Stephanie Rosenkranz | Utrecht University (original) (raw)
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Papers by Stephanie Rosenkranz
We analyze the effect of liquidated damage rules in exclusive contracts that are negotiated in a ... more We analyze the effect of liquidated damage rules in exclusive contracts that are negotiated in a sequential bargaining process between one seller and two buyers with endogenous outside options. We show that assumptions on the distribution of bargaining power influence the size of the payment of damages and determine which contractual party benefits from including liquidated damage rules. Furthermore, we show that the effect of the payment of damages on the efficiency of the consummated deals depends on the possibility to sign more than one contract. Only if this is not possible, damage rules may prevent the breaking and entering of contracts and thus lead to inefficient deals in the market of corporate control, or allow for 'naked' exclusion in the context of supplier contracts with externalities.
Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), sugg... more Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), suggest that central bank communication crowds out private information acquisition and that this effect can lead to a deterioration of the ability of financial markets to predict future policy interest rates. We examine this result in an experimental asset market that closely follows the theoretical model. Crowding out of information acquisition takes place and, where this crowding out is most rapid, there is deterioration of the market's predictive ability. This supports the theoretical result that central bank communication can actually make it more difficult for financial markets to predict future policy rates.
Central banks have become increasingly communicative. An important reason is that democratic soci... more Central banks have become increasingly communicative. An important reason is that democratic societies expect more transparency from public institutions. Central bankers, based on empirical research, also believe that sharing information has economic benefits. Communication is seen as a way to improve the predictability of monetary policy, thereby lowering financial market volatility and contributing to a more stable economy. However, a potential side-effect of providing costless public information is that market participants may be less inclined to invest in private information. Theoretical results suggest that this can hamper the ability of markets to predict future monetary policy. We test this in a laboratory asset market. Crowding out of information acquisition does indeed take place, but only where it is most pronounced does the predictive ability of the market deteriorate. Notable features of the experiment include a complex setup based directly on the theoretical model and the calibration of experimental parameters using empirical measurements.
In a two-player stag hunt with asymmetric information, players may lock each other into requiring... more In a two-player stag hunt with asymmetric information, players may lock each other into requiring a large number of confirmations and confirmations of confirmations from one another before eventually acting. This intuition has been formalized in the electronic mail game (EMG). The literature provides extensions on the EMG that eliminate inefficient equilibria, suggesting that no formal rules are needed to prevent players from playing inefficiently. The present paper investigates whether these results extend to the multi-player EMG. We show that standard equilibrium refinements cannot eliminate inefficient equilibria. While two players are predicted to play efficiently, many players need formal rules telling them when who talks to whom.
SSRN Electronic Journal, 1998
Firms' incentives to form RJVs are analyzed in an incomplete in- formation framework when te... more Firms' incentives to form RJVs are analyzed in an incomplete in- formation framework when technological know-how is private infor- mation. Firms …rst decide on cooperation and then compete for a patent in a second price auction. Provided that …rms have to indicate their willingness to cooperate by revealing a fraction of their know- how it can be shown that non-cooperation
We use an asset market model based on to demonstrate that increased central bank transparency may... more We use an asset market model based on to demonstrate that increased central bank transparency may lead to crowding out of costly private information, which can result in a market that is less able to predict monetary policy. Consequently, for intermediate levels of public information precision, it is optimal for the central bank to actually disclose less than it knows. We show that such crowding out can occur, even in the likely scenario that public information is more precise than private information, under the plausible assumption that traders are nearly riskneutral. Central banks should be aware of possible adverse e¤ects of transparency and take note if market participants reduce investment in information.
