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Dr. Kalin Nikolov

ECB, Frankfurt am Main, Germany

Authors: Russell Cooper and Kalin Nikolov

Abstract: This paper studies the interaction of government debt and banking markets. Both markets are known to be fragile: excessively responsive to fundamentals and prone to strategic uncertainty. Our analysis highlights the spillover from fragility in debt markets on banks and, through government bailout of troubled banks, spillovers from banks to the debt market. This interaction, termed a 'diabolic loop', is driven by government willingness to bail out banks and the resulting incentives for banks not to self-insure through equity buyers. We provide conditions such that the 'diabolic loop' is a Nash Equilibrium of the interaction between banks and the government.

Full Text:  “Government Debt and Banking Fragility: The Spreading of Strategic Uncertainty”

Prof. Mehmet Ekmekci

University of Pittsburgh, USA

Authors: Mehmet Ekmekci and Stephan Lauermann

Abstract: We study information aggregation with a biased election organizer who elicits voters at some costs. Voters are symmetric ex-ante and prefer policy “left” in state L and policy right” in state R, but the organizer prefers policy “right” regardless of the state. Each elicited voter observes a private signal that is imperfectly informative about the unknown state, but does not learn the size of the electorate. In contrast to existing results for large elections, there are equilibria in which information aggregation fails: As the voter elicitation cost disappears, a perfectly informed organizer can ensure that policy “right ”is implemented independent of the state by appropriately choosing the number of elicited voters in each state.

Full Text:  WILL BE AVAILABLE LATER