.3809605","DOIUrl":"https://doi.org/10.2139/ssrn.3809605","url":null,"abstract":"Investors increasingly rely on digital infrastructure to acquire information and we study how a large, unexpected server outage of the SEC’s EDGAR system affects liquidity to characterize the resilience and capital market effect of information acquisition in the digital age. The SEC’s EDGAR system receives millions of requests per day for information on publicly listed firms and we find that liquidity worsens for firms more strongly affected by its outage. This effect is stronger when failed requests stem from funds and financial institutions, when they are algorithmic in nature, and when they target information not easily available elsewhere.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132774875","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the problem of information provision in auctions. The linkage principle indicates that credibly revealing private information would benefit the seller, which implies that a seller should prefer a public reserve price to a secret one if the reserve price could reveal her private information. However, information revelation may backfire if the seller's information is not verifiable, and the reserve price works as a signaling device. In this paper, we consider an auction model in which a seller's choice of reserve price signals her private information about the object's quality. We show that such a signaling incentive could decrease the seller's profit and probability of sale in equilibrium, with a larger impact when the seller's private information is more precise relative to the public information announced by a third party. We estimate the reserve price signaling model using a novel dataset from a large online auto auction platform. We find that the signaling incentive could cost the seller 4% of her profit, and decrease the probability of sale by 15 percentage points. Counterfactual simulations suggest that a secret reserve price can improve both the seller's profit and probability of sale, especially when the signaling incentive is strong. Our findings support the prevalent use of secret reserve prices in practice, contrary to the predictions of linkage principle.
{"title":"Reserve Price Signaling with Public Information: Evidence from Online Auto Auctions","authors":"Junyan Guan, Boli Xu","doi":"10.2139/ssrn.3762726","DOIUrl":"https://doi.org/10.2139/ssrn.3762726","url":null,"abstract":"This paper studies the problem of information provision in auctions. The linkage principle indicates that credibly revealing private information would benefit the seller, which implies that a seller should prefer a public reserve price to a secret one if the reserve price could reveal her private information. However, information revelation may backfire if the seller's information is not verifiable, and the reserve price works as a signaling device. In this paper, we consider an auction model in which a seller's choice of reserve price signals her private information about the object's quality. We show that such a signaling incentive could decrease the seller's profit and probability of sale in equilibrium, with a larger impact when the seller's private information is more precise relative to the public information announced by a third party. We estimate the reserve price signaling model using a novel dataset from a large online auto auction platform. We find that the signaling incentive could cost the seller 4% of her profit, and decrease the probability of sale by 15 percentage points. Counterfactual simulations suggest that a secret reserve price can improve both the seller's profit and probability of sale, especially when the signaling incentive is strong. Our findings support the prevalent use of secret reserve prices in practice, contrary to the predictions of linkage principle.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130497900","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Do development banks influence the syndicate structure? Using a global dataset of 12,322 syndicated loans from 2001 to 2016 across 78 countries, we show that the lead banks decrease their loan shares and form less concentrated structure in mixed syndicates including both development banks and private-sector banks as participant lenders. In line with the social view on the role of development banks, we find that such an effect is stronger during periods of financial instability, particularly for the green industry and in the case of borrowers that are financially constrained. Conversely, we do not find any evidence that mixed syndicates exhibit a different syndicate structure for political distortions. Finally, we find that mixed syndicates are not associated with higher covenant violations and increasing of the borrowers’ risk profile after the loan origination. Our results are robust when accounting for relationship lending, asymmetric information within the syndicate, lenders’ lending expertise, borrowers’ opacity, types of loan, and ranking hierarchy in the syndicate among the others.
