# 2017

1. A. Nikandrova and R. Pancs, * " Dynamic Project Selection", * forthcoming in Theoretical Economics.

**Resumen: **

We study a normative model of an internal capital market, used by a company to choose between its two devisions’ pet projects. Each project’s value is initially unknown to all but can be dynamically learned by the corresponding division. Learning can be suspended or resumed at any time and is costly. We characterize an internal capital market that maximizes the company’s expected cash flow. This market has indicative bidding by the two divisions, followed by a spell of learning and then firm bidding, which occurs at an endogenous deadline or as soon as either division requests it.

2. P. Evdokimov and U.Garfagnini, * " Third-party manipulation of conflict: an experiment", * forthcoming in Experimental Economics.

**Resumen: **

We design a laboratory experiment in which an interested third party endowed with private information sends a public message to two conflicting players, who then make their choices. We find that third-party communication is not strategic. Nevertheless, a hawkish message by a third party makes hawkish behavior more likely while a dovish message makes it less likely. Moreover, how subjects respond to the message is largely unaffected by the third party’s incentives. We argue that our results are consistent with a focal point interpretation in the spirit of Schelling.

3. Da Rocha, J.M., Gutierrez, M.J., García-Cutrin, F.J. and Jardim, E., * " Endogenous Fishing Mortalities: a State-Space Bioeconomic Model", * forthcoming in ICES Journal of Marine Science.

**Resumen: **

A methodology that endogenously determines catchability functions that link fishing mortality with contemporaneous stock abundance is presented. We consider a stochastic age-structured model for a fishery composed by a number of fishing units (fleets, vessels or metiers) that optimally select the level of fishing effort to be applied considering total mortalities as given. The introduction of a balance constrain which guarantees that total mortality is equal to the sum of individual fishing mortalities optimally selected, enables total fishing mortality to be determined as a combination of contemporaneous abundance and stochastic processes affecting the fishery. In this way, future abundance can be projected as a dynamic system that depends on contemporaneous abundance. The model is generic and can be applied to several issues of fisheries management. In particular, we illustrate how to apply the methodology to assess the floating band target management regime inspired in the new multi-annual plans. Our results support this management regime for the Mediterranean demersal fishery in Northern Spain.

4. Da Rocha, J.M., Prellezo, R., Sempere, J. and Taboada-Antelo, L., * " A dynamic economic equilibrium model for the economic assessment of the fishery stock-rebuilding policies", * forthcoming in Marine Policy.

**Resumen: **

The paper develops and analyses a dynamic general equilibrium model with heterogeneous agents that can be used for assessment of the economic consequences of fish stock-rebuilding policies within the EU. In the model, entry and exit processes for individual plants (vessels) are endogenous, as well as output, employment and wages. This model is applied to a fishery of the Mediterranean Sea. The results provide both individual and aggregate data that can help managers in understanding the economic consequences of rebuilding strategies. In particular, this study shows that, for the application presented, all aggregate results improve if the stock rebuilding strategy is followed, while individual results depend on the indicator selected.

5. A. Elbittar, A. Gomberg, C. Martinelli and T. Palfrey, * " Ignorance and Bias in Collective Decisions", * forthcoming in Journal of Economic Behavior and Organization (2017).

**Resumen: **

We study theoretically and experimentally a committee with common interests. Committee members do not know which of two alternatives is the best, but each member can acquire privately a costly signal before casting a vote under either majority or unanimity rule. In the experiment, as predicted by Bayesian equilibrium, voters are more likely to acquire information under majority rule, and attempt to counter the bias in favor of one alternative under unanimity rule. As opposed to Bayesian equilibrium predictions, however, many committee members vote when uninformed. Moreover, uninformed voting is strongly associated with a lower propensity to acquire information. We show that an equilibrium model of subjective prior beliefs can account for both these phenomena, and provides a good overall fit to the observed patterns of behavior both in terms of rational ignorance and biases.

6. García, D., Prellezo, R., Sampedro, Da Rocha, J., Castro, J., Cerviño, S., Garcı ́a-Cutrín, J., and Gutierrez, M., * " Bioeconomic multistock reference points as a tool for overcoming the drawbacks of the landing obligation", * in ICES Journal of Marine Science (2017).

