Person:
Álvarez González, Francisco

First Name

Francisco

Last Name

Álvarez González

URI

https://hdl.handle.net/20.500.14352/74633

Affiliation

Universidad Complutense de Madrid

Faculty / Institute

Ciencias Económicas y Empresariales

Department

Análisis Económico y economía cuantitativa

Area

Fundamentos del Análisis Económico

Identifiers

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Now showing 1 - 10 of 20

Decomposing risk in an exploitation–exploration problem with endogenous termination time
(Annals of Operations Research, 2018) Álvarez González, Francisco
An expected utility risk averse maximizer must decide on an investment policy for a set of N projects. The budget for investment is fixed and it is allocated to the projects gradually over time by an endogenously determined amount. We allow for simultaneous investments in different projects as well as investments in the same project at different times. The termination time is endogenous. The problem finishes, at latest, when the budget is fully depleted. Our problem has an exploitation versus exploration trade off. There are unknown relevant characteristics of each project that the decision maker only learns by investing in the corresponding project. We analyze the performance of dynamic programming based policies. Particularly, we use differences in the value functions of N single-project problems to construct the opportunity cost of investing in each project. Those opportunity costs drive the investment policy for the N project problem.
Treasury Auctions: The Spanish format
(2002) Álvarez González, Francisco; Mazón Calpena, Cristina
The Spanish Treasury is the only Treasury in the world that uses a hybrid system of discriminatory and uniform price auctions to sell government debt: winning bidders pay their bid price for each unit if this is lower than the weighted average price of winning bids, and pay the weighted average price of winning bids otherwise. Following Gordy (1996), we model the Spanish auction as a common value auction of multiple units with private information, allowing for multiple bids. Simulations show that bidders use bid spread to hedge against both uncertainty and the winner's curse, and that the expected seller's revenue is higher in the Spanish than in the discriminatory auction in a number of cases. El Tesoro español es el único Tesoro del mundo que utiliza un sistema híbrido de subasta discriminatoria y uniforme para vender deuda del estado: los pujadores ganadores pagan su puja por cada unidad, si esta fue menor que la media de las pujas ganadoras, y pagan la media de las pujas ganadoras en caso contrario. Siguiendo a Gordy (1996), desarrollamos un modelo para la subasta española, como una subasta de valor común y múltiples unidades, con información privada, permitiendo que los pujadores pujen por varias unidades. Utilizando simulaciones, encontramos que un pujador puja por distintas unidades a precios distintos, para protegerse tanto de la incertidumbre sobre el valor del bien como de la maldición del ganador, y que el ingreso esperado del vendedor es mayor con la subasta española que con la discriminatoria en varios casos.
Moral hazard and tradeable pollution emission permits
(2008) Álvarez González, Francisco; Camiña, Ester
We consider a market for pollution emission permits in a setting in which pollution, generated as by-product of firms’ activity, is determined as the sum of firm-specific random shocks and each firm's abatement effort. In such a setting, an expected utility maximizer society demands an optimal abatement effort from each firm. As long as the abatement effort is decided by each firm and not observed by the environmental regulator, a moral hazard problem arises in which: (i) firms (agents) have informational advantage with respect to the regulator (principal) and (ii) the only link among firms is precisely the market for permits, which is nothing but a chance to trade permits (contracts) once they have been assigned by the regulator. Our main point is to raise doubts on the social desirability of the -competitive- market, since it enlarges the firms’ strategy space. We theoretically characterize conditions under which the market improves (or worsens) the firms with respect to an autarchy scenario.
A solution method for a class of learning by doing models.
(1996) Álvarez González, Francisco; Cerdá Tena, Emilio
We obtain in the closed-form the optimal policy for a class of learning by doing models, in which a monopolist operating in a market with linear demand and finite time horizon, faces a lower bound in the cost reduction that can be achived through production. By using Dynamic Programming principles we show that the existence of a lower bound in the unit production cost implies that the optimal decision for output is a function which is indexed by initial unit cost. There is an optimal set of threshold values beyond wich the parameters of the production rule change. Some examples with specific parameter values are provided.
Multiple bids in a multiple-unit common value auction: simulations for the spanish auction
(1999) Álvarez González, Francisco; Mazón Calpena, Cristina
The Spanish Treasury is the only one in the world that uses a hybrid system of discriminatory and uniform price auctions to sell bonds. In the Spanish auction, winning bidders pay their bid price if it is lower than tbe weighted average price of witming bids, while all other winning bidders pay the weighted average price of winning bids. We adapt Gordy's (96) medel of the discriminatory auction to the Spanish auction. The model is a discrete model of multiple bids in a multiple-unit common value auction. We use numerical simulations to find equilibria for the Spanish, the uniform and the discriminatory auction. Our results show that bidders in the Spanish and discriminatory auctions use bid spread to cover themselves against uncertainty, and that expected seller's revenue is larger on average in the former.
