We quantify the importance of trade credit chains for the propagation of corporate bankruptcies. Our results show that trade creditors (suppliers) that issue more trade credit are more exposed to trade debtor (customer) failures, both in terms of the likelihood of experiencing a debtor failure and the loss given failure. We further document that the credit loss invoked by a debtor failure imposes a substantially enhanced bankruptcy risk on the creditors. The propagation mechanism is mitigated for creditors that are less levered, cash rich, and highly profitable, and enhanced in R&D intense industries and during economic downturns.
Is African politics characterized by concentrated power in the hands of a narrow group (ethnically determined) that then fluctuates from one extreme to another via frequent coups? Employing data on the ethnicity of cabinet ministers since independence, we show that African ruling coalitions are surprisingly large and that political power is allocated proportionally to population shares across ethnic groups. This holds true even restricting the analysis to the subsample of the most powerful ministerial posts. We argue that the likelihood of revolutions from outsiders and coup threats from insiders are major forces explaining allocations within these regimes. Alternative allocation mechanisms are explored. Counterfactual experiments that shed light on the role of Western policies in affecting African national coalitions and leadership group premia are performed.
This paper studies the effects of an electronic voting technology that introduced visual aids in Brazilian elections and facilitated voting for the less educated. Estimates exploiting a regression discontinuity design embedded in its phase-in through time indicate that electronic voting reduced residual (error-ridden and uncounted) votes and generated the de facto enfranchisement of a large fraction (11%) of the electorate. This enhanced political participation of less educated (poorer) voters is then shown to have: (1) increased the number of state legislators that are themselves less educated; and (2) shifted government spending towards public health care, a policy that is particularly beneficial to the poor; leading to (3) improved health services utilization (pre-natal visits) by less educated mothers and (4) reduced occurrence of low-weight births in this group. No effects on health care utilization by more educated mothers and on the weight of their newborns are found. The results are consistent with the predictions of political economy models and demonstrate that electronic voting can promote the political empowerment of the poor and raise their living standards.
In this paper we study the least squares (LS) estimator in a linear panel regression model with unknown number of factors appearing as interactive fixed effects. Assuming that the number of factors used in estimation is larger than the true number of factors in the data, we establish the limiting distribution of the LS estimator for the regression coefficients as the number of time periods and the number of cross-sectional units jointly go to infinity. The main result of the paper is that under certain assumptions the limiting distribution of the LS estimator is independent of the number of factors used in the estimation, as long as this number is not underestimated. The important practical implication of this result is that for inference on the regression coefficients one does not necessarily need to estimate the number of interactive fixed effects consistently.
We consider a large market where auctioneers with private reservation values compete for bidders by announcing cheap-talk messages. If auctioneers run efficient first-price auctions, then there always exists an equilibrium in which each auctioneer truthfully reveals her type. The equilibrium is constrained efficient, assigning more bidders to auctioneers with larger gains from trade. The choice of the trading mechanism is crucial for the result. Most notably, the use of second-price auctions (equivalently, ex post bidding) leads to the non-existence of any informative equilibrium. We examine the robustness of our finding in various dimensions, including finite markets and equilibrium selection.
This paper presents a new method for the analysis of moral hazard principal-agent problems. The new approach avoids the stringent assumptions on the dis-tribution of outcomes made by the classical first-order approach and instead only requires the agent’s expected utility to be a rational function of the action. This assumption allows for a reformulation of the agent’s utility maximization problem as an equivalent system of equations and inequalities. This reformulation in turn trans-forms the principal’s utility maximization problem into a nonlinear program. Under the additional assumptions that the principal’s expected utility is a polynomial and the agent’s expected utility is rational in the wage, the final nonlinear program can be solved to global optimality. The paper also shows that the polynomial optimiza-tion approach, unlike the classical approach, extends to principal-agent models with multi-dimensional action sets.
We consider a group of strategic agents who must each repeatedly take one of two possible actions. They learn which of the two actions is preferable from initial private signals and by observing the actions of their neighbors in a social network.
Perturbed utility functions—the sum of expected utility and a non-linear perturba-tion function—provide a simple and tractable way to model various sorts of stochastic choice. We provide easily understood conditions that characterize this representation by generalizing the acyclicity condition used in revealed preference theory. We show how to relax Luce’s IIA condition to model cases where the agent finds it harder to discriminate between items in larger menus, and how to extend the perturbation-function approach to model choice overload and nested decisions. We also show that these representations correspond to a form of ambiguity-averse preferences for an agent who is uncertain about her true utility
We develop a behavioral axiomatic characterization of Subjective Expected Utility (SEU) under risk aversion. Given is an individual agent’s behavior in the market: assume a finite collection of asset purchases with corresponding prices. We show that such behavior satisfies a “revealed preference axiom” if and only if there exists a SEU model (a subjective probability over states and a concave utility function over money) that accounts for the given asset purchases.