not all price endings are created equal price points and asymmetric price rigidity abstract we document an asymmetry in the rigidity of 9 ending prices relative to non 9 ending prices consumers have difficulty noticing higher prices if they are 9 ending or noticing price increases if the new prices are 9 ending because 9 endings are used as a signal for low prices price setters respond strategically to the consumer heuristic by setting 9 ending prices more often after price increases than after price decreases 9 ending prices therefore remain 9 ending more often after price increases than after price decreases leading to asymmetric rigidity 9 ending prices are more rigid upward than downward these findings hold for both transaction prices and regular prices and for both inflation and no inflation periods

buyer initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

a comment on price endings when prices signal quality stiving 2000 proposes an interesting model to explain price endings his analysis shows that even when customer demand increases at 9 ending price points certain firms that use high prices to signal quality are more likely to set those prices at round numbers this comment raises two issues about the model first it appears that the original paper imposes a condition that has the effect of eliminating a broad range of legitimate separating equilibria from the analyses second it appears that the original model does not include constraints to ensure that the demand for each market segment will be nonnegative when these constraints on demand are included one obtains different aggregate demand curves which leads to different equilibrium prices using the revised model and analysis we find that 71 of the prices end in 9 and only 12 in 0 this contrasts with only 3 ending in 9 and 58 ending in 0 for the original study therefore 9 endings still prevail even though high prices can be used by firms to signal high quality

signaling quality with a money back guarantee the role of transaction costs direct marketing is witnessing explosive growth as consumers increasingly purchase products from their homes their ability to judge the quality of products they buy is significantly reduced in this paper we study how money back guarantees can signal product quality in such environments we interpret product quality broadly to mean both the level of attributes promised as well as the firm s consistency in delivering on those promises key aspects of our formulation are the explicit consideration of transaction costs and alternative signals of product quality transaction costs are the costs the seller or buyer faces when redeeming a money back guarantee we show that money back guarantees signal quality by exploiting the higher probability of returns for a lower quality product and the attendant higher transaction costs however if the seller s transaction costs are very large then there are less costly ways to signal namely charging a high price we compare the signaling performance of 1 price 2 price with uninformative advertising and 3 price with a money back guarantee whereas uninformative advertising does not work at all in our model under certain conditions a money back guarantee is necessary to signal and under other conditions a money back guarantee is a useful supplement to price

supermajority voting requirements for tax increases evidence from the states abstract this paper measures the effect of state level supermajority requirements for tax increases on tax rates unobserved attitudes towards taxation tend to influence both the adoption of supermajority requirements and tax policy consequently one cannot distinguish between the effect of these requirements and their correlation with these unobserved attitudes a model is presented in which legislatures controlled by a pro tax party adopt a supermajority requirement to reduce the majority party agenda control the propensity of pro tax states to adopt supermajority requirements results in an underestimate of the true effect of these requirements on taxes to correct this identification problem the paper first uses fixed effects to control for unobserved attitudes and then employs instruments that measure the difficulty of amending state constitutions the paper concludes that supermajority requirements have significantly reduced taxes

central bankers in government appointed committees abstract i study the policy choices of members of a central bank committee who are appointed by the government central bankers balance their desire to protect the central bank s reputation against their interest to be reappointed committees can be more successful than single central bankers at reducing inflation and insulating policy from government pressures these gains are only achieved if the turnover rate of committee members is low and the committee is small the former is associated with a low risk of being replaced for not supporting the government s preferred policy the latter meanwhile implies high probability that a single vote affects policy making any individual member more weary of potentially affecting the central bank s reputation through his vote

strategic pricing signalling and costly information acquisition abstract consider a market where an informed monopolist sets the price for a good or asset with a value unknown to potential buyers upon observing the price buyers may pay some cost for information about the value before deciding on purchases under a belief restriction which generalizes the idea of the cho kreps intuitive criterion we establish a version of the grossman stiglitz paradox there is no separating equilibrium with fully revealing prices yet we also resolve the paradox there is a unique equilibrium and as the cost of information becomes small the equilibrium approaches the full information outcome and prices become perfectly revealing

do subjects from high and low context cultures attribute different meanings to tourism services with 9 ending prices abstract four symbolic meanings have been associated with 9 ending prices discount price enhanced value low quality and misleading action scales were developed to measure each meaning and the relative strength of these meanings in influencing tourists purchases among samples from the u s korea and china was investigated the analyses found no differences in the likelihood of tourists selecting 9 ending rather than even ending prices when purchasing a sandwich a pizza or show tickets in their relative importance across cultures or in the influence on purchase decisions of different symbolic meanings associated with 9 endings however a 9 ending discount was perceived to be more effective when compared to even ended price discounts in the context of a hotel room again however its effectiveness could not be explained by the different symbolic meanings associated with 9 ending prices

