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Credit Rating Agencies (CRAs) adjust preliminary bond ratings with knowledge beyond publicly available information. These unobserved "soft adjustments" may reflect material nonpublic information and rating biases due to conflicts of interest, making certain bond characteristics endogenous. We model and quantify soft adjustments as bond-specific thresholds in a semiparametric ordered-response model and exploit ownership structures of bond-issuers to control for endogeneity. Relying on the shift restrictions , we develop a location estimator for models of ordered choices with correlated heterogenous thresholds. Using Moody's initial ratings from 2000 to 2016, we find a significant reduction of soft adjustment after the Dodd–Frank reform. [ABSTRACT FROM AUTHOR]

This study investigates the impact of delegation structure of the top management team upon the corporate voluntary disclosure on financial outcomes. The paper develops two competing hypotheses pertaining to the relationship between the degree of delegation and the quality of management earnings forecasts (MFs), the most influential type of voluntary financial disclosure. In support of the literature on strategic information transmission, the empirical findings demonstrate a U-shaped relationship between the degree of delegation and the quality of MFs, suggesting that an internal optimality of responsibility sharing between the CEO and her immediate subordinates does not exist for internal information production and dissemination. Specifically, the paper analyzes four aspects of MFs, and the documented curvilinear forms are generally persistent across the multiple quality metrics. Consistent with the literature on aging executives, the curvilinear relation is more significant when the top management team is led by an older CEO. The paper utilizes a system of structural equations to ameliorate estimation biases and the results are robust to a battery of robustness checks. [ABSTRACT FROM AUTHOR]

We study how a principal with an outside option optimally delegates information acquisition to an agent in a parsimonious environment in which the principal can observe neither the agent's effort nor signal realizations. When the principal chooses an outside option, the true state is not revealed and thus not contractible. We precisely characterize an optimal contract for the principal, illustrating how to construct an optimal contract. [ABSTRACT FROM AUTHOR]

Advantageous selection occurs when the agents most eager to buy insurance are also the cheapest ones to insure. Hemenway (1990) links it to differences in risk-aversion among agents, implying different prevention efforts, and finally different riskinesses. We argue that it may also appear when agents share the same attitude towards risk, and in the absence of moral hazard. Using a standard asymmetric information setting satisfying a single-crossing property, we show that advantageous selection may occur when several contracts are offered, or when agents also face a non-insurable background risk, or when agents face two mutually exclusive risks that are bundled together. We illustrate this last effect in the context of life care annuities, a product bundling long-term care insurance and annuities, by constructing a numerical example based on Canadian survey data. [ABSTRACT FROM AUTHOR]

We study a decision-framing design problem: a principal faces an agent with frame-dependent preferences and designs an extensive form with a frame at each stage. This allows the principal to circumvent incentive compatibility constraints by inducing dynamically inconsistent choices of the sophisticated agent. We show that a vector of contracts can be implemented if and only if it can be implemented using a canonical extensive form, which has a simple high–low–high structure using only three stages and the two highest frames, and employs unchosen decoy contracts to deter deviations. We then turn to the study of optimal contracts in the context of the classic monopolistic screening problem and establish the existence of a canonical optimal mechanism, even though our implementability result does not directly apply. In the presence of naive types, the principal can perfectly screen by cognitive type and extract full surplus from naifs. [ABSTRACT FROM AUTHOR]

This article studies optimal capital structure when firms learn from financial markets. We present a tractable model of stock market feedback with imperfect information aggregation. Debt issuance affects speculators' incentives to trade both directly, by changing the payoff structure of equity holders, and indirectly, through an asset substitution effect. We show that issuing debt can increase market informativeness and firm value, and may eliminate a coordination failure equilibrium with no provision of market information. We derive the optimal capital structure in this setting and present novel empirical predictions regarding the relationship between market frictions, market informativeness, and capital structure. Once the effect of debt on market informativeness is considered, risky debt does not necessarily lead to risk shifting. [ABSTRACT FROM AUTHOR]

I study how the arrival of new private information affects bargaining outcomes. A seller makes offers to a buyer. The buyer is privately informed about her valuation and the seller privately observes her stochastically changing cost of delivering the good. Prices fall gradually at the early stages of negotiations, and trade is inefficiently delayed. The first‐best is implementable via a mechanism, whereas all equilibrium outcomes of the bargaining game are inefficient. [ABSTRACT FROM AUTHOR]

Manipulability is a threat to the successful design of centralized matching markets. However, in many applications some manipulation is inevitable and the designer wants to compare manipulable mechanisms to select the best among them. We count the number of agents with an incentive to manipulate and rank mechanisms by their level of manipulability. This ranking sheds a new light on practical design decisions such as the design of the entry‐level medical labor market in the United States, and school admissions systems in New York, Chicago, Denver, and many cities in Ghana and the United Kingdom. [ABSTRACT FROM AUTHOR]

We investigate Groves mechanisms for economies where (i) a social outcome specifies a group of winning agents, and (ii) a cost function associates each group with a monetary cost. In particular, we characterize both (i) the class of cost functions for which there are Groves mechanisms such that the agents cover the costs through voluntary payments, and (ii) the class of cost functions for which there are envy‐free Groves mechanisms. It follows directly from our results that whenever production efficient and envy‐free allocations can be implemented in dominant strategies, this can moreover be done while funding production through voluntary payments. [ABSTRACT FROM AUTHOR]

