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My area of research is mainly
industrial organization and auctions.

WORKING PAPERS:
 | Discrete Bids and
Empirical Inference in Divisible Good Auctions -
last version October 2009 - (revised and resubmitted to REStud)
I provide a model of a divisible good auction (such as auctions of treasury
bills or electricity) in which bidders submit discrete bids and hence their demand
functions are step functions rather than
continuous downward sloping functions. I show that this feature has important
implications for equilibrium behavior as bidders may submit bids which are
higher than their marginal valuation for some units. The characterization theorem reveals
the close relationship between behavior of a bidder in a uniform price
auction and an oligopolist facing an uncertain demand.
I also use the model in structural estimation. I demonstrate that an
indirect revenue comparison between uniform price and discriminatory
auctions is not valid, since in a uniform price auction bidders may bid
above their marginal valuations. Therefore I provide a new method for
performance evaluation of the employed auction mechanism based on data on
individual bids. Applying this method to a dataset consisting of all bids
from 28 treasury auctions of the Czech government I conclude that the
uniform price auction performs quite well in that setting since it fails to extract less
than 3 basis points (in terms of the annual yield of a T-bill) of the
expected surplus while
achieving an allocation resulting in almost all of the efficient surplus.
current version 475kb older version 502kb |
 | On the Properties of Equilibria in Private Value Divisible Good
Auctions with Constrained Bidding -
last version April 2009 (submitted)
I analyze a model of a private value divisible good auction with different
payment rules, standard rationing rule pro-rata on-the-margin and both with
and without a restriction on the number of bids (steps) bidders can submit. I
characterize necessary conditions for equilibrium bidding in a model with
restricted strategy sets and I show that these necessary conditions converge
to those in the model with unrestricted strategy sets. In particular, these
necessary conditions require that the Euler condition characterizing
equilibrium strategies in the unrestricted model holds ''on average'' over the
intervals defined by the length and height of each step, where the average is
taken with respect to the (endogenous) distribution of the market clearing
price. I also prove that the forgone surplus of bidders from using K steps rather than the optimal
continuous bids diminishes at the rate of 1/K2. Sufficient
conditions for equilibrium existence are also provided.
pdf 370kb older version with existence proofs 352kb |
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When Should Manufacturers Want Fair Trade?: New Insights from Asymmetric Information, with David Martimort and
Salvatore Piccolo - last version September 2009 (revised and resubmitted to JEMS)
We revisit the Chicago School argument, advocating for the lawfulness of
resale price restrictions, in a setting of competing manufacturer-retailer
pairs with both adverse selection and moral hazard. A ``laissez-faire"
approach towards vertical price control might harm consumers when privately
informed retailers impose non-market externalities on each other. We show
that letting manufacturers free to control retail prices harms consumers as
long as retailers impose positive non-market externalities on each other,
and that the converse is true otherwise. In contrast to previous work, we
show that, in these instances, consumers' and suppliers' preferences over
contractual choices are not always aligned. These results underscore the
scarce appeal of per se rules and predict circumstances where retail price
restrictions should be forbidden.
pdf 185kb
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 | Delegation and R&D
Incentives: Theory and Evidence from Italy, with David
Martimort and Salvatore Piccolo - last version October 2009 (submitted)
We
use data from the Italian manufacturing industry to document the
positive relationship between delegation of decisions within organizations
and innovation incentives. In order to obtain the causal effect, we
build a contract theory model with asymmetric information and
moral hazard which predicts that awarding autonomy to the manager spurs
innovation incentives relative to arrangements based on vertical
control. We use the model to guide our search for suitable instruments.
Using several alternative instrumental variables and different
specifications we find a strong positive effect of delegation on
R&D spending.
pdf 277kb
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 | Wily
Welfare Capitalists: Werner von Siemens and the Pension Fund, with
Lyndon Moore, last version July 2008 (forthcoming in Cliometrica)
The
German firm of Siemens and Halske introduced many enterprising features
of what later came to be known as welfare capitalism in the mid 19th
century. Profit sharing, annual bonuses, a pension fund, a reduction in
work hours, and an annual party were all means to ensure a productive,
trouble-free workforce. We investigate the reasons why Siemens and
Halske introduced a pension fund in 1872, more than a decade before the
nation-wide social security system was implemented in Germany. We find
that the pension fund increased labor productivity, and in addition
discouraged workers from striking. Our main finding is that the annual
cost of running the pension fund was roughly equal to the profit that
would have been lost in that year if Siemens had to face a strike of
average duration. This suggests that (i) the introduction of a pension
fund is consistent with simple profit maximizing behavior on the firm's
side and (ii) increased labor unionization induced firms to introduce
subjective components of workers' remuneration packages.
pdf 300kb
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 | Do Bidders in Canadian Treasury Bill Auctions
Have Private Values?, with Ali Hortacsu, 2008 (R&R at ECMA)
We develop a test for common values in auctions in which some bidders
possess information about rivals' bids. Information about a rival's bid
causes a bidder to bid differently when she has a private value than when
her value depends on rivals' information. In a divisible good setting, such
as treasury bill auctions, bidders with private values who obtain
information about rivals' bids use this information only to update their
prior about the distribution of residual supply. In the model with a common
value component, they also update their prior about the value of the good
being auctioned. We use these differential updating effects to construct our
test. The proposed test displays good performance in Monte Carlo studies. We
then apply it to data from Canadian treasury bill market, where some bidders
have to route their bids through dealers who also submit bids on their own.
We cannot reject the null hypothesis of private values in our data for
3-months treasury bills, but we reject private values for 12-months treasury
bills. Furthermore, we use the structural model to estimate the value of
customer order flow to a dealer. We find that the extra information
contained in customers' bids leads on average to an increase in payoff equal
to about 0.5 of a basis point, or 32% of the expected surplus of dealers
from participating in these auctions.
pdf 360kb
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 | The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds, with Nuno Cassola and Ali Hortacsu, 2009 (submitted)
This paper studies European banks' demand for short-term funds during
the summer 2007 subprime market crisis. We use bidding data from the
European Central Bank's auctions for one-week loans, their main
channel of monetary policy implementation. Through a model of bidding,
we show that banks' bidding behavior reflects their cost of obtaining
short-term funds elsewhere (i.e., in the interbank market) as well as
a strategic response to other bidders. We find considerable
heterogeneity across banks in their willingness to pay for short-term
funds supplied in these auctions. Accounting for the
strategic component is important: while a naive interpretation of the raw bidding data may suggest that
virtually all banks suffered a dramatic increase in the cost of
obtaining funds in the interbank market, we find that for about one
third of the banks, the change in bidding behavior was simply a
strategic response. Using a complementary data set, we also find that
banks' pre-turmoil liquidity costs, as estimated by our model, are
predictive of their post-turmoil liquidity costs and that there is considerable heterogeneity in these costs with respect to the country-of-origin. Finally, among the
publicly traded banks, the willingness to pay for short term funds in
the second half of 2007 are predictive of stock prices in late 2008.
pdf 550kb
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WORK IN PROGRESS:
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The 2007 Subprime Market Crisis in the EURO Area Through the Lens of
ECB Repo Auctions, with Nuno Cassola and Ali Hortacsu, 2008 |
 | Canadian Large Value Transfer System During the Subprime Crisis , with
Jason Allen and Ali Hortacsu, 2009
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