voting on majority rules political economy models usually take as given the rules which govern the political decision making with the simple majority rule being the most popular model in this paper we develop a simple yet powerful positive model where the majority rule governing future elections is itself chosen in an election we observe a large variety of majority rules governing elections in the real world on the one side referenda are usually decided by a simple majority at the other extreme many international organizations require unanimity in votes among the member states in the european union s council of ministers some proposals require only a simple majority some a supermajority of about 71 62 votes out of 87 and some require unanimous consent 1 explicit supermajorities 2 are required in most countries for a change of the constitution but in some u s states also for a tax raise even more important could be what we might call implicit supermajorities in parliamentary systems with a strong committee organization a legislative proposal usually needs the support of both the respective committee and the house in parliamentary systems with two chambers certain legislative proposals need the support of both chambers 3 previous rationalizations of qualified majority rules focus on the problem of condorcet cycles under simple majority rule in n dimensional elections and on commitment problems see our literature review below our model presents a new rationale for rules requiring qualified majorities in elections we analyse an overlapping generations model of voting on reform opportunities which we model as similar to investment projects at first there is a cost and then there are benefits since voters have a finite lifetime old voters will be less keen on reforms

round prices and price rigidity evidence from outlawing odd prices abstract this paper exploits a legal change in israel that banned the use of non zero digit price endings e g 6 99 to study the relationship between digit price endings and price rigidity we compare the propensity of product prices to change before and after the ban while distinguishing between products whose prices ended with a zero and products whose prices did not end with a zero digit before the ban we find that before the ban zero digit price endings were more likely to change typically upward compared with products with non zero digit price endings after the legal change these differences disappeared overall these findings support the price point theory blinder 1991

legislative restraints in corporate bailout design abstract the aftermath of the recent economic crisis saw the largest u s government bailout of corporate entities ever while the bailout was carried out with the explicit goal of restoring stability it aroused much controversy and public criticism based on moral hazard concerns as well as the exorbitant cost to the taxpayer this paper examines the bailout design on behalf of an imperfectly informed legislature aimed at shaping the incentives of a policymaker to whom bailout decisions are delegated we show that important elements of the more moral hazard proof design entail various legislative procedural hurdles which effectively make the bailouts dependent on supermajority support

wealth inequality and collective action abstract we study the effect of inequality in the distribution of endowments of private inputs e g land wealth that are complementary in production with collective inputs e g contribution to public goods such as irrigation and extraction from common property resources on efficiency in a class of collective action problems we focus on characterizing the joint surplus maximizing level of inequality making due distinction between contributors and non contributors in a framework that allows us to consider a wide variety of collective action problems ranging from pure public goods to impure public goods to commons we show that while efficiency increases with greater equality within the groups of contributors and non contributors so long the externalities positive or negative are significant there is an optimal degree of inequality between these groups

leadership by example in the weak link game we investigate the effects of leadership in a four player weak link game a weak link game is a coordination game with multiple pareto ranked nash equilibria because the more efficient equilibria involve a degree of strategic uncertainty groups typically find it difficult to coordinate on more efficient equilibria we wanted to see whether leadership by example in the form of one player acting publicly before the rest of the group could help groups do better our results suggest that leadership can increase efficiency but is far from being a guarantee of success specifically in a significant number of groups we observed successful leadership and increased efficiency but in most groups efficiency was low despite the efforts of leaders we did not find any difference between voluntary leaders and leaders that are randomly assigned

optimal taxation and fiscal constitution abstract assuming a world with excessive taxes the focuses of this paper are political mechanisms that ensure efficiency enhancing restraints on taxes in particular it is shown that supermajority requirements to approve tax increases as currently used in some us states is the means of attaining this objective their relationship to another such mechanism prevalent in earlier centuries that of franchise restrictions is discussed

