Harrison Cheng

Asset market equilibrium in infinite dimensional complete markets

Abstract In complete contingent claim markets, we prove the existence of equilibrium with short sales. All agents have the same belief about the events, and have a strictly concave von Neuman-Morgenstern utility function of income. The result is based on a general equilibrium existence theorem without consumption constraints, which says that an equilibrium exists if there is limited trade surplus. We also show that preferences are uniformly proper if and only if the marginal utility of income is bounded away from 0 and ∞.

MANAGERIAL AUTONOMY, CONTRACTUAL INCENTIVES AND PRODUCTIVITY IN A TRANSITION ECONOMY: SOME EVIDENCE FROM CHINA'S TOWN AND VILLAGE ENTERPRISES

In advanced industrial economies it is accepted that efficiency requires aligning managerial autonomy in decision-making with managerial incentives. Should this hold for economies like that of rural China where (at least until very recently) managers might abuse autonomy and government owners may have objectives other than profit maximization? This paper tests for the effects of managerial autonomy on efficiency with and without alignment with incentives in a panel of Chinese town and village enterprises (TVEs). The results show that managerial autonomy has had a positive and significant effect on productivity only when aligned with incentives.

Optimal Partnership Contracts: Foundation and Duality

We use the duality in linear programming to solve the problem of optimal contracts with moral hazards. We show the importance of allowing the partners to throw away outputs under some contingencies. A two-step procedure is used to find the optimal contracts. The first step minimizes the loss from undistributed outputs, and in the second step, a second best solution is found. A characterization of the optimal contracts in 2-by-2-by-2 partnership games is offered. Such contracts implement an optimal strategy profile which either has no incentive cost to implement or is near a pure strategy profile.

The coalitional approach to core theory

Abstract The Core-Walras Equivalence is examined in a finite or infinite economy in which the competitive gap is bounded by the size of the atoms in the economy. The economy is represented by a Boolean algebra of coalitions, and coalitions rather than individual agents are taken as a primitive concept. Coalition arbitrage plays the central role in our analysis.

Cournot outcome and optimal collusion: an example

Abstract We give an example of a repeated Cournot oligopoly game with price uncertainty in which the optimal collusion is the Cournot outcome. Thus there is no advantage from dynamic collusion. The example is quite robust with respect to probability specifications and the number of firms

Futures Markets, Production and Diversification of Risk*

This paper lays out a framework for the analysis of the risk transfer role of speculators on futures markets and the impact of their trading on the production decisions of firms. We show that when speculators diversify their portfolios over a large number of markets, the equilibrium risk premium converges to an asymptotic premium, the behaviour of which is determined by the stochastic dependence between the spot price and an index of average returns on other markets-the idiosyncratic risk arising from the variability of the spot price itself is diversified away. In the independent and negatively dependent cases this diversification of risk leads to a Pareto improving property. Futures markets may be viewed as an institutional mechanism through which speculators can perform two roles: first, that of risk transfer, and second, that of information gathering. The exchanges themselves have traditionally emphasised the importance of the former, while economists have tended to focus their attention on the latter.’ The exchanges point out that firms involved in the production and processing of certain commodities would, in the absence of a futures market, incur over and aboy.;: the standard costs of production, the substantial risk costs arising from the wide fluctuations in the underlying commodity’s price. If futures markets can through the mechanism of hedging and the trading of speculators provide such firms with price insurance at substantially smaller cost, then more output can be made available at less cost to the consumer. Under what conditions is such an argument valid? Few attempts have been made in the economic literature to develop a * Research support from the National Science Foundation (SES-8200432) is gratefully acknowledged. We also thank Stephen Ross, Doug Breeden and participants in workshops at Yale, Columbia, Northwestern and Pennsylvania for helpful discussions. ‘See, for example, Williams 1161 and more recently Grossman [6], Danthine [S] and Bray [3].