decisions under uncertainty in social contexts abstract this paper theoretically and experimentally studies decision making in risky and social environments we explore the interdependence of two decisive behavioral determinants in such environments risk attitudes and social preferences in the form of inequality aversion our model and the data demonstrate that individual risk aversion is attenuated when lagging behind peers whereas it is amplified under favorable income inequality moreover people s choices are not only context dependent but they are sensitive to their degree of inequality aversion the majority of our experimental findings cannot be rationalized by rank dependent utility models or cumulative prospect theory our results contribute to the basic understanding of the underlying motives of social incentives in firms private households saving decisions employees career track choices or charitable giving under uncertainty

economic feasibility of biomass gasification for power generation in three selected communities of northwestern ontario canada abstract biomass gasification is expected to be an attractive option among other competitive applications of biomass conversion for bio energy this study analyzes economic feasibility of biomass gasification power generating plants in three selected communities ignace nipigon and kenora of northwestern ontario the major variables considered in the model are harvesting and handling costs logistic costs for biomass feedstock delivery and storage capital costs of power plant by scales operation and maintenance costs labor costs capital financing costs and other regulatory costs gis analysis was undertaken to estimate the distance class matrix to apportion the biomass feedstock supply side from different forest management units total cost per mw h power production at a 50 mw scale ranges from cad 61 89 to cad 63 79 total cost per unit of electricity production decreases significantly as plant capacity increases due to economy of scale in the production system further the locations of plants explained the cost variability

peer effects and risk sharing in experimental asset markets abstract we investigate the effect of introducing information about peer portfolios in an experimental arrow debreu economy confirming the prediction of a general equilibrium model with inequality averse preferences we find that peer information leads to reduced variation in payoffs within peer groups information also improves risk sharing as the data suggests that experiencing earnings deviations from peers induces a shift to more balanced portfolios in a treatment where we highlight the highest earner we observe a reduction in risk sharing while highlighting the lowest earner has no effects compared to providing neutral information our results indicate that the presence of social information and its framing is an important determinant of equilibrium in financial markets

a theory of disagreement in repeated games with bargaining this paper proposes a new approach to equilibrium selection in repeated games with transfers supposing that in each period the players bargain over how to play although the bargaining phase is cheap talk following a generalized alternating offer protocol sharp predictions arise from three axioms two axioms allow the players to meaningfully discuss whether to deviate from their plan the third embodies a theory of disagreement that play under disagreement should not vary with the manner in which bargaining broke down equilibria that satisfy these axioms exist for all discount factors and are simple to construct all equilibria generate the same welfare optimal play under agreement generally requires suboptimal play under disagreement whether patient players attain efficiency depends on both the stage game and the bargaining protocol the theory extends naturally to games with imperfect public monitoring and heterogeneous discount factors and yields new insights into classic relational contracting questions

social preferences under risk equality of opportunity versus equality of outcome this paper axiomatizes a utility function for social preferences under risk in the model a single parameter captures a preference for equality of opportunity i e equality of exante expected payoffs relative to equality of outcome i e equality of ex post payoffs in a deterministic environment the model reduces to the model of fehr and schmidt 1999 the model is consistent with recent experiments on probabilistic dictator games

managerial bonuses and subordinate mistreatment abstract can performance bonuses increase the likelihood that managers coerce their subordinates into exerting high levels of effort when doing so promotes neither efficiency nor equity we consider a laboratory setting in which managers compete to obtain a large bonus at the end of the experiment and the probability of obtaining it depends partly on the effort exerted by the subordinates we find that managers are more than twice as likely to punish subordinates exerting fair levels of effort if they compete for individual bonuses than when there are no bonuses this is not the case when they compete for pooled bonuses giving managers discretionary power over how to share them with their subordinates as most subordinates willingly exert maximal effort a model in which individuals are assumed to care about equity captures subordinates behavior well managers willingness to coerce subordinates into exerting unfairly high levels of effort on the other hand cannot be readily accounted for by any of the existing models of social preferences

pre play research in a model of bank runs se estudia un modelo de corrida bancaria en el que los depositantes no llegaron a un consenso sobre la accion a elegir pero pueden informarse acerca de las intenciones de los otros jugadores la propiedad de equilibrio indeterminado reaparece en el juego con adquisicion de informacion en el escenario bajo analisis el equilibrio con niveles positivos de adquisicion de informacion resulta en mayores probabilidades de quiebra del banco la correlacion en las senales aumenta el espacio de parametros para el cual existen equilibrios con niveles positivos de adquisicion de informacion y mayor probabilidad de quiebra del banco