dyke maintenance and other stories some neglected types of public goods the orthodox summation model of a pure nonexcludable public good assumes that each individual consumes a quantity of public good defined as the sum of all individuals contributions to that good recently hirshleifer 1983 1985 has analyzed models that do not fall within this class at one extreme is the weakestlink in which the total quantity available to each consumer equals the smallest individual contribution at the other is the best shot in which the total quantity available equals the largest individual contribution hirshleifer s example of the weakest link case concerns a circular region of which each citizen owns a pie shaped slice the perimeter is marked by a dyke floods may penetrate the weakest point of the dyke and cause damage equally throughout the region each citizen decides the height and state of repair of that section of the dyke adjoining his piece of land its maintenance constituting his contribution to the public good thus the level of protection enjoyed by all is determined by the least well maintained section of the dyke an example of the best shot case concerns a number of antimissile batteries ringing a city firing at an incoming icbm all that matters is the accuracy of the best shot bliss and nalebuff 1984 discuss dragon slaying as another example of a best shot situation section ii of this paper introduces a class of functions of which the summation weakest link and best shot are examples section iii analyzes the properties of equilibrium when consumers have identical tastes and incomes section iv analyzes the implications of income redistribution in the summation case the equilibrium is unaffected by the initial redistribution over a range and outside that range transfers help the recipient and hurt the donor within the broader class of models however the invariance property does not generally hold and there may be opportunities for paretoimproving income redistribution i give an example similar to the weakest link case in which a pareto improving redistribution is

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

subscription equilibrium with production non neutrality and constrained suboptimality abstract we study a general equilibrium model with a non profit firm producing a public good using private goods as inputs which are financed by voluntary contributions subscriptions of households we analyze policy interventions that increase the public good level at subscription equilibria and show that some of the standard results of the neutrality literature do not survive in our model with many private goods and relative price effects allowed first we show that a redistribution away from a contributor or even a decrease in the total wealth of all contributors while the contributing set of agents remains intact can lead to an increase in the provided level of public good moreover we prove that increasing the production of public good is neither a sufficient nor a necessary condition to increase all households welfare finally we present conditions under which for a generic set of economies well chosen interventions will pareto improve upon a given subscription equilibrium outcome as a consequence a general non neutrality result in terms of utilities holds even if all households are contributors

majority voting with single crossing preferences we clarify and extend a number of sufficient conditions for the existence of a majority voting equilibrium on one dimensional choice domains these conditions variously stated in the previous literature all impose order restrictions on voter preferences for instance monotone marginal rates of substitution which we show to imply or be equivalent to a general ordinal version of the single crossing condition this simple property is economically intuitive and easily checked in applications this ease of application is demonstrated through an examination of voting models of redistributive income taxation and trade union bargaining behaviour

voting behavior and information aggregation in elections with private information we analyze two candidate elections in which voters are uncertain about the realization of a state variable that affects the utility of all voters each voter has noisy private information about the state variable we show that the fraction of voters whose vote depends on their private information goes to zero as the size of the electorate goes to infinity nevertheless elections fully aggregate information in the sense that the chosen candidate would not change if all private information were common knowledge equilibrium voting behavior is to a large extent determined by the electoral rule i e if a candidate is required to get at least x percent of the vote in order to win the election then in equilibrium this candidate gets very close to x percent of the vote with probability close to one finally if the distribution from which preferences are drawn is uncertain then elections will generally not satisfy full information equivalence and the fraction of voters who take informative action does not converge to zero

two part pricing for experience goods in the presence of adverse selection abstract because customers learn something when they purchase an experience good for the first time a firm selling experience goods may face different demand curves from new and repeat customers the firm can exploit these differences by using a two part pricing strategy to price discriminate between new and repeat customers the firm may also use a two part pricing strategy to mitigate the information problems of adverse selection when its quality is uncertain the analysis is particularly applicable to service markets where customers and firms seek long term relationships and firms maintain customer records which facilitate price discrimination

consumer demand for fair trade evidence from a multistore field experiment abstract we provide new evidence on consumer demand for ethical products from experiments conducted in a u s grocery store chain we find that sales of the two most popular coffees rose by almost 10 when they carried a fair trade label as compared to a generic placebo label demand for the higher priced coffee remained steady when its price was raised by 8 but demand for the lower priced coffee was elastic a 9 price increase led to a 30 decline in sales while consumers attach value to ethical sourcing there is significant heterogeneity in willingness to pay for it

