In common-value auctions and contests economic agents often have varying levels of information regarding the value of the good to be allocated. Using theoretical and experimental analysis, I examine the effect of such information asymmetry on behavior. Chapter II considers a model in which players compete in two sequential contests. The winner of the first contest (the incumbent) privately observes the value of the prize, which provides private information if the prizes are related. Relative to the case where the prizes are independent, the incumbent is strictly better off, and the other contestants (the challengers) are strictly worse off. This increases the incentive to win the first contest such that the sum of expected effort over both contests increases relative to the case of independent prizes. Chapter III experimentally considers the role of asymmetric information in first-price, sealed-bid, common-value auctions. Bidders who observe a private signal tend to overbid relative to Nash equilibrium predictions. Uninformed bidders, however, tend to underbid relative to the Nash equilibrium. Chapter IV examines asymmetric information in one-shot common-value all-pay auctions and lottery contests from both experimental and theoretical perspectives As predicted by theory, asymmetric information yields information rents for the informed bidder in both all-pay auctions and lottery contests.

Diss. Stockholm : Handelshögskolan, 2006.

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This dissertation presents research on issues of competition and market structure in economics, and in particular considers the role of asymmetric information in firm competition. This includes asymmetric information among firms, between firms and regulators and between consumers and firms. In the course of this I adapt and expand on recently developed methods for solving, estimating and simulating dynamic models of firm behavior. Finally, this dissertation focuses attention on firms' motivations for and the consequences of horizontal expansion, both in the form of horizontal mergers in a differentiated goods market and in the form of horizontal chain affiliation. This research proceeds in three steps. In Chapter 2 I explore and document consumers growing ability to use new online reputation mechanisms to both share their experiences with a wide variety of firms and gain information from other consumers' shared experiences. In Chapter 3 I present a theoretical model of horizontal mergers in a dynamic industry setting. I use this model to answer a question that increasingly interests antitrust policymakers concerned with innovation: In a concentrated industry, does allowing rival firms to merge increase or decrease total investment? This model has two important features. First, the environment is fully dynamic, and second, I allow mergers to occur endogenously. In Chapter 4, I combine many of the concepts from Chapters 2 and 3 into on piece of research to address the question: why do firms organize into chains? I use of combination of reduced form and structural dynamic methods to examine possible answers to this question in the context of the hotel industry. In particular, I take advantage of recent advances in estimating dynamic industry models to show that there is no evidence in favor of the traditional explanation for horizontal expansion, economies of scale or cost efficiencies. Instead, using a detailed examination of hotel revenue along with firm and market data, I show that chain firms have a substantial demand side advantage resulting from the fact that consumers frequently have little information on firm quality. In this industry, then, asymmetric information seems to not only matter for chain affiliation, it is the only factor that matters. / text

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Thesis advisor: Fabio Ghironi / Chapter 1: Foreign Direct Investment and Contract Enforcement Many developing countries are financially constrained and therefore have to rely on international capital flows to finance economic activity. Empirical evidence shows that Foreign Direct Investment (FDI) as a percentage of total capital flows is higher for less developed countries compared to more developed countries. This chapteruses a dynamic contracting model with human capital to explain why less developed countries receive a greater percentage of capital flows as FDI. I analytically show that countries that are financially constrained have a higher share of FDI in total capital flows, and that the share of FDI in total capital flows is increasing in human capital flows. In addition, the positive association between the share of FDI in total capital flows and human capital flows is decreasing in the degree of financial constraints. I construct a measure of intangible assets of FDI and find empirical support for the analytical results. Chapter 2: Trade Liberalization, Firm Heterogeneity, and Unemployment: An Empirical Investigation This chapter is a joint work with Yoto V. Yotov. We provide empirical evidence for the interaction between firm-level total factor productivity and trade liberalization as key determinants of firm-level job destruction caused by trade. Employing US firm-level data, we find strong empirical support for the following: a) All else equal, a one percent increase in total factor firm productivity decreases trade-induced layoffs by 32%; b) An additional percent of trade liberalization increases the number of firm-level trade-induced layoffs by 2%; c) Trade liberalization results in an increase in the minimum level of productivity required for domestic production; d) Trade liberalization lowers the minimum productivity threshold required for exporting; e) The increase due to trade liberalization in the minimum productivity threshold for domestic production is larger than the absolute decrease in the export productivity threshold. Chapter 3: Do Audit Fees Influence Credit Risk and Asymmetric Information Problems? Evidence from the Syndicated Loan Market This chapter is a joint work with Lewis W. Gaul. We examine whether an increase in the demand for auditing services is associated with a decrease in borrowers' credit risk and asymmetric information problems in the syndicated loan market. In the syndicated loan market, potential accounting errors exacerbate credit risk and asymmetric information problems. The purpose of financial statement audits is to provide reasonable assurance that accounting records are free from material errors. We hypothesize that if audit fees face an upward sloping supply curve for auditing services, an increase in the demand for auditing services increases both the equilibrium price and quantity of auditing services purchased. We interpret the equilibrium quantity of auditing services as the number of auditing hours billed and the price of auditing services as the hourly fee. We assert that an increase in the quantity of auditing services purchased reduces the likelihood of an accounting error because auditors exert more effort verifying the accuracy of accounting records. We present empirical evidence that a demand-induced increase in audit fees is associated with syndicated loans with lower interest rate spreads and shorter maturity lengths, which we interpret as evidence consistent with the assertion that these audit fee increases reduce credit-risk and asymmetric information problems. We empirically identify an increase in the demand for auditing services with instrumental variables that are intended to capture shifts in the demand curve for auditing services, rather than shifts in the supply curve for auditing services. In addition, we find that audit fees are positively associated with the number of lenders in loan syndicates, but are unable to attribute this association to an increase in the demand for auditing services. / Thesis (PhD) — Boston College, 2009. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Abstract This thesis is composed of three models that imply the impact of managers¡¦ characteristics on investment under asymmetric information. The first one regards insider as managers and formulates a model to explain the positive relationship between cash flow and capital expenditure of a firm, and tries to synthesize the ¡§asymmetric information hypothesis¡¨(Myers and Majluf, 1984) and the ¡§free cash flow hypothesis¡¨(Jensen, 1986) by insider ownership. The finding demonstrates that in instances with low percentage of insider ownership, the free cash flow hypothesis will better explain the positive relationship between cash flow and capital expenditure and will have the phenomenon of over-investment. On the other hand, when the percentage of insider ownership is high, the asymmetric information hypothesis is better suited to explain this relationship and will have the phenomenon of the under-investment. The second one formulates a model to synthesize the ¡§reputation effect¡¨ and ¡§asymmetric information hypothesis¡¨ through considering the outsider investors¡¦ evaluation of the firms in terms of firms¡¦ reputation and firms¡¦ private information. This study concludes that the good type firms with low reputation will show the behavior of under-investment and the bad type firms with high reputation will have the phenomenon of over-investment. Moreover, the model demonstrates that both the phenomena of under-investment and of over-investment are caused by the conflict between the firms and the outsider investors. At last, this study implies that the effect of reputation has an influence on the choice of financial tools for the good type firms but does not have an influence on that of the bad ones. This study presents a general model to explain two types of investment inefficiency under the effect of reputation in a reasonable mode. The last one formulates a model to synthesize the ¡§bias effect¡¨ and ¡§reputation effect¡¨ through considering the fact that the CEO in the interest of firm is in favor of a certain project and that junior managers concern their reputation. This study concludes that the CEO¡¦s bias will influence the project that the managers suggest and does not necessarily lead to the direction of bias. The untalented managers will be affected more seriously than talented managers. Moreover, the model combines ¡§bias effect¡¨ with ¡§asymmetric information hypothesis¡¨ and implies that the bias can alleviate the problem of under-investment under certain circumstances. This finding shows that the bias is not always a negative factor of investment efficiency.

