Working papers results

We analyse the optimal antitrust enforcement against collusion under asymmetric information with a continuum of types. We focus on prudential deterrence, by imposing that expected fines cannot induce losses even off the equilibrium path. Due to incentive compatibility, efficient cartels enjoy positive rents even when prosecution is costless, created through reduced fines and price cost margins. In equilibrium this distortion is lower for more efficient types, while full collusion can be tolerated for high cost cartels. Moreover, regulation with positive transfers is better than antitrust enforcement, which however allows to implement more efficient outcomes than price caps.

Now in:
European Economic Review, April 1998

Observed fiscal policy reflects the incentives embedded in political institutions. In this paper, we illustrate the effects of two general institutional features: separation of powers, which is common in Presidential-Congressional political systems, and legislative cohesion, which is typical of parliamentary systems. Compared to a simple legislative game, separation of powers brings about a smaller size of government and lower waste, whereas legislative cohesion induces a more equal distribution, but more waste and higher taxes.

This paper provides evidence on the behavior of public debt managers during fiscal stabilizations in OECD countries over the last two decades. We find that debt maturity tends to lengthen the more credible is the program, the lower is the long-term interest rate and the higher is the volatility of short-term interest rates. We show that this debt issuing strategy is consistent with optimal debt management if information bewteen the government and private investors is asymmetric, as it is usually the case at the outset of a stabilization attempt when private investors may lack full confidence in the announced budget cuts.

When financial markets are not fully developed large shareholders are an important feature of an efficient corporate governance system. Thanks to their (relative) financial strength, banks are good candidates to perform this leading role in the governance of firms. However, in the type of monitoring provided and in the strategies that they may choose, banks are affected by significant conflicts of interests: expecially when they exert power through proxy votes and they are important lenders of the firm.

We propose a general formal structure for symmetric information delegation games that encompasses many existing economic applications in the fields of oligopoly theory, the theory of the firm, strategic trade policy and international political economy. We prove that all individually rational allocations are implementable in delegation games with non separable utility. Secondly, we show that contract renegotiation and non observable contracts have similar effects only in particular cases. We prove that all the equilibria obtained when renegotiation is excluded are implementable as renegotiation proof equilibria, provided that the side transfer technology implies a dead-weight loss increasing in the size of the transfer.

The broadcasting industry is still very concentrated all over the world, after 15 years in which new technologies and public policies allowed to overcome the constraint of limited availability of frequencies on the radio spectrum. We argue that the monopolistic competition set up, traditionally used to analyze the broadcasting industry, does not fit the empirical evidence. Instead we analyze the free entry equilibrium in a multistage game in which the decision on program quality (attractiveness) is crucial and the associated fixed costs are endogenously determined. We show that concentration might arise in the long run even in large markets despite entry is free.

We present a model of electoral accountability to compare the public finance outcomes under a presidential-congressional and a parliamentary system. In a presidential-congressional system, contrary to a parliamentary system, there are no endogenous incentives for legislative cohesion, but this allows for a clearer separation of powers. These features lead to clear differences in the public finance performance of the two systems. A Parliamentary system has redistribution towards a majority, less underprovision of public goods, more waste and a higher burden of taxation, whereas a presidential-congressional system has redistribution towards a minority, more underprovision of public goods, but less waste and a smaller size of government.

Now in:
European Economic Review, 1999 (forthcoming)

This paper analyses how to extract market expectations from asset prices, with a particular example: using the term structure of interest rates to estimate the probability the market attaches to the event that a country, Italy, joins the European Monetary Union at a given date. The extraction of such a probability from the term structure is based on the presumption that the term structure contains valuable information regarding the markets assessment of a countrys chances to join the EMU. The case of Italy is interesting because in the survey regularly conducted by Reuters the probability of joining EMU in 1999 fluctuated between 0.07 and 0.15, while, during the same period, the measures of computed by financial houses -- also based on the term structure of interest rates -- have ranged between 0.5 and 0.8. The paper proposes a new method for computing these probabilities, and shows that the discrepancies between survey and market-based measures are not the result of market ine fficiencies, but depend on an incorrect use of the term structure to compute probabilities. The technique proposed in the paper can also be used to distinguish between convergence of probabilities and convergence of fundamentals, that is to find out whether an observed reduction in interest rate spreads signals a higher probability of joining EMU at a given time, or simply reflects improved fundamentals.

This paper analyses the dynamics of wives labour force participation in Spain during the late 1980s from a non-parametric descriptive perspective. This research is motivated by two basic facts: One, there is evidence that female labour supply behaviour in Spain is changing since the late 1980s. Two, while the analysis of participation stocks is covered in the literature, there is no published research on mobility or flows. In the first part of this paper there is a description of the three-monts transition rates over two-waves. The underlying assumption is the First Order Markov Hypothesis. In the second part, the Markov assumption is questioned. This is done by carrying out an analysis of survival over 7 waves in which re-entries are ignored. Moreover, there is also an analysis of mobility contingent on past labour market state, which includes re-entries in the analysis. This allows me to study the likelihood of relapsing in a particular state, or the likelihood of surviving contingent on past labour market states. The results are interesting because they reveal features of female labour market behaviour unknown to date.

We show how to extend the construction of infinite hierachies of beliefs (Mertens and Zamir (1985), Brandenburger and Dekel (1993)) from the case of probability measures to the case of conditional probability systems (CPSs) defined with respect to a fixed collection of relevant hypotheses. The set of hierarchies of CPSs satisfying common certainty of coherency conditional on every relevant hypothesis corresponds to a universal type space. This construction provides a unified framework to analyze the epistemic foundations of solution concepts for dynamic games. As an illustration, we derive some results about conditional common certainty of rationality and rationalizability in multistage games with observed actions.