credible signals of the release of new versions i introduction many products are marketed some time after they have been developed for instance a new smartphone may be developed and tested well before it is available for purchase a new car might be prototyped and driven months before it comes to the market indeed a firm will often have several products concurrently in a development pipeline consumers may know a product is in that pipeline without knowing its progress towards the market because the outcome of such development and testing is not visible to outsiders the firm knows whether it can market a product before consumers do consumers are uninformed about when and if the new product will be marketed to them economists have long recognized that the present demand for durable goods depends on future prospects such as the future price or the introduction of an improved version 1 the existence of such an improved version is often the seller s private information if consumers anticipate a new version some will defer purchases until the new version is available and the seller will face low demand for the present version disclosing the new version is not in a monopoly seller s interest a seller whose good does not have a new version would also like to communicate that fact to consumers while a firm with a successful product innovation can credibly disclose the new version with relative ease a firm that has failed to develop a new product could have great difficulty convincing consumers that the product has no new version in such situations it is important to examine whether prices can inform consumers whether a new version will be marketed in the near future in a recent paper choi et al 2010 developed a model with a risky product development process in which reputation effects allow cheap talk announcements to signal successful product development to consumers an announcement induces consumers to delay or divert purchases to the announcer s coming product which increases the announcer s profit and can improve welfare 2 in their model the announcer and her non innovative rivals supply the original good competitively because of this an announcement does not reduce profit on the current version this paper will focus on markets where the seller has substantial market power before innovating so announcing a successful product development has a cost in terms of current revenue further because we attend to prices as signals this model may also apply to markets where a long run relationship between consumers and firms may not be sustainable another objective of this paper is to examine the welfare effects of mandatory disclosure a government policy mandating disclosure of any new version is an alternative means of informing consumers 3 as long as firms are not willing to lie to the government such a policy would credibly communicate whether a new version of a durable is coming mandatory disclosure would bring about full information as consumers are informed about any improved future version before observing the price of the current version in this paper we explore a two period model of a durable good monopoly in which consumers are initially uninformed about whether there will be a new version of the current good the monopoly seller is privately informed if he will be able to market an improved version in the second period in the first period consumers must decide whether to purchase the good now or wait for an upgraded version they may be able to infer from the price of the current version whether the seller will bring a new version to the market it is important to see first whether prices can serve as signals and second how welfare compares between any signaling outcome and a full information benchmark corresponding to mandatory disclosure we will show that there is a unique equilibrium supported by intuitive beliefs in this equilibrium the seller s private information about an improved version is completely revealed to consumers

transfers and the weakest link an extension of hirshleifer s analysis abstract with the weakest link social composition function analysed by hirshleifer it is shown that an incentive exists for some agents to transfer resources to others so as to achieve higher quantities of the public good the characteristics of such an equilibrium with transfers are examined together with the implications of differing income distributions for the quantity of the public good some observations are offered as to how well the model can capture co operative behaviour

importing credibility through exchange rate pegging this paper employs an optimal taxation framework in order to study the credibility of monetary policy making in an open economy since inflation is in part uncontrollable due to stochastic disturbances the authority s actions cannot be monitored perfectly when the exchange rate floats thus implying that reputational forces may become ineffective in contrast pegging the nominal exchange rate to a low inflation currency allows perfect monitoring because the exchange rate is in principle controllable for this reason exchange rate pegging may import credibility and result in the best reputational equilibrium even though the authority retains the discretion to devalue unexpectedly

committees as substitutes for commitment in this article policies are negotiated in a committee by playing a dynamic voting game with an endogenous default or status quo policy i show that joining a committee by maintaining a strong agenda setting power is a way for a decision maker to commit to a policy that in absence of committees is not time consistent the disciplinary role of the endogenous status quo and the heterogeneity of preferences within the committee are two crucial ingredients to obtain this result as a motivating example this article focuses on the time consistency of monetary policy

policy boards and policy smoothing partisan politics and random election outcomes generate policy uncertainty and partisan business cycles to reduce policy uncertainty society must design the policy making environment to overcome electoral uncertainty and partisanship i show that delegating policy to an independent policy board with discretionary powers will produce substantial policy smoothing and lower policy uncertainty relative to a simple model in which elected officials set policy board members are chosen in a partisan noncooperative environment yet in the benchmark model policy variability is eliminated and the cooperative bargaining solution is replicated

reply to a comment on price endings when prices signal quality although the comment provides some additional insight it in no way diminishes the contribution of the original paper that paper is the first and only theoretical explanation for why firms behave as though they use round prices to signal quality further the paper provides empirical evidence in support of this explanation

inequality and inefficiency in joint projects a group of agents voluntarily participates in a joint project in which efforts are not perfectly substitutable the output is divided according to some given vector of shares a share vector is unimprovable if no other share vector yields a higher sum of payoffs when the elasticity of substitution across efforts is two or lower only the perfectly equal share vector is unimprovable and all other vectors can be improved via lorenz domination for higher elasticities of substitution perfect equality is no longer unimprovable our results throw light on the connections between inequality and collective action

flexibility vs protection from an unrepresentative legislative majority abstract we derive the equilibrium institutional design of representative democracy by citizens who first vote on the supermajority required for a new policy to be adopted and then delegate decision making to a legislature that selects policy given that institutional constraint a legislature that can freely tailor policy to reflect society s current preferences is good however the views of the median legislator or agenda setter may differ from the median citizen s and an unchecked legislature can implement bad policy we characterize how the primitives describing the preferences of actors and the status quo policy affect the equilibrium degree of legislative flexibility

