Checkers in Chinatown

In the 1974 motion picture Chinatown the private investigator J. J. “Jake” Gites (Jack Nicholson) is involved in a conspiracy that involved corruption, deceit and “family secrets.” The goal of the conspirators consisted on buying the lands of unsuspected farmers in the Owens Valley (some 400 miles north of Los Angeles) and then building an aqueduct to bring the water to the city, where it would be worth a fortune. Although, this description is fictional and far from reality, there is much controversy on the way the city of L.A. purchase the water and land rights in the Owens Valley.


Entry Games

We study firm entry decisions when firms have private information about their profitability. We generalize current entry models by allowing general forms of market competition and heterogeneity among firms. Post-entry profits depend on market structure, firms’ identities, and entering firms’ private information. We characterize the equilibrium in this class of games by introducing a notion of the firm’s strength and show that an equilibrium where players’ strategies are ranked by strength, or herculean equilibrium, always exists. Moreover, when profits are elastic enough with respect to the firm’s private information, the herculean equilibrium is the unique equilibrium of the entry game.


Water Auctions

During the reign of Ibn Hud (1228-1238), the Kingdom of Murcia enjoyed some prosperity and stability. After the weakening of the Almohads, Ibn Hud unified all the small muslim kingdoms (Taifas) in the peninsula. When Ibn Hud was murdered in 1238, the kingdom was dismembered into many Taifas. This same year Jaime I (King of Aragon) conquered Valencia and prepared to march south. Castile was also advancing to the south, expanding its territory at the expense of the now fragile Kingdom of Murcia, which territory was now a fraction of what it was under Ibn Hud. By 1242, Castile had conquered most of the kingdom. Ahmed, the son of Ibn Hud, traveled to Alcaraz (Toledo) to meet prince Alfonso (later known as King Alfonso X, the Wise ). They agreed that what remained of the Kingdom of Murcia would become a protectorate of Castile.

The cities of Mula and Lorca rejected this agreement. In April 1244, Alfonso was in Murcia with his army ready to attack Mula (the closest of the rebel cities). After Mula was conquered, the army moved to Lorca, which surrendered by the end of June. The government of Mula and Lorca was given to the Order of Santiago and the Order of the Temple, respectively. The government of the city of Murcia was given, in part, to the descendants of Ibn Hud according to the terms of the Alcaraz Treaty. However, the Order of Santiago and the Order of the Temple had absolute authority over the cities of Mula and Lorca respectively, because the cities were conquered by force. In each city, the Orders separated the ownership of land and water, and created a corporation with tradable shares, whose owners got money from selling in public auctions the rights to use the water from the river.


Inequality and Mobility


Praying in the Desert