Journal of Geophysical Research, 2007
We model takeovers as a bargaining process and explain termination fees for, both, the target and... more We model takeovers as a bargaining process and explain termination fees for, both, the target and the acquirer, subject to parties' bargaining power and outside options. In equilibrium, termination fees are offered by firms with outside options in exchange for a greater share of merger synergies. Termination fees decrease in firms' bargaining power, and increase in firms' outside options. We find that a merger with the second highest bidder, including a termination fee, can lead to equally high premiums as a merger with the highest bidder, without a termination fee. This novel result directly contrasts the agency cost perspective, which argues that termination provisions may be used by managers to lock into acquirers that do not generate the highest shareholder value. Further, even in a merger with the highest bidder and in the absence of bidding related costs, a termination fee is not necessarily a deal protection device, but can be used to improve shareholder value. Our bargaining model offers an alternative to auction related explanations of termination fees, like cost compensation or seller commitment.
Page 1. Listening Without Understanding Central bank transparency, financial markets and the crow... more Page 1. Listening Without Understanding Central bank transparency, financial markets and the crowding out of private information DRAFT Menno Middeldorp Rabobank Economic Research Department and University of Utrecht January 30, 2007 Abstract ...
We analyze vertical relationships between a manufacturer and competing retailers when consumers h... more We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.
Public Choice, 2002
Abhinay Muthoo, Bargaining theory with applications. Cambridge and New York: Cambridge University... more Abhinay Muthoo, Bargaining theory with applications. Cambridge and New York: Cambridge University Press, 1999. xv + 357 pages. $24.95 (paper).
In this paper we introduce an alternative version of the trust game by and that allows for asymme... more In this paper we introduce an alternative version of the trust game by and that allows for asymmetric information. We use this version to study the effect of checking on the trustee's behaviour, checking is a control option the trustor can decide to use and that takes place after both trustor and trustee made their initial decisions. 'Checking' differs in this respect from the often in the literature found 'monitoring' that allows the trustor to control the trustee's behaviour before the trustee makes his decision. The game theoretical analysis suggests that checking increases co-operation. The experimental results show that this is only true for the selfish part of the trustee population. Honest trustee react negatively to checking, which is more in line with crowding out theory.
Journal of Economic Psychology, 2012
Do potential entrepreneurs exploit welfare-destroying opportunities as much as they exploit welfa... more Do potential entrepreneurs exploit welfare-destroying opportunities as much as they exploit welfare-enhancing opportunities as it is assumed in several normative models? Do we need to prevent potential entrepreneurs from being destructive or are there intrinsic limits to harm others? We experimentally investigate how people with different entrepreneurial intent exploit risky investment opportunities that are associated with negative and positive externalities. We find that participants who consider entrepreneurship as a future occupation invest significantly less than others in destructive opportunities. Nevertheless, our results support prior evidence that the entrepreneurially talented invest more in destructive opportunities. The latter effect seems to be entrepreneurship-specific, because the investment behavior of the generally more talented does not differ from that of other participants. Taken together, our results suggest that people who are willing to exploit destructive opportunities do not only do this in private ventures, but also -and maybe even more so -in wage employment.
Journal of Geophysical Research, 2007
The trend of monetary policy transparency has recently extended itself to the practice of providi... more The trend of monetary policy transparency has recently extended itself to the practice of providing guidance on the likely direction of policy rates. There is a risk that communicating the central bank's own outlook for interest rates actually undermines the financial markets' ability to predict monetary policy. This paper analyzes this risk using the Diamond (1985) model of a financial market, which includes both costly private information acquisition and a costless public signal. We demonstrate that a sufficiently precise signal from the central bank can result in a deterioration of the financial market's ability to predict monetary policy through the crowding out of private information acquisition. Central banks could alleviate this risk with a policy of limiting the guidance offered to the financial market in order to leave sufficient scope for private information acquisition.
In this paper we characterize a situation in which non-calculative trust has to play a role in th... more In this paper we characterize a situation in which non-calculative trust has to play a role in the decision to cooperate. We then analyze the given situation in game theoretical terms and distinguish those aspects of players' decisions that are cooperative from those that may be interpreted as being trustful. We argue that the cooperative aspect relates to incentives while the trustful (and thus non-calculative) aspect of the decision is related to the framing of the situation.
