International Journal of Economic Theory最新文献

We consider capital structure including equity, straight bonds (SBs), and contingent convertibles (CoCos) for nonfinancial firms. We price equity and CoCos by a utility-based method. We show that benefits from issuing CoCos increase dramatically with idiosyncratic risk and risk aversion. The firm value is concave in CoCos' conversion ratio and the optimal conversion ratio increases with risk aversion and idiosyncratic risk. If risk aversion is sufficiently high, shareholders' risk-shifting incentives disappear, and the firm issues less CoCos and equity and more SBs as idiosyncratic risk rises. The higher the idiosyncratic risk or risk aversion, the higher the leverage.

It is a well-known observation that, in the overlapping generations (OLG) model with the complete market, we can judge optimality of an equilibrium allocation by examining the associated equilibrium price. Motivated by recent development in decision theory under ambiguity, this study reexamines the above observation in a stochastic OLG model with convex but not necessarily smooth preferences. It is shown that optimality of an equilibrium allocation depends on the set of possible supporting prices, not necessarily on the associated equilibrium price itself. Therefore, observations of an equilibrium price do not necessarily tell us precise information on optimality of the equilibrium allocation.

The General Deviation Measure introduces a progressive definition for financial risk measurement, which presents an alternative to the Coherent Risk Measure. This definition replaces the Translation Invariance and Monotonicity axioms with the Shift Invariance and Nonnegativity axioms, and it includes the Mean Absolute Deviation measure and other variations of the Value-at-Risk measurements. This research shows that Coherent Risk Measure holds an intrinsic contradiction regarding riskless assets, and it proves that the Gini coefficient is also a General Deviation Measure. These contributions improve the efficiency of risk measurement and asset pricing in the financial markets.

Two independent approaches have been used to analyze choices. A prominent notion is rationalizability: individuals choose maximizing binary relations. An alternative is to analyze choices in terms of standards of behavior with the notion of von Neumann–Morgenstern (vNM)-stability. We introduce a new concept ($��r�-�$stability) that in turn extends the notion of stability and rationality. Our main result establishes that every rationalizable choice function is $��r�-�$stable and every vNM-stable choice has an $��r�-�$stable selection. An appealing property of $��r�-�$stability is that well-known solution concepts (top cycle, uncovered set, …) are $��r�-�$stable, while they are neither rationalizable nor vNM-stable.

We take a teacher's exam-setting task as an information design problem. Specifically, the teacher chooses a conditional distribution of grades given students' types. After observing their exam results, each student updates her belief regarding her type via Bayes' rule and chooses an action. Students' reactions to the same exam result could be different, depending on their heterogeneous prior beliefs. The teacher's objective is to persuade students to take a certain action (e.g., applying to universities), which some may not choose without an exam. The teacher adopts different grade distributions, depending on the teacher's and the students' heterogeneous prior beliefs.

We introduce a distinction between additive risky benefits and additive risky costs, showing that it is relevant in determining decision maker choices in the presence of changes in risk. Results obtained show the specific role of the order of risk change when facing the two types of risk. Similarities and differences with the case of multiplicative risks are discussed. Moreover, the analysis is performed in two models studying respectively saving and self-protection and provides new applied results for both, some with reference to background risks.

The comparison of the central rules for claims problems, according to the Lorenz order, has been studied not only on the entire set of problems but also on some restricted domains. We provide new characterizations of the adjusted proportional rule as being Lorenz-maximal or Lorenz-minimal within a class of rules on the half-domains. Using this result, we rank the adjusted proportional, the minimal overlap, and the average-of-awards rules by analyzing whether or not these rules satisfy progressivity and regressivity on the half-domains. We also find that the adjusted proportional rule violates two well-known claim monotonicity properties.