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My area of research is mainly
industrial organization and auctions.
Financial support from the National Science Foundation under Grants No. SES-0752860 and SES-1123314 is gratefully acknowledged.

WORKING PAPERS:
 | Discrete Bids and
Empirical Inference in Divisible Good Auctions -
last version June 2010 - (Review
of Economic Studies, 78 (3), pp. 974-1014, 2011 )
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 February 2011 ( Journal of Mathematical Economics , 48(6), pp.339-352, 2012)
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 (Journal of Economics and Management Strategy, 20(3), 2011)
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 ( Journal of Industrial Economics , forthcoming)
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 (Cliometrica, 4(3), pp. 321-348, 2010)
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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 | Valuing Dealers' Informational Advantage: A Study of Canadian Treasury Auctions , with Ali Hortacsu, last version January 2012 ( Econometrica, 80(6), pp.2511-2542, 2012) (previous title: Do Bidders in Canadian Treasury Bill Auctions
Have Private Values?)
Several important auction settings, including treasury auctions in Canada and the U.S., have the feature that some bidders (dealers) observe the bids
of a subset of other bidders (customers). Quantifying the economic advantage that informationally advantaged bidders derive from this institutional feature requires
that we empirically distinguish between private vs. interdependent values paradigms. Bidders with private values who obtain information about rivals' bids use this information
to update their beliefs about the distribution of residual supply. With interdependent values, bidders also update their beliefs about the value of the good being auctioned. We use these
differential updating effects to construct formal hypothesis tests of the presence of private vs. interdependent values.
Using data from Canadian treasury auctions, we cannot reject the null hypothesis of private values in auctions of 3- and 12-month treasury bills. We also do not find evidence supporting the alternative hypothesis of interdependent values. We use the estimated model to quantify the value of observing customer bids to a dealer. We find that the extra information contained in customers' bids leads on average to an increase in payoff equal to 13-35% of the expected surplus of dealers.
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 (forthcoming at Econometrica)
We study European banks' demand for short-term funds (liquidity) 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. Our analysis provides a high-frequency, disaggregated perspective on the 2007 crisis, which was previously studied through comparisons of collateralized and uncollateralized interbank money market rates which do not capture the heterogeneous impact of the crisis on individual banks. Through a model of bidding, we show that banks' bids reflect their cost of obtaining short-term funds elsewhere (e.g., in the interbank market) as well as
a strategic response to other bidders. The strategic response is empirically important: while a na\"{i}ve interpretation of the raw bidding data may suggest that virtually all banks suffered an increase in the cost of
short-term funding, we find that for about one third of the banks, the change in bidding behavior was simply a strategic response. We also find considerable heterogeneity in the short-term funding costs among banks: for over one third of the bidders, funding costs increased by more than 20 basis points, and funding costs vary widely with respect to the country-of-origin. Estimated funding costs of banks are also predictive of market- and accounting-based measures of bank performance, suggesting the external validity of our findings.
pdf 550kb
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 | Crisis Management: Analyzing Default Risk and Liquidity Demand during Financial Stress, with Jason Allen and Ali Hortacsu, 2011 (submitted)
This paper shows that strategies in, and reliance on the payments system as well as special liquidity-supplying tools provided by the central bank are important indicators of distress of individual banks. We conclude that central banks can benefit from using high-frequency data on liquidity demand to obtain a better picture of the financial health of individual participants of the financial system. For the particular case of Canada, using unique features of the payments system and information from the liquidity facilities we find that the willingness-to-pay for liquidity during the financial crisis stayed at low levels throughout the Canadian financial system and that there was no increase in counterparty risk. This suggests that the central bank's overall policy response might have been less pronounced if they had used the methods employed in this paper to analyze the crisis than the actual response.
pdf 724kb
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WORK IN PROGRESS:
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Impact of Emission Permits on Electricity Generation, with Federico Boffa and Frank Wolak, 2011 |
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Liquidity Auctions, Fixed Rate Tenders and Bailouts in the EURO Zone, with Nuno Cassola and Ali Hortacsu, 2011 |
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