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

choosing how to choose self stable majority rules and constitutions constitutional arrangements affect the decisions made by a society we study how this effect leads to preferences of citizens over constitutions and ultimately how this has a feedback that determines which constitutions can survive in a given society constitutions are stylized here to consist of a voting rule for ordinary business and possibly a different voting rule for making changes to the constitution we define an equilibrium notion for constitutions called self stability whereby under the rules of a self stable constitution the society would not vote to change the constitution we argue that only self stable constitutions will endure we prove that self stable constitutions always exist but that most constitutions even very prominent ones may not be self stable for some societies we show that constitutions where the voting rule used to amend the constitution is the same as the voting rule used for ordinary business are dangerously simplistic and there are many societies for which no such constitution is self stable we conclude with a characterization of the set of self stable constitutions that use majority rule for ordinary business

an empirical analysis of price endings with scanner data several consumer behavior theories have been offered to explain the preponderance of prices that end in the digit 9 this study attempts to incorporate these proposed behaviors into the implicit utility function of consumer choice models resulting in both a more accurate tool for managerial decision making and additional insights into how consumers actually behave toward price endings an attempt is made to compensate for both level effects those effects in which consumers may underestimate the value of a price and image effects those effects in which consumers may infer meaning from the right hand digits the models are estimated using scanner panel data for two frequently purchased products tuna and yogurt the results support the importance of accounting for the digits in consumer choice models providing evidence for both image effects and level effects

learning aversion and voting rules in collective decision making abstract in collective decisions with uncertainty some voters may oppose the arrival of new information this note formalizes a justification for supermajority as a voting rule in such environments this is optimal when arrival of information is responsive to voters learning aversion and conservative minorities have some power to block information

foreign aid and weakest link international public goods an experimental study in this paper we investigate efficiency differences between income and in kind transfers as distribution mechanisms of foreign aid to weakest link international public goods in a laboratory environment we find that if there is relatively small difference in country size then income transfers seem to provide a higher provision of the international public good and thus higher overall welfare level than that of in kind transfers however if there is a large disparity in country size then in kind transfers appear to provide a higher level of ipg provision and higher accompanying global welfare

weakest link public goods giving in kind or transferring money abstract this paper extends the analysis of weakest link public goods whose level equals the smallest of the agents provision levels by permitting an agent either to increase one s own provision or else augment both one s own provision and that of the other agent s nash equilibria may be either symmetric with agents matching one another s provision or else asymmetric with an in kind transfer by one agent to another an equilibrium with cash transfers but no in kind transfers may be pareto superior to one with only in kind transfers if agents differ in their efficiency then in kind transfers by the low cost agent may dominate a cash transfer the possibility of pareto improving transfers is enhanced as the number of agents increases

the dynamic in efficiency of monetary policy by committee this paper develops a model where the value of the monetary policy instrument is selected by a heterogenous committee engaged in a dynamic voting game committee members differ in their institutional power and in certain states of nature they also differ in their preferred instrument value preference heterogeneity and concern for the future interact to generate decisions that are dynamically inefficient and inertial around the previously agreed instrument value this model endogenously generates autocorrelation in the policy variable and helps explain the empirical observation that the distribution of actual interest rate changes has a mode of zero

multidimensional separating equilibria and moral hazard an empirical study of national football league contract negotiations this paper empirically tests for a multidimensional separating equilibrium in contract negotiations and tests for evidence of the moral hazard inherent in many contracts using contract and performance data on players drafted into the national football league from 1986 through 1991 we find evidence that players use delay to agreement and incentive clauses to reveal their private information during contract negotiations in addition our empirical tests of the moral hazard issue indicate that a player s effort level is influenced by the structure of his contract

