This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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Wireless Communications

A Course in Game Theory presents the main ideas of game theory at a level suitable for graduate students and advanced undergraduates, emphasizing the theory's foundations and interpretations of its basic concepts. The authors provide precise definitions and full proofs of results, sacrificing generalities and limiting the scope of the material in order to do so. The text is organized in four parts: strategic games, extensive games with perfect information, extensive games with imperfect information, and coalitional games. It includes over 100 exercises.

A Course in Game Theory

Does finance affect economic growth? A number of studies have identified a positive correlation between the level of development of a country's financial sector and the rate of growth of its per capita income. As has been noted elsewhere, the observed correlation does not necessarily imply a causal relationship. This paper examines whether financial development facilitates economic growth by scrutinizing one rationale for such a relationship; that financial development reduces the costs of external finance to firms. Specifically, we ask whether industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more developed financial markets. We find this to be true in a large sample of countries over the 1980s. We show this result is unlikely to be driven by omitted variables, outliers, or reverse causality.

/pdf/financial-dependence-and-growth-2meheeba1z.pdf

Financial Dependence and Growth

This Paper studies the internal commitment mechanisms or 'personal rules' (diets, exercise regimens, resolutions, moral or religious precepts, etc.) through which people seek to achieve self-control. Our theory is based on the idea of self-reputation over one's willpower, which potentially transforms lapses in a personal rule into precedents that undermine future self-restraint. The foundation for such effects, in turn, is the imperfect recall of past motives and feelings, which leads people to draw inferences from their own past actions. We thus model the behaviour of individuals who are unsure of their willpower (ability to delay ratification) in certain states of the world, and show how self-control can be sustained by the fear of creating damaging precedents. We also show, however, that people will sometimes adopt excessively rigid rules that result in compulsive behaviours such as miserliness, workaholism, or anorexia. These represent costly forms of self-signaling where the individual is so afraid of appearing weak to himself that every decision becomes a test of his willpower, even when self-restraint is not even desirable ex-ante. Such common behaviours which appear to display a 'salience of the future' are thus not only consistent, but actually generated by (a concern over) present-oriented preferences. Finally, we analyse the cognitive underpinnings of self-regulation. We first show how equilibrium behaviour is shaped by the extent to which the individual's self-monitoring is subject to opportunistic distortions of memory or attribution. We then study how recall and inference processes can themselves be endogenously determined through the use of self-sustaining cognitive rules and resolutions.

Willpower and Personal Rules

The paper introduces a class of alternating-move infinite-horizon models of duopoly The timing is meant to capture the presence of short-run commitments Markov perfect equilibrium (MPE) in this context requires strategies to depend only on the action to which one's opponent is currently committed The dynamic programming equations for an MPE are derived The first application of the model is to a natural monopoly, in which fixed costs are so large that at most one firm can make a profit The firms install short-run capacity In the unique symmetric MPE, only one firm is active and practices the quantity analogue of limit pricing For commitments of brief duration, the market is almost contestable We conclude with a discussion of more general models in which the alternating timing is derived rather than imposed Our companion paper applies the model to price competition and provides equilibrium foundations for kinked demand curves and Edgeworth cycles

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A theory of dynamic oligopoly, I : overview and quantity competition with large fixed costs

We propose a new theory ofpredation based on "signal-jamming. " In our model the predator's characteristics are common knowledge, while the entrant is uncertain of his own future profitability. The entrant uses his current profit to decide whether to remain in the market, and the predator preys to 'Jam" or interfere with this inference problem. Thus, our model differs from those based on "reputation effects," in which the predator preys to signal information about himself

A "signal-jamming" theory of predation

Consider a long-term relationship between a seller and a buyer whose valuation (for a per-period service or a durable good) is private. As trade progresses, the valuation will be partially revealed, and it may be impossible for the parties to commit ex-ante not to take advantage of this. We analyse this situation first by supposing that the parties can sign a sequence of short-term contracts; and secondly by supposing that they can sign a long-term contract, but cannot commit not to renegotiate it later. We find a close relationship in the second case between the optimal long-term contract and the non-commitment outcome in the standard Coasian durable good model. Our results also have implications for hidden-information principal-agent models.

/pdf/contract-renegotiation-and-coasian-dynamics-2y2pycl24m.pdf

Contract Renegotiation and Coasian Dynamics

We analyze whether and how the allocation of transmission rights associated with the use of electric power networks affects the behavior of electricity generators and consumers with market power. We also examine how the allocation of transmission rights is affected by the microstructure of the markets for these rights. Both financial and physical transmission rights are considered. The analysis focuses on a two-node network where there are cheap generating supplies in an exporting region and expensive generating supplies in an importing region. Extensions to a network with loop flow are developed. Regulatory mechanisms for detecting and mitigating the market-powerenhancing effects of transmission rights holdings are discussed. n There has been considerable controversy over whether competitive electricity systems should be organized around bid-based pools with financial transmission rights or bilateral contracting systems organized with tradeable physical transmission rights (Joskow, 1996). We focus here on one set of issues that have arisen in this controversy. We analyze whether and how the allocation of transmission rights associated with the use of an electric power network affects the behavior of electricity generators and purchasers that have market power. We examine the similarities and differences in this regard between financial and physical rights and compare the welfare properties of each. We also examine how transmission-rights markets with different microstructures allocate rights among generators and consumers and determine rights prices, and we demonstrate that the allocation of rights through the market is endogenous. Our analysis is limited to these issues, and it is not our objective to discuss here the full set of reasons why a physical rights mechanism might be preferred to a financial rights mechanism or vice versa.

http://www2.econ.iastate.edu/faculty/langinier/teaching2005/615-2005/hom2-presentations/Presentation1Wenzhuo.pdf

Jean Tirole

Papers

Willpower and Personal Rules

A theory of dynamic oligopoly, I : overview and quantity competition with large fixed costs

A "signal-jamming" theory of predation

Contract Renegotiation and Coasian Dynamics

Transmission rights and market power on electric power networks