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| Author | : Kirill Valerievich Zavodov |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
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| Author | : Woojin Youn |
| Publisher | : |
| Total Pages | : 366 |
| Release | : 1998 |
| Genre | : Business enterprises |
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| Author | : Seungmoon Park |
| Publisher | : |
| Total Pages | : |
| Release | : 2021 |
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| Author | : Mario Ramirez Basora |
| Publisher | : |
| Total Pages | : 128 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
It can be easily argued that most, if not all, real economic settings are asymmetric in nature. Particularly, it is often the case that one or several agents possess more or better information than the rest when agreeing upon an economic transaction. Although the information economics revolution of the 1970s laid out the majority of the theoretical foundations, the effects of asymmetric information are subtle and have not been studied in some very interesting contexts, which motivate this thesis. In the first essay, which is based on joint work with Antonio Bento and Benjamin Ho, we study the problem of an uninformed regulator who wishes to use a voluntary price instrument under varying degrees of uncertainty, specifically in the context of a carbon offset market. In this scenario, a regulator offers private land owners a contract that compensates them for producing carbon offsets while minimizing adverse selection and welfare losses. The model shows that monitoring should decrease as the uncertainty of offset quality decreases, but should increase as uncertainty over agricultural productivity increases. Also, in response to those who argue that the problem of additionality is so large that carbon offsets should not be allowed in carbon regulation, the model quantifies the amount of additionality and finds that even in the case of a regulator with no information, welfare is improved by allowing offset contracts. Finally, the model offers guidance for calculating the optimal offset price as a function of the regulator's information. The second essay consists of a cardinal tournament used by a representative firm to choose its next CEO. Candidates are managers of different types: they are heterogeneous over levels of ability and risk aversion. The managers have private information about their ability. In this context, a two-dimensional solution set of levels of ability and risk aversion corresponding to each possible mean of cash flow realization is identified. Using two different specifications (CARA preferences with normally distributed cash flows, and CRRA preferences with log-normally distributed cash flows), the trade-off between managerial ability and risk aversion is found to be characterized by a concave function. Furthermore, for better levels of technology, the relative importance of risk aversion with respect to ability increases, while for worse levels of technology, the reverse holds. Finally, in the third essay, using a model based on the optimal consumption and investment models from the operations research literature, I study how the CEO characteristics studied in Chapter 2 impact dividend policy and the longrun evolution of the firm. Specifically, when assuming CRRA preferences and a concave trade-off between ability and risk aversion, I find that the optimal dividend policy of the CEO is non-monotonic with respect to risk aversion. In other words, CEOs with a combination of both high (or low) ability and risk aversion, will pay out lower dividend yields than CEOs with a more balanced combination of ability and risk aversion. Furthermore, firm survival is a function of the dividend yield and is also non-monotonic: while the probability of firm survival converges to either zero or one as risk aversion (and, by extension, ability) converges to either zero or infinity, there exists a range for which lower investment counteracts a potentially higher dividend yield, and the resulting change in the probability of survival is ambiguous.
| Author | : Gaurav Atreyi Kankanhalli |
| Publisher | : |
| Total Pages | : 199 |
| Release | : 2020 |
| Genre | : |
| ISBN | : |
In this dissertation, I explore how economic agents conduct their investment decisions under uncertainty. Each of the three chapters empirically tests predictions from real-options frameworks of investment under uncertainty, shedding light on novel dimensions of agents' investment responses to uncertainty. In the first chapter, I study how the startup ecosystem responds to uncertainty. In the second chapter, I empirically measure the international transmission of uncertainty by examining US firms' investment responses to uncertainty induced by the 2016 Brexit Referendum. In the third chapter, I examine how uncertainty affects not only the level, but also the composition, of firms' capital stock using data on global shipping firms' investment and disinvestment decisions. Chapter 1 shows that economic uncertainty boosts dynamism among US startups. I introduce news- and survey-based measures of startup-relevant uncertainty and find that uncertainty is associated with net firm creation, and net job creation among young firms. I identify the channel by demonstrating, in a real-options framework, that venture capitalists (VCs) adjust their portfolios to take advantage of uncertainty. In contrast to mature firms delaying investment when facing uncertainty, VCs increase their investment spending during periods of heightened uncertainty, but do so by funding a large number of startups at low valuations. Critically, these dynamics play out solely at the earliest funding stages, implying greater experimentation by VCs. Buoyed by increased VC funding, startups accelerate their investment in technology and labor, producing more innovation and gaining greater traction. Looking at eventual outcomes, I provide evidence that startups receiving funding during high uncertainty periods are more likely to either fail or have exits with high multiples. My results point to uncertainty playing an important role in spurring "creative destruction" by stimulating risky startup activity in the economy. Chapter 2 (joint with Murillo Campello, Gustavo