Liquidity and Financial Crisis

Here comes a long-awaited economics book on liquidity, which has great importance especially after having financial crisis.




In Inside and Outside Liquidity, leading economists Bengt Holmstrom and Jean Tirole offer an original unified perspective on the following questions that are center of all financial crises:

• Why do financial institutions, industrial companies, and households hold low-yielding money balances, Treasury bills, and other liquid assets?
• When and to what extent can the state and international financial markets make up for a shortage of liquid assets, allowing agents to save and share risk more effectively?

The publisher's description says:

In a slight, but important departure from the standard of finance, the authors show how imperfect pledgeability of corporate income leads to a demand for as well as a shortage of liquidity with interesting implications for the pricing of assets, investment decisions, and liquidity management.

The book surely attracts those who are interested in liquidity and financial crisis.

Contract Theory Conference

I organized the 4th Japan-Taiwan Contract Theory Conference on December 4, 2010 at my institute, National Graduate Institute for Policy Studies (GRIPS), which turned out to be extremely successful. We had 49 participants, including 18 guests from Taiwan; enjoyed listening to six intriguing talks and discussion. I am grateful for all who kindly attended this event and helped me setting it up.
The following is the conference program with my brief comments.

First session: 10:05--11:55

Chair: Chia-Hui Chen (Academia Sinica)

Speaker 1: Chien-Lung Chen (National Tsing-Hua University) 

• How Can Agents Be Better-Off with Pay Caps?  

Speaker 2: Mami Kobayashi (Kinki University)  

• Market Liquidity and Capital Structure of Financial Institution

Comments: The first talk is about optimal wage scheme under pay caps (in addition to minimum wage constraints), and the second is about incentive issues on corporate finance and governance. Theoretical robustness and the connection to actual labor and financial markets were discussed.                                              

Second session: 13:10--15:00

Chair: Jong-Rong Chen (National Central University)

Speaker 1: Chi-Hsiang Liu (National Central University)

• Promotion, Relative and Individual Performance Pay

Speaker 2: Kohei Kawamura （University of Edinburgh）

• Eliciting Information from a Large Population

Comments: Both talks showed frontier works on contract theory. The first one is considerable extension of promotion model and the second is to combine the ideas of cheap talk and (sequential) Bayesian learning. The interpretation and potential applications of their results were discussed.

Third session: 15:20―17:10

Chair: Pao-Chih Cheng (National Central University)

Speaker 1: Hsiang-Ling Shen (National Taiwan University)

• Sponsored Search Auctions under Two Search Engines

Speaker 2: Takanori Adachi (Nagoya University)

• Political Accountability, Electoral Control and Media Bias (with Yoichi Hizen)

Comments: Two speakers talked about their preliminary works which are both very new and strongly connected to real life interests: sponsored search auctions and media bias. Since some parts of their models were not well shaped yet, ideas for further improvement were discussed and proposed.