preferences for flexibility and randomization under uncertainty an uncertainty averse agent prefers betting on an event whose probability is known to betting on an event whose probability is unknown such an agent may randomize his choices to eliminate the effects of uncertainty for what sort of preferences does a randomization eliminate the effects of uncertainty to answer this question we investigate an agent s preferences over sets of acts we axiomatize a utility function through which we can identify the agent s subjective belief that a randomization eliminates the effects of uncertainty jel d11 d81

assessment and optimization of forest biomass supply chains from economic social and environmental perspectives a review of literature abstract forest biomass is a renewable source that has the potential to substitute fossil fuels in many applications from the generation of bioenergy heat electricity or transportation fuels to the production of bioproducts chemicals and other materials the increased use of forest biomass could support the reduction of anthropogenic carbon emissions to the environment and could help forest dependent communities achieve energy independence while generating jobs the viability and feasibility of generating valuable products from forest biomass depend on ensuring the long term availability of biomass supply with the required quality at a competitive cost this calls for a cost efficient design of the forest biomass supply chain social and environmental aspects have to be considered in the design as well to guarantee sustainable use of this renewable resource in this paper we present a review of studies that assessed or optimized economic social and environmental aspects of forest biomass supply chains for the production of bioenergy and bioproducts the majority of studies so far considered either economic techno economic and optimization studies or environmental life cycle assessment studies aspects of bioenergy projects nevertheless there is a recent trend to integrate economic environmental and social aspects in the assessment and optimization of forest biomass supply chains combined approaches integrating multi objective optimization and life cycle assessment have started to flourish in these studies ghg emissions are the most frequently used environmental indicator production and capital costs are the preferred economic measures and the number of created jobs is the most considered social criterion further research has to be done to study and assess the potential social impacts of using forest biomass there is a need for further development of decision support tools that consider economic environmental and social criteria to aid the design and planning of forest biomass supply chains

distributional preferences in probabilistic and share contests we analyze nash equilibria of probabilistic and share contests where players have distributional preferences if players are sufficiently similar distributional preferences create multiple equilibria for the case of only mildly heterogeneous players equilibrium effort can be lower as well as higher than effort exerted by players with selfish preferences these findings can explain the following three anomalies observed in empirical tests of probabilistic and share contests the large variance of effort levels overspreading individual spending that exceeds the nash equilibrium prediction overspending and aggregate spending that exceeds the value of the prize overdissipation if players are sufficiently heterogeneous the game has a unique equilibrium that is more egalitarian than the selfish nash equilibrium it turns out that the less talented competitor may win the larger share of the prize if his inequality aversion is sufficiently strong we analyze how the equilibria evolve if the number of players becomes larger and how sequential moves influence behavior two new insights follow from the analysis of the sequential move game first sequential moves act as a coordination device in case of multiple simultaneous equilibria and second inequality aversion of the more egalitarian player can be used as a commitment device for low effort this effect can reverse the conventional wisdom that the underdog should lead

an experimental study of communication and coordination in noncooperative games this paper reports the results of an experiment designed to test the usefulness of alternative solution concepts to explain players behavior in noncooperative games with preplay communication in the experiment subjects communicate byplain conversationprior to playing a simple game in this setting we find that the presumption ofindividualisticandindependentbehavior underlying the concept of nash equilibrium is inappropriate instead we observe behavior to becoordinatedandcorrelated statistical tests reject nash equilibrium as an explanation of observed play the coalition proof correlated equilibrium of the game however explains the data when the possibility of errors by players is introduced journal of economic literatureclassification numbers c72 c92

reputation transmission without benefit to the reporter a behavioral underpinning of markets in experimental focus reputation is a commonly cited check on opportunism but it is often unclear what motivates an agent to report another s behavior when it is easy for the aggrieved individual to move on in a sharply focused laboratory experiment we find that many cooperators pay to report a defecting partner without the possibility of pecuniary benefit when this has the potential to deprive the latter of future gains and to help his next partner we illustrate how a social preference can explain such costly reporting and also discuss evidence for a role of emotions jel c91 d03 d63

