Working papers

  • Title
  • Author(s)

Departments: Tax & Law, GREGHEC (CNRS)

One of the major merits of the TTIP leaks has been to highlight the underlying information asymmetry characterising the on-going TTIP negotiations. By systematically releasing its position papers before each negotiation, the EU actual disclosure policy contributes to a permanent yet overlooked information imbalance between the EU and its trading partner(s). The ensuing asymmetry does not only alter the overall negotiating environment, but also how the media, academics, and, in turn, the public actually perceive it. Moreover, it generates many other information asymmetries within the EU itself: that between the negotiators and the elected representatives, that between corporate and civil society interest groups, and eventually between the ‘TTIP circus’ and the general public. If the negotiators themselves have hijacked the rhetoric of fact-checking, academics have not yet had their chance to contribute to the discussion. As a result, only the EU positions have been studied, criticized and closely debated, with the US negotiating positions remaining largely a mystery. After briefly presenting the how’s of the TTIP leaks, this opening piece examines the what’s and why’s behind this unprecedented revelation of negotiating texts. It is against this backdrop that the other contributors to this symposium explore which are the most immediate consequences of the TTIP leaks on the on-going negotiations and future agreement.

Departments: Strategy & Business Policy, GREGHEC (CNRS)

We study organizational search in the presence of intuitive biases. Drawing from work on the psychology of human decision making, we construe biases as unjustified preferences that arise due to automatic, spontaneous thinking. This property of decision making gives rise to a mechanism we label generative recurrence. Present this mechanism, unjustified preferences produce two opposing effects on organizational adaptation: they curb excessive experimentation but at the expense of knowledge accumulation. In the context of organizational search, these regularities allow behavioral treatments to strategically leverage the value of biases. Specifically, our results suggest that re-biasing (adopting the opposite bias) often dominates both de-biasing (eliminating the bias) as well as consistently unbiased search. Our paper provides evidence that managing rather than eliminating biases can be an effective instrument of behavioral strategy

  • SPE-2016-1156
  • Estimating Value Creation from Revealed Preferences: Application to Value-Based Strategies

Departments: Strategy & Business Policy, GREGHEC (CNRS)

We develop and apply a new set of empirical tools consistent with the tenets of value-based business strategies, leveraging the principle that “no good deal comes undone” and the methods of revealed preferences to empirically estimate drivers of value creation. We demonstrate how to use these tools in an analysis of value creation in buyer-supplier relationships in the UK corporate legal market. We show how the method can uncover evidence of subtle mechanisms that traditional methods cannot easily distinguish from each other. Furthermore, we show how these estimates can be used as parameters of biform games for out-of-sample analyses of strategic decisions. With readily available data on relationships between firms, this approach can be applied to many other contexts of interest to strategy researchers.

Keywords: Value-based strategy, Revealed preferences, Cooperative game theory, Buyer–supplier relationships, Client-specific economies of scope

  • ECO/SCD-2016-1155
  • What Are Analytic Narratives?

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

The recently born expression "analytic narratives" refers to studies that have appeared at the boundaries of history, political science, and economics. These studies purport to explain specific historical events by combining the usual narrative way of historians with the analytic tools that economists and political scientists find in rational choice theory. Game theory is prominent among these tools. The paper explains what analytic narratives are by sampling from the eponymous book Analytic Narratives by Bates, Greif, Levi, Rosenthal, and Weingast (1998) and covering one outside study by Mongin (2008). It first evaluates the explanatory performance of the new genre, using some philosophy of historical explanation and then checks its discursive consistency, using some narratology. The paper concludes that analytic narratives can usefully complement standard narratives in historical explanation, provided they specialize in the gaps that these narratives reveal and that they are discursively consistent, despite the tension that combining a formal model with a narration creates. Two expository modes, called alternation and local supplementation, emerge from the discussion as the most appropriate ones to resolve this tension

Keywords: Analytic narratives, Rational choice theory, Game theory, Historical explanation, Text, Form of discourse, Narratology.

