Strategy

We study the structure of optimal wedges and capital taxes in a dynamic Mirrlees economy with endogenous distribution of skills. Human capital is a private, stochastic state variable that drives the skill process of each individual. Building on the findings of the labor literature, we construct a tractable life-cycle model of human capital evolution with risky investment and stochastic depreciation.

Much discussion has focused on the economic and financial issues related to the continued growth of China. Of equal importance are the marketing and branding issues. How Chinese managers develop and implement their marketing and branding strategies has enormous implications for the future growth of Chinese organizations.

If an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests, which assets should he learn about? The best assets to acquire information about are ones the investor expects to hold. But the assets the investor holds depend on the information he observes. We build a framework to solve jointly for investment and information choices, with general preferences and information cost functions.

We develop a model of hedge fund returns, which reflect the contractual relationships between a hedge fund, its investors and its prime brokers. These relationships are modeled as short option positions held by the hedge fund, wherein the "funding option" reflects the short option position with prime brokers and the "redemption option" reflects the short option position with the investors. Given an alpha producing human capital, the hedge fund's ability to deploy leverage is shown to be sharply constrained by the presence of these short options.

We present a tractable, linear model for the simultaneous pricing of stock and bond returns that incorporates stochastic risk aversion. In this model, analytic solutions for endogenous stock and bond prices and returns are readily calculated. After estimating the parameters of the model by the general method of moments, we investigate a series of classic puzzles of the empirical asset pricing literature.

In this paper, we postulate a general class of price competition models with Mixed Multi Nomial Logit demand functions under affine cost functions. We characterize the equilibrium behavior of this class of models starting with the case where each product in the market is sold by a separate, independent firm. Here we identify a natural upper bound for the price levels.

In October 2003, leading Dutch supermarket chain Albert Heijn slashed prices up to 30% on more than 1,000 items to counter a loss in market share caused by consumer perception of high prices. AH continued the strategy for the ensuing three years, forcing competing supermarkets to match the markdowns or risk customer defections. Game theory adherents and analysts questioned the strategy, noting price wars often jeopardize profits of both individual companies and their industries.