Felipe Zurita

Liquidity and the Simple IO of Stock Exchanges

It is usually thought that network externalities, which are inherent to liquidity, make it desirable to concentrate transactions in one stock exchange. This paper shows that when the value of liquidity stems from the ability of potentially reach as many traders as possible, the market is integrated when every broker meets every other broker in at least one exchange. Thus, fragmentation is not about trades being executed in di¤erent exchanges but of connectedness among brokers. An implication of this distinction is that in an integrated market the network externality created by liquidity becomes pecuniary and the optimal number of exchanges depends only on the shape of the (physical) technology to execute trades.whether it exhibits increasing, constant or decreasing returns to scale.as in any standard industry. We characterize the planner.s allocation and compare it with that reached by a monopoly. It is shown that when exchanges are natural monopolies a particular ownership structure of the exchange and allocation of voting rights over the exchange fee achieve the planner.s optimum. With decreasing returns to scale the Walrasian allocation is e¢cient, provided that the market is integrated. Nevertheless, with few exchanges the price-taking assumption is suspect. If exchanges are not price takers, there are many other equilibria, all of them inefficient. Moreover, there are reasons to doubt that the market will become integrated. Fragmentation softens price competition between exchanges and may help a monopolist exchange to erect a barrier to entry even when he has no cost advantage.

Evolving to the Impatience Trap: The Example of the Farmer-Sheriff Game

The literature on the evolution of impatience, focusing on one-person decision problems, finds that evolutionary forces favor the more patient individuals. This paper shows that in the context of a game, this is not necessarily the case. In particular, it offers a two-population example where evolutionary forces favor impatience in one group while favoring patience in the other. Moreover, not only evolution but also efficiency may prefer impatient individuals. In our example, it is efficient for one population to evolve impatience and for the other to develop patience. Yet, evolutionary forces move the wrong populations.

SIMPOSIO CRISIS GLOBAL Y TEORÍA ECONÓMICA: La Economía Financiera Frente a la Crisis

Este ensayo discute el estatus de la disciplina de Economia Financiera frente a la crisis global. En contra de ciertas criticas que se han formulado apuntando a que la disciplina tendria una cuota de responsabilidad al haber abusado del paradigma del hombre racional y de los mercados racionales y, por esa via, haber contribuido a un estado general de inconciencia frente a los peligros que la burbuja inmobiliaria en curso representaba, este ensayo documenta la preocupacion permanente por entender las limitaciones y el alcance de diversas nociones de racionalidad en el comportamiento en general, y en particular de los mercados financieros.

Beyond Earthquakes: The New Directions of Expected Utility Theory

Over the past two decades or so, an enormous amount of work has been done to improve the Expected Utility model. Two areas have attracted major attention: the possibility of describing unforeseen contingencies and the need to accommodate the kind of behavior referred to in Ellsbergs paradox. This essay surveys both.