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

We investigate the conflict between the ex ante and ex post criteria of social welfare in a novel axiomatic framework of individual and social decisions, which distinguishes between a subjective and an objective source of uncertainty. This framework permits us to endow the individuals and society not only with ex ante and ex post preferences, as is classically done, but also with interim preferences of two kinds, and correspondingly, to introduce interim forms of the Pareto principle. After characterizing the ex ante and ex post criteria, we present a first solution to their conflict that amounts to extending the former as much possible in the direction of the latter. Then, we present a second solution, which goes in the opposite direction, and is our preferred one. This solution combines the ex post criterion with an objective interim Pareto principle, which avoids the pitfalls of the ex ante Pareto principle, and especially the problem of "spurious unanimity" discussed in the literature. Both solutions translate the assumed Pareto conditions into weighted additive utility representations, and both attribute common individual probability values only to the objective source of uncertainty.

Keywords: Ex ante social welfare, Ex post social welfare, Objective versus subjective uncertainty, Pareto principle, Separability, Harsanyi social aggregation theorem, Spurious unanimity

Departments: Marketing, GREGHEC (CNRS)

Advertising often aims at creating and reinforcing brand differentiation, which should translate into reduced price competition. Currently unknown are the boundary conditions for long-term advertising benefits, the route through which advertising effects materialize, and the role of competitive advertising in the category. The authors develop a Hierarchical Dynamic Linear Model that links own and others’ advertising in the category to brand price elasticity directly and indirectly through their impact on own and competitive mindset metrics. The model accommodates dynamic dependencies in mindset metrics, controls for endogeneity in marketing, captures competitive reactions and performance feedback in marketing, and explains cross-sectional variation as a function of brand and category characteristics. Model estimation on seven years of data for 350 brands in 39 categories shows that both own and all competitive advertising in the category lower price sensitivity for the average brand, both directly and through advertising awareness. The attenuation of price sensitivity is more pronounced for niche brands in complex and more expensive categories, with higher concentration and purchase frequency. A financial simulation based on the estimates shows that while the price elasticity effect is positive and substantial for high-price brands, it hurts the advertising returns for low-price brands.

Keywords: advertising, price elasticity, mindset metrics, long-term effects, dynamic linear models, and empirical generalization

Departments: Finance, GREGHEC (CNRS)

We study the supervision of multinational banks (MNBs), allowing for either national or supranational supervision. National supervision leads to insufficient monitoring of MNBs due to a coordination problem between supervisors. Supranational supervision solves this problem and generates more monitoring. However, this increased monitoring can have unintended consequences, as it also affects the choice of foreign representation. Indeed, supranational supervision encourages MNBs to expand abroad using branches rather than subsidiaries, resulting in more pressure on their domestic deposit insurance fund. In some cases, it discourages foreign expansion altogether, so that financial integration paradoxically decreases. Our framework has implications on the design of supervisory arrangements for MNBs, the European Single Supervisory Mechanism being a prominent example.

Keywords: Cross-Border Banks, Multinational banks, Supervision, Monitoring, Regulation, Banking Union

Departments: Finance, GREGHEC (CNRS)

We present a model of trading in the art auction market. Agents make purchase and sale decisions based on the relative magnitude of their private use value. This generates an endogenous negative relation between holding periods and financial returns. In economic expansions consignment volume goes up, while reserve prices become less restrictive. Our model of endogenous trading finds empirical support in historical art transaction data. Finally, we show that transaction-based price indexes provide biased estimates of art’s volatility and covariance with the economy, and can be expected to suffer from index revision problems.

Keywords: art; auctions; endogenous trading; price indexes; private values

Departments: Finance, GREGHEC (CNRS)

We consider private-value auctions in the presence of exogenous participation costs and secret reserve prices endogenously set by sellers whose valuation of the item equals zero. We show that in first-price auctions there is an equilibrium for any arbitrary reserve price level. In second-price auctions, the only equilibrium with truthful bidding is a situation where no buyer enters and the seller chooses a reserve price that deters entry.

Departments: Finance, GREGHEC (CNRS)

We examine how the merger between two European megabanks affects credit supply to small and medium-sized businesses. Using loan-level and firm-level data from the credit register, we exploit variation in the merging banks' market overlap to isolate the competition effect of the merger. We find that in local markets in which the merging banks' market shares overlap, the merged bank decreases the supply of credit to both existing firms and to new firms. This effect is not offset by other banks increasing their lending, leading to an overall decline in bank credit. This reduction in credit supply is associated with higher firm exit. However, for the rest of firms that do not exit, the merger has no adverse real effects on investment, employment, or firm entry

Keywords: Bank megamerger; Banking competition; Credit Supply