{"title":"The dynamics of project standards","authors":"Andrew McClellan","doi":"10.1016/j.jet.2025.105968","DOIUrl":"10.1016/j.jet.2025.105968","url":null,"abstract":"<div><div>We study how a principal decides the duration of a project based on an agent's report about the growth rate of the project's profitability. The principal optimally commits to a project standard, shutting down whenever the project's profitability falls below the standard. Low-growth projects receive stationary standards, whereas high-growth projects receive standards that either increase unboundedly over time (with growing inefficiencies upon shut down), decrease towards the principal's first-best standard (with vanishing inefficiencies upon shut down) or use the same standard as the low-growth project. We explore what type of information is optimally elicited using dynamic standards and show that our results are robust to allowing for transfers and costly information acquistion by the principal.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"224 ","pages":"Article 105968"},"PeriodicalIF":1.4,"publicationDate":"2025-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143340523","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Evolving wars of attrition","authors":"Germán Gieczewski","doi":"10.1016/j.jet.2025.105967","DOIUrl":"10.1016/j.jet.2025.105967","url":null,"abstract":"<div><div>This paper models a war of attrition that evolves over time. Two players fight over a prize until one surrenders. The flow costs of fighting depend on a state variable that is public but changes stochastically as the war unfolds. In the unique equilibrium, each player surrenders when the state becomes adverse enough; for intermediate states, both players fight on. In an extension, the baseline model is augmented to allow for unilateral concessions of part of the prize. Such concessions can be beneficial if they disproportionately sap the opponent's incentive to fight. The evolving war of attrition with concessions yields predictions regarding delay and the eventual division of the prize that differ from conventional models of bargaining as well as reputational wars of attrition.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"224 ","pages":"Article 105967"},"PeriodicalIF":1.4,"publicationDate":"2025-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143340725","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Binary mechanisms under privacy-preserving noise","authors":"Farzad Pourbabaee , Federico Echenique","doi":"10.1016/j.jet.2025.105965","DOIUrl":"10.1016/j.jet.2025.105965","url":null,"abstract":"<div><div>We study mechanism design for public-good provision under a noisy privacy-preserving transformation of individual agents' reported preferences. The setting is a standard binary model with transfers and quasi-linear utility. Agents report their preferences for the public good, which are randomly “flipped,” so that any individual report may be explained away as the outcome of noise. We study the tradeoffs between preserving the public decisions made in the presence of noise (noise sensitivity), pursuing efficiency, and mitigating the effect of noise on revenue.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"224 ","pages":"Article 105965"},"PeriodicalIF":1.4,"publicationDate":"2025-01-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143340525","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Achieving safety: Personal, private, and public provision","authors":"Enrico Perotti , Spyros Terovitis","doi":"10.1016/j.jet.2025.105962","DOIUrl":"10.1016/j.jet.2025.105962","url":null,"abstract":"<div><div>We study how a primary need for minimum safety affects investment choices. In addition to risky projects, agents may choose to invest in personal assets they can control. Investing in personal assets serves as self-insurance, as they ensure a higher minimum return but offer a lower expected return than the risky project offers. In autarky, investors ensure a minimum return by personal assets, besides investing in the risky project. Private intermediaries and a safe rate arise endogenously to limit inefficient self-insurance, with self-insured investors holding bank equity to safeguard private safe debt. The endogenous conflict over interim risk choices is resolved by demandable debt, forcing early liquidation in states in which the ability of banks to repay debt holders remains uncertain. Our work highlights the unintended consequences of public provision of safety for private provision of safety and aggregate investment, demonstrating that these effects depend critically on whether public provision takes the form of public debt or deposit insurance.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"224 ","pages":"Article 105962"},"PeriodicalIF":1.4,"publicationDate":"2025-01-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143340524","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"A dynamic analysis of criminal networks","authors":"Luca Colombo , Paola Labrecciosa , Agnieszka Rusinowska","doi":"10.1016/j.jet.2024.105951","DOIUrl":"10.1016/j.jet.2024.105951","url":null,"abstract":"<div><div>We take a novel approach based on differential games to the study of criminal networks. We extend the static crime network game (<span><span>Ballester et al.</span></span>, <span><span>2006</span></span>, <span><span>2010</span></span>) to a dynamic setting where criminal activities negatively impact the accumulation of total wealth in the economy. We derive a Markov Feedback Equilibrium and show that, unlike in the static crime network game, the vector of equilibrium crime rates is not necessarily proportional to the vector of Bonacich centralities. Next, we conduct a comparative dynamic analysis with respect to the network size, the network density, and the marginal expected punishment, finding results in contrast with those arising in the static crime network game. We also shed light on a novel issue in the network theory literature, i.e., the existence of a <em>voracity effect</em>. Finally, we study the problem of identifying the optimal target in the population of criminals when the planner's objective is to minimize aggregate crime at each point in time. Our analysis shows that the key player in the dynamic and the static setting may differ, and that the key player in the dynamic setting may change over time.