[cid:image002.png@01CEBF6B.D0B28790] VIENNA JOINT ECONOMICS SEMINAR INVITATION R E M I N D E R The University of Vienna and the Institute for Advanced Studies cordially invite you to the following Vienna Joint Economics Seminar <http://www.ihs.ac.at/vienna/resources/Economics/Papers/20130226_Paper_Zimmermann.pdf> Thursday, June 30, 2016 University of Vienna, Oskar-Morgenstern-Platz 1, 1090 Vienna, HS 15, 2nd floor 4:00 pm Alessandro Lizzeri<http://www.econ.nyu.edu/user/lizzeria/> and Jakub Kastl<http://www.princeton.edu/~jkastl/> New York U Princeton U The Political Economy of Debt and Entitlements (Alessandro Lizzeri) This paper presents a dynamic political-economic model of government obligations. The focus is on the interplay between debt and entitlements. In our model both are tools for temporarily powerful groups to extract resources from groups that will be powerful in the future. Debt transfers resources across periods; entitlements directly target the future allocation of resources. We prove four main results. First, debt and entitlement are (imperfect) substitutes in the sense that constraining debt increases entitlements (and vice versa). Second, if debt is unconstrained, it is beneficial to limit entitlements but not to eliminate them. Third, debt and entitlements respond in opposite ways to political instability, and, in contrast with prior literature, political instability may even reduce debt when entitlements are endogenous. Finally, we identify two possible explanations for the joint growth of debt and entitlements. and Bid Shading and Bidder Surplus in the U.S. Treasury Auction (Jakub Kastl) We analyze detailed bidding data from auctions of Treasury bills and notes conducted between July 2009 and October 2013. The U.S. Treasury uses a uniform price auction system, which we model building on the share auction model of Wilson (1979) and Kastl (2012). Our model takes into account informational asymmetries introduced by the primary dealership and indirect bidding system employed by the U.S. Treasury. Building on the methods developed by Hortacsu (2002), Hortacsu and McAdams (2010), Kastl (2011), and Hortacsu and Kastl (2012), we estimate the amount of bid shading undertaken by the bidders under the assumption of bidder optimization. Our method also enables to us to estimate the marginal valuations of bidders that rationalize the observed bids under a private value framework. We find that primary dealers consistently bid higher yields in the auctions compared to direct and indirect bidders. Our model allows us to decompose this difference into two components: difference in demand/willingness-to-pay, and difference inability to shade bids. We find that while primary dealer willingness-to-pay is similar to or even higher than direct and indirect bidders', their ability to bid-shade is higher, leading to higher yield bids. By computing the area under bidders' demand curves, we can also quantify the surplus that bidders derive from the auctions. We find that total bidder surplus across the sample period was, on average, 2.3 basis points. By comparing the actual allocation to the one corresponding to the maximum surplus, we also quantify the efficiency loss from the auctions, which was, on average, 2.25 basis points. paper jointly with Ali Hortacsu and Allen Zhang We are looking forward to seeing you! 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