Research Program in Industry Economics & Policy
The Program consists of senior faculty with theoretical and empirical interests. Industrial economics is the study of firms and markets. Theoretical foundations include microeconomic tools such as game theory. Related policy issues include antitrust and regulation.
The project is "Corporate Divestitures: Evidence from the Trading with the Enemy Act.'' David Genesove of the Hebrew University of Jerusalem, who was has been coauthor on a number of published papers, is Mullin’s coauthor on this project.
This research proposal describes related empirical microeconomic projects. The empirical setting comes from World War I, during which the U.S. Congress passed the Trading With the Enemy Act of 1917. The Act and later legislation established the procedure for the seizure and later sale of Enemy (chiefly German) owned property in the United States.
This Enemy ownership, or enemy interest, extended to shares in U.S. corporations. This could either be a majority interest (e.g. ownership of 100 percent of the capital stock) or a minority interest (e.g. 20 percent ownership with 80 percent owned by another party or parties). The sale of these shares was conducted by the Alien Property Custodian (APC), a government agency established for this purpose. The public record of details of these sales is available in hearings and reports at the Library of Congress. More importantly the underlying records of the Alien Property Custodian are available at the National Archives facility at College Park, Maryland.
These records include a prospectus available to potential bidders, so one can use that information to construct estimates of the value of the property, and see how that compares to the proceeds of the auction. The records also include the name of the winning bidder, and how much that bidder paid.
The preliminary research by Genesove and Mullin has uncovered some interesting phenomena and research questions. For the closely held corporations, the business was organized as a corporation but the shares were not traded on an exchange like the New York Stock Exchange. The company names for these closely held corporations were family or founder names. Interestingly, there are cases in which something like "George Borda company" has an enemy interest of 20 percent of shares outstanding, and the winning bidder is George Borda. This suggests a large asymmetry that has been explored in the auctions literature by Hendricks and Porter (1987), namely the "winner's curse." In our setting, an independent bidder would fear he would outbid the majority owner only if that owner were very pessimistic about the prospects of the business. In future research they will incorporate this winners curse formally.
Another broad question concerns whether and to what extent the procedure of seizing property and assigning its ownership to other parties through auction destroyed firm value. This is tightly connected to research questions in industrial organization, the theory of the firm, and corporate finance. The hypothesis is that the initial matching of corporate assets with particular owners maximized firm value. The effect of changing the set of people owning a firm's shares could depend upon whether those shares sold are the minority or majority interest. Moreover, it is possible that the magnitude of any effect could be small if there is a large pool of potential owners to draw upon. (By analyzing sales of corporate assets we are looking at a situation akin to mergers, except divestiture rather than combination is the change in corporate ownership).
Finally, if the sample size permits, Genesove and Mullin may be able to shed light on whether certain people got "good deals'' by being able to buy corporate assets at prices well below what we would predict from our formal model, even accounting for the winners curse. This was a subject of a Congressional investigation in the 1920s, and modern econometric techniques make addressing that question feasible.
The group has also taken an active interest in energy and the environment. Professor Arun Malik was among the coorganizers of a May 2011 conference at GW on adaptation to climate change in low income countries