{"title":"Development Banks and the Syndicate Structure: Evidence From a World Sample","authors":"Marta Degl'Innocenti, Marco Frigerio, Si Zhou","doi":"10.2139/ssrn.3615477","DOIUrl":"https://doi.org/10.2139/ssrn.3615477","url":null,"abstract":"Do development banks influence the syndicate structure? Using a global dataset of 12,322 syndicated loans from 2001 to 2016 across 78 countries, we show that the lead banks decrease their loan shares and form less concentrated structure in mixed syndicates including both development banks and private-sector banks as participant lenders. In line with the social view on the role of development banks, we find that such an effect is stronger during periods of financial instability, particularly for the green industry and in the case of borrowers that are financially constrained. Conversely, we do not find any evidence that mixed syndicates exhibit a different syndicate structure for political distortions. Finally, we find that mixed syndicates are not associated with higher covenant violations and increasing of the borrowers’ risk profile after the loan origination. Our results are robust when accounting for relationship lending, asymmetric information within the syndicate, lenders’ lending expertise, borrowers’ opacity, types of loan, and ranking hierarchy in the syndicate among the others.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121243893","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Multinational enterprises form long supply chains linking subsidiaries in a large number of countries. The latter may provide tax preferences distorting a fair distribution of profit between the subsidiaries. Such a support of profit shifting is elusive for other countries, because no government has a complete view of the global business activity. Hence, truthful communication becomes a chief concern in counteraction to harmful tax competition. To investigate this issue we model intergovernmental information exchange as sequential Bayesian persuasion. We demonstrate how communication promotes tax avoidance through a chain structure and show how countries take their roles in profit shifting schemes. In contrast to public perception, a low tax rate is not a distinct feature of the countries assisting in tax avoidance. Moreover, we show that an agreement on formal information exchange is inefficient for preventing tax avoidance. However, provision of technical support to national tax authorities may be a valid instrument to alleviate the problem.
{"title":"Bayesian Persuasion in Tax Competition","authors":"Erkin Sagiev","doi":"10.2139/ssrn.3743742","DOIUrl":"https://doi.org/10.2139/ssrn.3743742","url":null,"abstract":"Multinational enterprises form long supply chains linking subsidiaries in a large number of countries. The latter may provide tax preferences distorting a fair distribution of profit between the subsidiaries. Such a support of profit shifting is elusive for other countries, because no government has a complete view of the global business activity. Hence, truthful communication becomes a chief concern in counteraction to harmful tax competition. To investigate this issue we model intergovernmental information exchange as sequential Bayesian persuasion. We demonstrate how communication promotes tax avoidance through a chain structure and show how countries take their roles in profit shifting schemes. In contrast to public perception, a low tax rate is not a distinct feature of the countries assisting in tax avoidance. Moreover, we show that an agreement on formal information exchange is inefficient for preventing tax avoidance. However, provision of technical support to national tax authorities may be a valid instrument to alleviate the problem.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"26 1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125857892","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We explore the extent to which information about the social value orientation (SVO) of group members influences contributions to a public good. We compare four networks of information - empty, pair, star and complete. We find that information about SVO has a significant impact on contributions in an experimental setting. This impact is consistent with theoretical predictions based on reciprocity and guilt aversion. We show that a star network with a pro-social manager has the biggest positive effect on contributions.
{"title":"Information on Social Value Orientation and Contributions to a Public Good: Theory and Experimental Evidence","authors":"E. Cartwright, Yidan Chai, Lian Xue","doi":"10.2139/ssrn.3741092","DOIUrl":"https://doi.org/10.2139/ssrn.3741092","url":null,"abstract":"We explore the extent to which information about the social value orientation (SVO) of group members influences contributions to a public good. We compare four networks of information - empty, pair, star and complete. We find that information about SVO has a significant impact on contributions in an experimental setting. This impact is consistent with theoretical predictions based on reciprocity and guilt aversion. We show that a star network with a pro-social manager has the biggest positive effect on contributions.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116807961","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Firms along the supply chain rely on both public disclosures and private information exchanges to develop forecasts about future performance. In this paper, we examine how a firm’s public and private channels of information sharing with its trading partners affect information spillovers along supply chains. First, we document the general phenomenon of bias spillover in supply chains; i.e., a supplier’s management forecast bias is positively associated with its customer’s forecast bias. Second, using a novel, hand-collected dataset, we investigate whether a customer’s commitment to provide private forecasts mitigates the bias spillover by allowing the supplier to better detect strategic biases in the customer’s public forecasts due to capital market incentives. We find that bias spillover is significantly reduced when the customer commits to providing regular private forecasts, and that private forecasts are more important for reducing bias spillover when the customer has strong incentives or ability to bias its public forecasts. Overall, our paper highlights the interplay of private and public communication between trade partners.
