The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

Handbook of the Economics of Finance

The Theory of Incentives I: The Principal-Agent Model

can be formulated in terms of basis functions and discuss the dif culties in posterior simulations due to interdependence of these functions. Such interdependence affects the ef ciency of the sampling algorithms to draw from posterior distribution of the tree structures. Different strategies that are suggested in the literature for dealing with the sampling problem are discussed, and a detailed example using binary classi cation is presented to illustrate the Bayesian analysis. To alleviate the problems that arise in tree models, Chapter 7 introduces partition models. The partition models can be considered a generalization of tree models, and they allow for sampling from the posterior distributions of the tree structure. As noted by the authors, these models suffer from lack of interpretability in high dimensions. The authors present one-dimensional partition models whose analysis provides a general framework for the changepoint problems. Multidimensional partition models, where partitions are de ned by Dirichlet tessellations, are considered, and Bayesian inference for classi cation problems is discussed. Disease mapping models are presented as an application of partition models for spatial problems. Chapter 8 is a short chapter describing Bayesian nearest-neighbor modeling. The nearest-neighbor classi cation algorithm, which is used commonly in pattern recognition, is given a probabilistic formulation by introducing a parameter that controls the degree of association between the neighboring classes. In Chapter 9 the authors generalize the single-response case to multipleresponse models where the observed response is a collection of values. The chapter focuses on regression models and does not consider classi cation models such as the multivariate probit models. Multivariate Bayesian regression framework is introduced where basis functions can be determined from the data using methods of Chapter 3. A generalization is considered using seemingly unrelated regression (SUR) models and their Bayesian analysis is presented. Prior speci cation for basis function matrix are discussed, and computational details of the MCMC methods are given for both models. The book has a comprehensive bibliography, and each chapter (except Chap. 1) has a section on further reading. There are two appendixes at the end. Appendix B gives a summary of posterior inference results that are helpful for some of the development in the text. In summary, this book presents recent developments in Bayesian nonlinear modeling and provides a complete treatment of regression and classi cation problems by emphasizing a data-driven approach in determining appropriate models. Its in-depth coverage of implementation issues and detailed discussion of pros and cons of different modeling strategies make it attractive for many researchers. It de nitely makes my list of recommended texts in Bayesian statistics.

Resampling Methods for Dependent Data

The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies--of mortgage markets, payday lending, and financing retirement consumption--to illustrate the need for, and limits of, regulation. We argue that if regulation is to be beneficial, it must be tailored to specific problems and must be accompanied by research to measure the effectiveness of regulatory interventions.

/pdf/consumer-financial-protection-dkrkchezkd.pdf

Consumer Financial Protection.

The authors measure the economies of scale of Canada's six largest banks and their costefficiency over time. Using a unique panel data set from 1983 to 2003, they estimate pooled translog cost functions and derive measures of relative efficiency and economies of scale.

/pdf/efficiency-and-economies-of-scale-of-large-canadian-banks-2llct94ls0.pdf

Efficiency and economies of scale of large Canadian banks

We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation partner, weakening consumers’ bargaining positions. We combine reduced-form techniques to estimate the mergers’ distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.

/pdf/the-effect-of-mergers-in-search-markets-evidence-from-the-3ulq4ou6lq.pdf

The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry †

We examine the relationship between concentration and price dispersion using variation induced by a merger in the Canadian mortgage market. Since interest rates are determined through a search and negotiation process, consolidation eliminates a potential negotiation partner, weakening consumers bargaining positions. We combine reduced-form techniques to estimate the mergers distributional impact, with a structural model to measure market power across consumers with different search costs. Our results show that competition benefits only consumers at the bottom and middle of the transaction price distribution. Estimates from a search and negotiation model attribute these differences to the presence of large search frictions.

/pdf/the-effect-of-mergers-in-search-markets-large-evidence-from-3omgtz4oqi.pdf

The Effect of Mergers in Search Markets: Large Evidence from the Canadian Mortgage Industry

Using transaction‐level data on Canadian mortgage contracts, we document an increase in the average discount negotiated off the posted price and in rate dispersion. Our aim is to identify the beneficiaries of discounting and to test whether dispersion is caused by price discrimination. The standard explanation for dispersion in credit markets is risk‐based pricing. Our contracts are guaranteed by government‐backed insurance, so risk cannot be the main factor. We find that lenders set prices that reflect consumer bargaining leverage, not just costs. The presence of dispersion implies a lack of competition, but our results show this to be consumer specific.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1808949

Price Dispersion in Mortgage Markets

The authors provide a detailed empirical analysis of Canadian city housing prices. They examine the long-run relationship between city house prices in Canada from 1981 to 2005 as well as idiosyncratic relations between city prices and city-specific variables.

/pdf/canadian-city-housing-prices-and-urban-market-segmentation-46gjubf1d5.pdf

Jason Allen

Papers

Efficiency and economies of scale of large Canadian banks

The Effect of Mergers in Search Markets: Evidence from the Canadian Mortgage Industry †

The Effect of Mergers in Search Markets: Large Evidence from the Canadian Mortgage Industry

Price Dispersion in Mortgage Markets

Canadian City Housing Prices and Urban Market Segmentation