Research Paper Series

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Departments: Tax & Law, GREGHEC (CNRS)

This time was supposed 'to be different', at least this was the motto of the 2014 European Parliament elections campaign. With less than a year before the next European elections, the time is ripe to examine how different this EU political cycle has actually been. Emboldened by the Spitzenkandidaten process – which established for the first time a link between the outcome of the EU elections and the presidency of the EU Commission –, the Juncker Commission emerged as the most political yet. To shrug off the label of technocratic institution – historically insulated from citizens’ preferences –, the new Commission asked EU citizens to judge its operation by its ability ‘to deliver solutions to the big issues that cannot be addressed by the Member States alone’. While the Better Regulation Agenda might have improved the Commission’s public accountability – with both citizens and stakeholders being better informed about and engaged with EU policy-making –, without however increasing its responsiveness to public preferences. This is the case at the input, throughput and output stage. Rather, the techno-political approach to policymaking – which characterizes the Juncker’s Better Regulation – might have paradoxically led to a compression of participatory democracy and somehow chilled stakeholder engagement. At a time of unprecedented contestation of the EU project – a trend which is combined by a record-demand for new forms of political representation –, it appears paradoxical that the EU – an early promoter of participation – is missing out the chance to seize the momentum to diversify and redesign its participatory structures being busy delivering on its electoral promises no one will ever judge.At the very same time the Juncker Commission has been striving to develop its own, autonomous democratic credentials, its choice to embrace a set of well-defined institutional mechanisms that reward expert judgment over political adjudication appears at odds with its newly-acquired political nature.

Departments: Tax & Law, GREGHEC (CNRS)

This article hinges on the preliminary ruling rendered by the Court of Justice of the EU (CJEU) (Grand Chamber) on 18 October 2016 and the related judgment of the German Federal Labour Court of 26 April 2017 in the Nikiforidis case to investigate an area of private international law that is undergoing a substantial development: overriding mandatory provisions. In Nikiforidis, the CJEU excluded that two Greek laws cutting the salary of public employees may be enforced against a teacher working in Germany for the Greek Government under an employment contract governed by German law. The question addressed to the CJEU was whether the said laws were “overriding mandatory provisions” according to the Rome I Regulation. The Court denied it, and left to the referring court to determine whether they could nevertheless operate “as matter of fact” under the governing law. This article explains how the CJEU’s conclusion has broader implications by regulating third countries’ interference in international business transactions. Starting with an analysis of the case, the article examines the history and nature of overriding mandatory provisions under EU private international law and argues that the solution embraced by the CJEU leaves room for uncertainty and unpredictability in the operation of foreign mandatory provisions.

Keywords: Amendments; Applicable law; Contracts of employment; EU law; Germany; Greece; Remuneration

Departments: Accounting & Management Control

This study explores how morality is constituted into accounting objects and how accounting becomes a moral mediator. We retrace the moral practices that subtend the field-level construction of a Principal-Agent incentive algorithm in a Big Pharma company, with particular focus on the inscribing work through which different communities of knowledge, internal and external to the organization, try to realize particular moral principles for the performance measurement system in the making. The study draws upon Science and Technology Studies (Latour, 1989; Jasanoff, 2015) to explore performance measurement systems as existing in Moral Imaginaries, ethical visions that positions accounting devices, and their material features and technical functionalities, as embedding and enacting ‘moral’ and ‘just’ viewpoints. We show how performance measurement systems emerge as moral calculating devices that are shaped by, and struggle with, the contrasting moralities of heterogeneous designers, but also act as moral mediators that reshape human actors’ moral imaginaries as their algorithmic constructions and data outputs perform. In so doing, we contribute to Science and Technology Studies by highlighting how the constitution of who / what is an “Agent”, and its actantiality, is embedded upon movements in which morality circulates, is claimed by actors and attributed to others, and finally objectified in material technologies.

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

This chapter briefly reviews the present state of judgment aggregation theory and tentatively suggests a future direction for that theory. In the review, we start by emphasizing the difference between the doctrinal paradox and the discursive dilemma, two idealized examples which classically serve to motivate the theory, and then proceed to reconstruct it as a brand of logical theory, unlike in some other interpretations, using a single impossibility theorem as a key to its technical development. In the prospective part, having mentioned existing applications to social choice theory and computer science, which we do not discuss here, we consider a potential application to law and economics. This would be based on a deeper exploration of the doctrinal paradox and its relevance to the functioning of collegiate courts. On this topic, legal theorists have provided empirical observations and theoretical hints that judgment aggregation theorists would be in a position to clarify and further elaborate. As a general message, the chapter means to suggest that the future of judgment aggregation theory lies with its applications rather than its internal theoretical development.