We study the interaction of incentives to free‐ride on information acquisition and strategically delay irreversible investment in environments in which multiple firms evaluate an investment opportunity. In our model, two firms decide how quickly to privately obtain information about the profitability of a project and when (if ever) to publicly invest in it. Multiple equilibria exist, differing with respect to how much information firms acquire as well as how quickly they invest. The equilibrium that maximizes aggregate payoffs features asymmetric play with distinct leader and follower roles when firms are patient, but features symmetric play when firms are impatient and information acquisition costs are sufficiently high. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the functional equivalence of two perfectly competitive economies with negative exponential and linear utility with a quadratic holding cost. The two economies are said to be functionally equivalent if there exists a one-to-one correspondence between the vector of holding costs and the vector of risk aversion coefficients such that the resulting two economies have the same market equilibrium. If the information was symmetric, the equilibrium price reveals no new information and the functional equivalence between the two economies is straightforward. However, in the case of asymmetric information, the equilibrium price reveals some new information and an endogeneity issue arises. We establish the functional equivalence between the two economies with asymmetric information by resolving this endogeneity problem through a fixed-point argument. [ABSTRACT FROM AUTHOR]

This paper studies sequential information design (Doval and Ely in Econometrica 88:2575–2608, 2020) in which a designer can construct the extensive form along with the information structure. In this framework, I investigate robust implementations against adversarial equilibrium selection, when players and the designer have a supermodular payoff function with dominant states and an outside option. The main results show that the optimal partially implementable outcome is fully implementable in sequential information design, which essentially coincides with the optimal partially implementable outcome in static information design. For economic applications such as global game of regime change, this paper proposes a way to robustly achieve the desired outcome in static information design by providing the extensive form and the information structure. [ABSTRACT FROM AUTHOR]

We present a two-sided one-to-one market setting where one side of the market is objectively ranked. Constraints prevent agents on the other side from matching with agents who are ranked higher than an agent-specific threshold. The domain allows for indifferences, with preferences of one side being derived from a master preference list, while agents on the other side have general preferences. We analyze matchings with respect to two standard properties: stability and efficiency. Having met these standard goals, the designer facing this problem may additionally care about a third criterion: the size of the matching. We find that for the proposed domain all stable matchings have the same size. We characterize the set of stable and efficient matchings for the problem. Our results show that every matching that is both stable and efficient is hierarchical by nature in a precise sense. [ABSTRACT FROM AUTHOR]

A patient seller interacts with a sequence of myopic consumers. Each period, the seller chooses the quality of his product, and a consumer decides whether to trust the seller after she observes the seller's actions in the last |$K$| periods (limited memory) and at least one previous consumer's action (observational learning). However, the consumer cannot observe the seller's action in the current period. With positive probability, the seller is a commitment type who plays his Stackelberg action in every period. I show that under limited memory and observational learning, consumers are concerned that the seller will not play his Stackelberg action when he has a positive reputation and will play his Stackelberg action after he has lost his reputation. Such a concern leads to equilibria where the seller receives a low payoff from building a reputation. I also show that my reputation failure result hinges on consumers' observational learning. [ABSTRACT FROM AUTHOR]

Entrepreneurs and venture capitalists are concerned about investors' beliefs in asset markets because these beliefs shape the value of a potential IPO and the possibility to expand. Investors' beliefs, on the other hand, can be influenced by start-up activity insofar as the latter contains valuable information about eventual profitability. This two-way feedback is shown to generate excessive, non-fundamental, waves in start-up activity, IPOs, and asset prices. Policies that "lean against the wind" can improve welfare, without requiring an informational advantage by the government. [ABSTRACT FROM AUTHOR]

We provide conditions that simplify applying Reny's (1999) better‐reply security to Bayesian games and use these conditions to prove the existence of equilibria for classes of games in which payoff discontinuities arise only at "ties." These games include a general version of all‐pay contests, first‐prize auctions with common values, and Hotelling models with incomplete information. [ABSTRACT FROM AUTHOR]

We study ex post implementation in collective decision problems where monetary transfers cannot be used. We find that deterministic ex post implementation is impossible if the underlying environment is neither almost an environment with private values nor almost one with common values. Thus, desirable properties of ex post implementation such as informational robustness become difficult to achieve when preference interdependence and preference heterogeneity are both present in the environment. [ABSTRACT FROM AUTHOR]

The founder of a start‐up (principal) who has a project with uncertain returns must retain and incentivize an agent using promise of future payments and information gathering. The agent's effort incrementally advances production and such advance is a prerequisite for gathering new information. The principal decides how much information to gather based on these incremental advancements. The principal faces cash constraints. The agent's outside option is large relative to his effort cost. Equilibrium features one of two outcomes: immediate learning, whereby the agent's compensation is low, learning is immediate and retention is possible only conditional on the project being of high quality; or gradual learning, whereby the agent's compensation is high, learning is gradual, the agent never quits and effort is inefficiently high. [ABSTRACT FROM AUTHOR]