does payoff equity facilitate coordination a test of schelling s conjecture abstract starting from schelling 1960 several game theorists have conjectured that payoff equity might facilitate coordination in normal form games with multiple equilibria the more equitable equilibrium might be selected either because fairness makes it focal or because many individuals dislike payoff inequities as abundant experimental evidence suggests in this line we propose a selection principle called equity eq which selects the equilibrium in pure strategies minimizing the difference between the highest and smallest money payoff if only one such equilibrium exists using a within subjects experimental design furthermore we study the relative performance of eq in twelve simple 2 2 coordination games in many of these games we find that eq explains individual behavior better than a large range of alternative theories including theories of bounded rationality and several other equilibrium selection principles yet we also observe that the frequency of eq play depends on the payoff structure of the game for instance eq play diminishes when the alternative equilibrium is socially efficient and not very unfair compared with the eq equilibrium our data suggests that equilibrium selection is affected by several factors and that subjects are heterogeneous in this respect but also that equity is often a crucial factor to understand coordination

can group incentives alleviate moral hazard the role of pro social preferences abstract incentivizing unobservable effort in risky environments such as in insurance credit and labor markets is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets ensuring incentive compatibility through state contingent contracts between principal and agent however is undesirable for risk averse agents we provide a theoretical intuition on how pro social preferences between agents in a joint liability group contract can ensure incentive compatibility two independent large scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory in particular effort decreases when making agents payoff less state dependent but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro social concerns activating strategic motives slightly increases effort further particularly in non anonymous groups with high network strength the results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent such group policies can improve efficiency when agents are pro social

transaction costs communication and spatial coordination in payment for ecosystem services schemes agricultural producer participation and spatial coordination of land use decisions are key components for enhancing the effective delivery of ecosystem services from private land however inducing participation in payment for ecosystem services schemes for coordinating land management choices is challenging from a policy design perspective owing to transaction costs associated with participation this paper employs a laboratory experiment to investigate the impact of such costs on participation and land use in the context of an agglomeration bonus ab scheme the ab creates a coordination game with multiple nash equilibria related to alternative spatially coordinated land use patterns the experiment varies transaction costs between two levels high and low which affects the risks and payoffs of coordinating on the different equilibria additionally an option to communicate is implemented between neighbors arranged on a local network to facilitate spatial coordination results indicate a significant difference in participation and performance under high and low transaction costs with lower uptake and performance when transaction costs are high these effects are however impacted by transaction costs faced in the past communication improves both ab participation rates and performance with the effect being greater for participants facing high transaction costs

correlation misperception in choice we present a decision theoretic analysis of an agent s understanding of the interdependencies in her choices we provide the foundations for a simple and flexible model that allows the misperception of correlated risks we introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her possibly misspecified beliefs

improving nash by coarse correlation we consider a class of symmetric two person quadratic games where coarse correlated equilibria cce moulin and vial 1978 can strictly improve upon the nash equilibrium payoffs while correlated equilibrium ce aumann 1974 1987 cannot because these games are potential games with concave potential functions we compute the largest feasible total utility in any cce in those games and show that it is achieved by a cce involving only two pure strategy profiles applications include the cournot duopoly and the game of public good provision where the improvement over and above the nash equilibrium payoff can be substantial

local regional and national level of the socioeconomic impacts of a bio oil production system a case in lieksa finland abstract the aim of this paper is to assess the direct and indirect socioeconomic impacts on a local regional and national economy from forest biomass based bio oil production using input output i o analysis we also analysed the importance of a bio oil factory on the development of the local economy and determined the type of impacts bio oil production has on population and employment development and on the public municipal economy our study area is located in a resource periphery far from growing regions and suffers from development problems and stagnating development trends in terms of employment and income bio oil production could have a significant positive net impact on the local economy despite leakages to regional and national economies the impacts of bio oil production could enhance the future development prospects for the resource periphery according to positive changes in the net migration and by slowing population losses

fertility decline as a coordination problem abstract the so called diffusion of innovation approach is often used in explanations of historical and contemporary fertility declines we investigate this issue by developing a new theoretical analysis which combines economic and sociological reasoning particular attention is devoted to the role of social networks for the selection of equilibria in situations when fertility decline constitutes a coordination problem we show that the effect of networks depends on the particular interaction among individuals and on the prevailing socioeconomic conditions information networks can only speed up a fertility transition that would also take place in the absence of social interaction while coordination networks can facilitate demographic change in societies that would otherwise be caught in a malthusian situation

choosing the competition and patent licensing this article examines licensing as a means of choosing the competitors which a patentee monopolist will face in the period after the patent expires the queue of entrants consists of two firms which differ in their relative strengths as competitors for example by size or level of marginal cost by structuring the industry to be composed of weak competitors the incumbent is able to prolong its dominant position in the industry after the patent expires examples are presented in which the evidence suggests that choosing the competition was an important motivation of the licensor s behavior

decentralization duplication and delay we argue that although decentralization has advantages in finding low cost solutions these advantages are accompanied by coordination problems which lead to delay or duplication of effort or both consequently decentralization is desirable when there is little urgency or a great deal of private information but it is strictly undesirable in urgent problems when private information is less important we also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge

