Melbourne Business School

About: Melbourne Business School is a based out in . It is known for research contribution in the topics: Bayesian probability & Copula (probability theory). The organization has 155 authors who have published 764 publications receiving 37402 citations.

Access Regulation and the Timing of Infrastructure Investment

Abstract: This paper examines infrastructure investment incentives under a system of ‘regulation by negotiation’. We demonstrate that an appropriately specified access pricing rule can induce private firms to choose to invest at a socially optimal time. The optimal regulatory regime allocates investment costs to the access provider and seeker based on their relative use-values of the facility. It is superior to an unregulated environment because it commits firms ex ante to an access charge that allows for sunk cost recovery. In addition, we show that when the time that access is sought is flexible both replacement- and historical-cost asset valuation methodologies can lead to optimal investment incentives. However, when seeker timing is restricted, historical cost can give rise to distorted incentives.

Stock Market Volatility in a Heterogeneous Information Economy

Abstract: The informational role of prices contributes positively to their variability. In a noisy rational expectations equilibrium, traders rationally respond to price changes by revising their estimates of other traders' private signals and hence their own expectations of future dividends. The resultant shifts in traders' demands amplify any supply shock-induced price changes. We develop an infinite horizon noisy rational expectations model and calibrate, simulate, and test it using U.S. stock market data. The price variability in a heterogeneous information economy is shown to be 20% to 46% higher than in an otherwise equivalent economy in which all signals are publicly announced. I. Introduction A common theme of the rational expectations literature is the ability of prices to convey information. A question is the extent to which this informational role induces additional variability in prices. Grundy and McNichols (1989) present a rational expectations model with multiple rounds of trade preceding a final consumption date. They show that the revelation of existing private information through price changes can be the sole cause of the price variability: equilibrium prices can change even in the absence of any change in supply or the arrival of any new information beyond the observation that the price itself has changed. We examine the link between the informational role of prices and price variability in a multi-period model with heterogeneous information arriving, and consumption taking place, at each trading date. Our goal is to obtain a comparison of price variability in a world of heterogeneous information with variability in an otherwise equivalent homogeneous information economy in which, in effect, all private signals are publicly announced and

Bilateral Bargaining with Externalities

Abstract: This paper provides an analysis of a non-cooperative pairwise bargaining game between agents in a network. We establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents. That is, we provide a non-cooperative justification for a cooperative division of a non-cooperative surplus. The resulting division is related to the Myerson-Shapley value with properties that are particularly useful and tractable in applications. We demonstrate this by examining buyer-seller networks and vertical foreclosure.