2005

05-01. Keister, T. "Expectations and Contagion in Self-Fulfilling Currency Attacks"

Resumen: This paper shows how expectations-driven contagion of currency crises can arise even if the currency market has a unique equilibrium when viewed in isolation. The model of Morris and Shin (1998) is extended to allow speculators to trade in a second currency market. If speculators believe that a devaluation of this other currency will make a domestic devaluation more likely, they will engage in trades that link the two markets. A sharp devaluation of the other currency will then be propagated to the domestic market and will increase the likelihood of a crisis there, fulfilling the original expectations. Even though this contagion is driven solely by expectations, the model places restrictions on observable variables, and these restrictions are broadly consistent with existing empirical evidence.


05-02. Herrera, H., y C. Martinelli "Group Formation and Voter Participation" 

Resumen: We present a mobilization model of large elections with endogenous formation of voter groups. Citizens decide whether to be followers or become leaders (activists) and try to bring other citizens to vote for their preferred party. In the (unique) pure strategy equilibrium, the number of leaders favoring each party is a function of the cost of activism and the mportance of the election. Expected turnout and winning margin in the election are, in turn, a function of the number of leaders and the strength of social interactions. The model predicts a non monotonic relationship between expected turnout and winning margin in large elections.


05-03. Herrera, H., D. K. Levine, y C. Martinelli "Policy Platforms, Campaign Spending and Voter Participation" 

Resumen: We model electoral competition between two parties in a winner-take-all election. Parties choose strategically first their platforms and then their campaign spending under aggregate uncertainty about voters' preferences. We use the model to examine why campaign spending in the United States has increased at the same time that politics has become more polarized. We find that the popular explanation ­ better targeting of campaign spending ­ is not a likely explanation. While better targeting does lead to greater spending, it leads to less polarization. Instead we argue that the likely explanation is that voters references have become more volatile. This will both raise campaign spending and increase polarization. At the same time it is consistent with the observation that voters have become less committed to the two parties.



05-04. Herrera, H., y E. Schroth "Developer's Expertise and the Dynamics of Financial Innovation: Theory and Evidence" 

Resumen: We study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers' expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator's market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model.


05-05. Martinelli, C. "Rational Ignorance and Voting Behavior" 

Resumen: We model a two-alternative election in which voters may acquire information about which is the best alternative for all voters. Voters differ in their cost of acquiring information. We show that as the number of voters increases, the fraction of voters who acquire information declines to zero. However, if the support of the cost distribution is not bounded away from zero, there is an equilibrium with some information acquisition for arbitrarily large electorates. This equilibrium dominates in terms of welfare any equilibrium without information acquisition--even though generally there is too little information acquisition with respect to an optimal strategy profile.


05-06. Martinelli, C. "Follow the Leader: Theory and Evidence on Political Participation: A Comment"

Resumen: In a very influential paper, Shachar and Nalebuff (1999) develop and estimate structurally a pivotal-leader model of political participation, focusing on the first-order condition of the problem solved by the leaders of two political parties. This note (1) shows that the problem of the party leaders is not necessarily concave, (2) provides conditions for concavity, and (3) attempts to verify whether these conditions hold for the parameter values.