**Resumen: **

The landing obligation policy was one of the major innovations introduced in the last Common Fisheries Policy reform in Europe. It is foreseen that the policy will affect the use of fishing opportunities and hence the economic performance of the fleets. The problem with fishing opportunities could be solved if single-stock total allowable catches (TACs) could be achieved simultaneously for all the stocks. In this study, we evaluate the economic impact of the landing obligation policy on the Spanish demersal fleet operating in the Iberian Sea region. To generate TAC advice, we used two sets of maximum sustainable yield (MSY) reference points, the single-stock MSY reference points defined by ICES and a set of multistock reference points calculated simultaneously using a bioeconomic optimization model. We found that the impact of the landing obligation is time and fleet dependent and highly influenced by assumptions about fleet dynamics. At fishery level, multistock reference points mitigate the decrease in the net present value generated by the implementation of the landing obligation. However at fleet level, the effect depends on the fleet itself and the period. To ensure the optimum use of fishing opportunities, the landing obligation should be accompanied by a management system that guarantees consistency between single-stock TACs. In this regard, multistock reference points represent an improvement over those currently in use. However, further investigation is necessary to enhance performance both at fleet level and in the long term.

7. Da Rocha, J.,J. Sempere, * " ITQs, Firm Dynamics and Wealth Distribution: Does full tradability increase inequality?", * forthcoming in Environmental and Resource Economics.

**Resumen: **

Concerns over the re-distributive effects of individual transferable quotas (ITQ’s) have led to restrictions on their tradability. We consider a general equilibrium model with firm dynamics to evaluate the redistributive impact of changing the tradability of ITQs. A change in tradability would happen, for example, if permits are allowed to be traded as a separate asset from ownership of an active firm. If the property right is associated with ownership of an active firm, the permit can be leased in each period but it is not possible to exit the industry and keep the right. However, allowing the permits to be traded as a separate asset has two effects. First, it leads to a greater concentration of production in the industry. Second, it directly converts a non-tradable asset into a tradable one, and this is equivalent to giving a lump sum transfer to all firms. The first effect implies a concentration in revenues, while the second implies a redistribution of wealth. We calibrate our model to match the observed increase in revenue inequality in the Northeast Multispecies (Groundfish) U.S. Fishery. We show that although observed revenue inequality—measured by the Gini coefficient—increases by 12 %, wealth inequality is reduced by 40 %.

8. Alonso, J., Colla, E., Da-Rocha, J., * " The Productivity Cost of Sovereign Default: Evidence from the European Debt Crisis", * forthcoming in Economic Theory.

**Resumen: **

We calibrate the cost of sovereign defaults using a continuous time model, where government default decisions may trigger a change in the regime of a stochastic TFP process. We calibrate the model to a sample of European countries from 2009 to 2012. By comparing the estimated drift in default relative to that in no-default, we find that TFP falls in the range of 3.70–5.88 %. The model is consistent with observed falls in GDP growth rates and subsequent recoveries and illustrates why fiscal multipliers are small during sovereign debt crises.

9. Seira, E., Ponce, A., Zamarripa, G., * " Borrowing on the Wrong Credit Card? Evidence from Mexico", * in American Economic Review, 107, April 2017.

**Resumen: **

We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31% above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.

10. Nikandrova Arina,Pancs Romans * " Conjugate Information Disclosure in an Auction with Learning", * forthcoming in Journal of Economic Theory, June 2017.

**Resumen: **

We consider a single-item, independent private value auction environment with two bid- ders: a leader, who knows his valuation, and a follower, who privately chooses how much to learn about his valuation. We show that, under some conditions, an ex-post efficient revenue- maximizing auction—which solicits bids sequentially—partially discloses the leader’s bid to the follower, to influence his learning. The disclosure rule that emerges is novel; it may reveal to the follower only a pair of bids to which the leader’s actual bid belongs. The identified disclosure rule, relative to the first-best, induces the follower to learn less when the leader’s valuation is low and more when the leader’s valuation is high.

11. Da Rocha J.M.,P. Sampedro, R. Prellezo, D. García, S. Cerviño, J. Torralba, J. Touza, J. García-Cutrín and M.J. Gutiérrez * " To shape or to be shaped: engaging stakeholders in the fisheries management advice", * ICES Journal of Marine Science 74(2), 487–498. IJMS Editor’s Choice, 2017.

**Resumen: **

The purpose of this article is to assess the effectiveness of the collaboration between stakeholders and scientists in the construction of a bio- economic model to simulate management strategies for the fisheries in Iberian Atlantic waters. For 3 years, different stakeholders were involved in a model development study, participating in meetings, surveys and workshops. Participatory modelling involved the definition of objectives and priorities of stakeholders, a qualitative evaluation and validation of the model for use by decision-makers, and an iterative pro- cess with the fishing sector to interpret results and introduce new scenarios for numerical simulation. The results showed that the objectives of the participating stakeholders differed. Incorporating objectives into the design of the model and prioritizing them was a challenging task. We showed that the parameterization of the model and the analysis of the scenarios results could be improved by the fishers’ input: e.g. ray and skate stocks were explicitly included in the model; and the behaviour of fleet dynamics proved much more complex than assumed in any traditional modelling approach. Overall, this study demonstrated that stakeholder engagement through dialogue and many interactions was beneficial for both, scientists and the fishing industry. The researchers obtained a final refined model and the fishing industry benefited from participating in a process, which enables them to influence decisions that may affect them directly (to shape) whereas non-participatory pro- cesses lead to management strategies being imposed on stakeholders (to be shaped).