mechanisms for the control of fiscal deficits abstract this paper shows that a simple two stage voting mechanism may implement a constrained optimal state dependent decision about the size of the fiscal deficit i consider a setup with strategic fiscal deficits similar to alesina and tabellini 1990 three groups of voters are informed about the relative desirability of current public spending voters differ in their preferences for public goods and swing voters preferences may change over time the current government decides on the current spending mix and it has an incentive to strategically overspend a simple two stage mechanism under which a deficit requires the approval by a supermajority in parliament approximates a constrained optimal decision and under certain conditions increases social welfare relative to both a strict rule and a laissez faire constitution when the current majority is small political bargaining may further increase social welfare however when the current majority is large a supermajority mechanism with bargaining leads to a biased spending mix and it may reduce welfare whereas the laissez faire mechanism may yield the first best an appropriately adjusted majority threshold can avoid inefficient bargaining whenever necessary

price endings when prices signal quality this paper provides a theoretical explanation for why firms behave as though they use round prices to signal quality by replacing the linear demand curve in bagwell and riordan s 1991 price as a signal of quality model with a kinked demand curve and analyzing what price endings firms are most likely to use the following observations can be made 1 firms that are using high prices to signal quality are more likely to set those prices at round numbers and 2 price endings themselves are not necessarily signals of quality a simulation was conducted to demonstrate that these findings generally hold true even in the presence of demand spikes at 9 ending prices e g schindler and kibarian 1996 finally empirical evidence is provided to demonstrate that firms tend to use more round prices for higherquality products and that this relationship is even stronger for product categories where consumers are less able to detect the true level of quality prior to purchase

incomplete social contracts there is a long normative social contract tradition that attempts to characterize ex post income inequalities that are agreeable to all behind a veil of ignorance this paper takes a similar normative approach to characterize social decision making procedures it is shown that quite generally some form of majority voting is preferred to unanimity behind a veil of ignorance whenever society faces deadweight costs in making compensating transfers deviations from unanimity or ex post pareto optimality are ex ante efficient to the extent that they economize on costly compensating transfers put another way the optimal decision rule trades off the benefits of minority protection and those from greater flexibility jel h11 g33 g34 d63 p16 p48

contests with group specific public goods and complementarities in efforts abstract this paper starts from the observation that in public goods group contests group impact can in general not be additively decomposed into some sum of functions of individual efforts we use a ces impact function to identify the main channels of influence of the elasticity of substitution on the behavior in and the outcome of such a contest we characterize the nash equilibria of this game and carry out comparative static exercises with respect to the elasticity of substitution among group members efforts if groups are homogeneous i e all group members have the same valuation and efficiency within the group the elasticity of substitution has no effect on the equilibrium for heterogeneous groups the higher the complementarity of efforts of that group the lower the divergence of efforts among group members and the lower the winning probability of that group this contradicts the common intuition that groups can improve their performance by solving the free rider problem via higher degrees of complementarity of efforts

the option to wait in collective decisions we also explore the robustness of our model when second period valuations are correlated across individuals and when each individual s first and second period types are correlated

committee design with endogenous information this paper is concerned with the arrangements for collective decision making in a world where agents must be motivated to acquire information the analysis identifies some basic forces shaping the design of panels of decision makers referees managers jurors etc in situations where decision makers are useful only in so far as they expend some effort to gain information about the alternatives at hand these situations are common one being the refereeing process where an editor requires the opinions of a number of experts who must read the paper acquire information in order to give an opinion as to publication analogously in committees which screen applicants to a programme the committee members must gain information about the applicant s qualifications and likelihood of success in order to evaluate whether to admit him her finally in trial juries it is important that jurors pay attention to the evidence in order to make an informed judgement 1 we focus on environments where information is a public good in the sense that the social benefits of one decision maker acquiring information exceed the private benefits a good mechanism in this environment must not only aggregate information efficiently but also induce the decision makers to acquire information we analyse the design of voting mechanisms our problem is to choose two parameters which determine both the incentive to acquire information and the efficiency with which information is aggregated the first parameter is the size of the decision making unit the number of committee members the second is the plurality required to overturn the status quo the voting rule our main result is this a voting rule that requires a large plurality in the extreme unanimity to upset the status quo can be optimal only if the information available to each committee member is sufficiently accurate when individual information is noisy the drawback

the case for a populist central banker abstract we present a general equilibrium optimizing model in which we study the joint effects of centralization of wage setting and central bank conservatism on economic performance several striking conclusions emerge in relatively centralized labor markets employment and output are decreasing and inflation is intially increasing and then decreasing in the degree of central bank conservatism a radical populist central banker who cares not at all about inflation alternatively who is not conservative maximizes social welfare economic performance is not u shaped in the degree of centralization of the labor market in contrast to conventional wisdom

