Copyright (c) 2010 All rights reserved. http://works.bepress.com/yeonkoo Recent documents in Yeon-Koo Che en-us Sun, 08 Aug 2010 01:31:07 PDT 3600 http://works.bepress.com/yeonkoo/30 http://works.bepress.com/yeonkoo/30 Fri, 06 Aug 2010 21:06:19 PDT Yeon-Koo Che Market Design http://works.bepress.com/yeonkoo/29 http://works.bepress.com/yeonkoo/29 Fri, 06 Aug 2010 20:17:12 PDT We examine the effects of “naked” credit default swaps on equilibrium debt contracts, pro ject choice, and the likelihood of default when investors have heterogeneous beliefs about the future revenues of the borrower. Although such contracts are zero sum side bets, their existence can have important economic consequences. They induce investors who are most optimistic about the future revenues of borrowers, and would therefore be natural purchasers of debt, to sell credit protection instead. This diverts their capital away from potential borrowers and channels it into collateral to support speculative positions. The resulting shift in the terms of lending against borrowers can cause some projects with positive net present value to remain unfunded, or (in the presence of agency problems) to be replaced by riskier projects with negative net present value. It can also result in an increased likelihood of default and the selection of equilibria in which rollover risk is amplified. The efficiency effects of such contracts are generally ambiguous and belief-dependent, although we identify circumstances in which they result in an unambiguous efficiency loss. Yeon-Koo Che Corporate Finance and Finance My New Papers http://works.bepress.com/yeonkoo/28 http://works.bepress.com/yeonkoo/28 Fri, 06 Aug 2010 20:06:25 PDT A principal chooses one of n ≥ 2 projects or an outside option. An agent is privately informed about the projects’ benefits and shares the principal’s preferences except for not internalizing her value from the outside option. We show that strategic communication is characterized by pandering: the agent biases his recommendation toward good-looking projects—those with appealing observable attributes—even when both parties would be better off with some other project. Projects become more acceptable when pitched against a stronger slate of alternatives. We study organizational responses to the pandering distortion, such as delegation and choosing to be less informed. Yeon-Koo Che My New Papers Contract Theory Microeconomic Theory Political Economy http://works.bepress.com/yeonkoo/27 http://works.bepress.com/yeonkoo/27 Fri, 28 Nov 2008 18:55:18 PST The random priority (random serial dictatorship) mechanism is a common method for assigning objects. The mechanism is easy to implement and strategy-proof. However this mechanism is inefficient, as the agents may be made all better off by another mechanism that increases their chances of obtaining more preferred objects. Such an inefficiency is eliminated by the recent mechanism called probabilistic serial, but this mechanism is not strategy-proof. Thus, which mechanism to employ in practical applications has been an open question. This paper shows that these mechanisms become equivalent when the market becomes large. More specifically, given a set of object types, the random assignments in these mechanisms converge to each other as the number of copies of each object type approaches infinity. Thus, the inefficiency of the random priority mechanism becomes small in large markets. Our result gives some rationale for the common use of the random priority mechanism in practical problems such as student placement in public schools. Yeon-Koo Che Market Design http://works.bepress.com/yeonkoo/26 http://works.bepress.com/yeonkoo/26 Fri, 28 Nov 2008 18:41:08 PST Truthful revelation of preferences has emerged as a desideratum in the design of school choice programs. Gale-Shapley's deferred acceptance mechanism is strategy-proof for students but limits their ability to communicate their preference intensities. This results in ex-ante inefficiency when ties at school preferences are broken randomly. We propose a variant of deferred acceptance mechanism which allows students to influence how they are treated in ties. It maintains truthful revelation of ordinal preferences and supports a greater scope of efficiency. Yeon-Koo Che Market Design http://works.bepress.com/yeonkoo/25 http://works.bepress.com/yeonkoo/25 Sun, 23 Dec 2007 14:20:26 PST Yeon-Koo Che Microeconomic Theory Mechanism Design http://works.bepress.com/yeonkoo/23 http://works.bepress.com/yeonkoo/23 Sun, 23 Dec 2007 14:10:31 PST We study a model where a decision maker (DM) must select an adviser to advise her about an unknown state of the world. There is a pool of available advisers who all have the same underlying preferences as the DM; they differ, however, in their prior beliefs about the state, which we interpret as differences of opinion. We derive a tradeoff faced by the DM: an adviser with a greater difference of opinion has greater incentives to acquire information, but reveals less of any information she acquires, via strategic disclosure. Nevertheless, it is optimal to choose an adviser with at least some difference of opinion. The analysis reveals two novel incentives for an agent to acquire information: a “persuasion” motive and a motive to “avoid prejudice.” Delegation is costly for the DM because it eliminates both of these incentives. We also study the relationship between difference of opinion and difference