Working Papers

This paper presents a framework to understand and measure the effects of political borders on economic growth and per capita income levels. We present a model providing a theoretical foundation to estimate empirically the effects of political…

In the year that capital-poor countries open their stock markets to foreign investors, the growth rate of their typical firms capital stock exceeds its pre-liberalization mean by 4.1 percentage points. In each of the next three years the average…

We provide new measures of ethnic, linguistic and religious fractionalization for about 190 countries. These measures are more comprehensive than those previously used in the economics literature and we compare our new variables with those…

Recent efforts to restructure electricity markets have renewed interest in assessing how consumers respond to price changes. This paper develops a model for evaluating the effects of alternative tariff designs on residential electricity use. The…

This paper provides a new explanation for the use of convertible securities in venture capital, which is based on the trade-off between acquisition or IPOs. A key property of convertible preferred equity is that it allocates different cash flow…

This paper examines the position of India in the world trading system. It considers three separate questions: Firstly, how integrated is India in the world trade? Secondly, what gains could India reap from further trade liberalization? Thirdly,…

This paper exploits nationalistic biases in Olympic winter sport judging to study the problem of designing a decision making process that uses the input of potentially biased agents. Judges score athletes from their own countries higher than…

When countries liberalize their stock markets, firms that become eligible for purchase by foreigners (investible), experience an average stock price revaluation of 15.1 percent. Since the covariance of the mean investible firms stock return with…

The merger of British Petroleum and Atlantic Richfield as proposed would have made BP the sole operator and 70 percent owner of Alaskas oil fields. The Federal Trade Commission challenged the merger partly out of concern for higher West Coast…

We study a one-sided offers bargaining game in which the buyer has private information about the value of the object and the seller has private information about his beliefs about the buyer. We show that this uncertainty about uncertainties…

As is becoming increasingly widely known, mutual funds often calculate their net asset values using stale prices, which causes their daily returns to be predictable. By trading on this predictability, investors can earn 35-70 percent per year in…

This paper investigates the individual and joint effects of group incentive pay and problem-solving teams on productivity. To estimate models of adoption of these work practices and models of the effects of the work practices on productivity, we…

Access rights on a transmission network possess high degree of inherent differentiation. On a rail network this is further complicated by the need to meet feasibility constraints in scheduling. Common approaches to access pricing focus on…

We derive some theoretical economic properties of standard discrete choice econo-metric models that we believe are undesirable if the models are to be used as structural models of demand. We show that many standard models have the following…

When countries attempt to stabilize annual inflation rates that are greater than 40 percent, the domestic stock market appreciates by 24 percent on average. The present value of the long-run benefits to shareholders of reducing high inflation…

Firms and individuals who sell opinions may bias their reports for either behavioral or strategic reasons. This paper proposes a methodology for measuring these biases, particularly whether opinion producers under or over emphasize their private…

When countries open their stock markets to foreign investors, firms that become eligible for purchase by foreigners (investible) are repriced according to the difference in the covariance of their returns with the local and world market. An…

This paper considers the question of tacit collusion in repeated auctions with independent private values and with limited public monitoring. McAfee and McMillan show that the extent of collusion is tied to availability of transfers. Monetary…

A theory of decision-making is proposed that speaks to Herbert Simon’s methodological critique of economics without resorting to excessive reductionism. Formally, the new theory removes the Contraction axiom of conventional choice theory (which…

This paper illustrates why firms might choose to implement stock option plans or other pay instruments that reward “luck.” I consider a model where adjusting compensation contracts is costly (or wages are rigid) and where agents’ outside…