Auctioning emission permits with market power
(B.E. Journal of Economic Analysis Policy, 2016) Álvarez González, Francisco; André García, Francisco Javier
We analyze emission permit auctions in a framework in which a dominant firm enjoys market power both in the auction and in the secondary market while its competitor behaves in a competitive way. We obtain linear equilibrium bidding strategies for both firms and a unique equilibrium of the auction, which is optimal ex-post for the dominant firm. Under specific distributional assumptions we conclude that the auction always awards less permits to the dominant firm than the cost-effective amount. Our results serve as a warning about the properties of auctioning under market power. Under interior solution the auction allocation is dominated by grandfathering in terms of aggregated cost with probability one. As a policy implication, the specific design of the auction turns out to be crucial for cost-effectiveness. The chances of the auction to outperform grandfathering require that the former is capable of diluting the market power that is present in the secondary market.
Price volatility in the secondary market and bidders’ heterogeneous behavior in Spanish Treasury auctions
(Empirical Economics, 2016) Álvarez González, Francisco; Mazón Calpena, Cristina
We use multi-unit multi-bid common value auction models with private information to draw empirical implications on how bidding behavior in bond auctions is affected by secondary market price volatility, implications that we test using individual bidding data for 88 bond auctions held between 2003 and 2007 by the Spanish Treasury. The main novelty of the paper is that we analyze the effect of volatility in bidders heterogeneous behavior within an auction. We provide evidence that, as the theoretical models predict, the heterogeneity of bidders’ bid shading increases with volatility and that, on average across auctions, bid shading and bidders’ profit also increase with volatility.
A solution method for a class of learning by doing models with multiplicative uncertainty
(1997) Álvarez González, Francisco; Cerdá Tena, Emilio
We present a soIution method to find the closed fonu optimal solution for a class of learning by doing models when multiplicative uncertainty is introduced in the cost reduction function, which is assumed to be piecewice linear. Previous literature does not study the case with uncertainty in this function. We consider a monopolist, facing a linear demand function. The optimal policy for the resulting problem is piecewise linear. Furthennore, the optimal output increases with unit cost for certain values of the latter. Numerical examples are provided.
Pricing Strategy versus Heterogeneous Shopping Behavior under Market Price Dispersion
(Abstract and Applied Analysis, 2016) Álvarez González, Francisco; Rey Simo, José Manuel; Sanchis, Raúl G.
We consider the ubiquitous problem of a seller competing in a market of a product with dispersed prices and having limited information about both his competitors’ prices and the shopping behavior of his potential customers. Given the distribution of market prices, the distribution of consumers’ shopping behavior, and the seller’s cost as inputs, we find the computational solution for the pricing strategy that maximizes his expected profits. We analyze the seller’s solution with respect to different exogenous perturbations of parametric and functional inputs. For that purpose, we produce synthetic price data using the family of Generalized Error Distributions that includes normal and quasiuniform distributions as particular cases, and we also generate consumers’ shopping data from different behavioral assumptions. Our analysis shows that, beyond price mean and dispersion, the shape of the price distribution plays a significant role in the seller’s pricing solution. We focus on the seller’s response to an increasing diversity in consumers’ shopping behavior. We show that increasing heterogeneity in the shopping distribution typically lowers seller’s prices and expected profits.
Auctioning versus grandfathering in cap-and-trade systems with market power and incomplete information
(Environmental and Resource Economics, 2015) Álvarez González, Francisco; André García, Francisco Javier
We compare auctioning and grandfathering as allocation mechanisms of emission permits when there is a secondary market with market power and firms have private information on their own abatement technologies. Based on real-life cases such as the EU ETS, we consider a multi-unit, multi-bid uniform auction. At the auction, each firm anticipates its role in the secondary market, either as a leader or a follower. This role affects each firms’ valuation of the permits (which are not common across firms) as well as their bidding strategies and it precludes the auction from generating a cost-effective allocation of permits, as it occurs in simpler auction models. Auctioning tends to be more cost-effective than grandfathering when the firms’ abatement cost functions are sufficiently different from one another, especially if the follower has lower abatement costs than the leader and the dispersion of the marginal costs is large enough.