do taxes matter for foreign direct investment the tax sensitivity offoreign direct investment fdi has important policy implications if fdi is not responsive to taxation then it may be an appropriate target for taxation by the host country this question is examined for mexico by estimating the response of fdifrom retained earnings and transfers from abroad to the tax regimes in mexico and the home country the credit status of multinationals country risk factors and regulatory and trade regimes in mexico fdi in mexico is found to be sensitive to the tax regimes in mexico and the united states the credit status of multinationals country credit ratings and the regulatory environment thus mexico s current policies to dismantle regulations and employ a tax system competitive with the united states are expected to have salutory effects on fdi in mexico the 1980s have seen a remarkable growth in foreign direct investment fdi which has sparked a renewed interest in the effect of fdi on the economic performance of both the host and the home country and in the appropriate government policy toward fdi not surprisingly a critical consideration in this discussion is the responsiveness of fdi to taxation of the income that it generates if fdi is not responsive to taxation then it may be an appropriate target for taxation by the host country which can raise revenue without sacrificing the economic benefits of fdi if however the volume of fdi declines with taxation the host country must consider the trade off between the possible revenue gains from increased taxation and the economic costs of discouraging fdi this issue is very important for countries in which the degree of fdi penetration is large and the revenue raised from taxing fdi represents a significant fraction of total tax revenue for example in ecuador egypt indonesia nigeria peru and trinidad and tobago tax payments by u s corporations alone as a share of host country corporate tax revenues exceed 10 percent alworth 1988 p 33 because of the ready availability of data on investment to and from the united states most of the recent empirical literature on the tax sensitivity of fdi has focused on u s inward fdi in this article we extend the standard methodology used in these studies to examine the effect of taxation on fdi in mexico the recent empirical literature on fdi in the u s is reviewed the salient features of

does history matter only when it matters little the case of city industry location when will an industry subject to agglomeration economies move from an old high cost site to a new low cost site it is argued that history in the form of sunk costs resulting from the operation of many firms at a site creates a first mover disadvantage that can prevent relocation it is demonstrated that developers of industrial parks can partly overcome this inertia through discriminatory pricing of land over time and empirical evidence is provided that they actually engage in such behavior it is also shown that other aspects of developer land sale strategy can be a source of information on the nature of interfirm externalities

economic methodology in a nutshell he literature on economic methodology is concerned mainly with questions of theory confirmation or disconfirmation or empirical theory choice the central question is usually how one can tell whether a particular bit of economics is good science economists would like methodologists to provide the algorithm for doing good economic science and they want the algorithm to vindicate their own practice and to reveal the foolishness of those who do economics differently for example milton friedman 1953 tells economists that good theories are those that provide correct and useful predictions while paul samuelson 1947 1963 tells economists to formulate theories with operational concepts that are ideally logically equivalent to their descriptive consequences in my view not only are these and most other specific views on theory appraisal mistaken but the concern with problems of empirical appraisal is exaggerated for there are also interesting methodological questions to consider both normative and descriptive concerning the structure strategy goals and heuristics of various economic theories for example few writers on economic methodology recognize that the activities of formulating economic models and investigating their implications are a sort of conceptual exploration instead most mistakenly regard these activities as offering empirical hypotheses and assess them in terms of some philosophical model of confirmation or falsification as a tendentious survey of standard methodological literature this essay will however share its preoccupation with the empirical appraisal of theory microeconomic theory in particular i shall in particular discuss four approaches to praising or damning microeconomic theory that have dominated methodological discussions

betrayal aversion evidence from brazil china oman switzerland turkey and the united states comment in a series of binary choice problems we investigate how a chooser s risk taking changes when others share in their personal risk either equally or unequally we find that when the safe option yields inequality the risky option is taken significantly more often on the other hand the inequality resulting from the risky choice does not affect risk taking we also find that choosers tend to be less risk averse in a one person context compared to when the risk also affects the payoff of another c72 d81 z13

bargaining with a residual claimant an experimental study we conduct an experiment of two player bargaining in which the payo to one player is subject to ex post risk while the other player receives a xed payment eectively making the player exposed to risk a residual claimant contrary to intuition recent theoretical work argues that exposure to risk may actually be benecial to the residual claimant and we test this in a controlled lab experiment our results suggest that asymmetric exposure to risk creates dierent self serving notions of fairness for the two types of players which leads to bargaining conict and even disagreements residual claimants are able to extract a larger share of the pie when bargaining over a risky distribution moreover some residual claimants actually do better in an expected utility sense by being exposed to risk however contrary to the theoretical prediction it is the comparatively less risk averse residual claimants who appear to benet the most through their exposure to risk in a subsequent study where residual claimants are able to choose between a less risky or a more risky distribution over which to bargain few choose the riskier distribution except when the possibility of an ex pose fair split exists consistent with our earlier results the relatively less risk averse residual claimants are more likely to choose the riskier distribution

