Helios Herrera

Turnout and Power Sharing

We compare turnout under proportional power-sharing electoral systems and winner-take-all elections. The effect of such institutional differences on turnout depends on the distribution of voter preferences. If the two parties have relatively equal support, turnout is higher in a winner-take-all system; the result is reversed when there is a clear underdog. We report findings from a laboratory experiment that was designed and conducted to explore this theoretical hypothesis and several other secondary hypotheses that are also implied by the theoretical model. The results are broadly supportive of the theoretical predictions on comparative turnout, the partial underdog compensation effect and the competition effect.

Biased social learning

This paper examines social learning when only one of the two types of decisions is observable. Because agents arrive randomly over time, and only those who invest are observed, later agents face a more complicated inference problem than in the standard model, as the absence of investment might reflect either a choice not to invest, or a lack of arrivals. We show that, as in the standard model, learning is complete if and only if signals are unbounded. If signals are bounded, cascades may occur, and whether they are more or less likely than in the standard model depends on a property of the signal distribution. If the hazard ratio of the distributions increases in the signal, it is more likely that no one invests in the standard model than in this one, and welfare is higher. Conclusions are reversed if the hazard ratio is decreasing. The monotonicity of the hazard ratio is the condition that guarantees the presence or absence of informational cascades in the standard herding model.

Profitable Innovation Without Patent Protection: The Case of Derivatives

Investment banks develop their own innovative derivatives to underwrite corporate issues but they cannot preclude other banks from imitating them. However, during the process of underwriting an innovator can learn more than its imitators about the potential clients. Moving first puts him ahead in the learning process. Thus, he develops an information advantage and he can capture rents in equilibrium despite being imitated. In this context, innovation can arise without patent protection. Consistently with this hypothesis, case studies of recent innovations in derivatives reveal that innovators keep private some details of their deals to preserve the asymmetry of information.