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

committees with supermajority voting yield commitment with flexibility abstract a fundamental problem for government is how to combine commitment to certain policies with the flexibility required to adjust them when needed rogoff 1985 rogoff k 1985 the optimal degree of commitment to an intermediate monetary target q j econ 100 4 1169 1189 showed that a way to strike the right balance is to appoint an optimally conservative policy maker in real life however policy makers also have power over decisions where optimal plans are time consistent so delegating to a conservative person could be undesirable a flexible delegation device can be found in a large committee of randomly appointed members voting over policy after observing a shock when facing dynamic inconsistency under a single crossing property there exists a supermajority rule that implements the population median s optimally conservative policy maker with certainty another single crossing property guarantees that if simple majority voting is used to select the voting rule that will govern policy choice the supermajority preferred by the median is chosen for problems where dynamic inconsistency vanishes the committee will choose to make decisions by simple majority implementing median outcomes an application to monetary policy is developed we show that the optimal supermajority is higher when dynamic inconsistency is more severe when preferences are more homogeneous and when the economy is less volatile

the option to wait in collective decisions and optimal majority rules abstract we consider a model in which voters over time receive more information about their preferences concerning an irreversible social decision voters can either implement the project in the first period or they can postpone the decision to the second period we analyze the effects of different majority rules individual first period voting behavior may become less conservative under supermajority rules and it is even possible that a project is implemented in the first period under a supermajority rule that would not be implemented under simple majority rule we characterize the optimal majority rule which is a supermajority rule in contrast to individual investment problems society may be better off if the option to postpone the decision did not exist these results are qualitatively robust to natural generalizations of our model

on 64 majority rule introduction d une definition de consensus social base sur deux restrictions une sur les preferences individuelles et l autre sur la distribution des preferences dans ce cas de consensus une regle de majorite a 64 presente de nombreuses proprietes interessantes par opposition aux regles de super majorite possedant des proprietes paradoxales comme les regles electorales americaines

who should control the money supply this paper develops a model determining some motivational peculiarities of an optimal monetary authority an authority inducing a socially optimal inflation rate the model initially assumes that discretionary policy is desirable and that all possible authorities have the same information section ii rationalizes the assumption of the desirability of discretionary policy under rational expectations the assumption of rational expectations is seen to strengthen rather than weaken as its proponents are wont to assume the case for discretionary monetary policy section iii relaxes the assumption that all possible monetary authorities have the same information and thereby immediately exposes a dilemma unique to problem of finding an optimal monetary authority individuals possessing the efficient motivation are so peculiar that it is unlikely to find one that also possesses anything close to the information required to carry out first best discretionary policy the model serves to rationalize both the unusual motivational characteristics and the poor performance of observed monetary authori

task divisions in teams with complementary tasks abstract a team leader and a team follower non cooperatively produce a team specific public good out of two complementary tasks both team members are identically productive and can contribute to both tasks by moving first the team leader effectively determines the division of the tasks in the team we show that the existence of multiple but finitely many types of task divisions is associated with a non convex leader s budget constraint non convexity generates discontinuities and non monotonicities in the equilibrium provision of the good and also in the follower s utility if incomes are redistributed within the team non monotonicity of the follower s utility motivates the follower to give a cash transfer to the leader having received the cash transfer the leader adopts a task division that compensates the contributions of the follower hence we observe a non cooperative gift exchange with a monetary gift to the leader and a subsequent non monetary reward to the follower through a lighter task allocation these gift exchanges disappear in the presence of infinitely many types of task divisions generated by a continuum of complementary tasks

monetary policy by committee consensus chairman dominance or simple majority this paper studies the theoretical and empirical implications of monetary policy making by committee under four different voting protocols the protocols are a consensus model where a supermajority is required for a policy change an agenda setting model where the chairman controls the agenda a dictator model where the chairman has absolute power over the committee and a simple majority model where policy is determined by the median member these protocols give preeminence to different aspects of the actual decision making process and capture the observed heterogeneity in formal procedures across central banks the models are estimated by maximum likelihood using interest rate decisions by the committees of five central banks namely the bank of canada the bank of england the european central bank the swedish riksbank and the u s federal reserve for all central banks results indicate that the consensus model fits actual policy decisions better than the alternative models this suggests that despite institutional differences committees share unwritten rules and informal procedures that deliver observationally equivalent policy decisions

