Discussion Papers

All of the Department Discussion Papers are submitted to RePEc. The EconPapers or IDEAS sites allow you to search by author, title, keyword, JEL category and abstract contents.

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Papers from 1998 onwards are available on-line as .PDF files.

10 Most Recent Papers

15/04 Aristotelis Boukouras, Kostas Koufopoulos

Adobe Acrobat (PDF) 15/04 Efficient Allocations in Economies with Asymmetric Information when the Realized Frequency of Types is Common Knowledge

We consider a general economy, where agents have private information about their types. Types can be multi-dimensional and potentially interdependent. We show that, if the realized frequency of types (the exact number of agents for each type) is common knowledge, then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique equilibrium. The result requires the single crossing property on utility functions and the anonymity of the Pareto correspondence.

15/03 R. Emre Aytimur, Aristotelis Boukouras, Robert Schwagerz

Adobe Acrobat (PDF) 15/03 The Citizen-Candidate Model with Imperfect Policy Control

We present a modified citizen-candidate model where the implemented policy arises from a compromise between the government and an unelected external power. We show that the two-candidate equilibria of this model differ significantly from the original: however small the cost of candidacy, the distance between the candidates' policies, both ideal and implemented, remains strictly above a threshold. Moreover, there may be one-candidate equilibria in which the only candidate is not the one most preferred by the median voter. Both results point out that, even with negligible cost of entry, there are limits to strategic delegation.

15/02 Aristotelis Boukouras

Adobe Acrobat (PDF) 15/02 Separation of Owenership and Control: Delegation as Commitment Device

This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker for providing effort to complete a project. The worker's effort determines the probability that the project is completed on time, but the worker receives private benefits for every period she is employed. We show that hiring a manager on a short-term contract may increase firm value and we identify the conditions under which separation of ownership and control is optimal.

15/01 Caterina Calsamiglia, Francisco Martinez-Mora, Antonio Miralles

Adobe Acrobat (PDF) 15/01 School Choice Mechanisms, Peer Effects and Sorting

We study the e¤ects that school choice mechanisms and school priorities have on the degree of sorting of students across schools and neighborhoods, when school quality is endogenously determined by the peer group. Using a model with income or ability heterogeneity, we compare the popular Deferred Acceptance (DA) and Boston (BM) mechanisms under several scenarios. With residential priorities, students and their households fully segregate into quality-anked schools and neighborhoods under both mechanisms. With no residential priorities and a bad public school, DA does not generate sorting in general, while BM does so between a priori good public schools. With private schools, the best public school becomes more elitist under BM.

14/19 Stephen G. Hall, P. A. V. B. Swamy, George S. Tavlas

Adobe Acrobat (PDF) 14/19 On the Interpretation of Instrumental Variables in the Presence of Specification Errors

The method of instrumental variables (IV) and the generalized method of moments (GMM), and their applications to the estimation of errors-in-variables and simultaneous equations models in econometrics, require data on a sufficient number of instrumental variables that are both exogenous and relevant. We argue that, in general, such instruments (weak or strong) cannot exist.

14/18 Stephen G. Hall, P. A. V. B. Swamy, George S. Tavlas

Adobe Acrobat (PDF) 14/18 Time Varying Coefficient Models; A Proposal for selecting the Coefficient Driver Sets

14/17 Heather D. Gibson, Stephen G. Hall and George S.Tavlas

Adobe Acrobat (PDF) 14/17 How the Euro-Area Sovereign-Debt Crisis Led to a Collapse in Bank Equity Prices

We quantify the linkages among banks’ equity performance and indicators of sovereign stress by using panel GMM to estimate a three-equation system that examines the impact of sovereign stress, as reflected in both sovereign spreads and sovereign ratings, on bank share prices. We use data for a panel of five euro-area stressed countries. Our findings indicate that a long-run recursive relationship between sovereigns and banks operated during the euro-area crisis. Specifically, for the five crisis countries considered shocks to sovereign spreads fed-through to sovereign ratings, which affected commercial banks. Our results also point to the importance of using levels of equity prices -- rather than rates of return -- in measuring banks’ performance. The use of levels allows us to derive the determinants of long-run equity prices.

14/16 Heather D. Gibson, Stephen G. Hall and George S.Tavlas

Adobe Acrobat (PDF) 14/16 Doom-loops: The Role of Rating Agencies in the Euro Financial Crisis

During the euro-area financial crisis, interactions between sovereign spreads and credit ratings appeared to have led to self-generating feedback loops. To examine the interaction between spreads and ratings, we estimate a simultaneous two-equation model in which spreads and ratings are endogenous. Using a panel of 5 euro-area countries, we construct time series comprising the ratings of its sovereigns determined by the three major rating agencies. We find that, controlling for the economic and political fundamentals, spreads and ratings strongly interacted with each other during the crisis, producing effects well-beyond those of the fundamentals, and with the interactions demonstrating high persistence.

14/15 Maria Jose Gil-Molto and Dimitrios Varvarigos

Adobe Acrobat (PDF) 14/15 Environmental Investments in Mixed vs Private Oligopoly: What are the Implications of Privatization?

We compare economic and environmental outcomes under mixed and private oligopolies, in order to examine the effects of privatization when firms invest in abatement and emissions are taxed. We show that the number of competing firms in the market is an important factor in the determination of these effects. While privatization often involves a welfare trade-off, in the sense that higher (lower) output production implies higher (lower) pollution, there are also circumstances where it leads to both lower output and higher emissions simultaneously. Our results also indicate that privatization tends be associated with reductions in social welfare.

14/14 Svetlana Adrianova, Badi H. Baltagi, Panicos Demetriades and David Fielding

Adobe Acrobat (PDF) 14/14 Ethnic Fractionalization, Governance and Loan Defaults in Africa

We present a theoretical model of moral hazard and adverse selection in an imperfectly competitive loans market that is suitable for application to Africa. The model allows for variation in both the level of contract enforcement (depending on the quality of governance) and the degree of market segmentation (depending on the level of ethnic fractionalization). The model predicts a specific form of non-linearity in the effects of these variables on the loan default rate. Empirical analysis using African panel data for 111 individual banks in 29 countries over 2000-2008 provides strong evidence for these predictions. Our results have important implications for the conditions under which policy reform will enhance financial development.

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