Keywords: Judgment Aggregation Theory, Logical Aggregation Theory, Law and Economics, Doctrinal Paradox, Discursive Dilemma, Canonical Theorem of Judgment Aggregation Theory, Premiss-Based Versus Conclusion-Based Method, Collegiate Courts, Issue-Based Versus Case-Based Adjudication Method

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Whereas many others have scrutinized the Allais paradox from a theoretical angle, we study the paradox from an historical perspective and link our findings to a suggestion as to how decision theory could make use of it today. We emphasize that Allais proposed the paradox as a normative argument, concerned with "the rational man" and not the "real man", to use his words. Moreover, and more subtly, we argue that Allais had an unusual sense of the normative, being concerned not so much with the rationality of choices as with the rationality of the agent as a person. These two claims are buttressed by a detailed investigation – the first of its kind – of the 1952 Paris conference on risk, which set the context for the invention of the paradox, and a detailed reconstruction – also the first of its kind – of Allais's specific normative argument from his numerous but allusive writings. The paper contrasts these interpretations of what the paradox historically represented, with how it generally came to function within decision theory from the late 1970s onwards: that is, as an empirical refutation of the expected utility hypothesis, and more specifically of the condition of von Neumann-Morgenstern independence that underlies that hypothesis. While not denying that this use of the paradox was fruitful in many ways, we propose another use that turns out also to be compatible with an experimental perspective. Following Allais's hints on "the experimental definition of rationality", this new use consists in letting the experiment itself speak of the rationality or otherwise of the subjects. In the 1970s, a short sequence of papers inspired by Allais implemented original ways of eliciting the reasons guiding the subjects' choices, and claimed to be able to draw relevant normative consequences from this information. We end by reviewing this forgotten experimental avenue not simply historically, but with a view to recommending it for possible use by decision theorists today.

Keywords: Allais Paradox, Decision Theory, Expected Utility Theory, Experimental Economics, Positive vs Normative, Rationality, 1952 Paris Conference, Allais, Von Neumann and Morgenstern, Samuelson, Savage

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Reports of the Intergovernmental Panel on Climate Change (IPCC) employ an evolving framework of calibrated language for assessing and communicating degrees of certainty in findings. A persistent challenge for this framework has been ambiguity in the relationship between multiple degree-of-certainty metrics. We aim to clarify the relationship between the likelihood and confidence metrics used in the Fifth Assessment Report (2013), with benefits for mathematical consistency among multiple findings and for usability in downstream modeling and decision analysis. We discuss how our proposal meshes with current and proposed practice in IPCC uncertainty assessment.

Keywords: confidence; uncertainty reporting; climate change

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

Many decision situations involve two or more of the following divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi-utility), and state dependence of utility. Examples include multi-attribute decisions under uncertainty, such as some climate decisions, where trade-offs across attributes may be state dependent. This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously incorporate all three phenomena. The representation supports a principled separation of (imprecise) beliefs and (potentially state-dependent, imprecise) tastes, and we pinpoint the axiom that ensures such a separation. Moreover, the representation supports comparative statics of both beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state-dependent multi-utility generalisations of popular ambiguity models.

Keywords: state-dependent utility, uncertainty aversion, multiple priors, ambiguity, imprecise tastes, multi-utility

Departments: Finance, GREGHEC (CNRS)

Many financial assets are disseminated to final investors via chains of over-the-counter transactions between dealers. We model such an intermediation process as a game with successive take-it-or-leave-it offers: A dealer buys several units of an asset, and can sell some of them to his customers or to a second dealer, who can sell to his customers or to a third dealer, and so on. In equilibrium, the asset is disseminated through a sequence of OTC transactions between dealers. The number of dealers involved, the inventories they keep, and the prices and quantities they offer are endogenously determined. Our model gives a framework to analyze how assets are disseminated through OTC markets, how liquidity evolves along a sequence of transactions, and varies across different sequences of different lengths.

Keywords: intermediation chains, liquidity, OTC markets, dealer markets

Departments: Information Systems and Operations Management

Automakers such as Toyota and GM were recently caught by the U.S. regulator for deliberately hiding product defects in an attempt to avoid massive recalls. Interestingly, regulators in the U.S. and U.K. employ different policies in informing consumers about potential defects: The U.S. regulator publicly announces all on-going investigations of potential defects to provide consumers with early information, whereas the U.K. regulator does not. To understand how these different announcement policies may affect cover-up decisions of automakers, we model the strategic interaction between a manufacturer and a regulator. We find that, under both countries' policies, the manufacturer has an incentive to cover up a potential defect when there is a high chance that the defect indeed exists and it may inflict only moderate harm. However, only under the U.S. policy does the manufacturer have an incentive to cover up a potential defect with significant harm, if there is only a moderate chance that the defect exists. We show that the U.S policy generates higher social welfare only for very serious issues for which both the expected harm and recall cost are very high and the defect is likely to exist. We make four policy recommendations that could help mitigate manufacturers' cover-ups, including a hybrid policy in which the regulator conducts a confidential investigation of a potential defect only when it may inflict significant harm.

Keywords: product recalls, automotive industry, socially responsible operations, public policy

Departments: Finance, GREGHEC (CNRS)

We use French matched employer-employee data to track skilled individuals entering the labor market during the late 1990s tech bubble. The boom led to a sharp increase in the share of skilled entrants in the tech sector, which offers relative higher wages at the time. When the boom ends, however, the wage premium reverses and these skilled workers end up with a 5.5% wage discount ten years out, relative to similar peers who started in a non-tech sector. Other moments of the wage distribution of the boom, pre-boom, and post-boom cohorts are inconsistent with explanations based on a selection effect or a cycle effect. Instead, we provide suggestive evidence that workers allocated to the booming tech sector accumulate human capital early in their career that rapidly becomes obsolete.