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Credence Goods, Costly Diagnosis, and Subjective Evaluation

Bester, Helmut; Dahm, Matthias - C.E.P.R. Discussion Papers - 2014

We study contracting between a consumer and an expert. The expert can invest in diagnosis to obtain a noisy signal about whether a low-cost service is sufficient or whether a high-cost treatment is required to solve the consumer’s problem. This involves moral hazard because diagnosis effort...

Persistent link: https://www.econbiz.de/10011084241

Real Effects of Stock Underpricing

Hau, Harald; Lai, Sandy - C.E.P.R. Discussion Papers - 2012

This paper provides evidence for a causal effect of equity prices on corporate investment and employment. We use fire … whose stocks are most underpriced have considerably lower investment and employment than industry peers not subject to any … fire sale discount. The causal effect of underpricing on investment is found to be largely concentrated on the most …

Persistent link: https://www.econbiz.de/10011084351

Keynes Meets Markowitz: The Trade-off Between Familiarity and Diversification

Boyle, Phelim; Garlappi, Lorenzo; Uppal, Raman; Wang, Tan - C.E.P.R. Discussion Papers - 2010

We develop a model of portfolio choice to nest the views of Keynes - who advocates concentration in a few familiar assets - and Markowitz - who advocates diversification across assets. We rely on the concepts of ambiguity and ambiguity aversion to formalize the idea of an investor’s...

Persistent link: https://www.econbiz.de/10008468537

Taxation and Regulation of Bonus Pay

Besley, Timothy J.; Ghatak, Maitreesh - C.E.P.R. Discussion Papers - 2011

We explore the consequence for taxation and regulation of bonus pay when investors are protected by taxpayers from …-taking which are influenced by the structure of bonus pay. Bailouts lead to too little effort, too much risk taking and increase …

Persistent link: https://www.econbiz.de/10009246598

Optimal Monetary Policy with Imperfect Common Knowledge

Adam, Klaus - C.E.P.R. Discussion Papers - 2004

This Paper studies optimal nominal demand policy in a flexible price economy with monopolistic competition and inattentive firms (Shannon). Inattentiveness gives rise to idiosyncratic information errors and imperfect common knowledge about the shocks hitting the economy. Strategic...

Persistent link: https://www.econbiz.de/10005656453

Asset Management Contracts and Equilibrium Prices

Buffa, Andrea; Vayanos, Dimitri; Woolley, Paul - C.E.P.R. Discussion Papers - 2014

We study the joint determination of fund managers' contracts and equilibrium asset prices. Because of agency frictions, investors make managers' fees more sensitive to performance and benchmark performance against a market index. This makes managers unwilling to deviate from the index and...

Persistent link: https://www.econbiz.de/10011084367

The quality-assuring role of mutual fund advisory fees

Habib, Michel Antoine; Johnsen, D. Bruce - C.E.P.R. Discussion Papers - 2015

Active fund managers implicitly promise to research profitable portfolio selection. But active management is an experience good subject to moral hazard. Investors cannot tell high from low quality up front and therefore fear manager shirking. We show how the parties mitigate the moral hazard by...

Persistent link: https://www.econbiz.de/10011184082

Stock Market Tournaments

Ozdenoren, Emre; Yuan, Kathy - C.E.P.R. Discussion Papers - 2012

We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a continuum of firms. Each firm's manager exerts costly hidden effort The productivity of effort is subject to systematic shocks. Firms' stock prices reflect their performance...

Persistent link: https://www.econbiz.de/10011083766

Endogenous Contractual Externalities

Ozdenoren, Emre; Yuan, Kathy - C.E.P.R. Discussion Papers - 2014

We study ffort and risk-taking behaviour in an economy with a continuum of principal-agent pairs where each agent … in over-investment in effort and excessive exposure to industry risks relative to the second best. The opposite occurs …

Persistent link: https://www.econbiz.de/10011084670

The Institutional Foundations of China’s Reforms and Development

Xu, Cheng-Gang - C.E.P.R. Discussion Papers - 2010

China’s economic reforms have resulted in spectacular growth and poverty reduction. However, China’s institutions look ill-suited to achieve such a result, and they indeed suffer from serious shortcomings. To solve "China puzzle" this paper analyses China’s institution - a regionally...

Persistent link: https://www.econbiz.de/10008468688

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