ambiguity and excuse driven behavior in charitable giving a donation may have ambiguous costs or ambiguous benefits in a laboratory experiment we show that individuals use this ambiguity strategically as a moral wiggle room to behave less generously without feeling guilty such excuse driven behavior is more pronounced when the costs of a donation rather than its benefits are ambiguous however the importance of excuse driven behavior is comparable under ambiguity and under risk individuals exploit any type of uncertainty as an excuse not to give regardless of the nature of this uncertainty

naked exclusion an experimental study of contracts with externalities this paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts we use the strategic environment described by rasmusen ramseyer and wiley 1991 and segal and whinston 2000 where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent when discrimination is impossible the game resembles a stag hunt coordination game in which the buyers payoffs are endogenously chosen by the incumbent seller exclusion occurs when the buyers fail to coordinate on their preferred equilibrium two way non binding pre play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller when discrimination and communication are possible the exclusion rate rises divide and conquer strategies are observed more frequently when buyers can communicate with each other exclusion rates are significantly higher when the buyers payoffs are endogenously chosen rather than exogenously given finally secret offers are shown to decrease the incumbent s power to profitably exclude

contracts and externalities how things fall apart a single principal interacts with several agents offering them contracts the crucial assumption of this paper is that the outside option payoffs of the agents depend positively on how many uncontracted or free agents there are we study how such a principal unwelcome though he may be approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out two variants are considered when the principal cannot re approach agents there is a unique equilibrium in which contract provision is split up into two phases in phase 1 simultaneousoffers at good though varying terms are made to a number of agents in phase 2 offers must be made sequentially and their values are discontinuously lower they are close to the very lowest of all the outside options when the principal can repeatedly approach the same agent there is a multiplicity of equilibria in some of these the agents have the power to force delay they can hold off the principal s overtures temporarily but they must succumb in finite time in both models despite beingable to coordinate their actions agents cannot resist an invasion by the principal and hold to their best payoff it is in this sense that things eventually fall apart

does willful ignorance deflect punishment an experimental study abstract this paper studies whether people can avoid punishment by remaining willfully ignorant about possible negative consequences of their actions for others we employ a laboratory experiment using modified dictator games in which a dictator can remain willfully ignorant about the payoff consequences of his decision for a receiver a third party can punish the dictator after observing the dictator s decision and the resulting payoffs on the one hand willfully ignorant dictators are punished less if their actions lead to unfair outcomes than dictators who reveal the consequences before implementing the same outcome on the other hand willfully ignorant dictators are punished more than revealing dictators if their actions lead to fair outcomes we conclude that willful ignorance can circumvent blame when unfair outcomes result but that the act of remaining willfully ignorant is itself punished regardless of the outcome models of procedural fairness combining ex ante and ex post fairness qualitatively predict the observed punishment pattern

action characteristics as predictors of competitive responses a central question in competitive dynamics is whether a competitive response can be predicted this study links various characteristics of actions with the total number and the time lag of competitors responses the hypothesized relationships were tested with a sample of competitive moves among u s airlines the results suggested that responses are influenced by the characteristics of the actions that evoked them specifically the total number of competitors affected by an action and the importance to these competitors of the markets under attack by the action increase the number of competitive responses strategic as opposed to tactical actions or actions which require substantial implementation efforts reduce the number and delay the timing of rivals counteractions finally contrary to prediction competitors who have a high stake in the markets under attack by a competitive move react slowly

announcement entry and preemption when consumers have switching costs i study the incentives of innovating firms to announce their entry in markets in which consumers incur a cost of switching from one product to another announcing entry can prevent the lock in of potential demand before the launch of the new product at the same time however the incumbent firm learns about the impending entry and has the opportunity to cut prices and preempt the market in equilibrium entrants do not always announce and i show that this behavior maximizes ex ante total welfare by contrast consumers might be better off with a ban on announcements when the entrant s claims are not verifiable vaporware announcements arise in equilibrium and i demonstrate that they can be beneficial for consumers