We analyze the effect of liquidated damage rules in exclusive contracts that are negotiated in a ... more We analyze the effect of liquidated damage rules in exclusive contracts that are negotiated in a sequential bargaining process between one seller and two buyers with endogenous outside options. We show that assumptions on the distribution of bargaining power influence the size of the payment of damages and determine which contractual party benefits from including liquidated damage rules. Furthermore, we show that the effect of the payment of damages on the efficiency of the consummated deals depends on the possibility to sign more than one contract. Only if this is not possible, damage rules may prevent the breaking and entering of contracts and thus lead to inefficient deals in the market of corporate control, or allow for 'naked' exclusion in the context of supplier contracts with externalities.
Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), sugg... more Theoretical results from previous work, presented in Kool, Middeldorp and Rosenkranz (2007), suggest that central bank communication crowds out private information acquisition and that this effect can lead to a deterioration of the ability of financial markets to predict future policy interest rates. We examine this result in an experimental asset market that closely follows the theoretical model. Crowding out of information acquisition takes place and, where this crowding out is most rapid, there is deterioration of the market's predictive ability. This supports the theoretical result that central bank communication can actually make it more difficult for financial markets to predict future policy rates.
Central banks have become increasingly communicative. An important reason is that democratic soci... more Central banks have become increasingly communicative. An important reason is that democratic societies expect more transparency from public institutions. Central bankers, based on empirical research, also believe that sharing information has economic benefits. Communication is seen as a way to improve the predictability of monetary policy, thereby lowering financial market volatility and contributing to a more stable economy. However, a potential side-effect of providing costless public information is that market participants may be less inclined to invest in private information. Theoretical results suggest that this can hamper the ability of markets to predict future monetary policy. We test this in a laboratory asset market. Crowding out of information acquisition does indeed take place, but only where it is most pronounced does the predictive ability of the market deteriorate. Notable features of the experiment include a complex setup based directly on the theoretical model and the calibration of experimental parameters using empirical measurements.
In a two-player stag hunt with asymmetric information, players may lock each other into requiring... more In a two-player stag hunt with asymmetric information, players may lock each other into requiring a large number of confirmations and confirmations of confirmations from one another before eventually acting. This intuition has been formalized in the electronic mail game (EMG). The literature provides extensions on the EMG that eliminate inefficient equilibria, suggesting that no formal rules are needed to prevent players from playing inefficiently. The present paper investigates whether these results extend to the multi-player EMG. We show that standard equilibrium refinements cannot eliminate inefficient equilibria. While two players are predicted to play efficiently, many players need formal rules telling them when who talks to whom.
SSRN Electronic Journal, 1998
Firms' incentives to form RJVs are analyzed in an incomplete in- formation framework when te... more Firms' incentives to form RJVs are analyzed in an incomplete in- formation framework when technological know-how is private infor- mation. Firms …rst decide on cooperation and then compete for a patent in a second price auction. Provided that …rms have to indicate their willingness to cooperate by revealing a fraction of their know- how it can be shown that non-cooperation
We use an asset market model based on to demonstrate that increased central bank transparency may... more We use an asset market model based on to demonstrate that increased central bank transparency may lead to crowding out of costly private information, which can result in a market that is less able to predict monetary policy. Consequently, for intermediate levels of public information precision, it is optimal for the central bank to actually disclose less than it knows. We show that such crowding out can occur, even in the likely scenario that public information is more precise than private information, under the plausible assumption that traders are nearly riskneutral. Central banks should be aware of possible adverse e¤ects of transparency and take note if market participants reduce investment in information.