12. Da Rocha J.M.,F. J. García-Cutrín, R. Prellezo and J. Sempere * " The social cost of fishery subsidy reforms", * Forthcoming in Marine Policy, 2017.

**Resumen: **

This paper analyzes the impact of reducing a subsidy on fuel in a general equilibrium model for a fishery with heterogeneous vessels. It considers the impact of the stock effect, which determines the participation of fishing plants in a likely increased stock abun- dance. In equilibrium, the productivity of the fleet is endogenous as it depends on the stock of fish along the equilibrium path. The model concludes that any impact of a fuel subsidy drop will depend on the stock effect. If that effect is large, fishing firms will benefit from the stock recovery and the elimination of the subsidy will increase future returns on investment. The model is particularized to industrial shrimp fisheries in Mexico. It is shown that the complete elimination of a subsidy increases biomass, capitalization, marginal productivity, and consumption and reduces inequality when the effect of the induced increase in the stock is considered. However, if that effect is not considered capital and consumption decrease, and inequality increases, increasing the social costs of a fuel subsidy drop.

13. Carlos Velasco, Ignacio N. Lobato * " Frequency Domain Minimum Distance Inference for Possibly Noninvertible and Noncausal ARMA models", * Forthcoming in Annals of Statistics, 2017.

**Resumen: **

This article introduces frequency domain minimum distance procedures for performing inference in general, possibly non causal and/or noninvertible, autoregressive moving average (ARMA) models. We use information from higher order moments to achieve identification on the location of the roots of the AR and MA polynomials for non-Gaussian time series. We propose a minimum distance estimator that optimally combines the information contained in second, third, and fourth moments. Contrary to existing estimators, the proposed one is consistent under general assumptions, and may improve on the efficiency of estimators based on only second order moments. Our procedures are also applicable for processes for which either the third or the fourth order spectral density is the zero function.

14. Yan Long, Debasis Mishra, Tridib Sharma * " Balanced Ranking Mechanisms", * Forthcoming in Games and Economic Behavior, 2017.

**Resumen: **

In the private values single object auction model, we construct a satisfactory mech- anism - a symmetric, dominant strategy incentive compatible, and budget-balanced mechanism. The mechanism converges to efficiency at an exponential rate. It allo- cates the object to the highest valued agent with more than 99% probability provided there are at least 14 agents. It is also ex-post individually rational. We show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms. Since achieving efficiency through a dominant strategy incentive compatible and budget- balanced mechanism is impossible in this model, our results illustrate the limits of this impossibility.

15. Debasis Mishra, Tridib Sharma * " A simple budget-balanced mechanism", * Forthcoming in Social Choice and Welfare, 2017.

**Resumen: **

In the private values single object auction model, we construct a satisfactory mechanism - a dominant strategy incentive compatible and budget-balanced mechanism satisfying equal treatment of equals. Our mechanism allocates the object with positive probability to only those agents who have the highest value and satisfies ex-post individual rationality. This probability is at least (1 − 2/n ), where n is the number of agents. Hence, our mechanism converges to efficiency at a linear rate as the number of agents grow. Our mechanism has a simple interpretation: a fixed allocation probability is allocated using a second-price Vickrey auction whose revenue is redistributed among all the agents in a simple way. We show that our mechanism maximizes the utilitarian welfare among all satisfactory mechanisms that allocate the object only to the highest-valued agents.

16. Igor Kheifetz, Carlos Velasco * " New goodness-of-fit diagnostics for conditional discrete response models", * Journal of Econometrics, 2017.

**Resumen: **

This paper proposes new specification tests for conditional models with discrete responses, which are key to apply efficient maximum likelihood methods, to obtain consistent estimates of partial effects and to get appropriate predictions of the probability of future events. In particular, we test the static and dynamic ordered choice model specifications and can cover infinite support distributions for e.g. count data. The traditional approach for specification testing of discrete response models is based on probability integral transforms of a jittered discrete data which leads to continuous uniform i.i.d. series under the true conditional distribution. Then, standard specification testing techniques for continuous variables could be applied to the transformed series, but the extra randomness from jitters affects the power properties of these methods. We investigate in this paper an alternative transformation based only on original discrete data that avoids any randomization. We analyze the asymptotic properties of goodness-of-fit tests based on this new transformation and explore the properties in finite samples of a bootstrap algorithm to approximate the critical values of test statistics which are model and parameter dependent. We show analytically and in simulations that our approach dominates the methods based on randomization in terms of power. We apply the new tests to models of the monetary policy conducted by the Federal Reserve.