(Interstate) banking and (interstate) trade: Does real integration follow financial integration?


Journal of Financial Economics

avril 2012, vol. 104, n°1, pp.89-117

Départements : Economie et Sciences de la décision, GREGHEC (CNRS), Finance

Mots clés : Trade; Banking deregulation; Finance'growth nexus

We examine whether financial sector integration leads to real sector integration through trade. Our conjecture is that financial sector integration between two regions leads to higher trade flows between them. In our stylized model, this happens because banks with presence in the two regions are better able to assess risks and charge the appropriate premiums for trade-related projects pertinent for the two markets; whereas the same banks charge higher average interest rates for projects that involve trade to other markets from which they are absent. We use the deregulation of the inter-state banking in the U.S. as a natural experiment to test the implication of our theory model with the state-level Commodity Flow Survey data. Our empirical evidence, based on difference-in-difference and GMM2S-IV estimates, indicates that there is a trade channel associated with the finance-growth nexus: the trade share of state-pairs that have opened their banking market to each other's financial institutions increases by 9.2% relative to the trade shares of state-pairs that did not. Looking at actual entry data, we estimate that bank entry within a trading pair increases trade in this pair by 54% relative to those that do not have such a bank link. This is probably the lower bound estimate for international trade barriers stemming from the lack of a unified banking system.

Assesing the role of context in traffic light violations


Economics Bulletin

décembre 2012, vol. 32, n°4, pp.3386-3396

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Communication, correlation and cheap-talk in games with public information

Y. Heller, E. Solan, T. TOMALA

Games and Economic Behavior

janvier 2012, vol. 74, n°1, pp.222-234

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mots clés : Cheap-talk, Communication equilibrium, Normal-form correlated equilibrium, Distributed computation

This paper studies extensive form games with public information where all players have the same information at each point in time. We prove that when there are at least three players, all communication equilibrium payoffs can be obtained by unmediated cheap-talk procedures. The result encompasses repeated games and stochastic games

Confidence in preferences


Social Choice and Welfare

juillet 2012, vol. 39, n°2/3, pp.273-302

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Indeterminate preferences have long been a tricky subject for choice theory.One reason for which preferences may be less than fully determinate is the lackof confidence in one's preferences. In this paper, a representation of confidence inpreferences is proposed. It is used to develop an account of the role which confidencewhich rests on the following intuition: the more important the decision to betaken, the more confidence is required in the preferences needed to take it. An axiomatisationof this choice rule is proposed. This theory provides a natural accountof when an agent should defer a decision; namely, when the importance of the decisionexceeds his confidence in the relevant preferences. Possible applications ofthe notion of confidence in preferences to social choice are briefly explored.Keywords : Incomplete preference; Revealed preference; Confidence in preferences;Deferral of decisions; Importance of decisions; Social choice

Defending the Ramsey Test: What is wrong with Preservation?



janvier 2012, vol. 121, n°481, pp.131-146

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)


In `A Defence of the Ramsey Test', Richard Bradley makes a case for not concluding from the famous impossibility results regarding the Ramsey Test ' the thesis that a rational agent believes a conditional if he would believe the consequent upon learning the anteceden ' that the thesis is false. He lays the blame instead on one of the other premisses in these results, namely the Preservation condition. In this paper, we explore how this condition can be weakened by strengthening the notion of consistency which appears in it. After considering the ffects of such weakenings for Bradley's argument, we propose a refinement of the Preservation condition which does not fall prey to Bradley's argument nor to Gärdenfors's impossibility theorem. We briefly compare it to Bradley's suggested restriction of Preservation

Fear of loss, inframodularity, and transfers

A. Müller, M. SCARSINI

Journal of Economic Theory

juillet 2012, vol. 147, n°4, pp.1490-1500

Départements : Economie et Sciences de la décision

Mots clés : Mean preserving spread, Integral stochastic orders, Risk aversion, Ultramodularity, Dual cones

There exist several characterizations of concavity for univariate functions. One of them states that a function is concave if and only if it has nonincreasing differences. This definition provides a natural generalization of concavity for multivariate functions called inframodularity. Inframodular transfers are defined and it is shown that a finite lottery is preferred to another by all expected utility maximizers with an inframodular utility if and only if the first lottery can be obtained from the second via a sequence of inframodular transfers. This result is a natural multivariate generalization of Rothschild and Stiglitz's construction based on mean preserving spreads.

History as a coordination device

R. Argenziano, I. GILBOA

Theory and Decision

octobre 2012, vol. 73, n°4, pp.501-512

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Coordination games often have multiple equilibria. The selection of equilibrium raises the question of belief formation: how do players generate beliefs about the behavior of other players? This article takes the view that the answer lies in history, that is, in the outcomes of similar coordination games played in the past, possibly by other players. We analyze a simple model in which a large population plays a game that exhibits strategic complementarities. We assume a dynamic process that faces different populations with such games for randomly selected values of a parameter. We introduce a belief formation process that takes into account the history of similar games played in the past, not necessarily by the same population. We show that when history serves as a coordination device, the limit behavior depends on the way history unfolds, and cannot be determined from a-priori considerations. Keywords Belief formation ' Similarity ' Coordination games ' Equilibrium selection

Input substitutability, trade costs and location


Economics Letters

octobre 2012, vol. 117, n°1, pp.57-59

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Constant unit manufacturing costs are lower (higher) in high wage North when inputs are i) tradeable, ii) country-specific and iii) the elasticity of substitution between them is below (above) one. A two-country model of firm entry/location is considered.

Mechanism design and communication networks

L. Renou, T. TOMALA

Theoretical Economics

septembre 2012, vol. 7, n°3, pp.489-533

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mots clés : Mechanism design, Incentives, Bayesian equilibrium, Communication networks, Encryption, Secure transmission

This paper studies a mechanism design model where the players and the designer are nodes in a communication network. We characterize the communication networks (directed graphs) for which, in any environment (utilities and beliefs), every incentive compatible social choice function is partially implementable. We show that any incentive compatible social choice function is implementable on a given communication network, in all environments with either common independent beliefs and private values or a worst outcome, if and only if the network is strongly connected and weakly 2-connected. A network is strongly connected if for each player, there exists a directed path to the designer. It is weakly 2-connected if each player is either directly connected to the designer or indirectly connected to the designer through two disjoint paths, not necessarily directed. We couple encryption techniques together with appropriate incentives to secure the transmission of each player's private information to the designer.

Mirror descent meets fixed share (and feels no regret)


Advances in Neural Information Processing Systems

2012, vol. 25, pp.980-988

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mirror descent with an entropic regularizer is known to achieve shifting regretbounds that are logarithmic in the dimension. This is done using either a carefullydesigned projection or by a weight sharing technique. Via a novel unified analysis,we show that these two approaches deliver essentially equivalent bounds on a no-tion of regret generalizing shifting, adaptive, discounted, and other related regrets.Our analysis also captures and extends the generalized weight sharing techniqueof Bousquet and Warmuth, and can be refined in several ways, including improve-ments for small losses and adaptive tuning of parameter