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.

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Financial Dependence and Growth

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The Economics of Tacit Collusion

Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk-averse workers, risk-neutral firms, and random shocks to productivity. We show that, in the “first best,”unemployment insurance comes with employment protection—in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex post wage bargaining, and ex ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.

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The joint design of unemployment insurance and employment protection: a first pass

The determination of interconnection charges is the key to the introduction of competition in telecommunications, electricity, gas, postal services, and several other industries. The paper first recaps standard regulatory policies for interconnection. It then provides a simple account of theoretical considerations in the matter of setting access charges, and analyzes existing policies in this light. In view of the shortcomings of these policies, it proposes a new and simple rule, labelled global price cap, which is theoretically more satisfactory and informationally no more and often less demanding than existing rules.

Creating competition through interconnection: Theory and practice

As was shown by Dewatripont, optimal long-term contracts are generally not sequentially optimal. The parties ex-post renegotiate them to their mutual advantage. This paper fully characterizes the equilibrium of a simple two-period procurement situation and studies the extent to which renegotiation reduces ex-ante welfare: i) A central result is that, like in the non-commitment case, the second period allocation is optimal for the principal conditionally on his posterior beliefs about the agent. ii) The first period allocation exhibits an increasing amount of pooling when the discount factor grows. iii) With a continuum of types, it is never optimal to induce full separation. The paper also analyzes whether renegotiated long-term contracts yield outcomes resembling those under either unnegotiated long-term contracts or a sequence of short-term contracts and it links the analysis with the multiple unit durable good monopoly problem.

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Adverse Selection and Renegotiation in Procurement

The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to asset pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and, thereby, interest rates. STARTING WITH THE CAPITAL ASSET PRICING MODEL (CAPM, derived by Sharpe (1964), Lintner (1965), and Mossin (1966)), market finance has emphasized the role of consumers' time preference and risk aversion in determining asset prices. The intertemporal consumption-based asset pricing model (e.g., Rubinstein (1976), Lucas (1978), Breeden (1979), Harrison and Kreps (1979), Cox, Ingersoll, and Ross (1985), Hansen and Jagannathan (1991)) predicts that an asset's current price is equal to the expectation, conditioned on current information, of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution (IMRS). While fundamental, this dominant paradigm for pricing assets has some wellrecognized shortcomings (see below), and there is clearly scope for alternative and complementary approaches. This paper begins developing one such approach based on aggregate liquidity considerations.1 Our starting point is that the productive and financial spheres of the economy have autonomous demands for financial assets and that their valuations for these assets are often disconnected from the representative consumer's. Corporate demand for financial assets is driven by the desire to hoard liquidity in order to fulfill future cash needs. In contrast with the

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Jean Tirole

Papers

The Economics of Tacit Collusion

The joint design of unemployment insurance and employment protection: a first pass

Creating competition through interconnection: Theory and practice

Adverse Selection and Renegotiation in Procurement

LAPM: A Liquidity-Based Asset Pricing Model