SALANIE Francois

This paper studies competitive allocations under adverse selection. We rst provide a general necessary and sucient condition for entry on an inactive market to be unprotable. We then use this result to characterize, for an active market, a unique budget-balanced allocation implemented by a market tari making additional trades with an entrant unprotable. Motivated by the recursive structure of this allocation, we nally show that it emerges as the essentially unique equilibrium outcome of a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.

The French abstract was not provided by the author.

This paper studies the effects of discharge standards, taxes and contractual regulation on the decision of an industrialist to invest in a wastewater treatment plant. The authors develop an adverse selection model with moral hazard, to analyze the strategy of a water agency confronted with an industrialist in the negotiation process. This model allows for both over- and under-investment results. The model is estimated on individual data by a simulated pseudo maximum likelihood (PML) procedure. The empirical results show that the moral hazard effect dominates the adverse selection effect, therefore the investment in purification tends to be oversized.

Industry environmental agreements are negotiated between firms in an industry and an environmental agency. They specify a target for global emissions, leaving firms free to allocate this global quota. The article focuses on the problems of free riding and collusion.

This thesis includes 3 empirical essays that study the behavior of firms and individual agents in response to environmental policies. These chapters are linked to each other by the fact that they study an unexpected effect or consequence of these policies. The first two chapters focus on the European carbon market, which was designed to reduce polluting emissions, but which also has an impact on the competitiveness of firms and international investments. The third chapter provides empirical evidence that the social preferences of individuals who enjoy a common property can influence preservation policies, sometimes in surprising ways. In the first chapter, I produce an empirical analysis of the effect of the EU ETS on international investment by drawing on both a theoretical framework that models the investment decision by firms and on novel firm-level microeconomic data. In contrast to the scientific literature on the subject, I emphasize in my analysis the importance of heterogeneity across firms. I first compute the optimality conditions of firms' polluting emissions in order to measure the sensitivity of investments to the carbon price based on observable pollution data. This then allows me to estimate the effect of the EU ETS on international investments by comparing the benefits to firms of an investment strategy in multiple countries. My results indicate that investments are sensitive to the carbon price, and that this effect is greater the more pollution intensive the investments are. However, the aggregate sum of diverted investments is small, and the resulting losses alone do not justify the generosity of the compensation mechanisms put in place to safeguard these investments. In the second chapter, Giulia Pavan, Sara Calligaris and I provide evidence on the causal impact of the EU ETS on firms' input choice and total factor productivity. We use both structural estimation of firms' function output and policy evaluation techniques to estimate the effect of the EU ETS on Italian firms in the industrial sector. Our results show a slightly negative effect on productivity but heterogeneous across sectors. These results support the hypothesis of a fuel switching rather than a radical change in the production process. In the third chapter, George Joseph, Gautam Gupta, Barry Sopher, and Quentin Wodon study the effects of differential harvesting rights on the social preferences of individual agents through a field experiment. In game theory models, no variation in agents' choices or payoffs a priori describes their social preferences. We propose a solution by estimating this decision game using a two-step procedure, which can be applied more generally to the study of altruistic preferences. Our results indicate that altruistic preference models are better at explaining the empirical data than individualistic models, and that altruism is also better suited to do so than inequality aversion. When harvesting rights increase asymmetrically for some individuals, agents in turn increase the degree of altruism in their preferences and become less selfish. When resource sharing is set according to a proportionality rule, this effect increases further, but participants then show more equality aversion when their gain is smaller than others'.

Several recent papers on insurance econometrics have tested the existence of a positive correlation between coverage and risk, which is predicted by the usual pure anti-selection and moral hazard models. However, these models are based on very restrictive assumptions. The authors give a testable implication of asymmetric information that is valid in a very broad class of models. They then show how the positive correlation property extends when the insurance market is competitive or when risk aversion is public. They then test the results on French data.

The authors consider a model of lobbying in joint agency when the decision maker has private information. They analyze the equilibria in the case where the decision-maker is faced with an alternative, and discuss the conditions of efficiency of the equilibria. They point out that certain characteristics of pressure groups explain their relative success in this struggle for influence.

When the demand for a good is uncertain, its producer can offer to buy it in advance, before it becomes available (the sale of a wine en primeur is a good example). Such an offer suffers from a coasian problem of credibility, since the producer cannot commit himself to the price of the good in cash. The authors show that this problem can be avoided by rationing consumers willing to buy the good in advance, and that any risk-averse producer would choose such a behavior.

This paper examines the issue of irrigation water and fertilizer taxation. We use the multi-action model developed by Holmström and Milgrom. Optimal taxation policies are defined, which may differ from Pigovian taxations.

This paper studies the equilibria of price competition between firms that cannot ration demand.

We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

Governments sometimes encourage or impose individual self-protection measures, such as wearing a protective mask in public during an epidemic. However, by reducing the risk of being infected by others, more self-protection may lead each individual to go outside the house more often. In the absence of lockdown, this creates a “collective offsetting effect”, since more people outside means that the risk of infection is increased for all. However, wearing masks also creates a positive externality on others, by reducing the risk of infecting them. We show how to integrate these different effects in a simple model, and we discuss when self-protection efforts should be encouraged (or deterred) by a social planner.