S. Cortes, and Fabricio D'Almeida) shows that the 2016 Brexit Referendum led American corporations to cut jobs and investment within US borders. Using establishment-level data, we document that these effects were modulated by the degree of reversibility of capital and labor. American job losses were particularly pronounced in industries with less skilled and more unionized workers. UK-exposed firms with less redeployable capital and high input-offshoring dependence cut investment the most. Data on the near-universe of US establishments also point to measurable, negative effects on establishment turnover (openings and closings). Our results demonstrate how foreign-born political uncertainty is transmitted across international borders, shaping domestic capital formation and labor allocation. Chapter 3 (joint with Murillo Campello and Hyunseob Kim) studies how economic uncertainty affects corporate asset composition and productivity using near-universe data on shipping firms' new orders, secondary-market transactions, and demolition of ships. Using a real-options framework, we show that shipping firms curtail both the acquisition and disposal of ships in response to heightened uncertainty. Critically, this mechanism operates primarily through cuts in new ship orders and demolition of older vessels -- decisions that are harder to reverse vis-a-vis deals in the used ship market. We use the escalation in Somali pirate attacks from 2009-2011 as a plausibly exogenous shock to uncertainty and find consistent results. The dynamics we identify are more pronounced when secondary ship markets are less liquid, as firms face stronger incentives to delay their decisions. Our results are novel in showing that uncertainty hampers "creative destruction" among mature firms in which these firms adopt technological innovation emobdied in newer capital and dispose of old-vintage capital.
| Author | : Ingmar Olof Nyman |
| Publisher | : |
| Total Pages | : 280 |
| Release | : 1996 |
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| Author | : Jeffrey Paul Graham |
| Publisher | : |
| Total Pages | : |
| Release | : 2011 |
| Genre | : |
| ISBN | : 9781124907154 |
Capital allocation decisions have long captured the attention of economists. This works continues this abiding interest by looking at the broad-ranging topic of capital allocation from two different perspectives. In one instance it will focus on a firm's strategic decision to make a capital outlay in order to enter a competitive market. In another instance it will focus on the individual investment policies of public firms. The common thread between them is that they are both concerned with the role of informational asymmetries on the investment decision(s). In this respect, the importance and value of that additional information is emphasized. In the first paper, I analyze two interactive firms, one with private information and the other without, who must decide when to undertake an irreversible and uncertain investment decision. Traditional non-strategic models of irreversible investment under uncertainty involve a single decision maker and result in an optimal period of delay before the investment is undertaken. In a strategic setting, firms must balance their desire to delay against competitive advantages from early investment. I find that an equilibrium may not exist within the standard continuous framework when the private information is over revenues. Moreover, when an equilibrium does exist the ability of the uninformed firm to exert competitive pressures is significantly impaired. This is in contrast to existing models with asymmetric information over costs, where an equilibrium always exists and the competitive pressures remain strong (Hsu and Lambrecht 2007). This work shows that the investment timing decision, and thus the value of the private information, is highly sensitive to the nature of incomplete information. The second paper studies the investment decisions of U.S. firms with private information over the rest of the market. Theoretical work has long suggested that equity-based compensation induces firm managers to make investment decisions which favor equity holders at the expense of bondholders, resulting in a riskier investment policy. When or how managers are able to execute their preferred investment policy is not well defined. I propose that managers possess private information that allows them to engage in equity maximizing behavior more often. Furthermore, I suggest that analyst coverage reduces manager's private information and thus induces firm maximizing behavior. I test two hypotheses that are consistent with this proposition. The first is based on the asset substitution problem, as defined in Jensen and Meckling (1976). I show that uncovered firms invest in riskier assets than covered firms. The second test is based on the investment timing problem, as defined in Mauer and Sarkar (2005). I show that the investment policies of uncovered firm are less sensitive to uncertainty than covered firms. The third paper studies the effect of private information on the decisions of Mexican firms, using the same methodology outlined in the second paper. In contrast to the results for U.S. firms, there is no evidence in favor of the proposition. A couple of possible explanations for the disparity are explored, including the immaturity of the secondary corporate debt market and the lack of credibility among analysts. Further research is needed to explore the validity of either explanation or alternative explanations.
| Author | : Jacques Drèze |
| Publisher | : CUP Archive |
| Total Pages | : 460 |
| Release | : 1990-05-25 |
| Genre | : Business & Economics |
| ISBN | : 9780521386975 |
Professor Dreze is a highly respected mathematical economist and econometrician. This book brings together some of his major contributions to the economic theory of decision making under uncertainty, and also several essays. These include an important essay on 'Decision theory under moral hazard and state dependent preferences' that significantly extends modern theory, and which provides rigorous foundations for subsequent chapters. Topics covered within the theory include decision theory, market allocation and prices, consumer decisions, theory of the firm, labour contracts, and public decisions.