Journal of Geophysical Research, 2007
We model takeovers as a bargaining process and explain termination fees for, both, the target and... more We model takeovers as a bargaining process and explain termination fees for, both, the target and the acquirer, subject to parties' bargaining power and outside options. In equilibrium, termination fees are offered by firms with outside options in exchange for a greater share of merger synergies. Termination fees decrease in firms' bargaining power, and increase in firms' outside options. We find that a merger with the second highest bidder, including a termination fee, can lead to equally high premiums as a merger with the highest bidder, without a termination fee. This novel result directly contrasts the agency cost perspective, which argues that termination provisions may be used by managers to lock into acquirers that do not generate the highest shareholder value. Further, even in a merger with the highest bidder and in the absence of bidding related costs, a termination fee is not necessarily a deal protection device, but can be used to improve shareholder value. Our bargaining model offers an alternative to auction related explanations of termination fees, like cost compensation or seller commitment.
Page 1. Listening Without Understanding Central bank transparency, financial markets and the crow... more Page 1. Listening Without Understanding Central bank transparency, financial markets and the crowding out of private information DRAFT Menno Middeldorp Rabobank Economic Research Department and University of Utrecht January 30, 2007 Abstract ...
We analyze vertical relationships between a manufacturer and competing retailers when consumers h... more We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer's suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.
Public Choice, 2002
Abhinay Muthoo, Bargaining theory with applications. Cambridge and New York: Cambridge University... more Abhinay Muthoo, Bargaining theory with applications. Cambridge and New York: Cambridge University Press, 1999. xv + 357 pages. $24.95 (paper).
In this paper we introduce an alternative version of the trust game by and that allows for asymme... more In this paper we introduce an alternative version of the trust game by and that allows for asymmetric information. We use this version to study the effect of checking on the trustee's behaviour, checking is a control option the trustor can decide to use and that takes place after both trustor and trustee made their initial decisions. 'Checking' differs in this respect from the often in the literature found 'monitoring' that allows the trustor to control the trustee's behaviour before the trustee makes his decision. The game theoretical analysis suggests that checking increases co-operation. The experimental results show that this is only true for the selfish part of the trustee population. Honest trustee react negatively to checking, which is more in line with crowding out theory.
Journal of Economic Psychology, 2012
Do potential entrepreneurs exploit welfare-destroying opportunities as much as they exploit welfa... more Do potential entrepreneurs exploit welfare-destroying opportunities as much as they exploit welfare-enhancing opportunities as it is assumed in several normative models? Do we need to prevent potential entrepreneurs from being destructive or are there intrinsic limits to harm others? We experimentally investigate how people with different entrepreneurial intent exploit risky investment opportunities that are associated with negative and positive externalities. We find that participants who consider entrepreneurship as a future occupation invest significantly less than others in destructive opportunities. Nevertheless, our results support prior evidence that the entrepreneurially talented invest more in destructive opportunities. The latter effect seems to be entrepreneurship-specific, because the investment behavior of the generally more talented does not differ from that of other participants. Taken together, our results suggest that people who are willing to exploit destructive opportunities do not only do this in private ventures, but also -and maybe even more so -in wage employment.
Journal of Geophysical Research, 2007
The trend of monetary policy transparency has recently extended itself to the practice of providi... more The trend of monetary policy transparency has recently extended itself to the practice of providing guidance on the likely direction of policy rates. There is a risk that communicating the central bank's own outlook for interest rates actually undermines the financial markets' ability to predict monetary policy. This paper analyzes this risk using the Diamond (1985) model of a financial market, which includes both costly private information acquisition and a costless public signal. We demonstrate that a sufficiently precise signal from the central bank can result in a deterioration of the financial market's ability to predict monetary policy through the crowding out of private information acquisition. Central banks could alleviate this risk with a policy of limiting the guidance offered to the financial market in order to leave sufficient scope for private information acquisition.
In this paper we characterize a situation in which non-calculative trust has to play a role in th... more In this paper we characterize a situation in which non-calculative trust has to play a role in the decision to cooperate. We then analyze the given situation in game theoretical terms and distinguish those aspects of players' decisions that are cooperative from those that may be interpreted as being trustful. We argue that the cooperative aspect relates to incentives while the trustful (and thus non-calculative) aspect of the decision is related to the framing of the situation.