This paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities. We then argue that this simple observation has wide ranging impli-cations for the design of risk management strategies. We delineate how these strategies should depend on such factors as shocks to investment and financing opportunities. We also discuss exchange rate hedging strategies for multinationals, as well as strategies involving "nonlinear" instruments like options.

This paper provides an elementary, non-technical, survey of auction theory, by introducing and describing some of the critical papers in the subject. (The most important of these are reproduced in a companion book, The Economic Theory of Auctions, Paul Klemperer (ed.), Edward Elgar (pub.), forthcoming.) We begin with the most fundamental concepts, and then introduce the basic analysis of optimal auctions, the revenue equivalence theorem, and marginal revenues. Subsequent sections address risk-aversion, affiliation, asymmetries, entry, collusion, multi-unit auctions, double auctions, royalties, incentive contracts, and other topics. Appendices contain technical details, some simple worked examples, and a bibliography for each section.

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Abstract Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of 'diffuse' beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in this setting, review results for general global games, discuss the relationship between global games and a literature on higher order beliefs in game theory * This paper was prepared for the Eighth World Congress of the Econometric Society (Seattle 2000). Section 3 incorporates work circulated earlier under the title "Private versus Public Information in Coordination Problems." We would like to thank Hans Carlsson, David Frankel, Josef Hofbauer, Jonathan Levin and Ady Pauzner for valuable comments on the paper, and Susan Athey for her insightful remarks as discussant at the Congress. Morris would like to record an important intellectual debt in this area to Atsushi Kajii, through joint research and long discussions. Morris is grateful for financial support from National Science Foundation grant #9709601. and describe the relationship to local interaction games and dynamic games with payoff shocks.

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Standard models of informed speculation suggest that traders try to learn infor-mation that others do not have. This result implicitly relies on the assumption that speculators have long horizons, i.e, can hold the asset forever. By contrast, we show that if speculators have short horizons, they may herd on the same in-formation, trying to learn what other informed traders also know. There can be multiple herding equilibria, and herding speculators may even choose to study information that is completely unrelated to fundamentals. These equilibria are informationally inefficient.

This paper demonstrates that governments may have incentives to impose weak environmental standards on industries that compete for business in imperfectly competitive international markets, where ‘weak ’ means that the marginal cost of abatement is less than the marginal damage from pollution. However, such an intervention is not as efficient as an export or R&D subsidy in improving competitiveness, and depending on the form of competition and market structure, it may instead be optimal for governments to impose strong environmental standards, where ‘strong ’ means that the marginal cost of abatement exceeds the marginal environmental damage. The existence of less strict environmental standards in a lower income country... is not a sufficient basis for claiming that the environmental standards are ‘too low ’ or that the country is manipulating its environmental standards in order to improve the competitiveness of its producers. To substantiate such a claim, it would be necessary at the very least to demonstrate that the standards are even lower than would be expected on the basis of such factors as the level of per capita income and the characteristics of the physical environment. Clearly, that would be very difficult to do. Moreover, the charge might also be aimed at highly developed countries in which stringent environmental standards may have been adopted in some areas but where, because of competitiveness considerations, governments have shied away from high standards in others. [GATT (1992, p. 29)]. 1.

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The development of the field of strategic management within the last two decades has been dramatic. While its roots have been in a more applied area, often referred to as business policy, the current field of strategic management is strongly theory based, with substantial empir-ical research, and is eclectic in nature. This review of the development of the field and its current position examines the field’s early develop-ment and the primary theoretical and methodological bases through its history. Early developments include Chandler’s (1962) Strategy and Structure and Ansoff’s (1965) Corporate Strategy. These early works took on a contingency perspective (fit between strategy and structure) and a resource-based framework emphasizing internal strengths and weaknesses. Perhaps, one of the more significant contributions to the development of strategic management came from industrial organiza-tion (IO) economics, specifically the work of Michael Porter. The structure-conduct-performance framework and the notion of strategic groups, as well as providing a foundation for research on competitive dynamics, are flourishing currently. The IO paradigm also brought econometric tools to the research on strategic management. Building on the IO economics framework, the organizational economics perspective contributed transaction costs economics and agency theory to strategic management. More recent theoretical contributions focus on the re-source-based view of the firm. While it has its roots in Edith Penrose’s work in the late 1950s, the resource-based view was largely introduced to the field of strategic management in the 1980s and became a domi-nant framework in the 1990s. Based on the resource-based view or developing concurrently were research on strategic leadership, strate-

During recessions, output prices seem to rise relative to wages and raw-material prices. One explanation is that imperfectly competitive firms compete less ag-gressively during recessions. That is, markups of price over marginal cost are countercyclical. We present a model of countercyclical markups based on capital-market imperfections. During recessions, liquidity-constrained firms boost short-run profits by raising prices to cut their investments in market share. We provide evidence from the supermarket industry in support of this theory. During re-gional and macroeconomic reces.sions. more financially con.strained supermar-ket chains raise their prices relative to less financially constrained chains. {JEL E32, D43, G31) Simple models of business cycles based on aggregate demand shocks imply that during booms, factor prices fall relative to output prices. This follows from the standard as-sumption that, at high output levels, marginal products are low. However, this implication is difficult to square with the facts. During booms, wages and raw-material prices tend to rise relative to output prices—that is, real fac-