when does coordination require centralization this paper compares centralized and decentralized coordination when manag ers are privately informed and communicate strategically we consider a multi divisional organization in which decisions must be adapted to local conditions but also coordinated with each other information about local conditions is dispersed and held by self interested division managers who communicate via cheap talk the only available formal mechanism is the allocation of decision rights we show that a higher need for coordination improves horizontal com

host country reforms and fdi inflows how much difference do they make summary this study examines the effects of various policies on foreign direct investment fdi flows from the perspective of the eclectic theory of international investment and hence the advantages of foreign ownership host country location and internationalization host country policies can influence fdi flows primarily through their influence on the advantages of location in the host country pooled cross section and time series data for 49 less developed countries ldcs over 1970 95 are used to examine the effects of several different types of policy institutional variables including corporate tax rates tariff rates the degree of openness to international capital flows exchange rate distortions contract enforcement nationalization risk bureaucratic delay and corruption a multivariate analysis of the effects on fdi flows of each type of policy with and without controls for other relevant determinants is conducted two different sources of fdi data are employed as well as two different measures of capital controls although there are methodological problems in estimation and especially collinearity problems and relatively severe availability constraints for some of the relevant measures the results demonstrate the relevance and importance for fdi flows of many of the policy institutional variables under study they also indicate that the results from panel methods yield results that differ rather significantly from those obtained from pure cross section analysis because of complementarity between the various elements of a healthy investment climate the effects of some policy reforms estimated from models which do not control for changes in other policies may overstate the effectiveness of individual policy reforms

burning money and pseudo first mover advantages an experimental study on forward induction abstract the mere potential for one player to burn money prior to play has been shown in theory to be an effective device to select this player s most preferred outcome e g in the battle of the sexes game j econ theory 48 1989 476 j econ theory 57 1992 36 in this study we assess the behavioral relevance of this theoretical claim it is shown that its validity depends on whether the game is played in extensive or normal form in extensive form games first movers benefit substantially from having the opportunity to burn money in advance the effect is much weaker in the normal form game however in two control treatments first movers who can select between two related games gain an advantage although standard forward induction arguments do not have any bite these results suggest that we need to make further theoretical advances to understand the role of physical timing and first mover advantages in games

payoff inequity reduces the effectiveness of correlated equilibrium recommendations we examine theoretically and experimentally how individuals willingness to follow third party recommendations in 2 2 games is affected by payoff asymmetry we consider six versions of battle of the sexes recommendations imply monetary payoffs that are equal ex ante but unequal ex post so although following recommendations constitutes a nash equilibrium under standard preferences sufficiently inequity averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution as long as the cost of doing so is not too large our theoretical model incorporates inequity aversion along with level k reasoning our main experimental result is consistent with the model as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases subjects are more likely to disobey recommendations

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

tax incentives for business investment a primer for policy makers in developing countries abstract the use of tax incentives is widespread even though the available empirical evidence on the cost effectiveness of such incentives in stimulating investment is highly inconclusive this paper is primarily intended as a primer on the use of tax incentives for policy makers especially those in developing countries it discusses the objectives cost effectiveness and transparency of implementing tax incentives assesses the comparative merits of alternative forms of such incentives and provides a review of the empirical literature its main conclusions are that the justification for the use of tax incentives should be limited to the rectification of market failures and that the preferred form of tax incentives are those that provide for faster recovery of investment costs

unequal uncertainties and uncertain inequalities an axiomatic approach abstract in this paper we provide an axiomatic characterization of social welfare functions for uncertain incomes our most general result is that a small number of reasonable assumptions regarding welfare orderings under uncertainty rule out pure ex ante as well as pure ex post evaluations any social welfare function that satisfies these axioms should lie strictly between the ex ante and the ex post evaluations of income distributions we also provide an axiomatic characterization of the weighted average of the minimum and the maximum of ex post and ex ante evaluations

bioenergy expansion in the eu cost effective climate change mitigation employment creation and reduced dependency on imported fuels presently the european union eu is promoting bioenergy the aim of this paper is to study the prospects for using domestic biomass resources in europe and specifically to investigate whether different policy objectives underlying the promotion of bioenergy cost effective climate change mitigation employment creation and reduced dependency on imported fuels agree on which bioenergy options that should be used we model bioenergy use from a cost effectiveness perspective with a linear regionalized energy and transport system model and perform supplementary analysis it is found that the different policy objectives do not agree on the order of priority among bioenergy options maximizing climate benefits cost effectively is in conflict with maximizing employment creation the former perspective proposes the use of lignocellulosic biomass in the stationary sector while the latter requires biofuels for transport based on traditional agricultural crops further from a security of supply perspective the appeal of a given bioenergy option depends on how oil and gas import dependencies are weighed relative to each other consequently there are tradeoffs that need to be addressed by policymakers promoting the use of bioenergy also the importance of bioenergy in relation to employment creation and fuel import dependency reduction needs to be further addressed