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105951"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171671","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Manipulation, panic runs, and the short selling ban","authors":"Pingyang Gao , Xu Jiang , Jinzhi Lu","doi":"10.1016/j.jet.2024.105939","DOIUrl":"10.1016/j.jet.2024.105939","url":null,"abstract":"<div><div>Short selling regulation has been a longstanding topic of debate in financial markets, particularly during times of crisis. While proponents argue that short selling aids in price discovery and market efficiency, critics raise concerns about manipulative short selling practices that can destabilize markets. This paper presents a theoretical model to analyze the impact of short selling, specifically manipulative short selling (MSS), on bank runs and efficiency. The model demonstrates that MSS can emerge as an equilibrium outcome driven by uninformed speculators seeking to profit from artificially depressing stock prices. The prevalence of MSS is influenced by the level of informed trading and coordination friction among creditors. We find that short selling bans can enhance welfare by mitigating the negative effects of MSS, particularly in scenarios with high coordination frictions. We also provide policy and empirical implications.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105939"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171676","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Statistical decision functions with judgment","authors":"Simone Manganelli","doi":"10.1016/j.jet.2024.105940","DOIUrl":"10.1016/j.jet.2024.105940","url":null,"abstract":"<div><div>A decision maker tests whether the gradient of the loss function evaluated at a judgmental decision is zero, for a given level of significance. If the test does not reject, the decision maker selects the judgmental decision. If the test rejects, the decision maker chooses the action whose gradient is at the boundary of the rejection region. The test is admissible and asymptotically most powerful. The level of significance reflects the decision maker's attitude toward uncertainty. The decision rule is applied to a problem of asset allocation.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105940"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Segmentation and beliefs: A theory of self-fulfilling idiosyncratic risk","authors":"Paymon Khorrami , Alexander K. Zentefis","doi":"10.1016/j.jet.2024.105954","DOIUrl":"10.1016/j.jet.2024.105954","url":null,"abstract":"<div><div>We study a multi-location general equilibrium model with financial market segmentation that permits self-fulfilling fluctuations. In a precise sense, such fluctuations are most often redistributive, but their volatility varies systematically with an aggregate latent factor. We thus provide a coordination-based microfoundation for time-varying idiosyncratic risk. A key assumption of our analysis is that cash flow growth rates (e.g., firm profit growth, asset dividend growth, or country output growth) rise with valuations. We consider two applications: (i) firm dynamics and their risk factor structure; and (ii) exchange rate disconnect in international macroeconomics.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105954"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171672","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Information spillover in markets with heterogeneous traders","authors":"Bingchao Huangfu , Heng Liu","doi":"10.1016/j.jet.2024.105948","DOIUrl":"10.1016/j.jet.2024.105948","url":null,"abstract":"<div><div>This paper studies the welfare impact of information spillover in divisible good markets with heterogeneous traders and interdependent values. In a setting where two groups of traders trade two distinct but correlated assets, one within each group, the information contained in the price of one asset spills over to the other market. Some “more informed” traders who submit demand schedules may condition their demands on the prices of both assets, while others do not. We prove the existence of a linear equilibrium and examine how information spillover affects trading, information efficiency, and welfare, as the fraction of the more informed traders varies. In the two symmetric benchmarks, full information spillover (all traders are more informed) dominates no information spillover (all traders are less informed) in terms of welfare. However, in markets with heterogeneous traders, information spillover can hurt overall welfare, while still improving information efficiency; we characterize the non-monotonic impact of information spillover on aggregate welfare in large finite markets. Furthermore, information spillover can account for the empirical evidence of excessive price co-movement and volatility transmission in financial markets.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105948"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171673","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"A characterization of the Luce choice rule for an arbitrary collection of menus","authors":"Carlos Alós-Ferrer , Maximilian Mihm","doi":"10.1016/j.jet.2024.105941","DOIUrl":"10.1016/j.jet.2024.105941","url":null,"abstract":"<div><div>The Luce Choice Rule (or, equivalently, the multinomial logit model) is extensively used in economics and other fields. Classical characterizations rest on Luce's Choice Axiom, when all choice sets are available, and Luce's Product Rule in the case of binary choice. Yet, actual datasets typically consist neither of all choice sets nor all binary choice sets. We provide a characterization for the general case, allowing also for zero choice probabilities. Building upon this characterization, we derive implications for experimental design in terms of three criteria: falsification, identification, and prediction.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"223 ","pages":"Article 105941"},"PeriodicalIF":1.4,"publicationDate":"2025-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143171674","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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