the use of odd ending numbers in the pricing of five tourism services in three different cultures abstract the study measured the extent to which the 1 through 9 digits were used as price endings by suppliers of five tourism services in three different cultures represented by new york city seoul and shanghai four results emerged the first confirmed the hypothesis but the other three results were contrary to expectations first 9 and 8 ending prices were dominant in new york city and in shanghai respectively second these culture specific endings were complemented by the universality of the 0 and 5 digit endings of prices which were ranked first and second respectively in seoul second and third in shanghai and third and second in new york third 9 ending prices were not used more frequently when they resulted in a lowering of the leftmost digit fourth dominant cultural specific price endings were not used more frequently in lower than in higher priced tourism services

end of 9 endings price recall and price perceptions prices that end with 9 also known as psychological price points are common comprising about 70 of the retail prices they are also more rigid than other prices we take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9 endings in january 2014 the israeli government passed a new regulation prohibiting the use of non 0 ending prices bringing an end to 9 ending prices we find that seven months after 9 ending prices have disappeared 90 ending prices acquired the same status as 9 ending prices had before the new regulation was adopted thus 90 ending prices became the new psychological price points partially eliminating the regulation s intended effect

the influence of preciseness of price information on the travel option choice abstract 159 99 159 38 or 160 00 the phenomenon of pricing around a rounded number with apparent preciseness is commonly observed in the marketplace much research has been conducted in the general area and has established that the use of precise prices those without a zero ending tends to lead to increased sales and to a more positive customer attitude to date the best explanation offered is that most people read from left to right so the last numbers of a price may be less salient than the leading numbers in an endeavor to establish a better understanding of the phenomenon this research consists of five experiments in a tourism context to first clarify the phenomenon and account for possible alternative explanations and then to provide empirical evidence that different representations of price can imply different construal levels and thus influence consumers choice preference in tourism marketing

voting on the budget deficit this paper analyzes a model in which a group of rational individuals votes over the composition and time profile of public spending all voters agree that a balanced budget is ex ante optimal however if there is disagreement between current and future majorities a balanced budget is not a political equilibrium under majority rule under certain conditions a majority of the voters favors a budget deficit and the equilibrium deficit is larger the greater is the polarization among voters copyright 1990 by american economic association

patterns of rightmost digits used in advertised prices implications for nine ending effects analysis of the rightmost digits of selling prices in a sample of retail price advertisements confirmed past findings indicating the overrepresentation of the digits 0 5 and 9 the high cognitive accessibility of round numbers can account for the overrepresentation of 0 and 5 ending prices and suggests the existence of two effects that could account for the overrepresentation of 9 ending prices 1 a tendency of consumers to perceive a 9 ending price as a round number price with a small amount given back and 2 a tendency of consumers to underestimate a 9 ending price by encoding it as the first round number evoked during incomplete left to right processing analysis of the patterns of rightmost digits observed in the sample provides supportive evidence particularly for the second of these two 9 ending effects

voting as a lottery supermajorities have their advantage as well as their disadvantage they provide an hedge against being in the minority but they make being in the majority less likely we characterize this trade oand compute the most preferred majority threshold the relevant parameters are voting power risk aversion and pessimism people who feel powerful prefer low thresholds high thresholds are preferred by risk averters or by those who are pessimistic about being in the majority further we study constitutional agreements on the voting rule members of the constituent assembly are heterogeneous in the parameters above we show that weak and minority members succeed in pushing forward on high and protective rules

weakest link public goods giving in kind or transferring money in a sequential game abstract this paper extends the leader follower analysis of a weakest link public good by permitting an agent to provide the good on one s own territory or on another s territory through an in kind transfer an equilibrium with cash transfers followed by in kind transfers from the income recipient may be pareto superior any cash transfers must be from the follower to the leader for welfare to improve

dynamic collective choice with endogenous status quo we analyze a bargaining situation in which preferences evolve over time and the previous agreement becomes the next status quo the endogeneity of the status quo exacerbates the players conflict of interest players disagree more often than under exogenous status quo this leads to inefficiencies and status quo inertia under certain conditions the negotiations can come to a complete gridlock players never reach an agreement gridlock can occur between players with arbitrarily similar preferences provided they are sufficiently patient in legislative settings our model predicts polarization and explains why legislators may fail to react promptly to economic shocks

in praise of inequality public good provision and income distribution abstract it is shown that if all individuals contribute towards the provision of a public good their utilities are equalised even if the income distribution is unequal it may seem that there is then no role for redistributive policy but it is proved that social welfare can be raised by creating sufficient income inequality that only the rich provide public goods