Estelle Cantillon

Combination Bidding in Multi-Unit Auctions

This paper considers the problem of identification and estimation in the first-price multi-unit auction. It is motivated by the auctions of bus routes held in London where bidders submit bids on combinations of routes as well as on individual routes. We show that submitting a combination bid lower than the sum of the bids on the constituent routes does not require cost synergies and can instead serve as a tool to leverage market power across the different routes. As a result, the welfare consequences of allowing combination bidding in the first price auction are ambiguous, and depend on the importance of the cost synergies. We provide conditions for non-parametric identification of the multidimensional private information in the multi-unit first price auction and derive partial identification results when they are not satisfied. We propose an estimation method consisting of two stages: In the first stage, the distribution of bids is estimated parametrically. In the second stage, the (set of) costs and distribution(s) of costs consistent with the observed behavior are inferred based on the first order conditions for optimally chosen bids. We apply the estimation method to data from the London bus routes market. We quantify the magnitude of cost synergies and assess possible efficiency losses arising in this market.

Equilibrium in Scoring Auctions

This paper studies multi-attribute auctions in which a buyer seeks to procure a complex good and evaluate offers using a quasi-linear scoring rule. Suppliers have private information about their costs, which is summarized by a multi-dimensional type. The scoring rule reduces the multidimensional bids submitted by each supplier to a single dimension, the score, which is used for deciding on the allocation and the resulting contractual obligation. We exploit this idea and obtain two kinds of results. First, we characterize the set of equilibria in quasi-linear scoring auctions with multi-dimensional types. In particular, we show that there exists a mapping between the class of equilibria in these scoring auctions and those in standard single object IPV auctions. Second, we prove a new expected utility equivalence theorem for quasi-linear scoring auctions.

Asymmetric Network Effects

When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity. We find that valuations of liquidity tend to be correlated with contributions to liquidity in this setting.

Economics without borders : economic research for European policy challenges

If treated as a single economy, the European Union is the largest in the world, with an estimated GDP of over 14 trillion euros. Despite its size, European economic policy has often lagged behind the rest of the world in its ability to generate growth and innovation. Much of the European economic research itself often trails behind that of the United States, which sets much of the agenda in mainstream economics. This book, also available as open access, bridges the gap between economic research and policy-making by presenting overviews of twelve key areas for future economic policy and research. Written for the economists and policymakers working within European institutions, it uses comprehensive surveys by Europe’s leading scholars in economics and European policy to demonstrate how economic research can contribute to good policy decisions, and vice versa, demonstrating how economics research can bemotivated andmade relevant by hot policy questions.

Fiscal and Monetary Policies after the Crises

Abstract We review the recent literature on macroeconomic stabilization policy, with a particular focus on two major challenges that are particular to the post-crisis landscape. These are, first, how to provide meaningful economic stimulus when the zero lower bound on nominal interest rates is binding. Second, how to design a stabilization policy for the Eurozone that will remedy the large macroeconomic imbalances among member states. Introduction European policy-makers are currently facing formidable policy challenges. First, while many other economic regions in the world have shown tangible signs of economic recovery already in 2014, the Eurozone as a whole slipped into a downturn with high unemployment and current and expected inflation falling well below the 2 per cent target. Monetary policy will be constrained by the zero lower bound for the foreseeable future, giving the European Central Bank (ECB) little alternative to engaging in policy experimentation such as quantitative easing. Second, the progress towards the correction of internal imbalances has been very slow, with the questionable exception of the reversal of previous current account deficits, essentially driven by large and costly recessions in the high debt countries. Reform efforts have been frustrated by low economic activity and financial fragility, forcing governments in need of change to implement costly initiatives with scarce tax and financial resources. The inward-looking precautionary approach to fiscal policy adopted by surplus countries has ensured that the overall fiscal stance of the currency area is contractionary, at an inappropriately tight level for the Eurozone as a whole. Third, the Eurozone as an incomplete monetary union needs to ensure its sustainability via institutional development that requires strong political cohesion. Lack of sufficient institutional development has undermined timely and intense policy responses to the crisis, and created mistrust and conflict over viable solutions, as policy-makers are having to design stabilization mechanisms, at the same time as reaching agreement on the fundamental contracts and mutual insurance rules governing banking union, monetary backstops for public debt, and the credibility of the no-bailout principle. The process of overcoming the insufficient institutional development during a severe crisis has exacerbated policy credibility problems at country and union-wide level, and arguably created room for destabilizing speculative behaviour.