{"title":"Public and Private Information Channels along Supply Chains: Evidence from Contractual Private Forecasts","authors":"Brian J. Bushee, Jessica Kim-Gina, Edith Leung","doi":"10.2139/ssrn.3736405","DOIUrl":"https://doi.org/10.2139/ssrn.3736405","url":null,"abstract":"Firms along the supply chain rely on both public disclosures and private information exchanges to develop forecasts about future performance. In this paper, we examine how a firm’s public and private channels of information sharing with its trading partners affect information spillovers along supply chains. First, we document the general phenomenon of bias spillover in supply chains; i.e., a supplier’s management forecast bias is positively associated with its customer’s forecast bias. Second, using a novel, hand-collected dataset, we investigate whether a customer’s commitment to provide private forecasts mitigates the bias spillover by allowing the supplier to better detect strategic biases in the customer’s public forecasts due to capital market incentives. We find that bias spillover is significantly reduced when the customer commits to providing regular private forecasts, and that private forecasts are more important for reducing bias spillover when the customer has strong incentives or ability to bias its public forecasts. Overall, our paper highlights the interplay of private and public communication between trade partners.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128339965","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider marriage problems where myopic and farsighted players interact. To study such problems, we use the pairwise myopic-farsighted stable set. Blocking occurs by coalitions of size one or two. We require that all blocking players should strictly improve. We pay particular attention to the question whether core elements survive in this environment. This is the case when all players are myopic as well as when all players are farsighted. It also holds for matching problems satisfying the top-coalition property. For general matching problems where all women are farsighted, there is only one core element that can belong to the pairwise myopic-farsighted stable set, the woman-optimal stable matching, so all other stable outcomes are excluded for sure. If the woman-optimal stable matching is dominated from the woman point of view by an individually rational matching, then the pairwise myopic farsighted stable set cannot contain a core element. We show that blocking by coalitions of arbitrary size leads to identical results.
{"title":"Do Stable Outcomes Survive in Marriage Problems with Myopic and Farsighted Players?","authors":"P. Herings, A. Mauleon, Vincent Vannetelbosch","doi":"10.2139/ssrn.3731601","DOIUrl":"https://doi.org/10.2139/ssrn.3731601","url":null,"abstract":"We consider marriage problems where myopic and farsighted players interact. To study such problems, we use the pairwise myopic-farsighted stable set. Blocking occurs by coalitions of size one or two. We require that all blocking players should strictly improve. We pay particular attention to the question whether core elements survive in this environment. This is the case when all players are myopic as well as when all players are farsighted. It also holds for matching problems satisfying the top-coalition property. For general matching problems where all women are farsighted, there is only one core element that can belong to the pairwise myopic-farsighted stable set, the woman-optimal stable matching, so all other stable outcomes are excluded for sure. If the woman-optimal stable matching is dominated from the woman point of view by an individually rational matching, then the pairwise myopic farsighted stable set cannot contain a core element. We show that blocking by coalitions of arbitrary size leads to identical results.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132450760","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a model of costly voluntary disclosure in the presence of diversely-informed investors. The manager's disclosure strategy influences trading by investors, which in turn affects the manager's incentives to disclose. When the manager is known to be informed, there exists a unique threshold equilibrium in which only sufficiently good news is disclosed. This equilibrium exhibits two novel features. First, more public information can increase the likelihood of voluntary disclosure. Second, the firm is either over- or under-valued relative to fundamentals, depending on how investors use the information in prices. When investors are uncertain about whether the manager is informed and investors' information is sufficiently precise, this threshold equilibrium may break down.
{"title":"Disclosing to Informed Traders","authors":"Snehal Banerjee, I. Marinovic, Kevin C. Smith","doi":"10.2139/ssrn.3723747","DOIUrl":"https://doi.org/10.2139/ssrn.3723747","url":null,"abstract":"We develop a model of costly voluntary disclosure in the presence of diversely-informed investors. The manager's disclosure strategy influences trading by investors, which in turn affects the manager's incentives to disclose. When the manager is known to be informed, there exists a unique threshold equilibrium in which only sufficiently good news is disclosed. This equilibrium exhibits two novel features. First, more public information can increase the likelihood of voluntary disclosure. Second, the firm is either over- or under-valued relative to fundamentals, depending on how investors use the information in prices. When investors are uncertain about whether the manager is informed and investors' information is sufficiently precise, this threshold equilibrium may break down.","PeriodicalId":232169,"journal":{"name":"ERN: Other Microeconomics: Asymmetric & Private Information (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-11-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131285736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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