Debora Di Gioacchino

Fiscal-monetary policy coordination and debt management: a two-stage analysis

We study interactions between two policymakers, central bank and government, in managing public debt as the result of a two-stage game. In the first stage, the institutional regime is established. This determines the equilibrium solution for the second stage, in which a differential game is played between the two policymakers. It is shown that, if the policymakers can communicate before the game is played (multiple-equilibrium), coordination problems can be solved by using the concept of correlated equilibrium.

Sovereign Debt Capacity and the Distribution of Domestic Wealth: A Common Agency Model

This paper proposes a stylized two-period, two-country model illustrating the role of distribution of domestic wealth in determining a countrys level of access to international lending. We model sovereign debt redemption policy in a common agency framework. Within this framework, policy is the outcome of the interaction between government and local and foreign interest groups with conflicting preferences on debt repayment. Our main result is that in full lobby competition, when all interests are represented, the only equilibrium solution is repudiation and the consequent inability of government to access international capital markets. Conversely, when the ability to lobby depends on wealth, governments can access international credit up to a given maximum external debt capacity, determined by the skew in the distribution of domestic wealth.

Strategic technology choice in regulated markets with demand uncertainty

This paper presents a simple model of a non-competitive market with demand uncertainty in which firms can choose their technology of production. Technology is characterised by two parameters: capacity and flexibility. The first has a strong commitment value while flexibility is needed to face uncertainty. Lack of competition requires active regulation to ensure that the price is not set at excessive level. When choosing their technology, firms take into account not only the effects of this choice on the opponent(s) but also the effect on the regulated price. In this framework, and because of regulation, firms have an incentive to strategically manipulate their cost (cost padding). This causes monopoly regulation aiming at improving allocative efficiency to be ineffective. In fact, by “tying its hand” to a low level of capacity, the monopolistic firm is able to get round the constraint imposed by the regulator. Increasing the number of firms in the market may restore regulation effectiveness. The reason is that if demand is sufficiently volatile, then firms strategically choose flexible techniques and this effect dominates over the incentive to manipulate costs in order to escape regulation. In this case, regulation is effective precisely because cost padding is hampered by firms’ non-cooperative behaviour.

Digital Inequality in Italy and Europe

Information and Communication Technologies (ICT) are recognized as a key factor in socioeconomic development and societal evolution. According to the European Commission, “the ICT sector is directly responsible for 5 percent of European GDP, with a market value of € 660 billion annually, but it contributes far more to overall productivity growth (20 percent directly from the ICT sector and 30 percent from ICT investments). … The development of high-speed networks today is having the same revolutionary impact as the development of electricity and transportation networks had a century ago.”1 “The digital economy is growing at seven times the rate of the rest of the economy.”2 The pervasiveness of the ICT is changing the system of production and consumption, leading to the so-called information society. In this framework, the European Commission launched the Digital Agenda for Europe as one of the seven flagship initiatives of the Europe 2020 Strategy to exit the crisis.3 Moreover, the Internet is recognized as an important tool for increasing transparency, accessing information, and facilitating the active participation of citizens in the building of democratic societies “by acting as a catalyst for individuals to exercise their right to freedom of opinion and expression, the Internet facilitates the realization of a range of other human rights”.4 For this reason, “everyone should have the right to participate in the Information Society and States have a responsibility to ensure that citizen’s access to the Internet is guaranteed.”5