Winners and Losers of Globalization: Sixteen Challenges for Measurement and Theory

Abstract The goal of this chapter is to summarize the state of the art in research in international trade and global production, and discuss issues relevant to European policymakers. Much of recent research on globalization is primarily empirical, owing to the proliferation of available data. We begin by discussing recent advances in measuring the causes and effects of globalization, and discussing the particular data challenges that have emerged. We then turn to theories of trade and global production, first summarizing the conclusions on which there is a broad consensus in the field. We discuss new insights that may be relevant for policy-makers, and open research questions. Introduction The fortune of workers, consumers and firms increasingly depends on other countries. This global interdependence is driven by the flow of goods, capital, ideas and people across countries. This chapter summarizes research about two aspects of globalization: international trade in goods and services, and the international fragmentation of production. We first summarize the overarching themes that are common to both topics. We conclude with a set of open questions, and propose an agenda for better connecting academic research with the needs of policy-making. We also discuss data challenges facing economists and policy-makers alike. The primary motivation of theories of globalization is to explain how international interactions differ from domestic interactions, and why they occur in the first place. Why do countries trade goods with one another? Why do some companies locate part of their production abroad? Canonical models of trade and globalization explain the magnitude and patterns of cross-country movements, and their welfare implications. An almost tautological conclusion of these models is that if countries choose to interact with one another, they must be better off than being in isolation. Models may differ in the magnitude of the gains from trade they predict, but these gains are almost uniformly positive. A central theme is that globalization benefits some more than others. In fact, some may even become worse off as their country becomes more open to the flow of goods, ideas, and people. For example, workers in import-competing industries stand to lose when countries open up to trade. These distributional effects of globalization are widely studied both theoretically and empirically.

European Union Dual Labour Markets: Consequences and Potential Reforms

Abstract This chapter provides an overview of a growing literature on the emergence of dual labour markets and their persistence in some EU countries, as well as the impact that dualism has on a large range of labour market dimensions including, among others, job and worker flows, (overall and youth) unemployment, wage setting, training, labour mobility, household formation, and technology adoption. A distinctive feature of the chapter is that it places the accumulated evidence on these issues in a general equilibrium framework, which helps understand why dual labour markets have performed so poorly since 2008, and also to identify promising avenues of research for the near future. The chapter also evaluates recent reforms and reform proposals (single and unified labour contracts) to eliminate the undesirable consequences of excessive dualism in the labour market. Introduction This COEURE Survey deals with the consequences of dual labour markets, namely labour markets where workers are entitled to different employment protection depending on the contract they hold, and where these differences are large. The effect of dualism on several labour-market dimensions has been widely analysed in the literature but many of these issues have strongly reemerged during the recent crisis due to the poor performance of countries subject to strong dualism. In this survey we review the main lessons drawn from past experience with these labour market regimes, where they originate from, why they are so difficult to change, why they have failed during the Great Recession and the subsequent sovereign crisis, what reform proposals have been posed and which ones are more likely to work. In addition to reviewing the accumulated stock of knowledge on these issues, we place them in a general equilibrium framework to understand which ones constitute the most promising avenues of research for the near future. The rest of the survey is organized as follows. Section 2.2 deals with the historical origins of dual labour markets. Section 2.3 considers conditions under which labour contracts become too different, leading to optimal versus nonoptimal arrangements of stability and flexibility in the labour market. Section 2.4 looks at the performance of dual labour markets since the onset of the Great Recession. Section 2.5 documents the case of Spain, as an epitome of a dual labour market.

Developments in Data for Economic Research

Abstract There has been a steep increase in empirical research in economics in the past 20–30 years. This chapter brings together several actors and stakeholders in these developments to discuss their drivers and implications. All types of data are considered: official data, data collected by researchers, lab experiments, randomized control trials, and proprietary data from private and public sources. When relevant, emphasis is placed on developments specific to Europe. The basic message of the chapter is that there is no single type of data that is superior to all others. We need to promote diversity of data sources for economic research and ensure that researchers are equipped to take advantage of them. All stakeholders – researchers, research institutions, funders, statistical agencies, central banks, journals, data firms, and policy-makers – have a role to play in this. Introduction The past 20–30 years have witnessed a steady rise in empirical research in economics. In fact, a majority of articles published by leading journals these days are empirical, in stark contrast with the situation 40 or 50 years ago (Hamermesh, 2013). This change in the distribution of methodologies used in economic research was made possible by improved computing power but, more importantly, thanks to an increase in the quantity , quality and variety of data used in economics. This chapter brings together several actors and stakeholders in these changes to discuss their drivers and implications. All types of data are considered. When relevant, emphasis is placed on developments specific to Europe. Sections 13.2 and 13.3 deal with official microdata. Section 13.2 focuses on the level of access to microdata in Europe and its determinants. Section 13.3 focuses on cross-country data harmonization. Section 13.4 then switches gears entirely and discusses the benefits and costs of large-scale data collection efforts led by researchers, instead of statistical offices. Section 13.5 discusses data produced by researchers, either in the context of lab experiments or in the context of randomized control trials. Both types of data have led to major advances; for the first one in our understanding of human behaviour and the robustness of economic institutions; for the second in our understanding of the impact of policies and themechanisms underlying them.