Natalia Lazzati

Endogenous information acquisition in Bayesian games with strategic complementarities

This paper studies covert (or hidden) information acquisition in common value Bayesian games of strategic complementarities. Using the supermodular stochastic order to arrange the structures of information increasingly in terms of preferences, we provide novel, easily interpretable and verifiable, though restrictive conditions under which the value of information is increasing and convex, and study the implications in terms of the equilibrium configuration. Increasing marginal returns to information leads to extreme behavior in that agents opt either for the highest or the lowest quality signal, so that the final analysis of this complex game simplifies greatly into that of a two-action game. This result can rationalize the complete information game as an endogenous outcome. Finally, we also establish that higher-quality information leads players to select more dispersed actions in the Bayesian game.

Out-of-Equilibrium Performance of Three Lindahl Mechanisms: Experimental Evidence

We describe an experimental comparison of the out-of-equilibrium performance of three allocation mechanisms designed to achieve Lindahl outcomes as Nash equilibria: the mechanisms due to Walker (1981), Kim (1993), and Chen (2002). We find that Chenʼs mechanism, which is supermodular, converges closest and most rapidly to its equilibrium. However, we find that the properties that move subjects toward equilibrium in Chenʼs mechanism typically generate sizeable taxes and subsidies when not in equilibrium, and correspondingly large budget surpluses and deficits, which typically far outweigh the surplus created by providing the public good. The Kim mechanism, on the other hand, converges relatively close to its equilibrium and exhibits much better out-of-equilibrium efficiency properties.

Treatment response with social interactions: Partial identification via monotone comparative statics

This paper studies (nonparametric) partial identification of treatment response with social interactions. It imposes conditions motivated by economic theory on the primitives of the model, that is, the structural equations, and shows that they imply shape restrictions on the distribution of potential outcomes via monotone comparative statics. The econometric framework is tractable and allows for counterfactual predictions in models with multiple equilibria. Under three sets of assumptions, we identify sharp distributional bounds on the potential outcomes given observable data. We illustrate our results by studying the effect of police per capita on crime rates in New York state.

A Dynamic Approach to the Dividend Discount Model

We derive a dynamic model of the firm with endogenous investment and leverage ratio within the framework of the dividend discount model (DDM). Our valuation model incorporates two relevant components, namely, managerial flexibility and long-run growth. We dispense with any utility specification capturing the preferences of shareholders and obtain closed-form solutions for the firm problem. A standard parameterization suggests that the value of the real options and long-run growth opportunities can easily represent more than 8% and 10% of share price, respectively. We also find that these two components of the stock price are both complements and countercyclical. We finally identify industries where valuation models that do not incorporate these features can lead to considerable underpricing of securities.

A note on identification of discrete choice models for bundles and binary games

We study nonparametric identification of single‐agent discrete choice models for bundles (without requiring bundle‐specific prices) and of binary games of complete information. We show that these two models are quite similar from an identification standpoint. Moreover, they are mathematically equivalent when we restrict attention to the class of potential games and impose a specific equilibrium selection mechanism in the data generating process. We provide new identification results for the two related models.

A Dynamic Model of the Firm: Structural Explanations of Key Empirical Findings

We derive a dynamic model of the firm in the spirit of the trade-off theory of capital structure that explains firm behavior in terms of firm characteristics. We show our model is consistent with many important findings about the cross-section of firms, including the negative relations between profitability and leverage, and between dividends and investment-cash flow sensitivities. The model also explains the existence of zero-debt firms and their observed characteristics. These results have been used to challenge the trade-off theory and the assumption of perfect capital markets. We revisit these critiques and provide structural explanations for the regularities we replicate.

Simultaneous Choice Models: The Sandwich Approach to Nonparametric Analysis

We study simultaneous choice models from a revealed preference approach given limited data. By limited data we mean that we observe a single equilibrium from the equilibrium set for a collection of related models or games. The objective of our analysis is twofold: We first use monotone and exclusion restrictions to provide out-of-sample predictions of equilibrium points. The predictions we offer take the form of intervals in lattices whose sharp bounds are characterized via monotone comparative statics. We then propose conditions on the data so that the empirical evidence can be rationalized as the Nash equilibria of a supermodular game. The approach we propose is nonparametric, allows for unobserved heterogeneity, and does not rely on any equilibrium selection mechanism.

Dynamic Model of Firm Valuation: A New Methodology and Its Empirical Validity

We propose a dynamic version of the dividend discount model, solve it in closed-form, and assess its empirical validity. The valuation method is tractable and can be easily implemented. We find that our model produces equity value forecasts that are very close to market prices, and explains a large proportion (around 83%) of the observed variation in share prices. Moreover, we show that a simple portfolio strategy based on the difference between market and estimated values earns considerably positive returns. These returns are uncorrelated with the three risk factors in Fama and French (1993).

Hot Spot Policing: A Study of Place-Based Strategies to Crime Prevention

Hot spot policing is a popular policing strategy that addresses crime by assigning limited police resources to areas where crimes are more highly concentrated. We analyze this strategy using a game theoretic approach. The main argument against focusing police resources on hot spots is that it would simply displace criminal activity from one area to another. We provide new insights on the nature of the displacement effect with useful implications for the empirical analysis of crime-reduction effects of police reallocation. We also propose alternative place-based policies that display attractive properties in terms of geographic spillovers of crime reduction via optimal police reallocation.