We show that even in the absence of data on individual decisions, the distribution of individual attitudes towards risk can be identified from the aggregate conditions that characterize equilibrium on markets for risky assets. Taking parimutuel horse races as a textbook model of contingent markets, we allow for heterogeneous bettors with very general risk preferences, including non-expected utility. Under a standard single-crossing condition on preferences, we identify the distribution of preferences among the population of bettors and we derive testable implications. We estimate the model on data from U.S. races. Specifications based on expected utility fit the data very poorly. Our results stress the crucial importance of nonlinear probability weighting. They also suggest that several dimensions of heterogeneity may be at work.

We study capital markets in which investors compete by designing financial contracts to control an entrepreneur’s ability to side trade and default on multiple loans. We show that covenants may have anticompetitive effects: in particular, they prevent investors from providing additional funds and reduce the entrepreneur’s investment capacity. As a result, a large number of inefficient allocations is supported at equilibrium. We propose a subsidy mechanism similar to guarantee funds in financial markets that efficiently controls the entrepreneur’s side trading and sustains the competitive allocation as the unique equilibrium one.

We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades: each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.

We study a discriminatory limit-order book in which market makers compete in nonlinear tariffs to serve a privately informed insider. Our model allows for general nonparametric specifications of preferences and arbitrary discrete distributions for the insider's private information. Adverse selection severely restricts equilibrium outcomes: in any pure-strategy equilibrium with convex tariffs, pricing must be linear and at most one type can trade, leading to an extreme form of market breakdown. As a result, such equilibria exist only under exceptional circumstances that we fully characterize. These results are strikingly different from those of existing analyses that postulate a continuum of types. The two approaches can be reconciled when we consider epsilon-equilibria of games with a large number of market makers or a large number of types.

We construct a complete space of smooth strictly convex preferences defined over commodities and monetary transfers. Our model extends the classical one in that preferences are strictly monotone in monetary transfers, but need not be monotone in all commodities. We thereby provide a natural framework for performing genericity analyses in situations involving inventory costs or decisions under risk. The constructed space of preferences is contractible, which allows for a natural aggregation procedure in collective decision situations.

We provide in this article a survey of recent work on competition under adverse selection and nonexclusivity, that is, when an informed buyer can simultaneously trade with several sellers. We discuss the equilibrium outcomes of different trading games, depending on whether sellers can only post linear prices, limit-orders, or convex or arbitrary tariffs. We emphasize that the existence of an equilibrium is problematic and characterize the unique entry-proof tariff.

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A seller of a divisible good faces several identical buyers. The quality of the good may be low or high, and is the seller's private information. The seller has strictly convex preferences that satisfy a single-crossing property. Buyers compete by posting menus of nonexclusive contracts, so that the seller can simultaneously and privately trade with several buyers. We provide a necessary and sufficient condition for the existence of a pure-strategy equilibrium. Aggregate equilibrium trades are unique. Any traded contract must yield zero profit. If a quality is actually traded, then it is efficiently traded. Depending on parameters, both qualities may be traded, or only one of them, or the market may break down to a no-trade equilibrium.

Many financial markets rely on a discriminatory limit-order book to balance supply and demand. We study these markets in a static model in which uninformed market makers compete in nonlinear tariffs to trade with an informed insider, as in Glosten (1994), Biais, Martimort, and Rochet (2000), and Back and Baruch (2013). We analyze the case where tariffs are unconstrained and the case where tariffs are restricted to be convex. In both cases, we show that pure-strategy equilibrium tariffs must be linear and, moreover, that such equilibria only exist under exceptional circumstances. These results cast doubt on the stability of even well-organized financial markets.

This thesis proposes an analysis of the marketing of en primeur wines. Chapter 1 presents the characteristics of this sale as well as a review of the literature analyzing the role of certain financial markets. Chapter 2 provides a justification for the enthusiasm of buyers for the Bordeaux wine market between 1995 and 1999. We show that an investment in wine futures provided significantly better returns than an investment in the stock market. On the other hand, outside the wine market, a portfolio containing wine and financial assets rarely outperformed a conventional portfolio. Chapter 3 studies the role of en primeur sales in the financing of producers. In a model where asymmetric information between banks and wine producers creates a credit rationing problem, we study the certifying role of these sales. We show that because of the possibility of collusion between producers and traders, this marketing is only used for financing purposes. Nevertheless, it solves the problem of credit rationing. Chapter 4 examines advance purchase offers as a means of hedging against a demand shock. If the producer cannot commit to the future price, he faces an intertemporal credibility problem. We show that this problem is solved by rationing demand in the first period. Only risk-averse producers choose to sell in advance and ration demand.

This thesis studies debt contracts between a lender and a borrower, and the optimality of the classical debt contract in various contexts. The use of this contract has the consequence of making financial intermediaries vulnerable to bank panics. We justify the provision of a government guarantee, but we show that a limited liability bank benefiting from this guarantee adopts inefficient investment behavior.