| Author | : Lin William Cong |
| Publisher | : |
| Total Pages | : |
| Release | : 2014 |
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This thesis consists of two essays that examine several problems in corporate finance and mechanism design. The central theme is endogenous agency conflicts and their impact on dynamic investment decisions. The first essay features auctions of assets and projects with embedded real options, and subsequent exercises of these investment options. The essay shows timing and security choice of auctions endogenously misalign incentives among agents and derives the optimal auction design and exercise strategy. The second essay studies implications of endogenous learning on irreversible investment decisions, in particular, how learning gives rise to asymmetric information between managers and shareholders in decentralized firms. Depending on the quality of the project, the optimal contract between principal and agent distorts investments in ways that has not been examined in the literature. Specifically, in Chapter 1 of the dissertation, I study how governments and corporations auction real investment options using both cash and contingent bids. Examples include sales of natural resource leases, real estate, patents and licenses, and start-up firms with growth options. I incorporate both endogenous auction initiation and post-auction option exercise into the traditional auctions framework, and show that common security bids create moral hazard because the winning bidder's real option differs from the seller's. Consequently, investment could be either accelerated or delayed depending on the security design. Strategic auction timing affects auction initiation, security ranking, equilibrium bidding, and investment; it should be considered jointly with security design and the seller's commitment level. Optimal auction design aligns investment incentives using a combination of down payment and royalty payment, but inefficiently delays sale and investment. I also characterize informal negotiations as timing and signaling games in which bidders can initiate an auction and determine the forms of bids. I show that post-auction investments are efficient and bidding equilibria are equivalent to those of cash auctions. However, in this setting, bidders always initiate the informal auctions inefficiently early. In addition, I provide suggestive evidence for model predictions using data from the leasing and exploration of oil and gas tracts, which leads to several ongoing empirical studies. Altogether, these results reconcile theory with several empirical puzzles and imply novel predictions with policy relevance. In Chapter 2, I examine learning as an important source of managerial flexibility and how it naturally induces information asymmetry in decentralized firms. Timing of learning is crucial for investment decisions, and optimal strategies involve sequential thresholds for learning and investing. Incentive contracts are needed for learning and truthful reporting. The inherent agency conflicts alter investment behavior significantly, and are costly to investors and welfare. But contracting on learning restores efficiency with low future uncertainty or sufficient liquidity. Unlike prior studies, the moral hazard of learning accelerates good projects and delays bad projects. Even the best type's investment is distorted, and only when learning is contractible can adverse selection dominate learning.
| Author | : Pablo Daniel Kurlat |
| Publisher | : |
| Total Pages | : 131 |
| Release | : 2010 |
| Genre | : |
| ISBN | : |
This dissertation studies the interaction of liquidity and incomplete or asymmetric information. In Chapter 1, I study a dynamic economy with illiquidity due to adverse selection in financial markets. Investment is undertaken by borrowing-constrained entrepreneurs. They sell their past projects to finance new ones, but asymmetric information about project quality creates a lemons problem. The magnitude of this friction responds to aggregate shocks, amplifying the responses of asset prices and investment. Indeed, negative shocks can lead to a complete shutdown in financial markets. I then introduce learning from past transactions. This makes the degree of informational asymmetry endogenous and makes the liquidity of assets depend on the experience of market participants. Market downturns lead to less learning, worsening the future adverse selection problem. As a result, transitory shocks can create highly persistent responses in investment and output. In Chapter 2, I study why firms can choose to be illiquid. Optimal incentive schemes for managers may involve liquidating a firm following bad news. Fragile financial structures, vulnerable to runs, have been proposed as a way to implement these schemes despite their ex-post inefficiency. I show that in general these arrangements result in multiple equilibria and, even allowing arbitrary equilibrium selection, they do not necessarily replicate optimal allocations. However, if output follows a continuous distribution and creditors receive sufficiently precise individual early signals, then there exists a fragile financial structure such that global games techniques select a unique equilibrium which reproduces the optimal allocation. In Chapter 3, I study speculative attacks against illiquid firms. When faced with a speculative attack, banks and governments often hesitate, attempting to withstand the attack but giving up after some time, suggesting they have some ex-ante uncertainty about the magnitude of the attack they will face. I model that uncertainty as arising from incomplete information about speculators' payoffs and find conditions such that unsuccessful partial defenses are possible equilibrium outcomes. There exist priors over the distribution of speculators' payoffs that can justify any possible partial defense strategy. With Normal uncertainty, partial resistance is more likely when there is more aggregate uncertainty regarding agents' payoffs and less heterogeneity among them.