pricing information goods a strategic analysis of the selling and pay per use mechanisms we analyze two pricing mechanisms for information goods these mechanisms are selling where up front payment allows unrestricted use and pay per use where payments are tailored to use we analytically model a market where consumers differ in use frequency and where use on a pay per use basis invokes a psychological cost associated with the well known ticking meter effect we demonstrate that pay per use yields higher profits in a monopoly provided the associated psychological cost is low in a duopoly one firm uses selling and the other uses pay per use here in contrast to the monopoly selling yields higher profits than pay per use we demonstrate that surprisingly the profits of both duopolists can increase as the psychological cost associated with pay per use increases next we show that uncertainty in consumer use frequency does not affect pay per use in a monopoly but lowers profits from selling in a duopoly both the seller and the pay per use provider obtain lower profits when use frequency is uncertain we also analyze how pricing mechanism performance is affected if the firms cannot commit to prices if the pay per use provider offers a two part tariff and if consumers are risk averse

evolutionary stability in unanimity games with cheap talk abstract this paper studies a class of games of perfectly coinciding interests with a preplay communication stage added if messages are costless cheap talk there are inefficient nash equilibria even under communication however i show that only strategies that induce efficient outcomes are evolutionary stable

leadership beliefs and coordination an explorative discussion although recent economics contributions represent important strides forward in the understanding of leadership behavior the cognitive and symbolic dimensions of the phenomenon have attracted virtually no interests from economists and game theorists i argue that an understanding of these dimensions may be founded on coordination games particularly to the extent that these illustrate interactive belief formation in this context leadership is defined as the taking of actions that coordinate the complementary actions of many people through the creation of belief conditions that at least substitute for common knowledge and where these actions characteristically consists of some act of communication directed at those being led the concept of common knowledge or its approximation by means of notions of common belief is argued to be particularly important to understanding leadership thus leaders may establish common knowledge conditions and assist the coordination of strategies in this way or make decisions in situations where coordination problems persist in spite of common knowledge acknowledgments

inequality in minimum effort coordination abstract successful coordination is key for economic and societal wealth the rich literature on the minimum effort game meg has provided valuable insights into coordination both theoretically and empirically yet although real world scenarios often involve asymmetric benefits and or costs from coordination most previous studies rely on symmetric megs we investigate the effect of unequal equilibrium payoffs in the meg in two experiments we observe that players are better able to coordinate on an equal rather than an unequal pareto dominant equilibrium we find that the ability to coordinate on the unequal pareto dominant equilibrium critically hinges on the costs of miscoordination for the player who benefits most from successful coordination when her costs are low she seems able to stabilize the pareto dominant equilibrium even if payoffs are highly unequal whereas coordination success worsens substantially when her costs are high

a dynamic model of bertrand competition with entry abstract this paper analyzes a simple repeated game of simultaneous entry and pricing we report a surprising property of the symmetric equilibrium solution if the number of potential competitors is increased above two the market breaks down with higher probability and the competitive outcome becomes less likely more potential competition lowers welfare another bertrand paradox the model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly

sunspots in the laboratory we show that extrinsic or nonfundamental uncertainty influences markets in a controlled environment this work provides the first direct evidence of sunspot equilibria these equilibria require a common understanding of the semantics of the sunspot variable and they appear to be sensitive to the flow of information sunspots always occur in a closed book call market but they happen only occasionally in a double auction where inframarginal bids and offers are observable

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

coalition proof equilibrium we characterize the agreements that the players of a noncooperative game may reach when they can communicate prior to play but they cannot reach binding agreements a coalition proof equilibrium is a correlated strategy from which no coalition has an improving and self enforcing deviation we show that any correlated strategy whose support is contained in the set of actions that survive the iterated elimination of strictly dominated strategies and weakly pareto dominates every other correlated strategy whose support is contained in that set is a coalition proof equilibrium consequently the unique equilibrium of a dominance solvable game is coalition proof journal of economic literature classification

