Andrew Wait

Hold-up and Sequential Specific Investments

We explore the hold-up problem when trading parties can make specific investments simultaneously or sequentially. As previously emphasized in the literature, sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. This is not always the case, however. A cost of sequencing investment is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can be detrimental to welfare; it can even prevent trade from occurring. This is a new result: it allows the choice about the timing of investment to be interpreted as a new form of hold-up. We also examine an investment game in which both parties would prefer to invest second (follow) rather than lead. This game displays some interesting dynamics. As the the number of potential investment periods is increased, the subgame perfect equilibrium can switch between a prisoners’ dilemma and a coordination game.

Ownership, access and sequential investment

We extend the property-rights framework to allow for: a separation of the ownership rights of access and veto; and sequential investment. Parties investing first (ex ante) do so before contracting is possible. Parties that invest second (ex post) can contract on (at least some) of their investment costs. Along with this cost-sharing effect, the incentive to invest is affected by a strategic effect generated by sequential investment. Together these effects can overturn some of the predictions of the property-rights literature. For example, the most inclusive ownership structure might not be optimal, even if all investments are complementary.

Staged Financing with a Variable Return

This paper explores the hold-up problem between two parties (an entrepreneur and an investor) when one of the parties (the entrepreneur) is unable to commit not to repudiate the initial contract. To mitigate hold-up we allow the parties to stage investments over time and derive the optimal investment path in a model that places no restrictions on the growth of collateral. Our model predicts that neither positive wealth of the entrepreneur nor the lack of discounting ensures that all profitable projects proceed. We also derive necessary and sufficient conditions for the project to be financeable when there are no costs of delay.

Communication Breakdown: Consultation or Delegation from an Expert with Uncertain Bias

When communicating with an uninformed decision maker, the motives behind an experts message are often unclear. To explore this and investigate its impact on organizational design, we extend the cheap-talk model of Crawford and Sobel (1982) to allow for uncertainty over the experts bias. We find that, in contrast to Dessein (2002), it is possible that the decision maker prefers communication to delegation; that is, it can be optimal for a decision maker to retain control and to solicit advice from the expert.

Market Niche, Flexibility and Commitment

We study a market-entry game in which the potential entrants wish to coordinate their actions (i.e. enter different market segments rather than compete directly). If (i) the firms have an option to wait, and (ii) each firm has a different reaction time after they have decided to wait, the unique outcome that survives the iterated elimination of weakly dominated strategies favors the less flexible firms.

Who Decides about Change and Restructuring in Organizations

We model the determinants of who makes decisions, the principal or an agent, when there are multiple decisions. Decision making takes effort and time; and, once implemented, the expected loss from a particular decision (or project) increases with the length of time since the last decision was made. The model shows delegation is more likely as: (i) controllable uncertainty increases; (ii) uncontrollable uncertainty decreases; (iii) the number of plants in the firm decreases; (iv) the complexity of the decision increases; and (v) the importance of the decision increases. The theoretical predictions are consistent with our novel empirical results on the delegation of major organizational change decisions using workplace data. Our unique data allows us to identify who made a decision to implement a significant change, as well as key internal and external factors highlighted as potentially important in our theory. Empirically, delegation is more likely in organizations that: face a competitive product market; export; have predictable product demand; have a larger workplace; and that have fewer other workplaces in the same organization producing a similar output. We find business strategy is not related to the allocation of decision making authority; delegation, however, is associated with the use of human resource techniques such as the provision of bonuses to employees.

Market Entry Dynamics with a Second-Mover Advantage

We study a market-entry game with a second-mover advantage. In the symmetric equilibrium, there can be a non-monotonic relationship between the probability with which a player will invest (entry) and the length of time until the deadline. Moreover, the probability of investment can move chaotically as the horizon is extended. In the limit when the period length goes to zero chaotic trajectories arise when the efficiency effect does not hold -- that is, when the one-period monopoly profit is less than the total of the one-period duopoly profits. We also show that the presence of chaotic trajectories is associated with a smaller expected delay in entry.

Tendering and Bidding for Access: A Regulator's Guide to Auctions

Tenders and traditional auctions are increasingly being used in regulation; as a consequence it is essential regulators have an understanding of the basics of auction theory. There is no simple prescription for the design of an auction or tender that will fit all situations; moreover, the costs from inappropriate auction and tender design can be high For example, while a second-price sealed bid auction is efficient in the absence of collusion, if participants can collude then such auction formats can result in very low revenue. Low revenue can also result with a second-price auction when there are few bidders and no reserve price.

BUNDLING IN AUCTIONS WITH NON‐LINEAR VALUATIONS

We examine when a revenue-maximising auctioneer prefers to auction a homogenous product in one bundle (a single-object auction) than to sell the item in two or more shares. When the items are super-additive the auctioneer always prefers a single-object auction. When the product valuations are sub-additive, the auctioneer is more likely to choose a share auction when there are a large number of potential bidders. When there are a small number of bidders the auctioneer will tend to prefer a single-object auction.

Gender, regulation and the airwaves

LYNDALL SHOPE-MOFOLE, Councillor for the Independent Broadcasting Authority, spoke to LOU HAYSOM about the need to shape a gender-sensitive policy in the broadcast sector. Dr Sebiletso Mokone-Matabane, co-chairperson of the IBA, joined the discussion