of preference. Yeon-Koo Che Microeconomic Theory Political Economy http://works.bepress.com/yeonkoo/22 http://works.bepress.com/yeonkoo/22 Sun, 23 Dec 2007 12:35:53 PST Yeon-Koo Che Auction Theory Mechanism Design http://works.bepress.com/yeonkoo/21 http://works.bepress.com/yeonkoo/21 Sun, 23 Dec 2007 12:29:08 PST Yeon-Koo Che Auction Theory http://works.bepress.com/yeonkoo/20 http://works.bepress.com/yeonkoo/20 Sun, 23 Dec 2007 12:26:44 PST Yeon-Koo Che Contract Theory Microeconomic Theory Law and Economics http://works.bepress.com/yeonkoo/19 http://works.bepress.com/yeonkoo/19 Sun, 23 Dec 2007 12:22:18 PST Yeon-Koo Che Political Economy http://works.bepress.com/yeonkoo/18 http://works.bepress.com/yeonkoo/18 Sun, 23 Dec 2007 12:18:40 PST Yeon-Koo Che Auction Theory Mechanism Design http://works.bepress.com/yeonkoo/17 http://works.bepress.com/yeonkoo/17 Sun, 23 Dec 2007 12:15:53 PST Yeon-Koo Che Contract Theory Mechanism Design http://works.bepress.com/yeonkoo/16 http://works.bepress.com/yeonkoo/16 Sun, 23 Dec 2007 12:12:38 PST Yeon-Koo Che Contract Theory Law and Economics http://works.bepress.com/yeonkoo/15 http://works.bepress.com/yeonkoo/15 Tue, 04 Dec 2007 13:29:12 PST The current National Football League overtime rule favors the team starting on offense. Auctioning off or dividing-and-choosing the starting possession can potentially restore ex post fairness. We find auctions to provide a better outcome when teams have asymmetric information. Yeon-Koo Che Auction Theory Mechanism Design http://works.bepress.com/yeonkoo/13 http://works.bepress.com/yeonkoo/13 Tue, 04 Dec 2007 13:29:11 PST A liquidity-constrained entrepreneur raises capital to finance a business activity that may harm bystanders. The entrepreneur raises senior (secured) debt to shield assets from the tort victims in bankruptcy. For a fixed level of borrowing, senior debt creates better incentives for precaution taking than either junior debt or outside equity. The entrepreneur’s level of borrowing is, however, socially excessive. Giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A limited seniority rule dominates these alternatives. Shareholder liability, mandatory liability insurance, and punitive damages are also discussed. Yeon-Koo Che http://works.bepress.com/yeonkoo/14 http://works.bepress.com/yeonkoo/14 Tue, 04 Dec 2007 13:29:11 PST A contract with multiple agents may be susceptible to collusion. We show that agents' collusion imposes no cost in a large class of circumstances with risk neutral agents, including both uncorrelated and correlated types. In those circumstances, any payoff the principal can attain in the absence of collusion, including the second best level, can be attained in the presence of collusion in a way robust to many aspects of collusion behavior. The collusion-proof implementation generalizes to a setting in which only a subset of agents may collude, provided that noncollusive agents' incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism. Our collusion-proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion. Yeon-Koo Che Contract Theory Microeconomic Theory Mechanism Design http://works.bepress.com/yeonkoo/11 http://works.bepress.com/yeonkoo/11 Tue, 04 Dec 2007 13:29:10 PST We study the initial assignment of ownership of a good. When the good is sold at the market-clearing price, wealthy individuals may acquire it instead of poor individuals who would value it more highly, all else equal. Non-market assignment schemes such as random rationing may assign the good more efficiently than the competitive market would --- if the recipients of the good are allowed to resell. Schemes that favor the poor are even more desirable. The ability to resell is critical to the results, but resale induces speculators to participate, so regulation of resale may be beneficial. Yeon-Koo Che Microeconomic Theory Law and Economics http://works.bepress.com/yeonkoo/12 http://works.bepress.com/yeonkoo/12 Tue, 04 Dec 2007 13:29:10 PST In this paper we investigate how the advice that lawyers provide to their clients affects the disclosure of evidence and the outcome of adjudication, and how the adjudicator should allocate the burden of proof in light of the effect. Despite lawyers' expertise in assessing the evidence, their advice is found to have no effect on adjudication in a broad set of circumstances, if legal advice is costless and the lawyers follow undominated strategies in disclosure. A lawyer's advice can influence the outcome to his client's favor if he can credibly advise his client to suppress some favorable evidence. The effect is socially undesirable. Yeon-Koo Che Microeconomic Theory Law and Economics http://works.bepress.com/yeonkoo/10 http://works.bepress.com/yeonkoo/10 Tue, 04 Dec 2007 13:29:10 PST This paper studies experimentally how information about rivals' types affects bidding behavior in first- and second-price auctions. The comparative static hypotheses associated with information about rivals enables us to test the relevance of such information as well as the general predictions of the auction theory, by providing an effective means to control for risk aversion and other behavioral motives that were difficult to control for in previous experiments. Our experimental evidence provides strong support for the theory, and sheds light on the roles of risk aversion and the spite motive in first- and second-price auctions, respectively. James Andreoni Experimental Economics Auction Theory