Questa tesi considera tre aspetti di Environmental Regulation. Il primo riguarda i fallimenti del mercato e le azioni correttive corrispondenti del governo. Il secondo prende in esame gli effetti delle politiche di regolamentazione e valuta interventi pubblici efficienti. Il terzo osserva diversità delle normative e indaga le loro interazioni. / This dissertation examines three aspects of incentive problems in Environmental Regulation. The first deals with market failures and the government's corresponding corrective actions. The second examines the effects of regulatory policies and asks which kind of government interventions is efficient. The third observes diversity of regulations and investigates their interactions.

All venture capital investments exhibit some form of asymmetric information. The seminal paper on the structure of venture investments, Kaplan and Stromberg (2004), investigates how venture capitalists use deal construction to control agency conflicts within funded deals and their associated internal, external and execution risks. Another key strand of the academic literature has reviewed the contractual arrangements venture capital firms reach, the process of venture capital selection and determinants of their success from a post-investment perspective (Fried and Hisrich (1994), Manigart, Vermeir and Sapienza (1996), Gompers and Lerner (2004), Wright and Robbie (1998)). This thesis also explores venture capital investment, albeit from a preinvestment standpoint. In contrast to Kaplan and Stromberg???s (2004) demonstration of the use of venture capital mechanisms to control agency issues, this research addresses how agency issues influence the final selection of potential investments by venture capitalists. Kaplan and Stromberg (2004) use post-funding metrics to capture risks, which influence post-contract design. From a pre-funding perspective, internal, external and execution risks are subjective, rare and difficult to measure. Nevertheless, this thesis uses pre-funding proxies to replicate these risks, some of which have direct empirical academic support. Information for sixtytwo deals, thirty-four funded and twenty-eight unfunded, was hand collected through a combination of surveys, interviews and consultation with five of Australia???s leading venture capital firms, and individuals from the Australian Private Equity and Venture Capital Association (AVCAL) board and executive. The key results indicate that once past initial screening stages, investment proposals that have a higher likelihood of receiving venture investment are those that had prior government investment, and/or, where the entrepreneur has proposed the investment be through milestone tranches and where revenue is already being generated (for early stage ventures). The results suggest that venture capitalists tend to allocate capital to investments perceived as ???safer??? with respect to agency conflicts. More specifically, venture capitalists are more reliant on signals of quality and lower risk, such as government grants, restriction of capital outlay and prior revenue generation ??? all of which reduce associated levels of internal and execution risk in new ventures.

This thesis focuses on private information dissemination and its impacts on financial markets. Specifically, we study issues arising when there are skilled individuals able to extract anticipative information about future prices. The first model considers a continuous time economy that is populated by informed and uninformed investors as well as active unskilled investors, and investigates the existence of noisy rational expectations equilibria and their properties. Equilibria are derived in closed form and their properties analyzed. Informed trading is found to reduce price volatility. The second model is based on the idea that besides exploiting their private information for trading purposes, informed agents might want to offer wealth management services to uninformed investors in exchange for a fee. A market for active funds emerges, and the process of anticipative information dissemination is endogenized. In this chapter, heterogenous risk averse investors can invest in the active fund. Low risk tolerance investors are found to be strictly better off with the active fund. Fund size is not a reliable indicator of managerial skill. The market reacts to the manager's increasing risk-taking behavior by reducing the volatility and risk premium.