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

vaporware suddenware and trueware new product preannouncements under market uncertainty a firm may want to preannounce its plans to develop a new product in order to stimulate future demand but given that such communications can affect rivals incentives to develop the same new product a firm may decide to preannounce untruthfully in order to deter competitors we examine an incumbent s preannouncement strategy when there is uncertainty regarding the commercial viability of a new product opportunity and a threat of rival entry each firm has a private assessment of the market potential for the new product two competitive incentives arise for the incumbent in terms of discouraging rival entry it can use preemptive communication or it can remain silent and instill a pessimistic market potential outlook we find that an incumbent prefers to follow a vaporware strategy i e declares plans to pursue a new product opportunity even when it may have no development intentions when its market forecasting capabilities are weak and the demand side benefits from preannouncing are small by contrast when the incumbent has strong market forecasting capabilities and the demand side benefits are small the incumbent adopts a suddenware strategy i e remains silent about its new product plans even when it actually plans to develop the new product finally when its market forecasting capabilities are strong and the demand side benefits are large the incumbent prefers to engage in a trueware strategy i e truthfully preannounces development plans we show that an interplay between competition related and demand related considerations is what allows trueware to emerge as an equilibrium in the absence of any ex post cost to engaging in vaporware in an extension we let the incumbent s actual development plans leak out and allow the entrant to wait and learn those plans prior to setting a research and development level we identify conditions for the entrant to postpone development despite the risk of being late to market as well as conditions for the entrant to commence development immediately despite not knowing the incumbent s plans based on the observed preannouncement strategy

unmediated communication in repeated games with imperfect monitoring we show that any correlated equilibrium payoff of two player repeated games with imperfect monitoring and without discounting can be reached as the nash equilibrium payoff of the game extended by a universal mechanism of unmediated communication this result holds regardless the particular concept of equlibrium involved upper lower banach or uniform equlibrium the communication mechanism is built up by using commutative one way functions these functions are designed with the help of cryptographic tools

investment tax incentives and frequent tax reforms despite the frequency of tax changes and their potential importance to investors almost all of the analysis of tax based investment incentives assumes investors never anticipate any tax changes we depart from this approach by analyzing the historical pattern of u s corporate investment incentives over the period 1953 86 incorporating the feature of investor awareness that the tax code may change our analysis incorporates a predictive equation for future tax variables into a model of optimal investment subject to adjustment costs and uncertainty we find that expectations of future tax changes significantly affect the incentive to invest only if adjustment costs are low in this case the incentive to invest in 1986 was strong as investors are estimated to have anticipated the coming reduction in investment incentives this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

fairness risk preferences and independence impossibility theorems the most widely used economic models of social preferences are specified only for certain outcomes there are two obvious methods of extending them to lotteries if we do so by expected utility theory so that the independence axiom is satisfied our results imply that the resulting preferences do not exhibit ex ante fairness if we do so by replacing certain outcomes with their expected utilities for each individual so that individual risk preferences are preserved then ex ante fairness may be preserved but neither the independence axiom nor ex post fairness is satisfied both ex ante and ex post fairness can be satisfied but then the individual does not have well defined preferences over own lotteries

modeling the forms of international cooperation distribution versus information the problems of distribution and information impede international cooperation they arise when actors select how they will cooperate an exploration of the interaction between these problems using a limited information model of cooperation leads to six conclusions first leadership solutions to coordination problems always exist but leadership here is very different from hegemonic provision of public goods second actors can cooperate in the face of anarchy even without a shadow of the future third diffuse reciprocal strategies arise naturally in coordination problems fourth norms and institutions are intertwined within successful cooperation fifth the form of cooperation on an issue varies with the relative importance of distribution and information finally and most important distributional and informational problems interfere with each other arrangements to cooperate can successfully address one but not both of these problems

can the government talk cheap communication announcements and cheap talk a great deal of attention has recently been focused on communication in economic contexts while some models of credible announcements have been based on reputational forces or penalties imposed by third parties as in sobel 21 and cothren 4 several recent papers have addressed the possibility of communication through cheap talk that is talk in situations with no explicit penalties for deception perhaps the most prominent application of cheap talk in the literature is the recent model of federal reserve announcements by stein 22 this paper will show that cheap talk equilibria of the sort modeled by stein and others often depend in a fundamental way on implausible discontinuities in public responses to government announcements that is cheap talk equilibria are frequently only possible if certain infinitesimally small changes in government announcements are capable of causing large discontinuous changes in public expectations and behavior intuitively if public expectations are a continuous function of government announcements then the government can fine tune these expectations the government will therefore often be tempted to deviate from the cheap talk equilibrium announcements in order to manipulate expectations this causes the equilibrium to unravel discontinuous public reactions sometimes prevent these equilibria from unraveling because they convert continuous choice problems which allow manipulative fine tuning into discrete choice problems where such fine tuning is impossible these discontinuities are implausible however and this may often rule out cheap talk as a realistic model of governmental policy announcements 2