We analyze how speculative financial innovation affects stock prices, risk premiums, market liquidity, and investor welfare in an economy with heterogeneous beliefs. When investors disagree about the covariance of the newly introduced stocks with the original stocks, we show that financial...

In this paper Coase's Conjecture is analyzed in a finite-horizon formulation. In addition to utility discounting models decreasing-willingness-to-pay models are analyzed. We find that in contrast to Coase's Conjecture a monopolist may extract full monopoly profit in the finite-horizon problem...

This paper studies the incentives of an information seller to provide precise information when precision is not observable and investors with rational expectations can extract information from the equilibrium asset price. I show that the seller can verify her precision by employing a non-linear...

We discuss the strong connections between auction theory and "standard" economic theory; we show that situations that do not at first sight look like auctions can be recast to use auction-theoretic techniques; and we argue that auction-theoretic tools and intuitions can provide useful arguments...

In this paper we survey the theoretical and empirical literatures on market liquidity. We organize both literatures around three basic questions: (a) how to measure illiquidity, (b) how illiquidity relates to underlying market imperfections and other asset characteristics, and (c) how...

Many financial transactions are of a fixed-sum nature, meaning that any improvement in the terms of trade for one party comes at the expense of another party. We model how the sales of trading advantages (e.g., data or collocation services) affect traders' endogenous participation in a market...

Online sports betting is growing rapidly around the world. We describe how the competitive structure of the bookmaking market affects odds when bettors disagree about the probabilities of the outcomes of sporting events but are on average correct. We show that the demand for bets on longshots is...

Soft budget constraint (SBC) syndrome theory aptly explains the inefficient operations of the Czech railway industry with reference to České Dráhy (CD). The theory states that the existing organizational structures need to be destroyed to bring about creative competition in the Czech railways...

This paper reports on price formation in experimental markets in which a single seller trades with four buyers. Transactions occur if either a buyer accepts an offer to sell from the seller, or the seller accepts an offer to buy from a buyer. The dissemination of such offers is endogenous in...

Consider a market where an informed monopolist sets the price for a good or as set with a value unknown to potential buyers. Upon observing the price, buyers may pay some cost for information about the value before deciding on purchases. To restrict buyer beliefs we generalize the idea of the...